Tolliday v Queensland Building Services Authority
[2013] QCAT 546
| CITATION: | Tolliday v Queensland Building Services Authority [2013] QCAT 546 |
| PARTIES: | Bruce Andrew Tolliday (Applicant/Appellant) |
| v | |
| Queensland Building services Authority (Respondent) |
| APPLICATION NUMBER: | OCR265-12 |
| MATTER TYPE: | Occupational regulation matters |
| HEARING DATE: | 26 September 2013 |
| HEARD AT: | Brisbane |
| DECISION OF: | Michelle Howard, Member |
| DELIVERED ON: | 10 October 2013 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. The decision of the Queensland Building Services Authority dated 10 July 2012 which refused to categorise Mr Tolliday as a permitted individual is confirmed. |
| CATCHWORDS: | OCCUPATIONAL REGULATION-APPLICATION FOR CATEGORISATIONAS PERMITTED INDIVIDUAL- where applicant was bankrupt- whether he took all reasonable steps to avoid the happening of the circumstances that resulted in his bankruptcy- where applicant did not take appropriate legal and financial legal advice to protect his personal circumstances - where applicant gave personal guarantees for company liabilities without adequate assets to cover them Queensland Building Services Authority Act 1991 s 56AD Younen v QBSA [2010] QDC 158, followed |
APPEARANCES and REPRESENTATION (if any):
| APPLICANT: | Mr Tolliday was represented by Ms Nadia O’Sullivan |
| RESPONDENT: | Queensland Building Services Authority was represented by Ms S Van Eyk, in-house legal officer |
REASONS FOR DECISION
Mr Tolliday became an excluded individual in May 2007, following the liquidation of Living Design Homes Pty Ltd (LDH) of which he was a director. He has not held a Queensland Building Services Authority (QBSA) licence since his excluded individual status took effect.[1] In May 2013, he sought to regain his QBSA licence.
[1] This is a consequence of the effect of QBSA Act ss56AC and 56AE.
However, Mr Tolliday had become personally bankrupt on 19 October 2007. It was not until 5 June 2012, that QBSA advised Mr Tolliday that it considered him an excluded individual because of the bankruptcy event. He then applied unsuccessfully to the QBSA for permitted individual categorisation for the banktruptcy event. He now seeks review by the Tribunal of the QBSA’s decision to refuse to categorise him as a permitted individual for the relevant event.
I make the observation, since Mr Tolliday raised it in his submissions, that excluded individual status on two occasions results in a person becoming a permanently excluded individual.[2] However, the only matter for determination by me is whether he should be categorised as a permitted individual in respect of the bankruptcy event.
[2] QBSA Act s 58, 59.
At hearing, Mr Tolliday explained that Exhibit 4 was a consolidation of his earlier statements and that it also corrected some incorrect statements (some of which are discussed later) which appeared in his original application for categorisation provided to the QBSA. He impressed as a genuine person who gave his evidence according to his honest recollection. I accept his explanation for the earlier incorrect statements. I accept that his evidence, as corrected, is truthful.
The review process and the issues the Tribunal must consider
The purpose of the Tribunal’s review is to produce the correct and preferable decision.[3] For the review, the Tribunal stands in the shoes of the decision-maker (that is, in this case, the QBSA) and makes the decision afresh.[4] The Tribunal’s decision is then taken to be a decision of the decision-maker.[5]
[3] QCAT Act s 20.
[4] QCAT Act s 20.
[5] QCAT Act s 24(2).
A person may be categorised as a permitted individual for a relevant event[6] only if the person took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event which led to the person becoming an excluded individual.[7] The Queensland Building Services Authority Act 1991 (QBSA Act) requires that in determining whether all reasonable steps were taken by a person that certain matters must be considered.[8] These include whether the person kept proper books of account and financial records; sought appropriate legal and financial advice; had appropriate credit management arrangements in place; and ensured guarantees were covered by sufficient assets; and made appropriate provision for taxation debts. Other matters may also be considered.[9]
[6] See QBSA Act s 56AC regarding relevant events.
[7] QBSA Act s 56AD(8).
[8] QBSA Act s 56AD(8A).
