Pereira v Queensland Building and Construction Commission
[2014] QCAT 267
| CITATION: | Pereira v Queensland Building and Construction Commission [2014] QCAT 267 |
| PARTIES: | Wavell Runsdeth Pereira (Applicant) |
| v | |
| Queensland Building and Construction Commission (Respondent) |
| APPLICATION NUMBER: | OCR264-13 |
| MATTER TYPE: | Occupational regulation matters |
| HEARING DATE: | 19 May 2014 |
| HEARD AT: | Brisbane |
| DECISION OF: | Member Deane |
| DELIVERED ON: | 11 June 2014 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. The decision of the Queensland Building and Construction Commission refusing to categorise Wavell Runsdeth Pereira as a permitted individual is confirmed. |
| CATCHWORDS: | PERMITTED INDIVIDUAL – whether applicant should be categorised as a permitted individual – whether took all reasonable steps – effects of the global financial crisis – failure to make adequate provision for taxes Queensland Building and Construction Commission Act 1991 (Qld) s 56AD Queensland Civil and Administrative Tribunal Act 2009 (Qld) s 20 Vadasz v Queensland Building Services Authority [2013] QCAT 84 Queensland Building and Construction Commission v Vadasz [2014] QCATA 001 |
APPEARANCES and REPRESENTATION (if any):
| APPLICANT: | Wavell Runsdeth Pereira represented by Mr R Jackson of Counsel instructed by Paxton-Hall Lawyers |
| RESPONDENT: | Queensland Building and Construction Commission represented by Ms K Heywood, in-house solicitor |
REASONS FOR DECISION
Mr Pereira holds a builder’s licence issued by the Commission. He was a director of Properties 2000 (Aust) Pty Ltd at the time it went into liquidation on 5 July 2013. As a consequence he was categorised as an excluded individual. To prevent his builder’s licence being cancelled he applied to the Commission to be categorised as a permitted individual.[1] The Commission refused his application by decision dated 18 September 2013. Mr Pereira sought a review of the Commission’s decision.
[1]Queensland Building and Construction Commission Act 1991 (Qld) s 56AD.
The Tribunal is required to consider Mr Pereira’s application to be categorised as a permitted individual afresh on the material before it to produce the correct and preferable decision.[2] If the Tribunal is satisfied on the material before it that the test in s 56AD(8) of the Queensland Building and Construction Commission Act 1991 (‘QBCC Act’) is satisfied it may set aside the Commission’s decision and substitute its own. Even if so satisfied there is discretion to be exercised.[3]
[2]Queensland Civil and Administrative Tribunal Act 2009 (Qld) s 20.
[3]Vadasz v Queensland Building Services Authority [2013] QCAT 84.
The Commission and the Tribunal in its place in these proceedings may categorise a person as a permitted individual if it is satisfied that the individual took all reasonable steps to avoid the coming into existence of circumstances that resulted in the happening of a relevant event and there are no factors which disentitle the exercise of the discretion.
Section 56AD(8A) of the QBCC Act sets out mandatory matters to have regard to when determining whether a person took all reasonable steps. The test was considered by McGill DCJ in Younan v Queensland Building Services Authority.[4] It is well settled that an individual is not required to demonstrate that he did everything possible to prevent the circumstances from arising.
[4][2010] QDC 158.
It is not disputed that the relevant event is the appointment of liquidators to Properties 2000. The most proximate circumstance that resulted in the appointment of liquidators was a failure to pay taxes. Mr Pereira contends that the circumstances that resulted in the failure to pay taxes was due to the effects of the global financial crisis on Properties 2000’s property development business and in particular the increase in interest rates, decrease in market values and the increase in the time required to sell the properties with the consequence of increased holding costs.
Background history
Mr Pereira gave evidence that:
a) he has approximately 20 years of experience as a builder buying empty lots, constructing dwellings and selling the resulting residential homes.
b) he had quite a lot of experience in property development in that for a number of years prior to the establishment of Properties 2000 he and his wife profitably engaged in property development by buying a residential property as their principal place of residence and either constructing a dwelling or undertaking renovations and then selling the property at an increased price.
c) in about 2000 his accountant set up two companies through which to conduct business activities. Properties 2000 was established as a property development company, the functions of which were to purchase land, arrange for construction work to be undertaken on the land (renovations or new building work) and then to sell the improved land. It had no staff. Properties 2000 was designed to receive investment funds from third parties. The other company established at this time was Kitchens 2000, which was the company to be engaged by Properties 2000 and others to perform construction works. Kitchens 2000 employed staff and subcontractors.
d) he and his wife continued to develop properties in partnership after Properties 2000 was established.
