Panduss Pty Ltd (Migration)

[2021] AATA 1364

Panduss Pty Ltd (Migration) [2021] AATA 1364 (4 February 2021)

DECISION RECORD

DIVISION:Migration & Refugee Division

APPLICANT:  Panduss Pty Ltd

CASE NUMBER:  1929735

HOME AFFAIRS REFERENCE(S):          OPF2019/9518

MEMBER:Marten Kennedy

DATE:4 February 2021

PLACE OF DECISION:  Adelaide

DECISION:The Tribunal sets aside the decision under review and substitutes a decision not to take one or more of the actions specified in s 140M of the Migration Act 1958.

Statement made on 04 February 2021 at 1:07pm

CATCHWORDS
MIGRATION – cancellation – approval as a standard business sponsor – sponsorship application or variation criteria no longer met – no ‘adverse information’ about entity ‘associated with’ the sponsor – at the time of sponsorship approval – applicant is the ‘phoenix’ of a liquidated entity – definition of ‘associated with’ prior  to 18 March 2018 – liquidated entity wound up, deregistered and legally ceased to exist – decision under review set aside

LEGISLATION
Corporations Act 2001 (Cth), s 95A
Migration Act 1958 (Cth), ss 140M

Migration Regulations 1994 (Cth), rr 1.13B, 2.59, 2.91

STATEMENT OF DECISION AND REASONS

1. This is an application for review of a decision made by a delegate of the Minister for Home Affairs to take an action under s 140M of the Migration Act 1958 (the Act) in relation to the applicant’s sponsorship.

2. The applicant, Panduss Pty Ltd (Panduss), was approved as standard business sponsor on 3 June 2016.

3. Following the hearing, and on careful examination of the legislative scheme, the date that Panduss was approved as a standard business sponsor has become critical.

4. On 1 October 2019, the delegate decided to cancel the approval of Panduss as a standard business sponsor and to bar Panduss for 12 months from making applications for approval as a standard business sponsor and temporary activities sponsor under s 140M on the basis that Panduss no longer met the criteria for approval as a standard business sponsor.

5. It was alleged that Panduss no longer met the criteria for approval because there was ‘adverse information’ that was not to be disregarded arising out of its association with another entity, Panduus Pty Ltd (hereafter referred to as the ‘liquidated entity’ to avoid confusion).  That entity had been liquidated and wound up due to unpaid debts to the Australian Taxation Office.

6. There have been two hearings in this matter.  The first hearing was abandoned after the particular issues to be dealt with by the Tribunal in the proceedings were clarified (there are a number of related applications awaiting consideration) and difficulties emerged in conducting the hearing by video conference.  I wrote to the applicant clarifying what issues would be dealt with in these proceedings, and outlining specific matters I wished to have addressed in further documentary evidence.

7. The Director of Panduss, Mr H Madala, again appeared before the Tribunal on 29 January 2021 to give evidence and present arguments. I also received evidence from the Director’s brother, Mr P Madala, who is a previous Director of Panduss and was the Director of the liquidated entity.  I also received evidence from Panduss’ accountant, Mr Shah.

8. Panduss was represented in the proceedings by its registered migration agent.

   CONSIDERATION

9. Sections 140K, 140L and 140M of the Act provide for the imposition of sanctions on approved sponsors in certain circumstances. 

10. Under s 140M, if prescribed circumstances exist, the Minister (and the tribunal on review) may take one or more of the following actions:

    ·cancelling the sponsorship approval in relation to a class to which the sponsor belongs;

    ·cancelling the sponsorship approval for all classes to which the sponsor belongs;

    ·barring the sponsor for a specified period from sponsoring more people under the terms of any existing approval; and

    ·barring the sponsor for a specified period from making future applications for sponsorship approval in relation to one or more classes of sponsor.

11. For these purposes, the circumstances are prescribed in regs 2.89–2.94B and include circumstances in which the Minister, or tribunal on review, is satisfied there has been: a failure to satisfy a sponsorship obligation; provision of false or misleading information; sponsorship application or variation criteria no longer met; a contravention of the law; unapproved changes to a program; a failure to pay additional security; a failure to comply with certain terms of an agreement; or a failure to pay medical and hospital expenses.

12. In this case, the alleged circumstance relates to sponsorship application or variation criteria no longer being met: r.2.91 of the Regulations.

13. More specifically, r.2.91 of the Regulations creates a circumstance for taking action where a person no longer satisfies the criteria prescribed under subsection 140E(1) or (1A) of the Act at the time the person was approved (my emphasis) as a work sponsor (which includes a standard business sponsor).

14. Among the criteria that must be met for approval of a person as a standard business sponsor is r.2.59(g) of the Regulations.  This requires that there be no ‘adverse information’ known to immigration about the sponsor or a  person ‘associated with’ the sponsor, or it is reasonable to disregard any adverse information.

