Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Diamante v Commissioner for Fair Trading [2024] NSWCATOD 55 Hearing dates: 10 October 2023 Date of orders: 30 April 2024 Decision date: 30 April 2024 Jurisdiction: Occupational Division Before: S Montgomery, Senior Member Decision: The decision under review is affirmed. Catchwords: ADMINISTRATIVE LAW — review of decision — refused to be a qualified supervisor certificate under Home Building Act 1989 — whether correct and preferable decision — whether applicant took all reasonable steps to avoid liquidation or administration — whether fit and proper person Legislation Cited: Administrative Decisions Review Act 1997 (NSW) Home Building Act 1989 (NSW) Cases Cited: Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 BSR v Office of the Children's Guardian [2015] NSWCATAD 264 Butler v Commissioner for Fair Trading [2017] NSWCATAD 138 Clarke v Commissioner of Fair Trading, Office of Fair Trading [2004] NSWADT 273 Dimascio v Commissioner for Fair Trading, Office of Fair Trading [2006] NSWADT 144 Director-General, Transport New South Wales v AIC (GD) [2011] NSWADTAP 65 Goodman v Commissioner for Fair Trading [2023] NSWCATAP 260 Grenfell v Director General Department of Finance and Services [2013] NSWADT 57 Hughes and Vale Pty Ltd v New South Wales (No 2) (1955) 93 CLR 127 Meacham v Commissioner of Police [2020] NSWCATAP 107 Obradovic v Commissioner for Fair Trading (GD) [2006] NSWADTAP 18 Poytress v Director General, NSW Fair Trading [2015] NSWCATOD 100 Re Percival and Australian Securities Commission (1993) 30 ALD 280 Smith v Commissioner of Police, New South Wales Police Force and NSW Fair Trading [2014] NSWCATAD 184 Sobey v Commercial and Private Agents Board (1979) 22 SASR 70 Taouk v Director General, NSW Fair Trading [2016] NSWCATOD 41 Trombetta v Commissioner for Fair Trading [2018] NSWCATOD 167 Category: Principal judgment Parties: Peter Diamante (Applicant) Commissioner for Fair Trading (Respondent) Representation: Counsel: W B Bruffey (Respondent) Solicitors: Macquarie Law Group (Applicant) NSW Fair Trading, Legal (Respondent) File Number(s): 2023/00157407 Publication restriction: Nil REASONS FOR DECISION Introduction 1. This is an application by Mr Peter Diamante ("the Applicant") for review of a decision by a delegate of the Commissioner for Fair Trading ("the Respondent"). The Respondent's decision was to refuse the Applicant's application to renew a qualified supervisor certificate held under the Home Building Act 1989 ("the HBA"). 2. The decision was affirmed on internal review and the Applicant has applied under the Administrative Decisions Review Act 1997 (NSW) ("the ADR Act") for external review of the decision by the Tribunal. Background 1. For the most part, the background to the application is not in dispute. 2. The Applicant has been operating as an electrician for around 30 years. He was granted a qualified supervisor certificate in 1985. 3. Mailec Electrical Pty Ltd ("the Company") was incorporated in January 1981. At all relevant times, the Applicant was the director, secretary and controlling mind of the Company, and was its nominated supervisor. Since September 2001, he has been the sole director of the Company and has held a 90% shareholding of the Company. 4. The Company was placed into administration in May 2022. In June 2022, the Company was placed into liquidation via a creditors voluntary winding-up resolution. Chad Rapsey of Rapsey Griffiths ("the Liquidator"), was appointed liquidator. 5. The Liquidator estimated that the Company may have been trading while insolvent since June 2020, and had incurred $2,370,550 of unsecured debts. 6. In February 2023, the Applicant submitted an application to renew his qualified supervisor certificate in the category of electrician. That application was refused on two grounds: firstly, the Respondent was not satisfied that the Applicant took all reasonable steps to avoid the liquidation or appointment of a controller or administrator; and secondly, the Applicant is not a fit and proper person to hold the authority that he is seeking. The Issues 1. The issue to be determined is whether the correct and preferable decision is to grant the Applicant's application to renew his qualified supervisor certificate under the HBA. This requires consideration of whether the Applicant took all reasonable steps to avoid the administration/liquidation and whether the Applicant is a fit and proper person to hold a qualified supervisor certificate. Relevant Legislation and decisions 1. Section 9 of the ADR Act provides that the Tribunal has jurisdiction in regard to an application for review of a decision of an administrator if enabling legislation provides that applications may be made to the Tribunal for administrative review. 2. The Tribunal has jurisdiction under section 83B(1) of the HBA in relation to: 83B Administrative reviews by Tribunal (1) An applicant for the issue, alteration, renewal or restoration of an authority aggrieved by any decision of the Secretary relating to the application may apply to the Tribunal for an administrative review under the Administrative Decisions Review Act 1997 of the decision. 1. Therefore, the Tribunal's jurisdiction includes review of the decision by the Respondent in this matter. 