Spedding v Queensland Building Services Authority
[2012] QCAT 516
•22 October 2012
| CITATION: | Spedding v Queensland Building Services Authority [2012] QCAT 516 |
| PARTIES: | Mark Andrew Spedding (Applicant) |
| v | |
| Queensland Building Services Authority (Respondent) |
| APPLICATION NUMBER: | OCR171-11 |
| MATTER TYPE: | Occupational regulation matters |
| HEARING DATE: | 10 May 2012 |
| HEARD AT: | Brisbane |
| DECISION OF: | Dr Bridget Cullen, Member |
| DELIVERED ON: | 22 October 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. 2. The Tribunal substitutes the Queensland Building Services Authority’s decision with the decision that Mark Andrew Spedding be categorised as a Permitted Individual for the Relevant Event. |
| CATCHWORDS: | Applicant to be categorised as apermitted individual – refusal – review Queensland Building Services Authority Act 1991, s 56AD(1) Weldon v Queensland Building Services Authority [2008] CCT QR121-07 Smith v Queensland Building Services Authority [2012] QCAT 58 |
APPEARANCES and REPRESENTATION (if any):
| APPLICANT: | Mark Spedding was self-represented |
| RESPONDENT: | Queensland Building Services Authority was represented by Robinson Locke, Litigation Lawyers |
REASONS FOR DECISION
Decision under review – Mr Spedding’s building licence
Mr Spedding is a builder reviewing a decision made by the regulator, the Queensland Building Services Authority, to refuse his application to become a “Permitted Individual” for a “Relevant Event”. In short, as a consequence of Mr Spedding’s bankruptcy, Mr Spedding became an “Excluded Individual” for licensing purposes under s 56AC of the Queensland Building Services Authority Act 1991. The QBSA refused his application to become a Permitted Individual, on the basis that they were not satisfied that Mr Spedding had satisfied the test contained in s 56AD of the Act.
Helpfully, the parties worked together to produce a Statement of Agreed Facts and Issues in Contention. The issues in contention are:
§Whether or not Mr Spedding took all reasonable steps in regard to ensuring guarantees provided were covered by sufficient assets to cover the liability under the guarantees – s 56AD(8A)(d) of the Act;
§Whether or not Mr Spedding took all reasonable steps in regard to making provision for, and paying, his income tax – s 56AD(8A)(f) of the Act; and
§Whether the existence of the outstanding tax debt caused, or contributed to, the happening of the relevant event.
Guarantees made by Mr Spedding
The “Relevant Event” in this matter was Mr Spedding’s 28 August 2009 bankruptcy, initiated by his appointment of a controlling trustee. At the time of his bankruptcy, Mr Spedding had no assets, but very significant liabilities. These consisted of:
§Liabilities per the bankruptcy Statement of Affairs of $29,646,074.00; and
§Liabilities as a result of guarantees given by Mr Spedding of $26,825,782.00.
The guarantees given by Mr Spedding were as follows:
§$18,062,000.00 – owed to LM Investment Management Limited, relating to the “Ocean View Banora Point Partnership” partnership entered into by Lushbrook as trustee for the Spedding Family Trust. Lushbrook held a 25% interest, however, as the guarantee was joint and several, Mr Spedding was liable for the entire partnership liability, not just the 25% share held by Lushbrook;
§$1,036,000.00 – owed to Westpac, being a guarantee of Lushbrook as trustee for Mr Spedding’s family trust;
§$439,833.80 – owed to the CBA in respect of a guarantee of the liability of Petrac Pty Ltd; and
§$7,683,779.00 – guarantees relating to various Petrac ventures.
At 7 November 2007 (the time he entered into the guarantees), Mr Spedding had assets consisting of $100,000.00 of furniture and an interest in the Petrac Group, valued pre-GFC for lending purposes at $9,000,000.00. In relation to this interest in the Petrac Group, Mr Spedding’s only interest was as a potential beneficiary of a discretionary trust.
The QBSA submits, and I accept, a beneficiary in a discretionary trust does not have an interest in the property of the trust, but in the proper administration of the trust itself. This becomes important in relation to the guarantees provided by Mr Spedding.
The primary purpose of a guarantee is to provide the lender with additional security in the event that the principal debtor (in this matter, the Petrac entities), fails to pay. The lender can elect to pursue the guarantor for any shortfall, generally without having pursued the principal debtor first.
The QBSA says that this is problematic for Mr Spedding, as with this particular arrangement, if the Petrac group became insolvent, that Mr Spedding’s only non-furniture asset of a half-million dollar interest in Petrac would not be sufficient to pay out on any guarantee. This interest is an intangible asset, as opposed to being an asset capable of realisation in circumstances where a company is liquidated (which did in fact happen with Petrac on 12 March 2009).
The QBSA’s argument is quite straightforward – Mr Spedding could not, if called upon, rely upon his interest in Petrac to honour his 26-million plus worth of guarantees. Under s 56AD(8A)(d) of the Act, the QBSA says that Mr Spedding did not satisfy the requirement to ensure that “guarantees provided were covered by sufficient assets to cover the liability under the guarantees”. On the surface of it, this is a logical conclusion.
The guarantees were covered by sufficient assets
Mr Spedding says that the QBSA has taken an overly simplistic view of the complex commercial financial matters that were in place. I agree that the QBSA has not properly considered the issue in its true context. Mr Spedding also points out, correctly, that there is no restriction contained in s 56AD(8A)(d) that the “sufficient assets” be of a particular nature, or be held personally.
The decision of Member Oliver (as he was then), in Weldon v Queensland Building Services Authority [2008] CCT QR121-07 provides guidance in these circumstances. In Weldon, the Applicant (seeking to become a permitted individual in similar circumstances), was, like Mr Spedding, required to personally guarantee the debts of the company, or the lender would not advance funds. The lender in Weldon took a mortgage over the land involved in the project, with the additional security of the personal guarantees.
