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- Unreported Judgment
QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL
Leet v Queensland Building and Construction Commission  QCAT 160
QUEENSLAND BUILDING AND CONSTRUCTION COMMISSION
Occupational regulation matters
13 May 2020
26 February 2020
Member Kanowski, Presiding
The decision made by the Queensland Building and Construction Commission on 13 May 2019 that Glenn Leet is an excluded individual is confirmed.
PROFESSIONS AND TRADES – BUILDERS – LICENCES AND REGISTRATION – OTHER MATTERS – where licensee was director of a company within two years of a relevant event – whether company was a construction company – whether company solvent when the applicant ceased to be a director
Corporations Act 2001 (Cth), s 95A
Queensland Building and Construction Commission Act 1991 (Qld), s 56AC
Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 20
ASIC v Plymin  VSC 123
Briginshaw v Briginshaw (1938) 60 CLR 336
Ezra Constructions Pty Ltd & Ors v Queensland Building and Construction Commission  QSC 47
Pearce v Gulmohar Pty Ltd  FCA 660
Queensland Building and Construction Commission v Mudri  QCATA 78
Robinson Locke Litigation Lawyers
REASONS FOR DECISION
- Mr Leet was a director of Integrity New Homes Pty Ltd from 12 June 2003 to 12 March 2018 and from 4 May 2018 to 5 June 2018.
- Integrity New Homes Pty Ltd changed its name to Laxmi Custom Homes Pty Ltd (the Company) on 6 August 2018.
- A liquidator was appointed to the Company on 15 March 2019.
- On 2 April 2019, the Queensland Building and Construction Commission (the QBCC) decided that Mr Leet was an excluded individual as defined in s 56AC of the Queensland Building and Construction Commission Act 1991 (Qld) (the QBCC Act).
- On 16 April 2019, Mr Leet sought an internal review of the QBCC decision.
- On 13 May 2019, the QBCC on internal review confirmed its decision that Mr Leet was an excluded individual as defined in s 56AC of the QBCC Act.
- On 5 June 2019, Mr Leet lodged an application to review that decision with the Tribunal. The matter was heard on 26 February 2020. QBCC then filed written closing submissions on 3 March 2020, and Mr Leet provided an email on 4 March 2020 as his closing submissions.
- This is a fresh hearing on the merits. The role of the Tribunal is to produce the correct and preferable decision. The Tribunal may have regard to any relevant evidence. It is not confined to the evidence that was before the QBCC when the reviewable decision was made. The Tribunal may confirm or amend the decision, set aside the decision and substitute its own decision, or set aside the decision and return the matter for reconsideration to the decision-maker for the decision, with the directions the Tribunal considers appropriate.
- Where a construction company has a provisional liquidator, liquidator, administrator or controller appointed for the benefit of a creditor, an individual who was a director, secretary or influential person of that construction company within the period of two years prior to that appointment is an excluded individual unless the individual can satisfy the QBCC that at the time the individual ceased to be a director, secretary or influential person for the construction company that construction company was solvent.
- The effect of being an excluded individual is that for three years an excluded individual is not entitled to hold a QBCC contractor licence or nominee supervisor licence, be a director, secretary or influential person for a company holding a contractor’s licence or be a partner of a licensed contractor.
- ‘For the benefit of a creditor’ is to be given a wide meaning and the process of preparing a report to creditors is to be regarded as a process for the benefit of creditors.
- Solvency is not defined in the QBCC Act. However, Schedule 2 of the QBCC Act provides the following relevant definition:
insolvent under administration has the meaning given by the Corporations Act, section 9.
- The Corporations Act 2001 (Cth) (‘Corporations Act’) has definitions of ‘solvent’ and ‘insolvent’, which are appropriate to adopt here, in s 95A:
- (1)A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.
- (2)A person who is not solvent is insolvent.