2. Section 63 of the ADR Act provides that in determining an application, the Tribunal is to determine what is the "correct and preferable decision" having regard to the material before it. In reaching the correct and preferable decision, the Tribunal may: 1. exercise all of the functions that are conferred or imposed by the HBA on the Respondent; and 2. affirm the decision, vary the decision, set aside the decision, and make a decision in substitution of the decision, or set aside the decision and remit the matter for reconsideration by the Respondent. 1. There is no formal onus of proof. In considering the Application, the Tribunal may have regard to any relevant material before it at the time of its review. Its consideration is not limited to material that was before the Respondent at the time it made the decision that is under review. 2. The Tribunal is to make its own decision and there is no presumption that the Respondent's decision is correct. The Tribunal should consider all relevant materials and ignore all irrelevant materials. 3. The requirements for proof of questions of fact in administrative review proceedings generally were summarised by an Appeal Panel in Meacham v Commissioner of Police [2020] NSWCATAP 107 at paragraphs [54] and [83]: "[54] Despite not being bound by the rules of evidence, the Tribunal is required to base its findings of fact on "logically probative material", and not on "mere suspicion or speculation", as a corollary of its obligation to act reasonably: Minister for Immigration and Ethnic Affairs v Pochi (1980) 44 FLR 41 ("Pochi") at 62, 68 (Deane J); [1980] FCA 85; Sullivan v Civil Aviation Authority (2014) 22 FCR 555; [2014] FCAFC 93 ("Sullivan") at [5]-[8], [15]-[17] (Logan J). It is an error of law for the Tribunal to make a finding of fact with no evidence, or no probative evidence, to support it. … [83] Proof of matters which are asserted is required in a practical sense, and a party asserting a fact is generally required to provide evidence to substantiate it. As noted above, the Tribunal is required to base its findings of fact on "logically probative material": Pochi at 62, 68; Sullivan at [5]-[8], [15]-[17]." 1. Also, as Principal Member Britton observed in BSR v Office of the Children's Guardian [2015] NSWCATAD 264 at paragraph [17]: … a practical or "forensic" burden can arise from the material presented. A party who asserts a fact has a responsibility to prove that fact: Re Eckersley and Minister for Capital Territory (1979) 2 ALD 303; Holbrook and Australian Postal Commission (1983) 5 ALN N46. 1. Section 25(1) of the HBA provides: 25 Issue of certificates (1) The Secretary must refuse an application for a supervisor or tradesperson certificate if- (a) the Secretary is not satisfied that the applicant is a fit and proper person to hold such a certificate, or (a1) the Secretary is not satisfied as to the matters of which the Secretary is required to be satisfied by sections 33B and 33D, or … 1. Section 33B of the HBA provides: 33B General requirements for issue of certain authorities (1) An authority (other than an owner-builder permit) must not be issued unless the Secretary is satisfied that- (a) each relevant person in relation to the application for the authority- … (xv) except in relation to an application for a tradesperson certificate-is not at the time of the application a director of or a person concerned in the management of a Chapter 5 body corporate (other than Chapter 5 body corporate resulting from a members' voluntary winding up of the body corporate), and (xvi) except in relation to an application for a tradesperson certificate-within 3 years before the date of the application, was not a director of or a person concerned in the management of a body corporate that was a Chapter 5 body corporate at any time within that 3-year period (other than Chapter 5 body corporate resulting from a members' voluntary winding up of the body corporate), and (xvii) except in relation to an application for a tradesperson certificate-was not a director of or a person concerned in the management of a body corporate that became a Chapter 5 body corporate (other than Chapter 5 body corporate resulting from a members' voluntary winding up of the body corporate) at any time within 12 months after the person ceased to be a director of or a person concerned in the management of the body corporate and within 3 years before the date of the application ... 1. Section 33D of the HBA provides: 33D Additional requirements for obtaining supervisor and tradesperson certificates … (2) Despite section 33B(1)(a)(xiii)-(xvii), the Secretary may issue a supervisor certificate if the Secretary is satisfied that the relevant person took all reasonable steps to avoid the relevant bankruptcy, winding up or appointment of a controller or administrator. Fitness and Propriety 1. As noted, the Respondent contends that the Applicant is not a fit and proper person to hold a qualified supervisor certificate under the HBA. The Applicant states that he is a fit and proper person for the purposes. The expression 'fit and proper' has been considered by this Tribunal and in other jurisdictions in numerous cases. 2. In Hughes and Vale Pty Ltd v New South Wales (No 2) (1955) 93 CLR 127 at 156-7, the High Court said that fitness and propriety involve three things: honesty, knowledge and ability. In Sobey v Commercial and Private Agents Board (1979) 22 SASR 70 Walters J at paragraph [40] said: In my opinion what is meant by that expression is that the Applicant must show not only that he is possessed of a requisite knowledge of the duties and responsibilities evolving upon him as the holder of a particular licence ... but also that he is possessed of sufficient moral integrity and rectitude of character as to permit him to be safely accredited to the public ... as a person to be entrusted with the sort of work which the licence entails. 