[9] QBSA Act s 56AD(8B).
All reasonable steps does not mean all possible steps. The steps are those that were reasonable for the individual in his or her circumstances, with the information he or she had at the time.[10] The focus of the section is on prevention, and about being a prudent business manager.[11] The test has sometimes been described as the ‘reasonable builder test’.[12]
[10] Younen v QBSA [2010] QDC 158 at [26] per McGill DCJ.
[11] Ibid, [24].
[12] For example, see QBSA v Meredith [2013] QCATA 152.
In determining the application, essentially 4 matters are to be determined.[13] Firstly, the relevant event must be identified. Secondly, the circumstances which led to the happening of the event must be identified. Thirdly, a determination must be made about whether the person took all reasonable steps to avoid the coming about of those circumstances. Finally, if so, consideration must be given to whether the discretion should be exercised to classify the person as a permitted individual.
[13] Younan v QBSA [2010] QDC 158 at [26] per McGill DCJ.
Mr Tolliday asserts that his exclusions for the liquidation and the bankruptcy arise from the same circumstances. For this reason, I make the observation that ss 56AC(5) provides that an excluded individual for a bankruptcy event does not become excluded for another bankruptcy event arising out of the same circumstances. Section 56AC(6) makes similar provision in relation to company events arising out of the same circumstances. However, there is currently no provision for a person who is an excluded individual for a company event not to be also an excluded individual for a bankruptcy event which arises from the one set of circumstances.
The Relevant Event
There is no issue that the relevant event is Mr Tolliday’s bankruptcy on 19 October 2007.
The circumstances which led to the happening of the bankruptcy
Background- LDH and the personal guarantees
Mr Tolliday has been a director of LDH since the late 1990’s. Its business took various forms over the years. He gave some personal guarantees to suppliers over the years, at least from the early 2000s, when he came to Queensland. Mr Tolliday explained that LDH had conducted business in the past (that is, prior to the arrangement explained below involving Gavin Wright) with other persons but the arrangements had not been formalised in an agreement.
In 2005, LDH had a display home and after a brief initial period, its salespeople began to obtain construction contracts. As the contracts came in, Mr Tolliday was keen to expand the business of LDH, which had reached, or was about to reach, the limit of his allowable annual turnover under his BSA licence. He approached a person he had known for some years through his church, Gavin Wright, who was also a builder whom he knew to have a greater annual allowable turnover, in relation to establishing a joint and mutually beneficial business venture.
Mr Tolliday obtained a referral through the Master Builders Association to lawyers whom he instructed on behalf of LDH to prepare documentation to formalise the arrangement with Gavin Wright and his trading entity, Gavin Wright Builders. It is clear from Mr Tolliday’s evidence, and the copy of the lawyers file, that he and Mr Wright instructed the lawyers jointly and they acted for and provided advice to both parties.[14] Documents including a Project Management Agreement and a Deed of Guarantee and Indemnity were prepared and Mr Tolliday acknowledges that in all likelihood he signed them (although he can not locate executed copies). Essentially, LDH became project managers for Gavin Wright Builders to whom a fee (of some $10,000) was to be paid for each house constructed.
[14] Exhibit 4, Page 8, paragraph 1, and SOE 12.
LDH employees secured homeowners interested in entering into a building contract. When it was time for the contract to be signed, it was explained that the contract would be with Gavin Wright Builders, not LDH. Mr Wright was employed by LDH as construction manager. He also placed all orders for supplies and subcontractors, and signed off on them for payment.
Mr Tolliday gave more personal guarantees during this period, and he acknowledged that more likely than not, the credit extended by suppliers to LDH increased. Mr Tolliday does not have copies or details of the guarantees and can not be more precise. Further, under the Deed of Guarantee and Indemnity discussed above, it seems that Mr Tolliday and LDH also each gave a guarantee and indemnity to Gavin Wright Builders that it would not incur any loss on any contract.[15]
[15] Exhibit 6 SOR, pages 81-86.
All monies payable under the contracts were paid to Gavin Wright Builders. The agreement was for Gavin Wright Builders to transfer the monies to LDH which was responsible for all payments to creditors (suppliers and sub-contractors). This agreement placed LDH in an inherently vulnerable position. In late April 2007, Mr Tolliday was contacted by a supplier who refused to supply any further materials unless outstanding amounts were paid.
