Papallo v Queensland Building Services Authority - [2012] QCAT 59

CITATION:

Papallo v Queensland Building Services Authority [2012] QCAT 59

PARTIES:	Mr George Anthony Papallo
v
Queensland Building Services Authority

APPLICATION NUMBER:

OCR008-10

MATTER TYPE:

General administrative review matters

HEARING DATE:

16 &17 May 2011

HEARD AT:

Brisbane

DECISION OF:

Mr Mark Plunkett, Member

DELIVERED ON:

14 February 2012

DELIVERED AT:

Brisbane

ORDERS MADE:

1. The Tribunal orders that the decisions of the Queensland Building Services Authority to refuse the application to be categorised as a permitted individual be set aside.

CATCHWORDS:

Applicant to be categorised as a permitted individual – refusal – review

Queensland Building Services Authority Act 1991, s 56AD(1)

APPEARANCES and REPRESENTATION (if any):

APPLICANT:	Mr George Anthony Papallo represented by Mr Luke Fox
RESPONDENT:	Queensland Building Services Authority represented by Ms Jodie Stroud

REASONS FOR DECISION

Introduction

This is an application by George Anthony Papallo (the applicant) to the Queensland Civil and Administrative Tribunal (the Tribunal) for a merit review of the decision made by the Queensland Building Services Authority (“the respondent”) under the Queensland Building Services Authority Act 1991 (“the QBSA Act”) to deny the applicant a Building Services Authority contractor or nominee supervisor’s licence, or being in a position to control or influence a BSA-licensed company, for a period of five years.
Briefly stated, the QBSA Act is designed to regulate the building industry so as to ensure the maintenance of proper standards in the industry and to achieve a reasonable balance between the interests of building contractors and consumers.
One mechanism whereby this legislative objective is sought to be achieved is by the licensing and regulating of builders by the respondent.
The security of payment is of particular statutory concern in the building and construction industry.
The QBSA Act makes provision to prevent people from taking advantage of the laws of bankruptcy, or people associated with a failed company, from holding a BSA contractor or nominee supervisor’s licence, or being in a position to control or influence a BSA-licensed company for a period of five years: ss 56AC, 58. A person involved in two insolvency events faces life exclusion: ss 58; 60; 31A; 99.
A person becomes an “excluded individual” if the individual becomes bankrupt or otherwise takes advantage of bankruptcy laws by entering into a Part IX agreement, or Part X arrangement, or agreement under the Bankruptcy Act 1966 (Cth) (each of these is a “relevant event”), or is a director, secretary or influential person of a company at any time up to a year before the company has a provisional liquidator, liquidator, administrator or controller appointed, or is wound up or ordered to be wound up (each of these is a “relevant event”): s 56AC.
An influential person for a company means “an individual, other than a director or secretary of the company, who is in a position to control or substantially influence the conduct of the company’s affairs, including, for example a shareholder with a significant shareholding, a financier or senior employee”: see Schedule 2, Dictionary.
Relevantly, however in order to ameliorate against any undue harshness by inflexible application of automatic exclusion, a person may apply to the respondent to be excused for the event by becoming a “permitted individual”: s 56AD.
To be a “permitted individual”, the person has to prove they took all reasonable steps to avoid the causes of the relevant event, or that it was entirely outside the responsibility of the individual concerned, and they could not have avoided the relevant financial failure: s 56AD.
Some examples of may be something entirely outside the responsibility of the individual concerned may be:
(a)a spouse absconded with an individual’s assets;
(b)the individual has been the victim of fraud or defalcation by, for example, a partner or spouse; or
(c)a financial failure was due to a natural disaster, against which it was not possible to insure.
Relevantly, the applicant was the sole director of BSR Constructions ACN 118 505 114 (BSR).
BSR was a wholly owned subsidiary of People First Beachmere Pty Ltd ACN 111 077 788 (People First).
BSR was the constructing entity for People First engaged to build Beachmere Sands Lifestyle Resort, located approximately 25 minutes drive north of Brisbane International Airport in the town of Beachmere. The resort is close to Deception Bay Beach and next to an environmental park. The resort envisaged accommodating 1,400 homes including serviced apartments, smaller housing and aged care facilities together with such things as a club house, resort pool, outdoor bowling green, gymnasium, lounge, bar, dining area, outdoor BBQ and a pampering centre.
On 12 June 2009 David James Loftus was appointed as an external administrator of People First.[1]
[1]Corporations Act 2001 (Cth), ss 415(1), 427(2), 427(4), 45gA(1)(a), 499(2)(a) & (b), 537(1) and (2); Corporations Regulations2001 (Cth), s 5.3A.03.
On 15 June 2009 David Coyne and Gideon Rathner of Lowe Lippman Chartered Accountants and Business Advisors were appointed as administrators of BSR.[2]
[2]Section 436A of the Corporations Act 2001.
The amount owing by BSR to unsecured trade creditors was $436,789 and to the Australian Taxation Office the sum of $77,098.[3]
[3]Schedule H – Unsecured Creditors document 8 of the Applicant’s documents.
The respondent regarded this as the relevant event for the purposes of sections 56AC(1) and 56AD(1) of the QBSA Act.
On 14 December 2009, the respondent made a decision to refuse to categorise the applicant as a permitted individual for the “relevant event” within the meaning of section 56AD of the QBSA Act.
The respondent submitted that the relevant event happened as a consequence of the non-payment of debts owed to BSR by People First for the development of the Beachmere Lifestyle Resort in Beachmere.
On the other hand the applicant submitted that the relevant event happened as a consequence of events relating to the world-wide economic downturn at this time commonly referred to as the Global Financial Crisis[4] and thus was entirely outside of his individual responsibility.
[4]The Global Financial Crisis is commonly believed to have begun in July 2007 when US investors lost confidence in the value of sub-prime mortgages causing a liquidity crisis, which in turn, resulted in the US Federal Bank injecting a large amount of capital into financial markets. By September 2008, the crisis had worsened when stock markets around the globe crashed, considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. The most obvious impact of the financial crisis on most Australian households was the large decline in equity prices, which reduced the wealth of Australian households by nearly 10 per cent by March 2009. The Australian dollar also depreciated rapidly and sizeably as the crisis intensified, declining by over 30 per cent from its July 2008 peak. Around the time of the Lehman bankruptcy, conditions in the foreign exchange market were particularly illiquid, prompting the Reserve Bank of Australia (RBA) to intervene in the market to enhance liquidity. See Australian Bureau of Statistics, Year Book Australia, 2009–10, Feature Article: The Global Financial Crisis and Its Impact On Australia, contributed by the Reserve Bank of Australia: >
In this case the questions for the Tribunal are whether:
(a)the applicant took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event;
(b)if the applicant did take all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event, then should a discretion be exercised to categorise the applicant as a permitted individual.