1. It is generally accepted that what is fit and proper needs to be determined by reference to the activities in issue and is to be gauged in light of the nature and purpose of the activities that the person will undertake. In Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 380; (1990) 94 ALR 11 at 65; [1990] HCA 33, Toohey and Gaudron JJ explained that: The expression "fit and proper person", standing alone, carries no precise meaning. It takes its meaning from its context, from the activities in which the person is or will be engaged and the ends to be served by those activities. The concept of "fit and proper" cannot be entirely divorced from the conduct of the person who is or will be engaging in those activities. However, depending on the nature of the activities, the question may be whether improper conduct has occurred, or whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur. The list is not exhaustive, but it does indicate that, in certain contexts, character (because it provides indication of likely future conduct) or reputation (because it provides indication of public perception as to likely future conduct) may be sufficient to ground a finding that a person is not fit and proper to undertake the activities in question. 1. A person's fitness and propriety for a particular role is a question of fact to be determined objectively, taking into account all the evidence: Smith v Commissioner of Police, New South Wales Police Force and NSW Fair Trading [2014] NSWCATAD 184 at paragraph [40]. 2. In Poytress v Director General, NSW Fair Trading [2015] NSWCATOD 100, in the context of an application under the HBA, I stated at paragraph [82]: The issue of whether a person is fit and proper due to past conduct is a matter of judgement. In considering that issue the Tribunal is required to take into account the nature and seriousness of the original conduct, any events relevant to an assessment of the Applicant's fitness which have occurred since then, the candour with which the Applicant has approached the issue of past conduct, the Applicant's explanation of the conduct, the impact of the effluxion of time, and the Applicant's present circumstances and reputation. 1. The assessment of fitness and propriety must be viewed in light of: 1. the activities in which the person is or will be engaged": Re Percival and Australian Securities Commission (1993) 30 ALD 280 at 290; and 2. The role the person is to undertake: Taouk v Director General, NSW Fair Trading [2016] NSWCATOD 41 at paragraph [46]. 1. In Grenfell v Director General Department of Finance and Services [2013] NSWADT 57, the matter concerned a review of a decision to refuse a tradesperson's certificate under the Motor Vehicle Repairs Act 1980 because it was considered that Mr Grenfell was not a fit and proper person to hold the certificate. Judicial Member Molony said at paragraphs [10]-[11]: 10. The nature of the role that a person wishes to undertake in a regulated industry impacts on an assessment of fitness and propriety. Thus the character, knowledge and experience that an application for a taxi -operators licence has to demonstrate in order to be considered fit and proper for that role, is different to the character, knowledge and experience required of a person who simply wishes to drive taxis. This is so because what is fit and proper varies in accordance with the nature and purpose of the role the person seeks to undertake, as well as in accordance with industry in which they will undertake that role. 11. Such a distinction is recognised in the provisions of the MVR Act which sets out different requirements a person has to satisfy if he or she wishes to be a licenced motor vehicle repairer, as opposed to a certificate holder: see sections 18 and 24. The reason for this distinction is clear; a licensee is running a business and providing a service to the public, with concordant accountabilities and responsibilities, whereas a tradesperson is a qualified individual in the employ of a licensee or the owner of a commercial vehicle. 1. In Trombetta v Commissioner for Fair Trading [2018] NSWCATOD 167, the Tribunal noted at paragraph [67], that: … The licensing requirements of the Act are not imposed by way of punishment for those convicted of crimes. They are imposed for the protection of the public. 1. Public interest considerations may also play a role in the assessment of fitness and propriety: Director-General, Transport New South Wales v AIC (GD) [2011] NSWADTAP 65 at paragraph [37]. Material before the Tribunal 1. The Applicant provided statements, gave evidence, and was cross-examined. He provided several character references in support of his contention that he is a person of good character. The Applicant's solicitor provided both written and oral submissions. 2. The Applicant's accountant, Ms Melanie Hamilton, also attended and was cross-examined. 