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Wenzel v Queensland Building and Construction Commission[2021] QCAT 118

Wenzel v Queensland Building and Construction Commission[2021] QCAT 118

QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL

CITATION:

Wenzel v Queensland Building and Construction Commission [2021] QCAT 118

PARTIES:

CHRISTIAN WENZEL

(applicant)

v

Queensland Building and Construction Commission

(respondent)

APPLICATION NO:

OCR194-19

MATTER TYPE:

Occupational regulation matters

DELIVERED ON:

31 March 2021

HEARING DATE:

25 March 2021

HEARD AT:

Brisbane

DECISION OF:

Member Kanowski

ORDER:

The decision of the Queensland Building and Construction Commission, which was confirmed on internal review on 15 May 2019, that Christian Wenzel is an excluded individual, is confirmed.

CATCHWORDS:

PROFESSIONS AND TRADES – BUILDERS – LICENCES AND REGISTRATION – OTHER MATTERS – where licensee was director of construction company to which liquidator appointed – whether construction company solvent when director resigned

Queensland Building and Construction Commission Act 1991 (Qld) s 56AC, s 56AF

Australian Securities and Investments Commission v Plymin & Ors [2003] VSC 123

APPEARANCES &

REPRESENTATION:

Applicant:

Self-represented

Respondent:

Robinson Locke Litigation Lawyers

REASONS FOR DECISION

Introduction

  1. [1]
    This is a review of the QBCC’s decision to categorise Mr Wenzel as an excluded individual under the Queensland Building and Construction Commission Act 1991 (Qld) (‘QBCC Act’).[1] An excluded individual is unable to hold a building licence for a period of three years.[2]
  2. [2]
    The QBCC gave Mr Wenzel, who was a building licensee, notice on 8 April 2019 that it categorised him as an excluded individual. The decision to so categorise him was confirmed by the QBCC on internal review on 15 May 2019. Upon reconsideration on 26 August 2020, the QBCC (in substance) confirmed the decision again.
  3. [3]
    A person generally becomes an excluded individual if, relevantly, they were the director of a construction company within two years before the company, for the benefit of a creditor, had a liquidator appointed.[3] The person, however, will not be an excluded individual if they can satisfy the QBCC (or in a review by the tribunal, the tribunal) that the company was solvent at the time they ceased to be a director.[4]
  4. [4]
    Mr Wenzel was a director of Northey Stainless Pty Ltd (‘Northey’) until he resigned on 25 May 2018. Northey specialised in the manufacture and installation of commercial kitchens and balustrading. Northey appointed a liquidator, in a creditors’ voluntary winding up, on 25 March 2019.
  5. [5]
    Mr Wenzel contends that Northey was solvent as at 25 May 2018. QBCC, however, was not satisfied of this. It therefore categorised Mr Wenzel as an excluded individual. In the current review, Mr Wenzel has endeavoured to satisfy the tribunal that Northey was solvent as at 25 May 2018.