The Review by the Tribunal

The Tribunal in the exercise of its review jurisdiction under s 19 of the Queensland Civil and Administrative Tribunal Act2009 (“QCAT Act”):
a.must decide the review in accordance with the Act and the enabling Act under which the reviewable decision being reviewed was made;
b.may perform the functions conferred on the Tribunal by the Act or the enabling Act under which the reviewable decision being reviewed was made; and
c.has all the functions of the decision-maker for the reviewable decision being reviewed.
The Tribunal may inform itself in any way it deems appropriate (s 28(3)(c) of the QCAT Act) and the Tribunal must ensure, so far as practicable, that all relevant material is disclosed to the Tribunal: s 28(3)(e) of the QCAT Act.
The Tribunal, standing in the shoes of the respondent, must act in accordance with the objects of the Act as set out in section 3 which include a requirement “to achieve a reasonable balance between the interests of building contractors and consumers”: s 3(a)(ii).
The Tribunal may:
a.confirm or amend the decision; or
b.set aside the decision and substitute its own decision; or
c.set aside the decision and return the matter for reconsideration to the decision maker for the decision with directions the Tribunal considers appropriate: s 24(1) of QCAT Act.

The QBSA Act

Part 3A of the QBSA Act is entitled “Excluded and permitted individual and excluded companies”, and comprises sections 56AB to 56AH (inclusive).
Section 56AC of the QBSA Act provides:
56AC Excluded individuals and excluded companies
(1) This section applies to an individual if--
(a) after the commencement of this section, the individual takes advantage of the laws of bankruptcy or becomes bankrupt (relevant bankruptcy event); and
(b) 5 years have not elapsed since the relevant bankruptcy event happened.
(2) This section also applies to an individual if--
(a) after the commencement of this section, a company, for the benefit of a creditor--
(i) has a provisional liquidator, liquidator, administrator or controller appointed; or
(ii) is wound up, or is ordered to be wound up; and
(b) 5 years have not elapsed since the event mentioned in paragraph (a)(i) or (ii) (relevant company event) happened; and
(c) the individual--
(i) was, when the relevant company event happened, a director or secretary of, or an influential person for, the company; or
(ii) was, at any time after the commencement of this section and within the period of 1 year immediately before the relevant company event happened, a director or secretary of, or an influential person for, the company.
(3) If this section applies to an individual because of subsection (1), the individual is an excluded individual for the relevant bankruptcy event.
(4) If this section applies to an individual because of subsection (2), the individual is an excluded individual for the relevant company event.
(5) An excluded individual for a relevant bankruptcy event (the first event) does not also become an excluded individual for another relevant bankruptcy event (the other event) if the first event and the other event are both consequences flowing from what is, in substance, the one set of circumstances applying to the individual.
(6) An excluded individual for a relevant company event (the first event) does not also become an excluded individual for another relevant company Event (the other event) if the first event and the other event are both consequences flowing from what is, in substance, the one set of circumstances applying to the company.
(7) A company is an excluded company if an individual who is a director or secretary of, or an influential person for, the company is an excluded individual for a relevant event
At the material time, section 56AD(1) of the QBSA Act enacted as follows:
An individual may apply to the authority to be categorised as a permitted individual for a relevant event if the individual has been advised by the authority, or has otherwise been made aware, that the authority considers the individual to be an excluded individual for the relevant event.
Section 56AD(3) of the QBSA Act enacts as follows:
If the individual applies, the application must include the reasons why the authority should categorise the individual as a permitted individual for the relevant event.
Section 56AD(8) of the QBSA Act enacts as follows:
The authority may categorise the individual as a permitted individual for the relevant event only if the authority is satisfied, on the basis of the application that the individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event.
Section 56AD(8A) of the QBSA Act enacts as follows:
In deciding whether an individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event, the authority must have regard to action taken by the individual in relation to the following:
(a)keeping proper books of account and financial records;
(b)seeking appropriate financial or legal advice before entering into financial or business arrangements or conducting business;
(c)reporting fraud or theft to the police;
(d)ensuring guarantees provided were covered by sufficient assets to cover the liability under the guarantees;
(e)putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts; and
(f)making appropriate provision for Commonwealth and State taxation debts.
Section 56AD(8B) of the QBSA Act enacts as follows:
Nothing in sub-section (8A) prevents the Authority from having regard to other matters for deciding whether an individual took all reasonable steps to avoid the coming into existence of the circumstances that result in the happening of a relevant event.
Section 56AF of the QBSA Act sets out the procedure to be followed by the Authority if the Authority considers that an individual who is a licensee is an excluded individual for a relevant event.