3. The Respondent relies on material lodged pursuant to section 58 of the ADR Act. This material mostly related to the Company's administration and included a Liquidator's Statutory Report to Creditors ("the Liquidator's Report"). The Liquidator's Report, prepared by Rapsey Griffiths, is dated 7 September 2022. The Respondent's counsel also provided written and oral submissions. The Applicant's case 1. The Applicant contends that he is a fit and proper person to hold a qualified supervisor certificate. In support of that contention, he points to references provided by Bob Blackie, Director of ADB Building Solutions Pty Ltd, Ross Howard, General Manager of Graph Building, Jason Lord, who was employed by the Company to bring structure back into the business, and Ross Taggart of Hamilton Taggart, the Company's business advisers. 2. The Respondent accepts that the individuals who provided character references for the Applicant speak highly of his professional skills, integrity and personal characteristics, describing him as 'thoroughly professional', having 'extensive knowledge of construction and electrical services', understanding 'the need to comply with strict electrical industry rules and regulations' and 'good character'. These references attest to the Applicant repute within the community and the workplace. 3. The Applicant's evidence is that he placed the Company into liquidation upon the advice of his accountant. With respect to the steps taken to avoid the Company entering administration, the Applicant attributes the failure of the Company to three main factors: 1. the COVID-19 pandemic; 2. the mismanagement of the Company's office manager; and 3. a failure by the Company's accountant to bring the Office Manager's financial mismanagement to his attention. 1. Regarding the COVID-19 pandemic, the Applicant's evidence is that the Company's contracts were executed based on pre-pandemic prices. He alleges that because of the pandemic, the price of materials increased and that the cost of projects increased by 25-50%. He said that his attempts to renegotiate contracts were unsuccessful. He also said that the Company had to increase its staffing level to complete projects. He stated that: [The Company] suffered cashflow constraints during COVID-19 lockdowns and restrictions and was significantly impacted by the pandemic. This was due to inconsistent work and travel restrictions. ... At the time, unfortunately, there was an excessive increase of costs of items such as light fitting, cables, cable ladder trays, etc. The contracts which were executed by the Company at the time were based on pre-COVID prices and did not take into consideration the rise of prices of materials. The Company unfortunately bore all the weight and effects of the COVID-19 pandemic. 1. With respect to the role of the Company's Office Manager, the Applicant stated that: I inquired on regular basis with the accountant and the office manager about the Company's finances and the information I received on every occasion was that the Company was doing well, and everything was taken care of. I have asked the office manager for the monthly management report on numerous occasions, and I was always informed that everything was in good order. I did not get the 2020/2021 or the 2021/2022 tax returns completed and paid for all the reconciliation management. I obtained advice on the cash flow as I was attempting to focus on generating work for the Company to keep it operational and resolve the financial issues. ... Information was withheld from me by my office manager, and I was unaware of the severity of the Company's financial position. … I had appointed [the Office Manager] under the title of Office Manager. I discovered at a later stage that [the Office Manager] was injecting money into the Company, while I wasn't informed, to prevent the Company going into liquidation. [The Office Manager] had utilised her own money to keep the Company afloat. This has contributed to the Company incurring further debts and deepened the Company's financial crises. 1. The Applicant provided an email chain which he contends shows that the Office Manager and the accountant withheld financial information from him. The email from the accountant to the Office Manager is dated 21 February 2020. It refers to the 2019 accounts for the Company and requests information in relation to a number of items, including: * Receivables reconciliation; * Customer deposits; * Payables reconciliation; * March 2019 BAS payment; * Entertainment/travel cost; * Insurance expense; * Legal fees; * Payroll tax; * Salary Sacrificed Super; * Account balances. 1. The Office Manager ultimately responded to the accountant's queries on 8 July 2020. 2. The Applicant further stated in relation to the Office Manager: [M]onies were not chased by [the Office Manager], and many debtors went years without being chased for payments leaving many unrecoverable due to the time elapsed from when the works were done until I started chasing them. … Many other debtors were overestimated and overclaimed or, in some instances, never claimed … There were two audits conducted by [the Office Manager], the first audit was correct with the information supplied for the audit for 2020/2021 has been forged with the dates on all the items being taped over with the … Monies were not chased in regard to what was happenings within the Company Audits confirm that Maitec were awarded contracts they should not have been awarded. Employment of Jason Lord to assist and bring structure back into the business, recover recoverable debtors and try and piece together what had happened and what was happening with in the business. ... 