Background

  1. [6]
    The following matters are not in dispute, and I find accordingly.
  2. [7]
    Northey operated a business that had been established by Mr Wenzel’s father and uncle in 1965. Mr Wenzel became a director in 2006. He continued in that role until he resigned on 25 May 2018. When Mr Wenzel resigned, the other director, Garry Kelly, continued in that role until the company went into liquidation in 2019.
  3. [8]
    Mr Wenzel and his wife jointly owned six of the ten shares in Northey. Mr Kelly owned two shares, and another person owned the other two.
  4. [9]
    Northey was a ‘construction company’.  The term is defined, relevantly, as a company that directly or indirectly carries out building work, or which has done so within two years before going into liquidation.[5] ‘Building work’ is defined widely: it includes the renovation or improvement of a building.[6]
  5. [10]
    The appointment of a liquidator for Northey was for the benefit of creditors. The main creditor was the Australian Taxation Office (‘ATO’). The appointment of a liquidator to a company in a creditors’ voluntary winding up benefits creditors: it allows an independent controller to investigate what assets are available, and whether recovery actions are worth pursuing, in order to make any payments or part-payments to the creditors.
  6. [11]
    In June 2017, Northey had sold its business to SW Stainless Pty Ltd (‘SW’). The sale agreement required a deposit of $10,000, and a payment of $10,000 upon settlement, but the bulk of the purchase price was vendor-financed. Settlement occurred on 26 June 2017. The following amounts were to be paid by SW subsequently:
    1. (a)
      $80,000 by 26 September 2017;
    2. (b)
      $200,000 by 26 December 2017; and
    3. (c)
      $230,592 by 26 June 2018.
  7. [12]
    The sale agreement also provided for the sale of plant and equipment by an entity associated with Northey to an entity associated with SW.
  8. [13]
    As part of the sale agreement, guarantees for the finance were provided to Northey by the director of SW and her husband.
  9. [14]
    The sale agreement also provided that SW would lease the business premises from Mr Wenzel and his wife, who owned the premises as trustees for a family trust. A lease was accordingly signed on 26 June 2017. It provided for rent of $94,500 per year.
  10. [15]
    Upon settlement of the sale contract, Northey ceased trading. At the request of Northey, QBCC cancelled Northey’s building licence on 27 June 2017.
  11. [16]
    SW failed to make the finance payments due in September and December 2017. On 2 March 2018 SW ceased trading. Administrators were appointed to SW. The administrators’ report to creditors on 28 March 2018 recommended wind-up, with an expected return to unsecured creditors (which included Northey) of between zero and 34 cents in the dollar. Although SW had little in the way of assets, the administrators indicated that sums may be recoverable from the director and her husband, whom the administrators regarded as a de facto director, for excessive director’s drawings, unfair preferences, and so on. Queensland property title searches revealed that the director held no real property, but her husband owned a mortgaged property.
  12. [17]
    On 10 April 2018 SW went into liquidation.
  13. [18]
    To date, none of the outstanding amounts owed by SW to Northey have been recovered. Neither SW’s director nor the de facto director have honoured the guarantees they had given to Northey. The director has become bankrupt. The de facto director has resisted demands, and he has not been sued on his guarantee.
  14. [19]
    On 25 May 2018 Mr Wenzel resigned as a director of Northey. On 25 March 2019 Northey had a liquidator appointed.

Hearing

  1. [20]
    At the tribunal’s hearing, oral evidence was given by:
    1. (a)
      Mr Wenzel;
    2. (b)
      Mark Downie, a solicitor who acted for Northey;
    3. (c)
      Brenden Yantsch, an accountant who as director of P + Y Accountants and Business Advisors had provided a report to Mr Wenzel dated 16 October 2019; and
    4. (d)
      Rebecca Cook, a forensic accountant employed by QBCC who had provided a report for QBCC dated 7 January 2020. 

Was Northey solvent as at 25 May 2018?

  1. [21]
    This is the critical question: whether Northey was solvent when Mr Wenzel resigned as director on 25 May 2018. Mr Wenzel contends that it was. He says he resigned for personal reasons, including involvement in a long-running neighbourhood dispute, and to pursue other business interests.