Shortly thereafter, in April 2007, LDH through Mr Tolliday’s personal efforts entered into repayment arrangements with suppliers. Mr Tolliday kept in regular contact with the suppliers and none of them made formal demands for payment. Based on projections prepared by Mr Wright in early May 2007, Mr Tolliday understood that almost $1M in profit was expected to be forthcoming in the near future from the houses under construction at the time.[16] In May 2007, Mr Tolliday and Mr Wright saw Mr Wright’s accountant who advised them they could trade out of the situation.
[16] Exhibit 4, Paragraph 2 and Attachment SOE2.
Mr Tolliday reports that there were no problems at any time with the payment of progress payments under the construction contracts to Gavin Wright: Mr Tolliday reported that if any payment was late, he telephoned the party concerned and the payment was always secured. It was not necessary on any occasion to take further action to obtain it.
However, in late May 2007 Gavin Wright Builders stopped paying the monies paid to it under the construction contracts across to LDH as their arrangement required. As discussed above, Gavin Wright Builders received the whole of the progress payments, but LDH was responsible for payment of all suppliers. Mr Tolliday made some personal demands on Mr Wright for the payment of the monies and when this failed, asked other church elders to do the same on his behalf. The monies were not paid. LDH could not pay its suppliers. LDH went into liquidation. Mr Tolliday hoped that the administrators would be successful in securing the funds from Gavin Wright. However, they were not.
The bankruptcy
Subsequently, the administrators advised Mr Tolliday to consider personal bankruptcy as the suppliers had begun to make demands on him personally under the guarantees.[17] He did so, and became bankrupt on a debtor’s petition.
[17] Exhibit 4, page 19 paragraph 5 and oral evidence of Mr Tolliday.
The trustee in bankruptcy’s first report[18] indicates that some $204,000 was owing by Mr Tolliday to unsecured creditors at the time of entering into bankruptcy.[19] This consisted almost entirely of trade suppliers including Action Scaffolds, Stegbar, and Tradelink. The only amount not arising from liabilities on personal guarantees appears to an amount of $3,158 owing to Bank West, which Mr Tolliday explained was for a credit card which was his only personal liability at that time.
[18] Exhibit 6 SOR, pages 103-114.
[19] Ibid, page 107.
At the time of his bankruptcy, Mr Tolliday’s personal assets consisted of a small superannuation amount, an insignificant bank account, and his tools of trade.
The circumstances which led to Mr Tolliday’s bankruptcy
Mr Tolliday’s application for permitted individual status asserts that the bankruptcy occurred because of personal deeds or guarantees given. The trustee in bankruptcy considered the reason for the bankruptcy was his inability to collect debts due to disputes, faulty work or bad debts; excessive use of credit facilities; and liabilities due to personal guarantees.[20] However, no faulty work or bad debts have been identified. The inability to collect debts due to disputes can only relate to Gavin Wright Builders’ failure to pay monies due under the agreement with LDH. The use of credit facilities appears to relate to LDH’s credit facilities with suppliers, rather than Mr Tolliday’s modest personal credit card debt.
[20] Exhibit 6 SOR, page 106.
The liquidation of LDH and Mr Tolliday’s bankruptcy are linked, as the reasons given by the trustee in bankruptcy implicitly acknowledge. I am satisfied that both the liquidation of LDH following Gavin Wright Builders’ default and the calling in of the personal guarantees led to Mr Tolliday’s bankruptcy. LDH went into liquidation because of the default on the agreement with Mr Wright, leaving it without funds to pay suppliers. Suppliers then sought payment from Mr Tolliday under the personal guarantees he had given them. Mr Tolliday did not have adequate assets to cover the personal guarantees he had given in respect of the supplier accounts. He became bankrupt.
Did Mr Tolliday take all reasonable steps to avoid the coming about of those circumstances?
Mr Tolliday was somewhat unclear about what steps he took as a director on behalf of LDH as opposed to steps he took on behalf of himself. This is consistent with his acknowledgment that he was not aware of his obligations as a director and had not taken advice about that issue.