1. With respect to the failure by the Company's accountant, the Applicant stated: I had an accountant and Office Manager appointed to handle the Company's financial affairs. I inquired on regular basis with the accountant and the Office Manager about the Company's finances and the information I received on every occasion was that the Company was doing well, and everything was taken care of. … While I spoke to my accountant, I was not provided with full and proper information. … I had also appointed an Accountant at Mailec Electrical Pty Ltd to perform monthly accounting each month to highlight any issues that company experienced with cash flow. The accountant that was responsible for the financial affairs was having family problems at that time … and did not perform her duties to a satisfactory level, 1. The Applicant's accountant, Ms Melanie Hamilton, attended the hearing. She denied that the firm ever withheld information from the Applicant. She confirmed that the accountant had no management role in relation to the Office Manager and stated that the Applicant was kept informed of relevant information about the Company on an as needs basis. 2. The Applicant concedes that he should have taken better steps to monitor the performance of the Office Manager. He also concedes that he should have personally overseen and monitored the management of the Company. 3. He submits that he did not intend to trade whilst the Company was insolvent. Information was hidden from him by the Office Manager. Whilst he spoke to his accountant, he was not provided the full and proper information to make a valid assessment of the Company's actual financial position at the time. Therefore, he was not aware of the financial position. 4. However, the Applicant also submits that there were issues with the Office Manager and the accountant not acting in good faith. The Office Manager was also depositing money into the Company bank account without the knowledge of the Applicant. The Applicant accepts that the Company's 2020/2021 and 2021/2022 tax returns were not completed. He said that he did not become aware of the Company's cash flow problems until May 2022. Prior to that he was only told that there was a financial issue when the accountant told him that there was a $750,000 tax debt to the ATO. At the time, he was focused on getting work into the Company to keep cashflow going, to try and resolve the financial issues. 5. With respect to the impact of the Covid pandemic on the Company, the Applicant said that the Company's contracts were executed based on pre-pandemic prices. 6. He alleges that the price of materials increased and that the cost of projects increased by 25-50%. His evidence was that during covid, the cost of materials continued to rise and there were travel restrictions. These significantly affected the Company's ability to complete the contracted work and the Company's financial situation. 7. His evidence was that there were no rise and fall clauses in the existing contracts, and his attempts to renegotiate the contracts were unsuccessful. He had to bring in extra labour to be able to complete the contracted work. He increased the Company's staff level from 16 to 41. This was an additional expense for the Company that could not be recouped. The Applicant stated that he followed up with the accountant and Office Manager and asked for the monthly management reports about the Company's financial circumstances. However, these were not forthcoming. 8. The Applicant submitted that in the circumstances, he took all reasonable steps to avoid the liquidation of the Company, to the best of his ability. 9. He no longer wishes to run his own company. However, he wants to obtain a qualified supervisor certificate because it will enable him to earn a greater income. The Respondent's case 1. The Respondent submits that for the Applicant to be granted a qualified supervisor certificate, the Tribunal must be satisfied that the Applicant took all reasonable steps to avoid the Company entering administration. The Respondent contends that the Applicant has failed to adduce sufficient evidence to permit the Tribunal to reach that conclusion. The Respondent also submits that the Applicant is not a fit and proper person to hold a qualified supervisor certificate. Steps to avoid the Company entering administration 1. The Respondent agrees that the cause of the insolvency is relevant to the Tribunal's decision. However, it submits that the Tribunal's focus is to be on whether the Applicant took all reasonable steps to avoid the Company going into administration. 2. The Respondent relies on views expressed by the President of the Administrative Decisions Tribunal in Clarke v Commissioner of Fair Trading, Office of Fair Trading [2004] NSWADT 273. Clarke was an application under the Property, Stock and Business Agents Act 2002. The President stated at paragraphs [9]-[11]: 9 The Tribunal has already dealt with three applications for review arising under the new provisions: McDonald v Commissioner for Fair Trading [2004] NSWADT 124, Smith v Commissioner for Fair Trading [2004] NSWADT 182 and Davidson v Commissioner for Fair Trading [2004] NSWADT 200. 