15. The definitions of ‘adverse information’ and ‘associated with’ were different before and after 18 March 2018.  In the circumstances of this matter, the difference between the provisions in relation to ‘associated with’ is determinative.

16. It is not the role of the Tribunal to provide commentary on the adequacy of the legislative scheme to achieve its objectives, but from 18 March 2018 the definition of ‘associated with’ was changed to be much broader than that previously in place.  The circumstances of this case tend to demonstrate why that change was necessary.  The amendments no doubt recognised that the earlier definition of ‘associated with’ was highly restricted such that it did not serve the purpose intended, and could easily be circumvented.  After 18 March 2018 for example, the definition became an inclusive definition, not intended to be limited to the expressed circumstances in which persons can be found to be associated with each other.  Prior to that the definition of ‘associated with’ was a closed set of circumstances, and a very limited set of circumstances at that.

17. Prior to 18 March 2018, the definition of ‘associated with’ was a closed definition.  In other words, if two persons were not associated in the way specifically described in the regulation, then they were not associated with each other.  I reproduce the ‘old’ definition of ‘associated with’.

    1.13B  Meaning of associated with

    (1)  A person (the associated person) is associated with another person that is a corporation if the associated person is an officer of the corporation, a related body corporate or an associated entity.

    (2)  A person (the associated person) is associated with another person that is a partnership if the associated person is a partner of the partnership.

    (3)  A person (the associated person) is associated with another person that is an unincorporated association if the associated person is a member of the association’s committee of management.

    (4)  A person (the associated person) is associated with another person that is an entity not mentioned in subregulations (1) to (3) if the associated person is an officer of the entity.

18. By contrast, the reformed definition of ‘associated with’ is as follows:

    1.13B  Meaning of associated with

    (1)  Two persons are associated with each other if:

    (a) they:

    (i)  are or were spouses or de facto partners; or

    (ii)  are or were members of the same immediate, blended or extended family; or

    (iii)  have or had a family‑like relationship; or

    (iv)  belong or belonged to the same social group, unincorporated association or other body of persons; or

    (v)  have or had common friends or acquaintances; or

    (b)  one is or was a consultant, adviser, partner, representative on retainer, officer, employer, employee or member of:

    (i)  the other; or

    (ii)  any corporation or other body in which the other is or was involved (including as an officer, employee or member); or

    (c)  a third person is or was a consultant, adviser, partner, representative on retainer, officer, employer, employee or member of both of them; or

    (d) they are or were related bodies corporate (within the meaning of the Corporations Act 2001); or

    (e)  one is or was able to exercise influence or control over the other; or

    (f)  a third person is or was able to exercise influence or control over both of them.

    (2)  For the purposes of subregulation (1), it does not matter if a person has ceased to exist.

    (3)  This regulation does not limit the circumstances in which persons are associated with each other.

    …

19. As can be seen, the reforms introduced familial and professional relationships as being relevant, provided for judgement to be exercised by decision makers to apply ordinary notions of the term ‘associated with’, and made provisions for the effect of winding up and de-registration so that a person could still be associated with a company after it had been wound up and had ceased to exist.

20. As I have outlined above at paragraph 13 however, the Regulations concerning the circumstances for taking action where a person no longer satisfies the criteria prescribed under the Act expressly requires assessment to be undertaken by reference to the criteria at the time the person was approved.  In other words, the fact that a person might not be approved as a standard business sponsor if they were to be assessed today is not to the point.

21. The hearing was conducted on the basis that the applicant had conceded both the existence of adverse information and the necessary association between the liquidated entity and the applicant. While the concession was appropriate and reasonable based on the current version of r 1.13B, and ordinary notions of association, on further analysis, the concession cannot now be accepted by reference to the criteria prescribed at the time Panduss was approved as a standard business sponsor.

22. The ‘adverse information’ relied upon by the Department was the liquidated entity’s insolvency.  Reg.1.13A(2)(d) relevantly provided at the time Panduss was approved as a standard business sponsor that where a person has become insolvent within the meaning of section 95A of the Corporations Act 2001, there will be adverse information. The liquidated entity became insolvent with liquidators appointed on 14 April 2015 by the Supreme Court of Victoria.  The liquidated entity has subsequently been wound up, deregistered and has legally ceased to exist.

23. The association between the liquidated entity and Panduss is quite clear in one sense (elaborated upon below), but it does not fall within the meaning of ‘associated with’ as it applied prior to March 2018. More specifically, neither Panduss nor Mr H Madala are or were officers in the liquidated entity, nor vice versa (putting to one side that the liquidated entity has ceased to exist) and nor is Panduss a related body corporate within the meaning of section 50 of the Corporations Act 2001.  There is no evidence of any relevant partnership or unincorporated association or other relevant entity. 

24. The clear association between the liquidated entity, Panduss and the directors is not captured by the terms of r.1.13B as in force at the time Panduss was approved as a standard business sponsor, and it necessarily follows that the adverse information relied upon to cancel Panduss’ standard business sponsorship was not adverse information known about a person ‘associated with’ Panduss.  The association would have certainly been captured under the reformed r.1.13B had it applied.