[34]Section 3 of the Act provides, among other things, that the objects of the Act are:
g. The regulation of the building industry to;
i)ensure the maintenance and proper standards in the industry; and
ii)achieve a reasonable balance between the interests of building contractors and consumers.

[35]Part 3 of the Act (which includes all the sections above) establishes a licensing system and authorises the Authority to issue licenses authorising the carrying out and supervising of all classes of building work.
[36]Part 3A of the Act was introduced in 1999. The explanatory note to the Bill for the Act stated that “a major deficiency with the existing regulatory structure has been the ability of defaulting contractors to restructure their corporate structure to re-emerge as a “phoenix” company following cancellation of a licence”.
[37]Part 3A of the Act was designed to remove individuals who have demonstrated their incapacity to manage finances within the building industry for a period of five years.

In the Second Reading Speech the Minister set out that the Act would:
prevent the re-emergence of shonks through the device of “phoenix” companies…to [become a permitted individual] they will have to prove that they could not have avoided the relevant financial catastrophe. This is intended to mean the cause of the relevant event was entirely outside the responsibility of the individual concerned.
About “phoenix” companies, it was said
the Bill will rid the industry of phoenix builders. Phoenix builders are those who go bankrupt and emerge in a new guise shortly thereafter, leaving a train of unpaid subcontractors and suppliers‑and dissatisfied customers- in their wake.
The test to be applied is found in s 56AD(8) which provides:
The Authority may categorise the individual as a permitted individual for the relevant event only if the Authority is satisfied on the basis of the application that the individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event.
The issues for consideration applicable to s 56AD(1) were helpfully set out by his Honour Judge McGill in the matter of Younan v QBSA [2010][5] (“Younan”) with such decision being upheld by the Court of Appeal[6].
[5] QDC 158.
[6] Younan v Queensland Building Services Authority [2011] QCA 1.
In Younan, his Honour Judge McGill made the following points as to how the indicia in section 56AD(8A) should be viewed:
At [24] when having regard to the criteria in section 56AD(8A)
…
It is immediately apparent that these are all concerned with the prudent management of the company as an ongoing business, or even, in the case of (b) something which is to be done before one conducts business arrangements. In other words, the focus of this subsection is on prevention rather than dealing with problems after they have arisen, except in the case of (c), which is obviously concerned with a situation where a problem has arisen outside the control of the individual in question.
At [26] the test outlined in section 56AD(8) requires:
1.The identification of the relevant event;
2.The identification of the circumstances that resulted in the happening of the relevant event;
3.A consideration of whether the relevant individual took all reasonable steps to avoid those circumstances coming into existence, and if satisfied of that,
4.A decision whether to categorise the individual as a permitted individual.
At [26]
…the reasonableness of his behaviour must be assessed by reference to what was known by him at the time, without the benefit of hindsight.
At [33] and [35] in relation to reliance on the explanatory memorandum:
This may be the sort of thing which politicians say when play to a particular audience, but when it comes to interpreting the statutory provisions enacted by the legislature, attention must be focused on words actually used by the legislature. …
What has been enacted by the legislature in s 56AD(7) is not the test described in the explanatory note, or the test described by the minister. The test as enacted is not restricted in anything like the way contemplated by the note or the speech of the minister. The test enacted is perfectly clear, though its application may be difficult and complex process. That will depend very much on what, in a particular case, were the circumstances that resulted in the happening of the relevant event. In one way the test is much wider than that contemplated by the minister, but in another way the legislation is much wider, since a situation could easily arise where the legislation will operate to block someone who could not reasonably be described as a “shonk”. …
At [37] on the issue of onus:
…subsection (8) authorises the characterisation of an individual as a permitted individual only if the authority is satisfied of the relevant matter on the basis of the application, that is to say on the basis of the case made by the applicant. It follows that if relevant considerations are not addressed by the applicant, so that the applicant fails to show in a relevant respect that he took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event, then the application will fail.
A person may only be categorised a permitted individual if they took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the relevant event[7].
[7] Cats v QBSA [2008] QCCTB 22 (6 February 2008), at [13].
What steps are reasonable are to be considered from the position of a reasonable builder in the shoes of the applicant [8].
[8]Hyde v QBSA [2003] QBT 30 at [58] to [60]; Darvill v QBSA [2008] QCCTB 35 at [42]; Nation v QBSA [2006] QCCTB 114 at [55]; Delonga v QBSA [2004] QCCTB 26 at 33.