10 It has expressed the following views as to the approach to be taken in examining the question of whether the licence holder took 'reasonable steps' to avoid the bankruptcy or insolvency: (i) A general inquiry into the wisdom or otherwise of the original financial dealings that ultimately ended in bankruptcy or insolvency is not contemplated by the Act. The point at which the inquiry commences is when the applicant was 'faced with the possibility' of bankruptcy or insolvency (Davidson at [20]) or was 'aware' or 'should have been aware' (McDonald at [21]) of that possibility. The focus is the steps taken to avoid the relevant event (see Smith at [17]) - in cases of the present kind, administration, and later liquidation. (ii) Subject to (i), in assessing reasonableness the Tribunal must examine all the relevant facts and circumstances. (McDonald at [25]), (iii) The steps taken by the applicant must be objectively reasonable in the sense that they would be those taken by a 'reasonable person endowed with the knowledge and experience of the [applicant]'. (McDonald at [26-27]) 11 To these should probably be added a fourth, though it is obvious enough from the provision: (iv) The person under notice has the task of satisfying the Commissioner that he or she took all reasonable steps to avoid the insolvency. 1. The views expressed in Clarke have been adopted in numerous applications under the HBA. The views were adopted by the Appeal Panel of this Tribunal in Goodman v Commissioner for Fair Trading [2023] NSWCATAP 260. 2. The Respondent also points to views expressed by Judicial Member Pearson in Dimascio v Commissioner for Fair Trading, Office of Fair Trading [2006] NSWADT 144 at paragraph [43] where she stated: 43 The sequence of events described by Mr Dimascio was consistent with his assertion that he had relied on his accountant to manage his taxation and other compliance issues. However, given the history of the liquidation of Dima Homes Pty Ltd, it would have been reasonable to expect Mr Dimascio to take a more proactive approach to the financial circumstances of Dima Homes (NSW) Pty Ltd, and, in particular, its compliance with its taxation obligations. It is not clear that Mr Dimascio took any steps to avoid the liquidation, but rather accepted the advice of his accountant that he had no choice. The Tribunal is not satisfied that Mr Dimascio took all reasonable steps to avoid the liquidation or administration of Dima Homes (NSW) Pty Ltd. 1. The Respondent contends that comparable circumstances exist in relation to the Company and urges the Tribunal to reach a similar conclusion to that in Dimascio. That is, the Applicant would need to show that he did more than simply accepting the advice of the Company's accountant and relying on information provided by the Company's Office Manager if the Tribunal is to be satisfied that the Applicant took all reasonable steps to avoid the Company entering administration. 2. In Obradovic v Commissioner for Fair Trading (GD) [2006] NSWADTAP 18 the Appeal Panel took into account the manner in which a former building licence holder had conducted his licensed activity in determining his fitness and propriety to be issued with a new licence. The Appeal Panel stated at paragraph [55]: In these circumstances it seems to us that it was permissible for the Tribunal to look closely at the material it did have before it, and form a view based on that - being the best available material - as to Mr Obradovic's present fitness. ... 1. In its written submissions, the Respondent addressed the lack of evidence to support many of the Applicant's contentions: * the Applicant has made number of assertions in regard to the impact of COVID-19 lockdowns and restrictions on the Company, but without providing any evidence to support the assertions. * evidence is lacking in regard to the impact of inconsistent work and travel restrictions on the Company's cashflow. * evidence is lacking regarding the excessive cost of materials increases, and their impact on the Company. * evidence is lacking regarding the steps that the Applicant took to address the assertion that the Company's Office Manager and accountant were not acting in good faith - noting that, ultimately, the Applicant was responsible for the Company. * evidence is lacking regarding the Applicant's assertion that the Company's Office Manager was also putting money into the Company without the Applicant's knowledge, and there is no adequate explanation as to why she would do that. * evidence is lacking regarding the steps that the Applicant took to address issue of the Company's failure to complete returns for the 2020/2021 and the 2021/2022 tax years. * evidence is uncertain in relation to the specific time at which the Applicant first became aware that the Company was experiencing financial difficulties. 1. The Respondent submitted that the Applicant had an obligation to ensure that the Company's tax returns were filed every financial year. The failure to do so is significant in that the completion of the tax returns would have shown the Applicant whether the Company was trading at a profit or loss. However, turning a blind eye to this crucial information affected his ability to enter into contracts with any certainty and more importantly whether he could repay his creditors. 2. The Respondent contends that relevant considerations regarding the Company's financial circumstances that have not been adequately addressed would include: 1. the Company's cash flow; 2. whether the Company's current liabilities exceed its current assets; 3. whether the Applicant had in place any plans for meeting the Company's obligations and what those plans were; 4. whether the Company was sustaining continuing losses; 5. the Company's liquidity ratio; 6. whether the Applicant complied with the Company's mandatory financial reporting obligations; 7. any unrecoverable loans; 8. whether the Company's creditors were being paid outside agreed timeframes; 9. whether the Company's creditor payment arrangements required re-negotiation; 10. whether any of the Company's creditors demanded cash on delivery as opposed to credit arrangements; 11. whether letters of demand for payment of creditors had been served on the Company; 12. whether the Company had access to alternative sources of finance; and 13. whether there were unpaid state or commonwealth taxes. 