In remarkably similar circumstances, the applicant in Weldon conceded that when he signed the guarantee, he never envisaged that he would be called upon to meet the total of the debt of the company, which was several million dollars, and said that the personal guarantee was to cover any shortfall in the monies owing to company upon realisation of the secured asset, being the land.
The learned Member in Weldon found this approach to be reasonable as:
“in the usual course of events, a financier will first realise the secured assets to satisfy the indebtedness of the company and then call in the guarantees.”
The parallels that can be drawn to Mr Spedding’s circumstances and those of the applicant in Weldon can be taken even further – in Weldon, there was evidence that as the project progressed, there were difficulties in obtaining draw downs from the lender. Mr Spedding has given evidence that following the GFC, the lender involved in the Petrac and Lushbrook projects refused to make advances, causing the projects underway to come to a halt.
From this point forward, Mr Spedding says, and I accept, that there was nothing that he could do, as the lender called upon the guarantees. Member Oliver (as he was then), found that the applicant in Weldon should be a permitted individual. Member LeMass applied similar logic in Smith v Queensland Building Services Authority [2012] QCAT 58. Once the company went into liquidation, and the financiers called upon the guarantees (which had the result of bankrupting the applicant in Smith, like Mr Spedding here), there were no further steps that could be taken. Member LeMass explained:
“He took no steps at all to prevent these circumstances arising because indeed there was none he could take. Having identified the circumstances and the reasonable steps I find that upon a consideration of all the evidence the applicant took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event and therefore the applicant should for that event be categorised as a permitted individual.”
In relation to the guarantees, I find that Mr Spedding did take all reasonable steps in ensuring there were “sufficient assets” to cover the guarantees. The assets here consisted of significant “real property of a significantly higher value,” as agreed between the parties in the Statement of Agreed Facts. The language in s 56AD(8A)(d) poses no more onerous requirement than to have “sufficient assets”. If the legislature intended to constrain this definition to mean “liquid assets,” it surely would have done so. I am therefore persuaded to the same conclusion as those made by Member Oliver in Weldon and Member LeMass in Smith.
Appropriate provision was made for taxation
At this juncture, as I must also consider Mr Spedding’s taxation debt.
In relation to the taxation debt, s 56AD(8A)(f) requires that I consider whether Mr Spedding made “appropriate provision for Commonwealth and State taxation debts”. Mr Spedding gave evidence that his ATO debt was not $34,094.00, but was $24,166.72.
At the time of the relevant event, Mr Spedding was earning in excess of $30,000.00 per month, when viewed on an annual basis. His return for the financial year ending 30 June 2007 reveals a taxable income of $252,207.00. Mr Spedding submits, and I accept, that he would have been readily able to pay any residual tax owing out of his salary.
I also accept Mr Spedding’s evidence that he did not draw a wage as such, but would borrow funds from the company on an annual basis, and would then deal with the taxation consequences that flowed from that in later years. This is a widely accepted accounting method, the objective of which is tax minimisation, as opposed to tax avoidance. The QBSA submits that, following cross-examination, the evidence establishes that Petrac did not pay “income” to Mr Spedding. This point is misconceived – the lending structure that Mr Spedding had in place with Petrac is another means of achieving the same end goal, which is to create cash flow. The QBSA's submissions presume a simplistic model whereby one is employed, and gets paid as an employee. Such an arrangement fails to account for the numerous other legitimate and tax effective structures that exist in the corporate world, and for which exists a thriving stable of accountants ready to advise.
The same statements can be made in respect of the QBSA’s submissions in relation to whether the failure to make proper provision for tax caused the relevant event. Again, the QBSA is critical that Mr Spedding was not paid a salary, but was involved in an arrangement whereby he borrowed from the company. The QBSA points out that if the amount borrowed had instead been reported as income, it would have created peril in Mr Spedding’s taxation affairs. The disjoint between the parties on this point is so wide that, in yachting terms, one might say that there is blue water between them.
The problem with the QBSA’s argument is that it ignores the obvious point that tax minimisation is entirely the point of these complex trust structure and company lending arrangements. That does not translate into causation of the relevant event, nor does it mean that Mr Spedding failed to consider making provision to pay tax. What it means is that Mr Spedding has set up his affairs in such a way as to minimise tax. This is not unlawful. Mr Spedding did not have to draw a wage for the work he performed for Petrac.
In the circumstances, all of the evidence indicates that this relatively small (when compared with Mr Spedding’s income and assets) taxation debt was left owing because of the timing of the Petrac failure in the tax cycle, and not because Mr Spedding failed to make provision for same.
Further, Mr Spedding made a $50,000.00 payment to his creditors as indicated on the Deed of Composition entered into by him. Had he not taken this step, this money would also have been available to him to satisfy the ATO debt.
As I indicated previously, once the lender called upon the guarantees, there was effectively nothing Mr Spedding could have done. As a high income earner with significant assets at the time of the relevant event, I consider it reasonable for Mr Spedding to have anticipated that he would be able to pay his taxation debts in the manner he had in the past, from his income stream. Therefore, I find that he did make appropriate provision for his taxation debts.
Mr Spedding should be a permitted individual
Having considered the issues raised by the QBSA in relation to the guarantees and taxation dates, it is the decision of the Tribunal that Mr Spedding took, “All reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event.”
Mr Spedding is therefore categorised as a permitted individual in relation to the relevant event, being his 28 August 2009 bankruptcy.
Orders
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 and that Mr Spedding be categorised as a Permitted Individual for the Relevant Event.
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