e) both the partnership and Properties 2000 successfully undertook property development for a number of years.
f) buying and selling property require a considered approach at any time and not just in difficult times.
g) he did not consider it necessary to obtain financial or legal advice prior to buying properties due to his experience and due to the considered approach he adopted.
h) he factored GST payable on sale into the sale price, however eventually the sale prices able to be achieved were insufficient to fully discharge all of the associated costs of the projects and to pay the GST.
i) when interest rates rose he sought to refinance at lower costs and he always tried to buy materials at the best possible price to reduce construction costs.
j) prior to 2006 Phyllis Marshall, his accountant/bookkeeper, who assisted with financial matters orally advised him that Properties 2000 was potentially over extended. Mr Pereira considered that property prices would continue to rise and did not ‘consciously’[5] take steps to sell down the property holdings prior to 2011.
[5]Oral evidence of Mr Pereira contradicts written evidence at Exhibit 2 paragraph 29-30.
k) he regularly monitored Properties 2000’s financial position and during the period of approximately 2007 – 2010 discussed the financial position with Phyllis Marshall on virtually a daily basis.
l) the debt to the ATO arose from June 2007 as a result of accrued GST liabilities arising from the sale of constructed properties.
m) as at 30 June 2009 GST on sales was $80,188 which resulted in total GST owing to the ATO in the sum of $164,815.80.
n) he sought advice from Phyllis Marshall in relation to the tax debt and she handled payments and related accounting work.
o) Properties 2000 entered into a payment arrangement with the ATO during the period 30 June 2009 to 31 March 2011. The GST debt to the ATO was reduced to approximately $85,000 in 2011 but grew to approximately $198,000 by the time of the liquidation.
p) Properties 2000 acquired the Derris Lane property in 2010 which was subsequently sold in 2012 because he received advice that it was important to the development proposed for the squash courts, another property held by Properties 2000.
q) he would not have purchased property if he thought Properties 2000 was over exposed at that time.
r) Properties 2000 acquired the land at Elizabeth Avenue in 2010 to provide a continuity of work. The prices at which the units constructed on that land eventually sold were considerably less than he anticipated. Whilst one of the units sold reasonably quickly the other two units took an extended period to be sold and therefore holding costs were greater than anticipated.
s) he did not take wages or drawings for himself from Properties 2000.
t) upon receiving a statutory demand in late 2012 and subsequently when served with the winding up application in May 2013 Properties 2000 attempted to negotiate a payment arrangement with the ATO.
u) Mr Pereira’s two daughters were willing to help to pay the ATO debt but the ATO sought a large initial lump sum, which was not able to be secured.
v) at the time of liquidation apart from the ATO, Mr and Mrs Pereira were the only other party owed money, in respect of unpaid loans to Properties 2000.
Inherent in the structure set up in 2000 without financial and/or accounting advice[6] is the fact that Properties 2000’s cashflow depended upon its ability to seek equity injections and borrowings until the receipt of sale proceeds from the properties. It relied upon an extended credit arrangement with Kitchens 2000, which funded much of the construction work and holding costs and was paid out of sale proceeds. It also relied upon a property market where properties could be sold within a reasonable time of deciding to sell.
[6]Exhibit 2, paragraph 9.
The evidence shows that Mr Pereira was successful for an extended period of time in obtaining equity injections and loans from not only commercial financiers but also from private sources.
Mr Paxton-Hall, solicitor, gave evidence that he acted for Properties 2000 in late 2012/early 2013 in attempting to negotiate a payment arrangement with the ATO, a key element of which was that Mr Pereira offered to redevelop his principal place of residence to obtain funds to pay the ATO. The proposal was not acceptable to the ATO. It is well established that Mr Pereira was not obliged to contribute his personal assets to pay the company’s debts in order to demonstrate that he took all reasonable steps.
Keeping proper books of account and financial records[7]
[7]QBCC Act s 56AD(8A)(a).
There was some evidence of this matter. Mr Pereira gave evidence that he retained accountants to assist with Properties 2000’s financial records and that they were updated and monitored on a regular basis.
There was no evidence to suggest that a failure to keep proper books of account or financial records were matters relevant to the insolvency.
Seeking appropriate financial or legal advice before entering into financial or business arrangements or conducting business[8]
[8]Ibid s 56AD(8A)(b).
There was some evidence of this matter.
Mr Pereira’s evidence is that he did not seek advice about the structure of the business in 2000 before setting up the companies.
Whilst he did not seek specific advice about all of the purchases/projects I find that Mr Pereira had gained experience particularly in residential property development and construction over a number of years such that it was reasonable not to seek specific advice.