Mr Wenzel’s position

  1. [22]
    Mr Wenzel says the only active liability of Northey as at 25 May 2018 was the amount of approximately $208,000 owed to the ATO. However, there was a payment plan in place, requiring payment of $500 per fortnight, which Northey was meeting.
  2. [23]
    The terms of the payment plan are not in evidence, but Mr Wenzel has provided some relevant documents. First, there is the first page of a letter from the ATO to Northey dated 5 December 2017 confirming that there was a payment plan. Second, there is an ATO portal printout showing payments of $500 approximately fortnightly between 4 April 2018 and 16 June 2018. I see no reason to doubt Mr Wenzel’s evidence that as at 25 May 2018 the payment plan required payments of $500 per fortnight.
  3. [24]
    It is undisputed that Mr Wenzel on behalf of Northey approached Mr Yantsch’s firm on 16 May 2018 asking it to negotiate a settlement with the ATO. This did not lead to a resolution by the time Mr Wenzel resigned as director nine days later. Mr Yantsch told the tribunal that his firm continued to work on the proposed settlement, but no offer was ever put to the ATO. Progress was slow, Mr Yantsch says, because of delays by Mr Kelly, the remaining director of Northey, in providing instructions. A draft proposal was prepared, offering a settlement of approximately $20,000, but Mr Yantsch recommended that Mr Kelly obtain legal advice before the offer was put to the ATO.
  4. [25]
    Reference was made in the oral evidence of Mr Yantsch and Mr Wenzel to an ATO letter dated 25 September 2018 demanding payment. This letter is not before the tribunal, but according to Mr Wenzel it was addressed to Mr Kelly. It seems from the description of events that the letter must have warned of impending action as the payment plan was no longer being met.
  5. [26]
    In any event, it is clear that the ATO proceeded to demand payment in full of Northey’s tax liability. Mr Wenzel has provided the first page of a director penalty notice dated 7 March 2019 that he received from the ATO. It stated that Mr Wenzel was personally liable for Northey’s tax liability. The amount is not shown on this page, but Mr Wenzel told the tribunal that it exceeded $300,000 after various penalties had been added in.
  6. [27]
    The figure owing to the ATO as at 19 March 2019, according to Mr Kelly’s presentation of summary of affairs dated 20 March 2019, was $318,402.
  7. [28]
    The tax liability was not paid by Northey, Mr Wenzel or Mr Kelly (who also presumably received a director penalty notice). Mr Wenzel told the tribunal that he was not in a position by that time to pay the tax liability. He attributed this to the destruction by fire of a hotel in western Queensland, which was the income-generating asset of another of his business interests, in August 2018.
  8. [29]
    However, Mr Wenzel submits that Northey’s position had been sound as at 25 May 2018: Northey was meeting the required payments under the tax payment plan, and Mr Yantsch’s firm had begun work on seeking a settlement of the tax debt. Mr Wenzel says he believed that the liquidators of SW had good prospects of recovering sums owed by SW or its guarantors, especially from the de facto director.
  9. [30]
    At the hearing, Mr Wenzel said that SW had continued to pay the rent until it ceased trading. However, that appears to be at variance with what he wrote in submissions filed in the tribunal on 28 October 2019:

When [Northey] demanded payment in February 2018 [of the unpaid vendor finance instalments] and the Landlord issued a default notice under the Lease agreement, [SW] was put into Liquidation in March by the director.[7]

Definitions and approaches (from Mr Yantsch’s report)

  1. [31]
    Mr Yantsch in his report usefully discusses definitions and approaches to solvency, and I summarise these below. Similar concepts are articulated by Ms Cook for the QBCC in her report, and I accept that they are applicable.
  2. [32]
    A company is solvent if it is able to pay its debts as they become due. A company that is not solvent is insolvent.
  3. [33]
    Solvency is usually assessed through the cash-flow test and/or the balance sheet test. The latter test compares the value of assets and liabilities, and a company with more liabilities than assets is insolvent. However, the cash-flow test is more commonly used. It assesses ‘the ability of a company to pay its debts (or sell its assets fast enough to satisfy its debts) as they become due and payable’.[8] It requires consideration of when income will be received, and when debts are due.  In Australian Securities and Investment Commission v Plymin & Ors,[9] the Victorian Supreme Court listed 14 indicators of insolvency. These include continuing losses, suppliers placing the company on cash on delivery terms, overdue taxes, and special arrangements with selected creditors. (As Mr Robinson for the QBCC points out, however, many of the Plymin indicators contemplate the situation of a currently-trading entity, which Northey was not). The Plymin list is not exhaustive, and not all indicators need to be present for a company to be considered insolvent. On the other hand, there may be many indicators of insolvency but the company may remain solvent because a related party can come to its aid. Inability to pay is not proven by the fact that debts were not paid. If a company could ask for outside help but chose not to, it may still be considered solvent.