- It is noted that accountants typically utilise two tests to assess solvency, the cash flow test and the balance sheet test. The Tribunal considers that the cash flow test better satisfies the definition of solvency articulated in the Corporations Act. Ultimately, solvency is a question of fact to be ascertained from a consideration of the company’s financial position taken as a whole and is to be decided on a case-by-case basis. It is also relevant to note that ASIC v Plymin sets out a list of 14 indicators that assists in understanding whether and when a company will be found to be insolvent.
- Mr Leet submits that at the date of the QBCC decision, the QBCC had before it sufficient evidence to find that as at the relevant date, 5 June 2018, the Company was solvent. That evidence comprised an email from an accountant, Mr Valjan, stating that the company was solvent as at 31 March 2018 and referencing a report by another accountant, Mr Stone, that the company was solvent as at 30 June 2018 (although the QBCC internal review stated that the Stone report was not before it at the time of its decision).
- Mr Leet submits that it is not fair for the QBCC to now justify its decision upon subsequent research and information.
- The QBCC submits that:
- (a)The Company was a construction company within the meaning of s 56AC(7) of the QBCC Act;
- (b)The Company had a liquidator appointed for the benefit of creditors within the meaning of s 56AC(2) of the QBCC Act;
- (c)Mr Leet was a director within two years of the relevant event;
- (d)Mr Leet has not provided sufficient evidence to demonstrate that the Company was solvent at the relevant date; and
- (e)The QBCC decision should be confirmed.
- The Tribunal provided a Direction dated 26 November 2019 allowing each party to submit further evidence before the Tribunal.
- Mr Leet provided oral evidence and relied upon the following evidence:
- (a)Brief email dated 15 April 2019 from Mr Valjan, accountant, stating that the Company was solvent on a balance sheet and commercial basis as at 31 March 2018. This email was supported by unaudited Management Accounts as at 31 March 2018;
- (b)Very brief email dated 9 August 2019 from Mr Valjan, accountant, stating that the Company was solvent during June 2019 and in particular on 5 June 2019 (although the parties agreed that these years were in error and both should refer to 2018); and
- (c)Report as to Solvency into Integrity New Homes Pty Ltd by Mr Stone dated 20 August 2018, which concluded that the Company was solvent at 30 June 2018 (the Stone Report). This was based, in part, upon unaudited Management Accounts as at 30 June 2018.
- The QBCC relied upon oral evidence from Ms Cook, forensic accountant employed by QBCC, and her Statement of Evidence dated 7 January 2020, which included several attachments, including the Statutory Report by a Liquidator to Creditors for the Company dated 14 June 2019. QBCC also filed a bundle of documents, in several parts, eventually numbering up to page 185.
- We find that the evidence establishes that:
- (a)Mr Leet is an accountant and consultant in the construction industry based at Coffs Harbour, New South Wales;
- (b)A Mr Hirji became the owner and a director of the Company on 24 May 2017;
- (c)A Mr Raghvan was appointed a director of the Company on 6 December 2017;
- (d)Mr Leet was decreasingly involved in the management of the Company after December 2017, although he fairly conceded that he held the duties of a director in the two periods he held a directorship after that date;
- (e)In the relevant period to 15 March 2019, the Company undertook building work in New South Wales and, on a less frequent basis undertook building work in Queensland prior to 2018;
- (f)The Company maintained a gross margin of about 20% in the period up to December 2017;
- (g)The Management Accounts for the year ended 30 June 2018 showed that the gross margin had reduced to 9%, suggesting that the gross margin had fallen to about zero from January 2018 after Mr Leet had relinquished primary management duties;
- (h)The Company moved to a franchisee model in early 2018, although Mr Leet led evidence that this change should not have affected the Company’s financial operations; and
- (i)A liquidator was appointed to the Company on 15 March 2019.
- We find that the Company was a construction company within the meaning of s 56AC(7) of the QBCC Act. It undertook building work in New South Wales up until the relevant date and held building licences with QBCC until 14 December 2017.
- We find that a relevant event occurred at the Company on 15 March 2019 in accordance with s 56AC(2) of the QBCC Act. Mr Naidenov was appointed as a liquidator of the Company on that date. Whilst it may be possible that a liquidator may be appointed for reasons other than for the benefit of creditors, the Tribunal is satisfied that that was the purpose on this occasion. Form 5601 lodged by the liquidator on 14 June 2019 with the Australian Securities & Investments Commission states that the type of appointment was “liquidator of creditors’ voluntary winding up” and that the amount owing to creditors at the date of liquidation was in excess of $1.2 million.