25. It follows that the circumstance relied upon to take action against Panduss is not established, as it relies upon the association which cannot be established under the Regulations. As the Tribunal is not satisfied that the prescribed circumstance in reg 2.91 exists for the purpose of s 140M of the Act, the power to take an action under s 140M does not arise. Accordingly, the decision to take the action of cancelling Panduss’ standard business sponsorship must be set aside.

26. While this will be the decision of the Tribunal on review, it is appropriate that I briefly record the evidence given to me regarding the circumstances in which it was argued that it was either reasonable to disregard the adverse information or impose a lesser sanction.

27. As to the association between the two entities and their directors (in the more general sense of the term) it is not in dispute that the director of the liquidated entity, Mr P Madala, was the founding director of Panduss.  His brother was an employee of the liquidated entity, and has since been substituted as the director of Panduss.

28. The liquidators of Panduss, Deloitte, approved the sale of all of the liquidated entity’s assets to Panduss. Panduss essentially continued to carry on the business of operating the same restaurant that the liquidated entity once operated.

29. I am comfortable to describe Panduss as the ‘phoenix’ of the liquidated entity; indeed, it is a textbook example of the ‘phoenixing’ of an entity.  Having observed Mr P Madala and Mr H Madala give evidence to the Tribunal, I am further inclined to record my observation that Mr P Madala appears to remain very influential in the affairs of Panduss notwithstanding his brother is now the Director.

30. Further as to the circumstances in which the liquidated entity was liquidated, it is sufficient to state that the liquidated entity didn’t pay its tax.  The liquidated entity collected GST withholdings from its customers and did not forward those funds to the Australian Taxation Office for 7 to 8 quarters. 

31. I received evidence from Mr Shah and Mr P Madala as to wider circumstances behind the liquidated entity’s financial difficulties.  The liquidated entity was affected by a compulsory acquisition of its leased premises some years before its liquidation, and it was argued that an unanticipated delay in compensation for business disruption from the Victorian Rail Authority created ongoing financial difficulty. 

32. It was further argued that the liquidated entity’s former accountants did not correctly complete BAS on behalf of the liquidated entity. The former accountant has passed away.

33. Mr Shah explained to me that upon his review of the books, the BAS lodged on behalf of the liquidated entity simply bore no resemblance to the reality of the liquidated entity’s trading with the effect that the amounts that were demanded by the Australian Taxation Office were not correct.  Mr Shah was critical of the practices of the liquidated entity’s accountants. Mr Shah gave evidence that by the time the defects and inaccuracy in the former accountant’s work on behalf of the liquidated entity was realised, the liquidation and deregistration was complete and could not be reversed.

34. Finally, in response to my concerns about the knowledge of the Director of the business about the situation where GST withholdings were not transferred to the Australian Taxation Office for 7 to 8 quarters, Mr Shah and Mr P Madala argued that Mr P Madala simply relied on his accountant and had no real understanding of his obligations as a business operator in Australia in regard to remitting GST withholdings to the Australian Taxation Office.

35. In the course of the hearing, I indicated I found that proposition difficult to accept, given it is such a basic obligation of a business operator in Australia to remit GST withholdings to the Australian Taxation Office each quarter.  Relevantly to the imposition of sanctions (had circumstances for taking action been established in accordance with the Regulations)  I further raised for comment my concern that if Mr P Madala and Mr H Madala did not grasp that basic obligation of remitting GST withholdings to the Australian Tax Office, they may be unable to comply with the more complex obligations imposed on standard business sponsors under the migration program. In response, it was argued that certain measures and checks had now been put in place in respect of Panduss.

36. While I accept Ms Shah’s evidence concerning the defects he discovered upon reviewing the liquidated entities’ accounts, I would not have been inclined to accept the contention that therefore it was either reasonable to disregard the adverse information or a lesser sanction ought to be imposed.  To the contrary, had a circumstance for taking action been established, my concerns regarding the association between the two entities and the liquidated entities default in meeting its basic taxation obligations would have justified at least the cancellation of Panduss’ standard business sponsorship.  In making this remark, I have taken evidence addressing the prescribed matters in r.2.91(3) of the Regulations.  It is not however open to me to take that action where Panduss is not relevantly associated with the liquidated entity or its former director.

37. I mention these matters so that the Department may take such further action as it considers open and necessary in relation to the monitoring of Panduss’ compliance with its other obligations as a standard business sponsor. I consider the Department would be justified in having concerns about Panduss’ capacity to comply with its obligations given the circumstances now known to me.

38. As the Tribunal finds that circumstance alleged for the taking of action under for s 140L(1)(a) does not exist. It follows that the power to take an action under s 140M does not arise.

    DECISION

    The Tribunal sets aside the decision under review and substitutes a decision not to take one or more of the actions specified in s 140M of the Migration Act 1958.

    Marten Kennedy
    Member