The reasonable steps are those to avoid the coming into existence of the circumstances that resulted in the relevant event, not the relevant event itself[9].
[9] Dellaway v QBSA [2007] QCCTB 181 at [7].
It is not a question of whether the applicant did everything possible to prevent the circumstances from arising, or whether they would have arisen if he had acted differently.[10]
[10] Younan v QBSA [2010] QDC 158 at [26].
What amounts to reasonable steps necessarily involves investigation of the nature of the harm, the foreseeability and degree of risk of its happening, and the measures reasonably available for preventing or averting it. If no reasonable steps are capable of being identified then there is no liability for breach.[11]
[11]McPherson, JA in Samin v State of Queensland & Ors [2001] QCA 259 quoting from Rich v State of Queensland Ors.
Relevantly, all reasonable steps does not mean all possible steps.[12]
[12]Hyde v QBSA.
Each case will depend on its own individual facts and circumstances so that there may be limited precedential value in a particular case.[13]
[13]Darvill v QBSA at [42].
Reasonableness is an objective test which must be applied having regard to the actual circumstances of an applicant.[14]
[14]Nation at [55]; Hyde at [57].
The appropriate inquiry is wider than engaging a review of the actual steps taken by an individual applicant when the prospects of the relevant event loomed and includes a review of the manner in which the applicant may have conducted business.[15]
[15]Ricketts v QBSA [2007 CCT QR123-05.
The reasonableness of the steps taken must be assessed by reference to what was known at the time — without the benefit of hindsight.[16]
[16]Younan v QBSA [2010] QDC 158.
The respondent also referred the Tribunal to provisions in the Corporations Act 2001 (Cth), requiring the care and diligence required of directors (including the business judgment rule) (s 189), requiring a director to act in good faith in the best interests of a corporation and for a proper purpose (s 181), providing a director must not improperly use their position to gain an advantage for themselves or someone else; or cause detriment to the corporation (s 182), providing a person who obtains information because they are, or have been, a director of a corporation must not improperly use the information to gain an advantage for themselves or someone else or cause detriment to the corporation (s 183), which provides a director of a corporation that is a wholly-owned subsidiary of a body corporate is taken to act in good faith in the best interests of the subsidiary (s 187); and the director’s duty to prevent insolvent trading by company (s 588G).
The duty that a director must not act in disregard of the interests of the company is relevant to dealings between companies in a group. Each company in the group must be treated as having its own interest even when they are wholly-owned subsidiaries as each member-company is capable of having its own creditors and directors of each member-company have to take into account the interests of its creditors, at least when their company is in financial difficulties.[17]
[17]Walker v Winborne (1976) 137 CLR 1 at 6-7; Nicholson v Permakraft (NZ) Ltd [1985] 1 NZLR 242.
The general proposition is that the duties are owed to the “company”. Directors must take account of the interests of the shareholders and those of the creditors.[18]
[18]See Ford’s Principles of Corporations Law 13^th edition 2007, 362; see also the dicta of Mason J in Walker v Winborne, supra.
The respondent rightly observed that the purpose of Part 3A of the QBSA Act is to protect creditors. If it becomes necessary to consider the exercise of discretion, bearing in mind that purpose, factors necessarily relevant are:
(a)any phoenix activity;
(b)any previous relevant events; and
(c)whether there are unrelated employees, subcontractors, trade suppliers or members of the public who would be affected adversely by the applicant not being categorised as a permitted individual.
The discretion arises from the use of the word “may” in the first line of section 56AD(8) of the QBSA Act: see section 32CA of the Acts Interpretation Act 1954.

What was the relevant event?

The relevant event for the purposes of sections 56AC(1) and 56AD(1) of the QBSA Act:
(a)happened on 15 June 2009;
(b)was the appointment of David Coyne and Gideon Rathner of Lowe Lippman Chartered Accountants and Business Advisors as administrators of BSR pursuant to section 436A of the Corporations Act 2001 (Cth);
(c)was as a consequence of the non-payment of debts owed to BSR by People First for the development of the Resort;
(d)occurred when the applicant was the sole director of BSR.
In order to identify and evaluate his conduct in relation to the relevant event the applicant submitted that the Tribunal was required to put the relevant event in context requiring it to look further back in time from a single abstract happening.
The applicant submitted that the relevant event was an immediate and direct result of the happening of prior events, being the appointment of a receiver and manager to People First, which was a result of a failure of its parent BSR to obtain finance to continue to be viable, which in turn was brought about suddenly and expectantly by the global financial crisis.
The applicant submitted that these events were so interconnected, one following from the other, as a direct consequence, such to put his conduct in a proper light in relation to the relevant event.

What were the circumstances that resulted in the happening of the relevant event?

The applicant submitted that the Tribunal should consider:
a.the circumstances that resulted in the happening of the relevant event;
b.the coming into existence of those circumstances; and
c.the taking of all reasonable steps to avoid those circumstances coming into existence.
The applicant stated that the circumstances in the happening in the event was the appointment of a receiver and manager to People First.
The applicant submitted that the circumstances that resulted in the happening of the event were the result of, the following:
a.delays in the refinancing of loans upon which People First and BSR in turn relied upon to continue their business;
b.caused by the unforeseen global financial crisis.
The respondent submitted that these circumstances were not relevant to, or pertaining to, the appointment of receivers to People First and were not circumstances relevant to the event (which was the appointment of the administrators to BSR).
In considering whether all reasonable steps were taken, the respondent submitted that what is relevant for consideration is the steps taken by the applicant in his capacity as director of BSR, not the steps taken by People First to avoid the appointment of a receiver and manager to People First.
The respondent relied on three failures to show that reasonable steps were not taken to avoid the circumstances that led to the event[19] as follows:
[19]Kent v Queensland Building Services Authority CCT QR059-08 as cited in Henley v Queensland Building Services Authority [2010] QR113-09 at 69.
a.failure to seek appropriate financial or legal advice before entering into financial or business arrangements or conducting business (s 56AD(8A)(b));
b.failure to put in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts (s 56AD(8A)(e)); and
c.failure to make appropriate provisions for Commonwealth and State taxation debts (s 56AD(8A)(f)).
The applicant submitted that:
a.he acted lawfully and reasonably in seeking to rely on the advice of the directors and advisors of People First;
b.he had taken all reasonable steps to ensure that proper books of account were kept and BSR’s auditors were satisfied that appropriate books of account were kept;
c.he could not control of materially influence the circumstances that lead to People First’s external administration and BSR as a wholly owned subsidiary of People First the power to influence BSR which was ultimately held by People First;
d.he had taken all reasonable and prudent steps to keep himself informed of People First’s financial standing and the information available to him confirmed that the actions being taken were reasonable and appropriate;
e.he had communicated promptly and continually with relevant parties involved in BSR when concern about People First’s finances became apparent;
f.he had placed BSR into voluntary administration after the appointment of a receiver and manager to People First.
He also pointed out that prior to the appointment of receiver and manager to People First, monies were still owing to BSR and an administrator had not previously been appointed.
The applicant submitted the Tribunal should note that the petitioning creditor in the winding up application:
a.consented to the extension of the administration notwithstanding having a current application for a winding up; and
b.following the end of the administration it had not sought to have a liquidator appointed to BSR.
On the evidence it is plain that BSR failed to pay its trade creditors because People First failed to pay BSR because it could not raise sufficient finance because of the global financial crisis.