- Mr Leet was a director of the Company for two periods, the last of which ended on 5 June 2018. Accordingly, we find that he was a director of the Company within two years of the relevant event occurring.
- Section 56AC(4) of the QBCC Act provides that Mr Leet is an excluded individual unless he can satisfy the QBCC, or in turn the Tribunal, that the company was solvent as at 5 June 2018.
- Mr Valjan provided a brief email dated 19 April 2019 stating that, based upon unaudited Management Accounts for the period ended 31 March 2018, the Company was solvent on both a balance sheet and commercial basis. However, it is noted that the email recognised that “there were cash flow constraints” and that “arrangements with creditors were in place” and that the Management Accounts showed a significant net loss for the period.
- Due to the Management Accounts being unaudited, the date being more than two months prior to 5 June 2018, the significance of additional subsequent evidence and the above-mentioned negative issues acknowledged by Mr Valjan, the Tribunal places limited weight on this email.
- Mr Valjan also provided a three-line email dated 9 August 2019 stating that in his professional view the Company was solvent during June 2019 and in particular on 5 June 2019 (the parties agreed that the 2019 years were in error and that they should have been 2018). The Tribunal places little weight on this email, in comparison with the other, more detailed, evidence.
- The Stone Report was a much more comprehensive analysis of whether the Company was solvent or not at 30 June 2018, spanning some 16 pages plus annexures. Mr Stone is an accountant specialising in corporate recovery and forensic accounting. It was based upon Financial Statements for the 2015 and 2016 financial years, unaudited Management Accounts for the 2017 and 2018 financial years and a range of detailed records (though not all are attached to the copies filed). The Stone Report concluded that the Company was solvent on both a cash flow and balance sheet test as at 30 June 2018. However, the following negative indicators were identified by the Report:
- (a)The Company made a significant loss in the 2018 financial year;
- (b)The Company entered a payment plan in March 2018 to repay a debt of $283,000 to the Australian Taxation Office, of which $213,000 remained outstanding at 30 June 2018;
- (c)The Company entered a Deed of Forbearance with American Express to repay a credit card debt of $245,000, of which $163,000 remained outstanding at 30 June 2018;
- (d)Reliance was placed upon a short letter claimed to be from relatives by the name of Vekaria of the Company’s director, Mr Hirji, confirming that they were committed to providing ongoing financial support to the Company till at least 30 June 2019. These relatives resided in Kenya and questions arise as to the provenance and enforceability of this letter and the financial resources of the relatives;
- (e)About one-third of the creditors were being paid outside normal trading terms;
- (f)The Company’s gross margin had fallen significantly to 9% in the 2018 financial year;
- (g)Evidence that the Company had recently been completing non-profitable jobs; and
- (h)Financial Statements for the 2017 financial year had not been prepared by August 2018.
- The Stone Report acknowledged that there were both positive and negative indicators as to solvency as at 30 June 2018. Mr Stone formed the view that the positive indicators outweighed the negative indicators and reached a conclusion that the Company was solvent.
- Based upon the information that was available to Mr Stone at the time, the Tribunal accepts that the positive indicators probably outweighed the identified negative indicators to support his conclusion that the Company was solvent as at 30 June 2018. However, as discussed below, Mr Stone was relying upon imperfect information. It is also considered to be of some concern that Mr Stone appeared to have applied the wrong test for insolvency when he stated that “it appears the Company was able to pay the majority of its trade creditor debts as and when they fell due” (page 12 of the Stone Report), rather than use “all” in place of “majority.”
- The Statutory Report by a Liquidator to Creditors of the Company dated 14 June 2019 concluded that:
- (a)Creditors were owed a total of more than $1.2 million;
- (b)It was unlikely that any of the creditors would receive a dividend from the Company; and
- (c)The Company had been trading insolvently since at least 1 July 2017.