I have considered the matters in s 56AD(8A).
Section 56AD(8A)(a) Keeping proper books of account and financial records
Mr Tolliday explained that LDH employed a bookkeeper during the relevant period. Mr Tolliday says that accounting records were kept electronically. After the liquidation of LDH the administrators sold LDH’s computer and office equipment to Gavin Wright. Mr Tolliday does not have copies of the accounting records or financial documents. I am not, on the evidence available, able to be satisfied that they constituted proper records.
He was also unable to produce records, or to say to whom, when and for how much he had given personal guarantees and when the dollar limits were extended from time to time (although he acknowledged that they were). His evidence suggests that he did not keep records of the extent of the personal guarantees given by him personally and his potential liability under them from time to time.
On the basis of the evidence before me, I am not able to be reasonably satisfied that proper financial records were kept for LDH or Mr Tolliday personally.
Section 56AD(8A)(b) seeking appropriate legal and financial advice before entering into financial or business arrangements or conducting business
Mr Tolliday was unaware of his duties as a director. He acknowledged not having taken advice about this.
Mr Tolliday instructed lawyers on behalf of LDH to prepare documents regarding the arrangements between LDH and Gavin Wright. He said that he expected they would advise him as necessary to protect his interests, that is, his personal interests as well as LDH’s. He says that they did not suggest any conflict of interest for either himself or LDH, vis-a-vis Gavin Wright Builders. He acknowledged not personally taking independent advice, but said he was not advised to take it. There is no evidence to suggest that Mr Tolliday sought advice before he gave the personal guarantees to suppliers.
At the time of the arrangements with Gavin Wright, Mr Tolliday had been in business for some years. He said this gave him confidence as he had not encountered financial difficulties.[21]
[21] Exhibit 4, Page 12 paragraphs 6 and 7.
Mr Tolliday said that accountants prepared tax returns for him personally as well as for LDH. In about January 2007, he contacted Lyons Judge accountants who had previously acted for him, who then advised that they could no longer do so, as they acted for his former wife. After LDH’s cash flow problems manifested in difficulty paying suppliers, it was agreed that he and Gavin Wright speak with Mr Wright’s accountants. They did this, and the accountants advised that the entities they represented could trade out of the situation. Finally in the days before putting LDH into liquidation, Mr Tolliday saw another accountant to seek advice for LDH and himself personally.
However, Mr Tolliday acknowledged not taking financial advice before entering into the arrangements with Gavin Wright/Gavin Wright Builders or conducting business with them.
QBSA submits that he did not take appropriate advice. Mr Tolliday submits that in engaging a solicitor before entering into business with Gavin Wright Builders, he acted reasonably to safeguard both his interests and those of LDH.
I am not satisfied that Mr Tolliday took reasonable steps to obtain appropriate legal and financial advice before entering into business arrangements or conducting business.
In relation to Gavin Wright, Mr Tolliday proposed, and agreed, business arrangements to Mr Wright without taking either legal or financial advice. Lawyers were subsequently instructed to prepare documents to formalise the arrangements. Whereas I accept that they did not advise Mr Tolliday to also to seek independent advice, he knew he was entering business with an apparently more experienced business operator who had a greater allowable annual turnover. A reasonable builder in his circumstances would have acted to protect his own interests by taking independent advice.
Further, the failure to take independent advice was not an isolated incident. On Mr Tolliday’s evidence, it was a feature of the manner in which Mr Tolliday had conducted his affairs over the years. He did not at any time take advice about his obligations as a director of LDH. He had previously entered into business arrangements which had not been formalised and it is reasonable to infer from this that he did not seek legal or financial advice about these arrangements. Although I accept that he engaged accountants to prepare tax returns fro himself and LDH, the evidence does not suggest he sought financial advice about arrangements from time to time.
Although he belatedly sought some financial advice fro LDH and himself shortly before the liquidation and bankruptcy events, the circumstances which led to the happening of those events had already occurred by the time that was done.
Section 56AD(8A)(c) reporting fraud or theft to the police
There are no issues raised about fraud or theft.