Did the Applicant take all reasonable steps to avoid the circumstances coming into existence by seeking appropriate financial or legal advice before entering into financial or business arrangements or conducting business?

The respondent submitted that the issue for determination for the Tribunal was not whether the People First sought and received appropriate financial and legal advice, but rather, whether the applicant as director of BSR sought and received appropriate financial and legal advice as it related to BSR.
As to what constitutes “appropriate” in this context Member Mr James Allen in Armstrong v Queensland Building Services Authority[20] stated:
[20] [2010] QCAT 486 at paragraph 29.
… This goes to the question of whether or not that advice was “appropriate financial or legal advice” in accordance with section 56AD(8A)(b). The fact that it may have been professional accounting advice is not sufficient, the Act requires that it be appropriate. For it to be appropriate, regard would need to be had to such matters as the legal authority on which the advice was based in terms of compliance with the taxation laws, whether the advice was tailored to the circumstances of the Company or simply generic and the documentation of the proposed arrangements. The Applicant cannot rely on the fact that the advice was given by an accountant as the applicant in the Steel case did. That Applicant was considered to be a layperson and the fact that he had no tertiary qualifications was noted. Mr Armstrong is, on his own admission, someone with extensive business experience who has a Commerce degree. It would be expected that someone of his background would seek further advice when he was contemplating entering into such a significant arrangement which could have potentially adverse consequences as has occurred here …
The applicant pointed out that the Act does not refer to “independent” financial or legal advice but rather refers to “appropriate” advice. It was submitted that it was reasonable and appropriate for him to rely on the professional advice he had obtained.
The respondent submitted that the flaw in the respondent’s argument was that the “independent” legal advice that the respondent considered the applicant should have obtained only related to his duties as a director and not the reasonableness and the appropriateness of the arrangement that existed between the two companies. Further, that advice seemed to be required to assist the applicant personally in relation to his duties under that arrangement.
The applicant took the tribunal to a number of other decisions which is submitted were applicable in this case. In Herbert v QBSA it was not considered necessary for the director to obtain separate advice from that which the company and other directors sought. There, the Tribunal accepted that Mr Herbert “acted reasonably and lawfully be seeking and relying on the advice of other directors, including those directors who were also [the parent company’s] director”: at [41].
This matter is similar to Herbert because the construction company was a wholly owned subsidiary of the parent company and the parent company had arrangements in place to fund the construction company’s operations.
BSR was a wholly owned subsidiary of People First with arrangements in place for the latter to fund the former. In Herbert, Mr Herbert was not a director of the parent company. Here the applicant was not a director of People First. Mr Herbert could not control or materially influence the circumstance which lead to the construction company’s insolvency through the insolvency of the parent company. In a like matter, the applicant in this case could not control or materially influence the circumstances which lead to the appointment of an administrator to BSR.
Just as it was found in Herbert, Mr Herbert took reasonable and prudent steps to keep himself informed of the parent company’s financial standing, the applicant in this case kept himself properly advised and informed.
It is not without significance that the auditors of the construction company were satisfied that BSR was solvent by virtue of the support of the parent company which was a company of substance which at all times until the end had promising prospects of refunding. This much is clear from the financial statements for June 2008 in the Independent Review Report for 31 October 2008, where the auditors of BRS Construction were satisfied that it was solvent and that the loan payable by BSR was recoverable.
In Herbert, the failure of the construction company was caused by the failure of the parent company.[21] This was also was the case here. Moreover, in the case of Herbert, Mr Herbert was found to have acted reasonably and lawfully by seeking and relying on the advice of other directors, including the construction company directors who are also the parent company directors.
[21] At 41(6).
The applicant submitted that he had acted reasonably and lawfully in seeking and relying on the advice of the Chief Financial Officer and the General Manager of the parent company, who also acted in those capacities for BSR.