- Matters of concern arising from the Statutory Report relating to activities prior to 5 June 2018 include:
- (a)The Company may have underquoted its building contracts during the 2018 financial year, leading to unprofitable contracts;
- (b)The Company’s business model changed to a franchise arrangement early in 2018;
- (c)A liability that originated on 1 July 2017 had not been recorded in the 2018 unaudited Management Accounts. As at 15 March 2019, the outstanding debt was $866,610, but the amount outstanding at 5 June 2018 is unknown;
- (d)The 2018 unaudited Management Accounts understated other liabilities relating to assets listed on the Personal Property Securities Register by about $40,000, with the amounts outstanding at 5 June 2018 being unknown (although likely of a similar amount);
- (e)The value of the property, recorded at $730,160 in the 2018 unaudited Management Accounts, had received a director’s valuation of $450,000 at March 2019;
- (f)Trade creditors were understated at the date of liquidation by more than $300,000, supporting the view that they were also understated at 5 and 30 June 2018 by an unknown amount; and
- (g)Based upon the view that all the Company’s books and records were supplied to the liquidator and that Mr Valjan ceased acting as external accountant for the Company in June 2018, the liquidator formed the view that the Company failed to correctly record its transactions, financial position and performance and to enable true and fair financial statements to be prepared. It is not clear from the Statutory Report what period this was referring to, although there is an inference that it referred to a period prior to 15 March 2019.
- The Tribunal finds that these matters, in combination, are significant and call into question the unaudited Management Accounts and other information upon which the Stone Report was based.
- Ms Cook had the benefit of all of the above-mentioned accounting information, reports and evidence, including the oral evidence from Mr Leet. She concluded that there was no evidence that the Company was solvent as at 5 June 2018. However, Ms Cook stopped short of saying that the Company was insolvent at that date. This was due to, in her opinion, there being an insufficiency of information available to form a definitive opinion. This insufficiency included bank statements, bank reconciliations, detailed aged creditor and debtor listings, details of the Australian Taxation Office and American Express payment plans, detailed work in progress schedules including contracts, details of all caveats, details of all related party loan agreements, BAS Statements and Income Tax Returns, Franchise Agreement and financial position of the related party purporting to provide ongoing financial support.
- The Tribunal finds that Mr Leet has not discharged his onus and the Tribunal is not satisfied that the Company was solvent at 5 June 2018. Key factors influencing this finding are as follows:
- (a)The Stone Report placed significant reliance upon the letter from the Vekarias dated 28 July 2018 as guaranteeing unconditional financial support for the Company until 30 June 2019 and beyond. Mr Leet gave evidence that as at 5 June 2018 he didn’t know the Vekarias and they were not involved in the Company;
- (b)The proportion of trade creditors that were more than 30 days and more than 60 days had increased significantly over the year to 30 June 2018, reaching 65% and 33%, respectively. In circumstances where normal trading terms are payment within 30 days, this is evidence that the Company was having difficulty paying its debts as and when they fell due;
- (c)The unaudited Management Accounts as at 30 June 2018 could not be relied upon due to the evidence of a number of liabilities not recorded in those Accounts, concerns by the liquidator that they were not accurate and reliable, and evidence that the external accountant who prepared those accounts, Mr Valjan, ceased acting for the Company in June 2018;
- (d)We find that the Company was achieving a gross margin of about zero from about the commencement of 2018, leading to trading losses from that date;
- (e)That, in turn, raises questions as to whether the building contracts it had yet to complete were profitable as at 5 June 2018;
- (f)Payment arrangements were in place with respect to large amounts owing to the Australian Taxation Office and American Express;
- (g)Ms Cook was concerned that the fact that the Company had sought finance from American Express instead of a traditional bank suggested that the Company may not have been in a position to obtain traditional bank finance; and
- (h)Creditors had registered caveats against the Company’s property.