Application of the tests by Mr Yantsch

  1. [34]
    Mr Yantsch prepared a reconstructed balance sheet as at 25 May 2018, in an initial and a modified form. (The balance sheet was reconstructed in the sense that Mr Yantsch prepared it from information then available, rather than preparing it, or using accounts prepared, in the course of business).
  2. [35]
    The initial form of the reconstructed balance sheet showed assets totalling $528,988, comprising:
    1. (a)
      $3,601 in the bank;
    2. (b)
      $10,192 being a retention amount owed by Paynter Dixon;
    3. (c)
      $4,601 being a retention amount owed by Wiley Construction; and
    4. (d)
      $510,592[10] owed by SW under the vendor finance arrangement.
  3. [36]
    Liabilities were shown totalling $1,004,507, comprising:
    1. (a)
      $43,173 in trade creditors;
    2. (b)
      $58,550 in trade creditors (disputed);
    3. (c)
      $208,409 owed to the ATO;
    4. (d)
      $625,159 in ‘Loan Related Parties – Wenzel’;
    5. (e)
      $49,265 in ‘Loan Related Parties – Kelly’; and
    6. (f)
      $19,949 in employee entitlements – directors.
  4. [37]
    The modified form of the reconstructed balance sheet removed certain assets and liabilities.
  5. [38]
    On the asset side, the retention amounts were removed on the basis that the debtors had raised counter-claims and disputes, and these sums could not be relied on as recoverable. Mr Yantsch, however, considered that the amount of $510,592 owing by SW remained reasonably recoverable, because investigations were ongoing as at 25 May 2018 into recoverability including by means of the guarantees.
  6. [39]
    On the liability side, Mr Yantsch considered that most of the trade creditor amounts should be excised as the majority of trade creditors had indicated willingness ‘to extend terms of their credit to align with the cashflow receipts from the purchaser’.[11]  Similarly, the related party loans and directors’ employee entitlements should be excised on the basis that those creditors would be willing to defer payment until money owed by SW came in.
  7. [40]
    Accordingly, the modified reconstructed balance sheet showed assets totalling $514,193, comprising:
    1. (a)
      $3,601 in the bank; and
    2. (b)
      $510,592 owed by SW under the vendor finance arrangement.
  8. [41]
    It showed liabilities totalling $227,201, comprising:
    1. (a)
      $18,792 in trade creditors; and
    2. (b)
      $208,409 owed to the ATO.
  9. [42]
    Mr Yantsch in his report said that as at 25 May 2018, the directors would have reasonably concluded that Northey had sufficient cash-flow to satisfy the cash-flow test. Further, the directors would reasonably have concluded that Northey had sufficient net assets to satisfy the balance sheet test. Mr Yantsch expressed the opinion that the directors would therefore have reasonably concluded that Northey was solvent as at 25 May 2018.
  10. [43]
    Mr Yantsch observed that Northey’s liquidator had commented in his report to creditors in June 2019 that he believed that the director of Northey would have a reasonable defence to any claim for insolvent trading. The liquidator noted that the sale price of the business exceeded the level of non-associated debt.

Ms Cook’s opinion

  1. [44]
    Ms Cook’s opinion differs from Mr Yantsch’s mainly in that she does not treat the $510,592 owed by SW as commercially available to Northey as at 25 May 2018. She notes that SW had already defaulted on the very substantial vendor finance instalments of $80,000 and $200,000, and it had already entered into administration and then into liquidation. The likelihood of recovering the debt owed by SW was considerably in doubt; the liquidators were anticipating a return of 34 cents in the dollar at most, and only at the end of the liquidation process; and the timing of any recovery was out of the hands of Northey. Similarly, the amount and timing of any recovery on the personal guarantees was substantially in doubt.
  2. [45]
    So far as any external support for Northey was concerned, Ms Cook said the fact that no external resource was made available for settling the substantial tax debt ‘indicates that in truth no such resource was available’.[12]
  3. [46]
    Accordingly, Ms Cook’s reconstructed balance sheet as at 25 May 2018 showed liabilities far outweighing assets. Any cash-flow from the vendor finance was ‘not available until distant future and unknown amount not likely to exceed 34c/$’.[13] Ms Cook concluded that as at 25 May 2018, Northey was insolvent.