Just as in Herbert there was communication to fellow directors about concerns of the financial health of the parent company. In this case the applicant communicated with the Chief Financial Officer and the General Manager when similar concerns arose for People First.
In Herbert, the construction company was placed into administration immediately upon notification that the parent company was unable to provide further financial support to the construction company. In this case the applicant took advice and placed BSR in a voluntary administration immediately upon being notified that a receiver and manager had been appointed to People First.
The applicant also relied upon Younan v QBSA [2009] QCCTB 91, where the directors sought and obtained advice from “internal” staff members being an accountant and a lawyer, such that the Tribunal accepted that that a consequent decision made upon that advice appeared to have been properly taken and appropriate as a reasonable step for the applicant in the circumstances which he then faced.
Relevantly, the District Court in [2010] QDC 158 on appeal by Mr Younan said:
It is not helpful simply to say that it was unreasonable not to take advice without identifying the substance of the advice which would have been received had advice been taken and identifying how that would have been of benefit to the company in that situation.
In Ricketts v QBSA [2010] QDC 158, the applicant took no interest in the financial status of the relevant company and placed complete trust in unrelated company’s staff to ensure the business was solvent. In this case, the applicant was involved in the financial affairs of BSR and also relied upon the knowledge and expertise of other officers of the People First for specialist advice.
In Laidlaw v QBSA [2010] QCAT 70 the Tribunal held that notwithstanding a reliance and trust in the other directors of the company, the applicant had taken all reasonable steps where it was observed:
The important fact is that he did receive professional advice from persons who held themselves out, and it was reasonable for the applicant to consider, where appropriate, to get advice regarding the matters on which they did.
In this case the Tribunal considers that there was nothing inappropriate about the arrangement between BSR and People First. The arrangement was typical of what frequently exists between subsidiaries, group companies and financial administrative services supplied by a parent company.
On all of the material there was nothing to suggest that the professional advice that the applicant received was not improper or was inappropriate. Having heard from the advisors in question, the Tribunal considers that the applicant was entitled to rely upon them and what they had said about financial viability such as to reasonably lead the applicant to conclude that People First and BSR had or would have sufficient funds to meet all debts involved in the building of the resort. The advice received was independent, professional and appropriate.
However no amount of independent advice could have changed the outcome because in the Tribunal’s view the event was caused by the circumstances which were entirely outside of the applicant’s control, and that for any event within his control, the Tribunal finds the applicant took reasonable steps.[22]
[22] In accordance with the observations set out in Nation v QBSA [2006] QCCTB 114.
Even if it were reasonable for the applicant to have obtained other separate independent advice, that was not a step which would have avoided the come into existence of the circumstances and accordingly was not a step required by section 56AD(8) of the Act.
Other independent legal advice would not have been materially different from that obtained through People First.
Although there was no standard written agreement between People First and BSR, the relationship between People First and BSR was more than one of simply related parties as BSR was effectively a “division” of People First where BSR was the entity entering into building contracts with its contractors.
The accounts of BSR were audited and required independent review reports. Relevantly, BSR’s financial statement had identified:
a.operating revenue of $5.1million (which had risen from $2.9 million in 2007);
b.expenses of $5.1 million;
c.net assets of approximately $500,000; and
d.a related party loan of $1.3 million.
Notwithstanding the loan from BSR to People First had not been repaid:
a.it was not required to be repaid under the terms of the loan;
b.the vast majority of debts owing by BSR to the creditors had been paid in full;
c.as at 31 October 2008, the independent review report confirmed that the relevant party loan was considered collectible; and
d.there was no reason for the applicant to believe that BSR’s creditors (engaged after May 2008) would not be paid. Rather, it was submitted there were many reasons to accept People First’s position that the creditor would be repaid.
In the Tribunal’s view it was entirely appropriate that after the appointment of receiver and manager of People First, the applicant obtained advice and appointed a voluntary administrator to BSR. At the time of hearing the administration had ended and the company remains registered.