1. The Respondent relies on the Liquidator's Report regarding the Company's financial circumstances. The Liquidator's Report noted: Based on further investigations undertaken since my appointment as Liquidator, it is my preliminary view that the Company may have traded whilst insolvent from 30 June 2020 and I estimate incurred debts totalling $2,370,550 since that time which remain unpaid at the date of my appointment. 1. The Respondent submitted that the Applicant either knew about the debts, or ought reasonably to have known about them, and continued to trade in the usual manner without regard to the Company's changed circumstances. In support of this submission, the Respondent refers to the Liquidator's view that the Company did not appear to have rationalised its overhead cost and workforce structure in a timely manner to align with the reduction in turnover and projects following the onset of COVID-19. 2. At the time of his appointment, the Liquidator did not consider that the quoting practices utilised by the Company were adequate and exposed the Company to potential losses on projects in the event of increases in the cost of materials and labour. 3. The Respondent does not dispute the Applicant's evidence that he placed the Company into liquidation upon the advice of his accountant. However, it says that merely following the accountant's advice does not constitute taking all reasonable steps to avoid the winding up of the Company because of insolvency. The Respondent submits that possible options could have included: 1. selling assets; or 2. increasing revenues through increasing fees for work; or 3. increasing or holding revenues steady whilst at the same time decreasing expenses; or 4. raising fresh capital from shareholders; or 5. borrowing from an external party; or 6. in the instance of funds already borrowed, refinancing and raising the limit of the facility. 1. The Respondent submits that the evidence shows that, with respect to the Company's financial position, the Applicant did not take any of these options. In fact, he: 1. adopted a business-as-usual approach without knowing the Company's true financial position; and 2. did not appear to have rationalised the Company's overhead costs and workforce in a timely manner to align with the changed circumstances; and 3. considered that the Company's quoting practices were adequate and as a consequence he exposed the Company to potential losses on contracts due to increases in costs of labour; and 4. did not file company returns for the 2020/2021 and the 2021/2022 tax years. Therefore, in these years he was not aware of the Company's liquidity ratio or if the Company was sustaining continuing losses; and 5. may have traded while insolvent from 30 June 2020 with estimated debts of $2,370,550; and 6. was unsure of the monthly position of the Company because the employed accountant did not do her job properly. Nevertheless, he did nothing to replace the accountant so that he could have an accurate picture of the Company's financial position. 1. In summary, the Respondent submits that the Applicant's overreliance on his Office Manager is an unreasonable disavowal of his responsibility as a company director, and it materially contributed to the Company's failure. The Applicant has provided little explanation as to his involvement with the Company's finances and steps taken to ensure that the Company remained solvent while sales reduced, and debts increased beyond the Company's capacity to repay them. Considering all the relevant circumstances, the Respondent submits that the Tribunal would not conclude that the Applicant took any or all reasonable steps to avoid the Company falling into administration. The Respondent submits that it would not be appropriate for the Tribunal to issue an authority in this case. Fitness and propriety 1. The liquidator's preliminary view was that the Company may have traded whilst insolvent from 30 June 2020. The liquidator further estimated debts totalling $2,370,550 were incurred from that time and remained unpaid at the time of his appointment in May 2022. The detriment resulting from the liquidation of the Company is significant. 2. The Respondent submits that as company director, the Applicant was responsible for overseeing the affairs of the Company. His responsibilities included keeping himself informed of the Company's financial position and performance, and ensuring the Company was able to pay its debts on time. However, he sought to blame the Company's solvency issues on the Company's Office Manager and accountant, whilst not acknowledging his own responsibilities as company director. The Respondent submits that this undermines his claims as to his fitness and propriety to hold an authority. 3. Taking into account all of the relevant circumstances, the Respondent submits that the Tribunal would be concerned that the Applicant would be unfit to perform the duties of a qualified supervisor in the residential construction industry. 