- The Tribunal notes that if the unaudited Management Accounts as at 30 June 2018 are adjusted for removal of the deferred tax asset (on the assumption that the Company would not return to profitability), recognition of the unrecorded loan to a related party, recognition of the loans in respect of motor vehicles and recognition of unrecorded trade creditors, net assets and working capital could reduce to negative values, resulting in the Company not being able to pay its debts as and when they fall due.
- With respect to the 14 indicia set out in ASIC v Plymin we find as follows as at 5 June 2018:
- (a)Continuing losses – the Company was profitable up to 30 June 2017 and then recorded a very significant loss in the year to 30 June 2018. The evidence is that the Company achieved a gross margin of zero in the six months ended 30 June 2018, with no evidence that the contracts in existence at June 2018 were profitable;
- (b)Liquidity ratio below 1.0 – the liquidity ratio was above 1.0 according to the unaudited Management Accounts as at 30 June 2018, but could have been below 1.0 if the errors subsequently identified in the Company’s accounting system infected those Accounts and the situation as at 5 June 2018;
- (c)Overdue Commonwealth and State taxes and other statutory obligations – the Company had a large overdue debt with the Australian Taxation Office at the relevant date;
- (d)Poor relationship with present bank, including inability to borrow additional funds – there is no evidence of the Company having a positive or negative relationship with its bank. There was no indebtedness to the bank at the relevant date;
- (e)No access to alternative finance – there is evidence of the Company obtaining a letter of support from related parties dated 28 July 2018. However, the evidence of Mr Leet was that that arrangement was not in place at the relevant date;
- (f)Inability to raise further equity capital – there is evidence of the Company receiving equity injections in the year to 30 June 2018 and the then director indicated that he had access to in the order of $450,000 further funds as at 1 July 2018;
- (g)Supplier placing the debtor on ‘cash on delivery’ terms, or otherwise demanding special payments before resuming supply – there was evidence that some creditors had placed caveats over the Company’s assets, but it is not clear that this was the case at the relevant date;
- (h)Creditors unpaid outside trading terms – the Australian Taxation Office and American Express were being paid outside normal trading terms at the relevant date;
- (i)Issuing of post-dated cheques – there is no evidence of post-dated cheques;
- (j)Dishonoured cheques – there is no evidence of Company cheques being dishonoured, although bank statements were not sighted;
- (k)Special arrangements with selected creditors – special arrangements were in place with the Australian Taxation Office and American Express;
- (l)Payments to creditors of rounded sums, which are not reconcilable to specific invoices – payments to the Australian Taxation Office and American Express were of rounded sums;
- (m)Solicitors’ letters, summonses, judgments or warrants issued against the Company – there is no evidence of solicitors’ letters, summonses, judgments or warrants issued against the Company; and
- (n)Inability to produce timely and accurate financial information to display the Company’s trading performance and financial position, and make reliable forecasts – whilst the unaudited Management Accounts for the year ended 30 June 2018 were available for the Stone Report prior to 20 August 2018, the liquidator subsequently questioned the accuracy of financial information available to the Company.
- The Tribunal finds that Mr Leet has not discharged his onus and the Tribunal is not satisfied that the Company was solvent at 5 June 2018.
- The order is as follows:
The decision made by the Queensland Building and Construction Commission on 13 May 2019 that Glenn Leet is an excluded individual is confirmed.
 Queensland Civil and Administrative Tribunal Act 2009 (Qld) (QCAT Act), s 20(2).
 Ibid, s 20(1).
 Ibid, s 24(1).
 QBCC Act, s 56AC.
 Ibid, s 31, s 56AC, s 56AE.
 Queensland Building and Construction Commission v Mudri  QCATA 78, .
 Briginshaw v Briginshaw (1938) 60 CLR 336.
 Ezra Constructions Pty Ltd & Ors v Queensland Building and Construction Commission  QSC 47.
 Pearce v Gulmohar Pty Ltd  FCA 660, -.
  VSC 123.
  VSC 123.
- Published Case Name:
Glenn Leet v Queensland Building and Construction Commission
- Shortened Case Name:
Leet v Queensland Building and Construction Commission
 QCAT 160
Member Kanowski, Member Norling
13 May 2020