As at 26 June 2009 there were unpaid invoices for:
a.Jigsaw Group Australia rendered in June and July 2008 in the amount of $21,938;
b.R W & G Johnston Pty Ltd for invoices rendered June and July 2008 in the amount of $43,600.61;
c.In addition, a further clear indication that People First Group did not have sufficient funds was it inability to repay the money owing to the BSR for payment of the company’s taxation liability which arose on 11 August 2008.
The respondent argued that rather than cease work the applicant continued to incur significant further trade creditor debt for:
a.Australian Bowls Constructions in the amount of $177,484,00 for invoices rendered in December 2008 and January 2009 when carried out only after they had received express advice from the applicant that BSR had refinanced and that Australian Bowls Constructions would be paid;
b.Deep Gem in the amount of $50,463.05 (for invoices rendered October and December 2008).
However despite these lamentable losses and the harm caused to the trade creditors, the Tribunal accepts that the applicant only proceeded with construction of the leisure facilities after he was assured by, Mr Ted Sent, a responsible and reliable person in a position to know at People First, that that People First had sufficient funds to pay for such work.

[100]The Tribunal does not accept that the applicant incurred these trade debts knowing, or recklessly indifferent as to whether Australian Bowls Constructions or Deep Gem would not be paid. Having regard to the all of the material before the Tribunal and having heard from and seeing the applicant give evidence under cross-examination, the Tribunal finds that the applicant honestly and reasonably believed that all relevant debts would have been paid.
[101]It is clear that BSR Constructions did not continue to incur debts after it becoming apparent that BSR would not be paid for work already performed.
[102]It is important to note that the independent review report prepared by Scott Partners dated 6 August 2009 confirmed that the financial statement of BSR as at 31 October 2008 gave a true and fair view of the company’s affairs.
[103]The Tribunal accepts that the applicant kept himself fully informed of the financial and business status of People First by continuing to be involved in negotiations between People First and Viculus.
[104]Viculus was a publicly owned company, which had given rise to a 2007 memorandum of understanding and the creation of a sales briefing sheet dated 17 June 2008 prepared by Bell Potter Securities Limited having assessed People First as having an attractive business asset and properties in the retirement aged care village with an independent valuation at approximately $250 million and the development of the resort which had the potential to be profitable.
[105]By a letter dated 11 August 2008, from Bell Potter to Viculus, they stated that notwithstanding a “wait and see” approach to investment opportunities, they were encouraged by the fact that a majority of investors to him they had represented had not had any material issues with the underlying assets or business model of the transaction. Bell Potter on that advice were reinforced that the project had merit and was of investable standard. The investors who reported to Bell Potter were said to have considered that the bases on the internal market projections would complete the required capital raising by the end of March 2009.
[106]Notwithstanding it being a fact that the arrangement with Viculus Limited did not come to fruition, there is no reason that the applicant could not have reasonably relied on those negotiations which were significant in their projections from reliable assessments.
[107]Further still, after extensive negotiations, a memorandum of understanding was entered into between People First and Beijing Constructions Engineering Group Co, Ltd dated 22 May 2009 for the Beachmere Sands project. This would have given considerable encouragement to the applicant or any other person standing reasonably in his shoes to have objectively assessed that the future was more than optimistic and there could have been no doubt that construction creditors would be paid.
[108]Although the applicant had not previously been a director of a company, and was at the time of the request to be a director merely employed as the Project Manager for construction (i.e not an executive of the People First Group) the applicant did understand and appreciated his legal obligations associated with being a director of company.
[109]The Tribunal does not accept that it was not sufficient to rely solely upon advice or information provided by the officers of the People First, particularly as it appears that such advice was not given for the benefit of the applicant or BSR, but rather primarily for the financial benefit of the parent company and/or its shareholders.
[110]The Tribunal considers that the applicant did conduct himself properly and independently acting in the interests of BSR and did not subjugate those interests to the People First Group.
[111]The applicant stressed again in this case that all that was required to do was to take all “reasonable” steps not all “possible” steps. In determining whether or not the applicant took all reasonable steps to recover monies owing, it is relevant to look at the fact that BSR was a wholly owned subsidiary of People First, the representatives of People First were in a position of trust, vis-à-vis the applicant and BSR. Representations made by them were reliable and supported by documentary evidence. It is germane that there had been a history of two years of trading that People First had been able to pay all amounts owing to BSR – $3 million for 2007 and $5 million for 2008.
[112]Regrettably, although the debts were significant for those who suffered them, they were of a low order given the overall history of the association between the two companies. This is not to make light of the suffering caused by the unpaid debts but to demonstrate the basis for the finding by the Tribunal that it was reasonable for him to accept that outstanding debts as they came to hand from time to time which would, after all, in the ordinary course of business as history had proven, would be paid.
[113]People First had represented to the applicant that funds were available to pay all outstanding dues which it had reliably done so in the past. There was no reason for the applicant to doubt that the representations and the “degree of risk” associated with relying on those representations was minimal.[23]
[23] Samin v. Queensland, supra.
[114]It is significant that while the recovery of the amounts outstanding to People First is likely to have avoided the appointment of a voluntary administrator to BSR, the recovery of such amounts was not possible prior to the appointment of the administrators, taking action through Court or by issuing a statutory demand would not have been effective, what the applicant did increased prospects of People First being able to pay the money owing and whilst it is possible to argue that there were other possible steps within the realms of human imagination that the applicant could have taken, the Tribunal does not accept those steps were not reasonable in the circumstances.
[115]In these circumstances it was reasonable and appropriate for the applicant to have taken the steps that he did take to enable recovery of debts owing by People First to BSR Constructions, and those steps were reasonable and that there was nothing else that he could have done to have avoided the appointment of a receiver and manager to People First and consequently People First’s inability to pay the money owing to BSR Constructions.
[116]The respondent conceded that the applicant was experienced in the construction industry and it was reasonable for him to rely upon other officers or entities of the People First to carry out financial and administrative functions of BSR.
[117]The Tribunals accept the evidence of the applicant as to his qualifications, experience, involvement and judgment in this matter. He was aware and appropriately alert to his duties and responsibilities associated with becoming and being a director.
[118]His employment status did not in the Tribunal’s view conflict with his duties as a director of BSR.
[119]Contrary to the submissions of the respondent the Tribunal does not consider that the advice received by the applicant was inappropriate or lacking expertise or independence.
[120]In assessing the evidence the Tribunal is unable to conclude that the advice was deficient by reason of any of the factors set out by the respondent including, the antecedents of the person receiving the advice, the qualifications of the person giving the advice, the timing and context within which it was given.
[121]The Tribunal does not consider that the advice received by the applicant was given in a cursory way or lacked detail and/or in not in writing. The Tribunal is satisfied that those giving the advice were exercised professionally independent advice in the circumstances of this case.
[122]The Tribunal finds that the applicant did take all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event, having regard to seeking appropriate financial or legal advice before entering into financial or business arrangements or conducting business.

Did the applicant take all reasonable steps to avoid the circumstances coming into existence by putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts?