4. The Respondent submits that the Applicant's application for a supervisor certificate must be refused as he is not a fit and proper person to hold the certificate in accordance with section 25(1)(a) of the HBA and also in accordance with section 33B(1)(a)(xv) of the HBA as he was a director of a Chapter 5 body corporate at the time of the renewal application. Consideration 1. It has been observed in numerous decisions of this Tribunal that the HBA is consumer protection legislation. In Butler v Commissioner for Fair Trading [2017] NSWCATAD 138, Senior Member Scahill noted at paragraph [53]: Fitness and propriety are flexible concepts. A consideration of whether a person is fit and proper involves an assessment of their knowledge, honesty and ability in the context of the role they are seeking to undertake. In Obradovic -v- Commissioner for Fair Trading, Office of Fair Trading (GD) [2006] NSWADTAP 18 the Appeal Panel agreed that a formerly licensed building contractor should have his application for a new licence refused, despite there being no evidence that he was dishonest or of bad repute. Evidence that he had been extremely tardy and intransigent in dealing with customer complaints, and the regulator, when he held a licence, was sufficient to conclude that he was not fit and proper for the role. In that case, the licensing scheme was among other things, designed to protect consumers and to provide them with adequate means of redress against licensed contractors. 1. In the present matter there is no evidence that the Applicant was dishonest or of bad repute. On the contrary, there is positive evidence of his good repute. 2. Nevertheless, in the circumstances I do not need to determine whether the Applicant is a fit and proper person to hold a qualified supervisor certificate. That is because I am not satisfied that the Applicant took all reasonable steps to avoid the Company falling into administration. 3. With respect to the approach to be taken in this matter, I agree with the various authorities that have been referred to above. I agree with the Respondent that the Applicant was responsible for overseeing the affairs of the Company, including keeping himself informed of the Company's financial position and performance, and ensuring the Company was able to pay its debts on time. I also agree with the Respondent that the evidence shows that he failed to meet his responsibilities in that regard. 4. There is no evidence, other than the Applicant's own assertions, regarding the conduct of the Office Manager and the accountant. However, even if the Applicant's evidence is accepted, it does not alter my conclusion. 5. The Applicant has conceded that he should have taken better steps to monitor the performance of the Office Manager. He also concedes that he should have personally overseen and monitored the management of the Company. That is an inevitable conclusion from the evidence before me. 6. If it is accepted that the Applicant requested information from the Company's accountant and that he was not provided sufficient information to make a valid assessment of the Company's financial position at the time, there is no explanation for why the accountant continued to be retained. In order to meet his obligations as a director, the Applicant should have taken the necessary steps to obtain the information that he needed to be able to satisfy himself of the Company's true financial position. He did not do so. 7. A simple example of his failure is that of the Company's tax returns. It was the Applicant's responsibility to ensure that the Company tax returns were filed every financial year. At the time he was told of the Company's debt to the ATO he must have been aware of the need to lodge tax returns. 8. It is common ground that the Company's 2020/2021 and 2021/2022 tax returns were not completed. The completion of those tax returns would have shown the Applicant whether the Company was trading at a profit or loss. If the Liquidator is correct that the Company may have traded whilst insolvent from 30 June 2020, this would have been revealed if the Company's 2020/2021 tax returns were completed. At that time, the Applicant could have taken steps to try to avoid administration. 9. I agree with the Respondent that this failure affected the Applicant's ability to enter contracts with any certainty and more importantly whether the Company could repay its creditors. In the circumstances he was unable to do either. 10. The Respondent has identified several steps that the Applicant could have taken in an effort to avoid administration and also identified numerous factors that took the Company down the path to administration. These are far more extensive than any failures that might be attributed to the Office Manager or the accountant. 11. In the circumstances, I cannot conclude that the Applicant "took all reasonable steps to avoid the relevant bankruptcy, winding up or appointment of a controller or administrator" as provided for by section 33D of the HBA. It follows that the correct and preferable decision is to refuse the Applicant's application to renew a qualified supervisor certificate under the Home Building Act 1989. 12. In my view, it would not be appropriate for the Tribunal to issue a qualified supervisor certificate to the Applicant at this time. Therefore, the decision under review should be affirmed. Order 1. The decision under review is affirmed. ********** I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 April 2024