Section 56AD(8A)(d) ensuring guarantees provided were covered by sufficient assets to cover the liability under the guarantees
Mr Tolliday inconsistently asserted in documents before the tribunal that he had assets to cover guarantees[22] and that he had no assets at the time he entered into the business to cover guarantees.[23] However, at the hearing he explained that a lawyer had prepared the permitted individual application provided to the QBSA and that it was not entirely correct. He had pointed this out to the lawyer, but the lawyer told him to just sign it and get the application lodged as it was the last day to do so. He explained that Exhibit 4 is a consolidation of all the information he gave in his earlier statements and corrected some of the earlier information prepared by his lawyer. I accept his explanation.
[22] Exhibit 4, pages 10-11.
[23] Exhibit 6, SOR page 41.
However, I also note that there was some confusion in his mind about who owned the work-in-progress of LDH. He spoke of it as being his asset as he was the sole director of the company. However, it is a company asset and he and LDH were separate legal entities.
On the available evidence, it is not possible to know whether from time to time Mr Tolliday may have had adequate personal assets to cover the personal guarantees he gave, as (other than the guarantee to Gavin Wright Builder) he was not able to provide copies of them, did not know when they had been given, or for how much they were given.
That said, Mr Tolliday personally owned real estate jointly with his then wife between 2001 and July 2005[24] and although he could not provide details of the equity in the properties at the time they were sold or details of the guarantees in place at the time, I accept that it is possible he may at times had adequate assets to cover guarantees given.
[24] Exhibit 4, page 11, Table at paragraph 3.
What is clear, is that at the time he entered into the arrangements with Gavin Wright Builders, he had no personal assets to cover guarantees given. He says that he believed that LDH, a separate legal entity, had the capacity to pay because of its work in progress. He acknowledges giving some personal guarantees at that time, as Gavin Wright had some preferred suppliers to whom Mr Tolliday gave personal guarantees.[25] He also gave the personal guarantee to Gavin Wright Builders as discussed earlier. In respect of the guarantee his evidence was that no claim was made under that guarantee because all of the monies owing to suppliers were owed by LDH. However, during the period of LDHs arrangements with Gavin Wright Builders, Mr Tolliday gave personal guarantees to Gavin Wright’s preferred suppliers when he had no personal assets to cover the potential liabilities.
[25] Oral evidence 26 September 2013.
Over $200,000 was owing to unsecured creditors in Mr Tolliday’s bankruptcy arising from personal guarantees.
I am satisfied on the evidence that Mr Tolliday did not ensure that guarantees provided were covered by sufficient assets to cover the liabilities.
Section 56AD(8A)(e) putting in place appropriate credit management for monies owing and taking reasonable steps for recovery of the amounts
In his oral evidence at the hearing, Mr Tolliday explained that he made personal demands of Mr Wright to pay monies across to LDH, and then had elders in the church attempt to do so. He then took steps to put LDH into liquidation, and hoped that the liquidators would succeed in this endeavour. They did not.
The liquidation of LDH, impacted on the calling in of the personal guarantees. If LDH had been able to meet pay the suppliers no call would have been made on the personal guarantees. I accept that this step was taken, in part, with a view to avoiding the claims against Mr Tolliday personally which ultimately led to the bankruptcy.
Section 56AD(8A)(f) making appropriate provisions for Commonwealth and State taxation debts
Mr Tolliday’s evidence at the hearing was that he had always paid his taxation, and received assessments for it. His practice was for his accountant to prepare his company and personal tax returns. He said he usually received a refund.
The QBSA concedes that on the basis of his oral evidence, he has made appropriate provision for taxation. I accept this was so.
Section 56AD(8B) Other relevant matters
On the evidence, there are no other relevant matters.
My Conclusions
In summary, I am not satisfied that Mr Tolliday kept adequate accounting and financial records. He did not take appropriate advice before entering into legal and financial arrangements and conducting business. He did not ensure that he had adequate assets to cover guarantees given personally by him.
Therefore, I conclude that he did not take all reasonable steps to avoid the circumstances which led to the happening of his bankruptcy.
The decision of the QBSA to refuse to categorise Mr Tolliday as a permitted individual should be confirmed. I make orders accordingly.
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