[123]The circumstance that resulted in the event was the inability by BSR to recover monies owing by People First.
[124]While the respondent contended that there was no evidence that the BSR had in place any credit management for recovery of amounts owing, it was accepted that there was a proper working system utilizing professional accounting and finance staff which the applicant relied on by submitting invoices for payment which invariably were paid.
[125]As observed above there had been a history of two years of trading whereby People paid considerable sums to BSR amounting to tens of millions of dollars over the years.
[126]The respondent complains that when the applicant became aware that creditors were not being paid, he relied upon advice from People First officers that sufficient funds would be forthcoming in the future, sufficient to pay BSR’s creditors.
[127]The Tribunal does not accept the respondent’s assertion that the applicant continued to incur debt on behalf of BSR with little or no regard to whether the creditors would be paid.
[128]The failure to make a formal demand when the applicant ultimately accepted that People First did not have sufficient funds to pay BSR, would not have averted the event and at the stage would be entirely ineffective. This would not have any prospective or retrospective effect as far as the happening of the event is concerned. On all of the material in the circumstances of the case the Tribunal finds that BSR had in place appropriate credit management facilities.
[129]The finances of BSR were managed by a team of four or five accountants and other support staff who worked with the applicant to ensure that BSR’s budgets were complied with.
[130]The actions taken in relation to putting in appropriate credit management procedures were reasonably and sufficient where as a wholly owned subsidiary it relied upon People First and treated as a division of People First and had utilised a team of accountants.
[131]The Tribunal finds the applicant took all reasonable steps to avoid the circumstances coming into existence by putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts.

Did the applicant take all reasonable steps to avoid the circumstances coming into existence by making appropriate provisions for Commonwealth and State taxation debts?

[132]BSR had an outstanding taxation liability to the Australian Taxation Office of $77,098.00.
[133]In May 2008 the Company received a GST refund of approximately $74,000 and that such money was used by the People First for the continuation of the development of the Beachmere Resort.
[134]The Tribunal is unable to accept the respondent’s submissions that the “utilisation” by another company of the funds which ought to have been set aside by the applicant for payment by BSR of its taxation liabilities, on an expectation that it would be repaid in time, does not constitute making sufficient provisions for taxation debts.
[135]Further, there is no evidence that the applicant was aware that this financial transaction occurred, or if he was, that he approved of such transaction.
[136]Whilst a director a company is at liberty to engage whoever it chooses to perform functions for the company (such as accountants etc.) this does not relieve the applicant of his duties or obligations to ensure that the liabilities of the company are being met.
[137]The respondent submits therefore that on the evidence of the applicant the Tribunal cannot be satisfied that the applicant ensured that appropriate provisions were made for Commonwealth and State Taxation liabilities.
[138]The applicant submitted that that it was reasonable for BSR to utilise the tax refund in other areas of People First’s business. The applicant utilised a team of experienced accountants who were qualified and experienced to determine the appropriate utilisation of GST refunds in other areas of People First’s business.
[139]The Tribunal finds that there was no reason to expect the funds would not have been available to pay the GST liability when it arose.
[140]In any event, where the GST liability had not been paid solely arising from the failure of People First to pay them, then the Business Activity Statement giving rise to the GST liability could be amended so that the reliability was reversed or stopped.
[141]The Tribunal finds the applicant took all reasonable steps to avoid the circumstances coming into existence by making appropriate provisions for Commonwealth and State taxation debts.

Should the discretion be exercised to categorise the applicant as a permitted individual for the relevant event?

[142]The respondent submitted that, if the Tribunal found that the applicant has taken all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the event, then the discretion should be not be exercised to categorise the applicant as a permitted individual for the event.
[143]The respondent submitted that this flow on effect to trade creditors is one of the motives behind the enactment of the permitted individual legislation, being to provide protection to consumers and contractors.
[144]The respondent submitted that a higher level of care ought to have been taken by the applicant in limiting BSR’s exposure to creditors until such time as alternate funding had been secured by People First and all debts to BSR had been paid and the action by the applicant in continuing work on an “expectation” that People First would obtain funding was reckless and in willful disregard of the interests of BSR and in particular the unsecured creditors.
[145]On the facts and after hearing from the applicant, the Tribunal does not consider the applicant to have been financially reckless and irresponsible by engaging in the mischief which Part 3 of the QBSA Act seeks to address.[24]
[24] Herbert v QBSA [2008] QCCTB 9 at 42.
[146]It is not a proper approach to s 56AD(8A) of the QBSA Act to be required to be satisfied that an applicant “took any or all of the steps referred to on section 56AD(8A)”, rather the course is to have regard to action taken by an applicant in relation to the matters set out in subsection (8A) in deciding whether an applicant too all reasonable steps.
[147]The applicant admitted that the administration of BSR Constructions ended, with the creditors deciding to hand control of BSR back to the directors (which, at the time, did not include the applicant), there was no application for the appointment of a liquidator to BSR, and on any account there was not prospects of “phoenix” company and there was no “trail of unpaid creditors” at this point of time.
[148]All of these matters militate against the exercise of the discretion against the applicant.
[149]The Tribunal decides that the discretion should not be exercised to not categorise the applicant as a permitted individual for the relevant event.

Orders

The orders of the Tribunal are:
a.the decision of the respondent made on 14 December 2009 refusing to categorise the applicant as a permitted individual for the “relevant event” within the meaning of s 56AD of the QBSA Act is set aside;
b.the applicant is categorised as a permitted individual within the meaning of s 56AD of the QBSA Act;
c.the respondent is to do all things necessary to give effect to the applicant being categorised as a permitted individual within the meaning of s 56AD of the QBSA Act.
d.the decision of the respondent made on 14 December 2009 refusing to categorise the applicant as a permitted individual for the “relevant event” within the meaning of s 56AD of the QBSA Act is set aside;
e.the applicant is categorised as a permitted individual within the meaning of s 56AD of the QBSA Act;
f.the respondent is to do all things necessary to give effect to the applicant being categorised as a permitted individual within the meaning of s 56AD of the QBSA Act.