Tribunal’s analysis

  1. [47]
    Mr Yantsch’s report is focussed on whether it was reasonable for the directors as at 25 May 2018 to conclude that Northey was solvent. A reasonable conclusion that the company was solvent would be relevant to whether directors might be liable for any debts incurred on or around that date by Northey, but it is not determinative of whether Northey was actually solvent.
  2. [48]
    With the benefit of hindsight, at least, it is clear that Northey was insolvent as at 25 May 2018 if no external support was available. None of the vendor finance instalments has ever been paid to Northey; SW had stopped paying rent for its premises; it had ceased trading; there was even then little prospect of substantial recovery against SW; any recovery was likely to take time; and the guarantees have never been honoured. SW’s director has entered bankruptcy. Mr Downie, the solicitor who advised Northey, gave evidence about how he explored the possibility of Northey suing the de facto director of SW, but Mr Downie was obliged to point out to Northey the likely delays, the costs, the uncompromising attitude of the de facto director and his solicitors, and the number of other suits against the de facto director, all of which limited the prospects for fruitful action.
  3. [49]
    The position had not improved by the time Northey’s liquidator reported to creditors in June 2019. The liquidator noted that there were no realisable assets.
  4. [50]
    Mr Wenzel says there were no trade creditors of Northey as at 25 May 2018, but even his own consultant Mr Yantsch included almost $19,000 of active trade debts after discussion with the director/s. Even though the creditors may not have been agitating for payment, it can be assumed that the debts were overdue. Northey had ceased trading 11 months earlier. Mr Wenzel emphasised that no trade creditors lodged proofs of debt in the liquidation of Northey, but in my view this probably reflects a realisation that there was no prospect of any dividend. I also note that Mr Kelly, in his presentation of summary of affairs dated 20 March 2019, listed a number of trade creditors of Northey.
  5. [51]
    However, given the limited information about the trade creditors, I will exclude them from present consideration.
  6. [52]
    I will also exclude from consideration the amounts owed by Northey to associates, such as directors, just as Mr Yantsch and Ms Cook have done.  This is on the basis that such creditors would not have pressed for payment unless and until the vendor finance payments had been received.
  7. [53]
    There was a tax debt of some $208,000 as at 25 May 2018. The ATO portal printout shows that repayments were occurring at $500 per fortnight, and I have accepted that this was in accordance with the payment plan. The portal shows that interest on the unpaid tax liability was accruing at a slightly higher rate than the repayments. Northey only had some $3,600 in the bank to continue the tax repayments. Almost half of that amount would have been needed to pay the bill of Mr Yantsch’s firm, for $1,650, for the initial work on negotiations with the ATO. Northey was in no position, unless external support was forthcoming, to meet the payment plan repayments after just a few weeks or months, let alone the whole of the tax debt once the payment plan ended.
  8. [54]
    Although external support was not forthcoming, the possibility remains to be considered that Northey could have called upon Mr Wenzel for external support should it have so chosen.  Mr Wenzel in written submissions has said that he could have financially supported Northey. In submissions filed on 21 January 2020,[14] Mr Wenzel said that he could access funds of up to $553,658 to support Northey. He attached a bank notice dated 2 May 2019 which he says shows that he and his wife could have drawn down a further $553,658 on a loan facility. I note that this was after the August 2018 hotel fire.
  9. [55]
    However, asked at the hearing why he had not stepped up to bail out Northey when the ATO pressed for payment, Mr Wenzel said he was not in a position to do so because of the hotel fire. Mr Wenzel also told the tribunal, in effect, that he assumed there was no need to provide financial support to Northey in the weeks or months after he resigned as director, because Mr Yantsch was working on having the only debt of concern, the ATO debt, settled.
  10. [56]
    I do not accept Mr Wenzel’s evidence that he resigned as director for ‘personal’ reasons unconnected with the financial plight of Northey. The company was no longer trading, so there were no pressing day-to-day business concerns. The main remaining task of the directors was to recover the vendor finance payments, if possible, so that debts could be paid and the return to shareholders maximised. It makes no sense that Mr Wenzel as the joint majority shareholder in Northey would remove himself from control of the company at that time, unless out of concern for the regulatory implications of being the director of a company sliding toward liquidation, or perhaps because of an emotional burden. It must have been becoming increasingly evident that the long-running family business had probably, in effect, been almost given away because of misplaced trust in the purchaser.
  11. [57]
    Mr Wenzel has said that Mr Kelly placed Northey into liquidation,[15] but this is at odds with what he wrote in his internal review application:

… [SW] failed to make any payments that were due after the settlement day. Despite trying to recover the debt through our Solicitor, we were unsuccessful. The Director of [SW] put the company into liquidation and then subsequently declared herself bankrupt. We were advised to put Northey into liquidation by our Accountant and Solicitor so they can chase the debt under the personal guarantee of her partner.[16]

  1. [58]
    I infer that Mr Wenzel was consulted before Northey entered liquidation, but he did not give financial support at that point. Whether this was because he was unwilling or unable, I do not know.
  2. [59]
    I infer that Mr Wenzel was well aware of Northey’s inability to meet its debts as they fell due, from its own resources, when he resigned as director.
  3. [60]
    In answer to a question at the hearing, Mr Wenzel said that he thought Mr Kelly might have provided financial support for Northey. However, Mr Kelly did not. I find that there was no solid basis for any expectation that Mr Kelly would provide financial support.
  4. [61]
    So far as potential financial support from Mr Wenzel is concerned, it is telling that he did not provide the support needed to save Northey from liquidation in 2019. He may not have monitored events as they unfolded in the second half of 2018 – to check if the ATO had accepted a settlement, or to ensure that payments under the payment plan were still being met – but if so, that was because he must have chosen to distance himself from Northey’s affairs. I infer that when Mr Wenzel resigned as director, there was no basis for assurance that he would provide the ongoing external financial support that was required to make Northey solvent.
  5. [62]
    I find that Northey was not solvent as at 25 May 2018 when Mr Wenzel resigned as director. Northey did not have the means to pay its tax liability beyond the next few weeks or months, and it had no assurance of external support. 

Conclusion

  1. [63]
    Mr Wenzel has not satisfied the tribunal that Northey was solvent when he resigned as a director, within two years of a liquidator being appointed to Northey. It follows that the QBCC’s decision that Mr Wenzel is an excluded individual must be confirmed.

Footnotes

[1]  QBCC Act, s 56AC, s 56AF.

[2]  Ibid, s 56AC(2), s 56AE, s 56AF(3).

[3]  Ibid, s 56AC(2), s 56AC(4).

[4]  Ibid, s 56AC(4).

[5]  Ibid, s 56AC(7).

[6]  Ibid, Schedule 2 (definition of ‘building work’ para (b)).

[7]  Exhibit 4, second page.

[8]  Exhibit 1, 144.

[9]  [2003] VSC 123, 136-137.

[10]  It is not apparent why the figure was not $530,592, which is the total of the vendor-financed figures shown in paragraph 11 above. However, $510,592 is the figure given by Mr Kelly in his presentation of summary of affairs dated 20 March 2019.

[11]  Exhibit 1, 146.

[12]  Exhibit 2, RC1, 9.

[13]  Ibid.

[14]  Exhibit 5.

[15]  Exhibit 5, third page.

[16]  Exhibit 1, 28.

Close

Editorial Notes

  • Published Case Name:

    Wenzel v Queensland Building and Construction Commission

  • Shortened Case Name:

    Wenzel v Queensland Building and Construction Commission

  • MNC:

    [2021] QCAT 118

  • Court:

    QCAT

  • Judge(s):

    Member Kanowski

  • Date:

    31 Mar 2021

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.
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