The uncontradicted evidence is that he was in regular discussion with his accountant, Phyllis Marshall during 2007 – 2010 and that he received advice about the importance of acquiring the Derris Lane property to the proposed redevelopment of the squash courts.
Mr Pereira did not immediately act on oral advice that Properties 2000 was over extended. I take judicial notice of the fact that property prices in South East Queensland continued to rise until at least mid to late 2007. This is consistent with the evidence of the Brisbane house price index which increased in 2007-2008.[9] I also take judicial notice that the Global Financial Crisis (GFC) had the effect of increasing interest rates and eroding consumer confidence with the result that fewer people were in the market to buy property, property prices fell[10] and sales took longer to obtain.
[9]Exhibit 1, page 88.
[10]Ibid, page 88 - The Brisbane house price index decreased in 2008-2009, 2010-2011 and 2011-2012. It increased in 2009 – 2010.
The GFC was not an event which Mr Pereira could have prevented. Mr Pereira gave evidence that the GFC occurred in 2007. The evidence before the Tribunal is that interest rates rose by 0.25 percentage points in August 2007 and by another 0.25 in each of November 2007, February 2008 and March 2008.[11] I also take judicial notice that in mid to late 2008 the affects of the GFC worsened and in October 2008 the Australian Federal Government guaranteed certain bank deposits.
[11]Exhibit 1, exhibit WRP 7.
The evidence is that Mr Pereira took steps to attempt to reduce financing and construction costs. Neither of which was possible in the financial climate. He also sought and obtained finance through private sources when usual commercial sources were not available. In 2011 he took steps to ‘consciously’ sell down the Properties 2000’s property holdings. The evidence demonstrates that Properties 2000 did sell one property on 31 December 2007, three properties during 2008 and four properties in 2009.[12]
Reporting fraud or theft to the police[13]
[12]Ibid, p 28.
[13]QBCC Act s 56AD(8A)(c).
There was no evidence to suggest fraud or theft were matters relevant to the insolvency.
Ensuring guarantees provided were covered by sufficient assets to cover the liability under the guarantees[14]
[14]Ibid s 56AD(8A)(d).
There was no evidence to suggest the giving of guarantees by Properties 2000 was a relevant matter to its insolvency.
Putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts[15]
[15]Ibid s 56AD(8A)(e).
There was no evidence to suggest credit management was a relevant matter to its insolvency.
Making appropriate provision for Commonwealth and State taxation debts[16]
[16]Ibid s 56AD(8A)(f).
The Commission primarily relies upon this matter. At the time of liquidation the debt to the ATO was approximately $198,000.
Whilst there is some evidence surrounding the GST balances owing to the ATO there is no concise evidence of the origin of the debt. The ledger entries report for the year ending 30 June 2008[17] shows that the opening balance as at 1 July 2007 was positive[18] and that during the year the balance changed to a closing balance as at 30 June 2008 of $84,627.80 owing to the ATO.
[17]Exhibit 4, page 22.
[18]The ATO owed Properties 2000 the sum of $26,116.
The ledger entries report for the year ending 30 June 2009[19] shows a further increase in the debt such that the ending balance was $164,815.80.
[19]Exhibit 4, page 22.
Through the payment arrangement made with the ATO the debt reduced to approximately $85,000 in 2011 but ballooned to approximately $198,000 by July 2013.
The Appeal Tribunal in Queensland Building and Construction Commission v Vadasz[20] has previously accepted that making appropriate provision
does not necessarily mean actual payment of any tax liability ... there should be an existing fund or mechanism in place to ensure that payment of any tax liability could be made when required.
[20][2014] QCATA 001 at [32].
The evidence demonstrates that Properties 2000 sold three properties during the 2007 - 2008 financial year at a surplus of almost $204,000 after holding costs.[21] There is no explanation of why in these circumstances amounts for GST were not set aside. The consequence is that the debt to the ATO was allowed to increase to an amount of $84,628.80 as at 30 June 2008, which is an amount very close to the amount the balance was able to be reduced to in 2011 through a payment arrangement.
[21]Exhibit 1 page 28.
It appears that the failure to make adequate provision for taxes arose prior to the affects of the GFC on Properties 2000’s business.
The evidence also demonstrates that at least two properties were purchased in early 2008. There is no specific explanation of why those particular purchases were considered appropriate in the then prevailing economic climate. Mr Pereira gave general evidence that he thought he would be able to trade out of the situation.
In view of the lack of evidence on these matters I am not able to satisfy myself that Mr Pereira took all reasonable steps to avoid the circumstances that resulted in the happening of the Relevant Event.
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