On 1 July 2015, the remaining sections of the Queensland Building and Construction Commission and Other Legislation Amendment Act 2014 (Qld) (Amending Act) came into force.
Three of the important reforms brought in by the Amending Act are:
- The insertion of a definition of 'construction company';
- The reduction of the statutory exclusion period from 5 years to 3 years; and
- The elimination of the so called 'permitted individual' application, which is presently provided for in section 56AD of the Section 56AC of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act).
The changes are potentially significant.
- A person took advantage of the laws of bankruptcy or became bankrupt; and
- 5 years had not passed since the relevant bankruptcy event; or
- A company, for the benefit of a creditor:
- Had a provisional liquidator, liquidator, administrator or controller appointed; or
- Was wound up, or was ordered to be wound up; and
- 5 years had not passed since the relevant company event,
then (in the case of a bankruptcy) the bankrupt person or (in the case of a company) each person who was a director, secretary or influential person for the company at any time in the year before the relevant company event, were taken to be 'excluded individuals'.
In the case of a corporate insolvency, the QBCC Act did not discriminate between types of companies. For example, if a person was a director of a major home builder and also the director of a small flower shop, then they would be deemed to be an 'excluded individual' if either the major home builder or the flower shop went into liquidation.
This position was the subject of significant adverse industry comment.
If an individual was deemed to be an 'excluded individual', then that person could apply to the Commission to be categorised as a 'permitted individual'. Such an application required the applicant to demonstrate that they:
...took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event.
Section 56(8A) of the QBCC Act set out a number of criteria which the Commission was required to take into account in determining such an application. These included:
- Keeping proper books and records;
- Seeking proper legal and financial advice;
- Putting in place proper credit management strategies and recovering outstanding debts; and
- Properly provisioning for taxation debts.
If the Commission determined that a person was to be categorised as a 'permitted individual' then that person was not taken to be an 'excluded individual' for the relevant bankruptcy or company event and the Commission could continue to issue them with a licence.
If the Commission determined that a person should not be categorised as a 'permitted individual', then that person's licence was cancelled and it would not be reissued until 5 years have passed from the date of the bankruptcy event or the company event.
We note that the decision to categorise a person as an 'excluded individual' was reviewable in the Queensland Civil and Administrative Tribunal (QCAT).
Does the Amending Act affect current permitted individual applications/reviews?
In short, no.
If (as at 1 July 2015) a person had a 'permitted individual' application pending before the Commission, the Commission can consider the application without reference to the Amending Act.
If a person has commenced review proceedings prior to the commencement of the Amending Act, then those proceedings are not affected by the Amending Act.
If, prior to 1 July 2015, an individual received a notice indicating that the Commission believes that they are an 'excluded individual', and where (as at 1 July) the 28 day review period had not concluded, then that individual may apply to the Commission for categorisation as a 'permitted individual' and the Commission may consider the application without reference to the Amending Act.
What is changed?
First, a person will only be considered to be an 'excluded individual' if a 'construction company' experiences a relevant company event. A 'construction company' is to be defined as:
...a company that directly or indirectly carries out building work or building work services.
To return to the example given above, a person will not be an 'excluded individual' if the small flower shop goes into liquidation, however they will be an 'excluded individual' if the major home builder is wound up for the benefit of a creditor.
Second, the period during which a person will be considered an 'excluded individual' will be reduced from 5 years to 3 years.
Third, and most significantly, the 'permitted individual' application has been abolished Whilst a licensee can make a submission to the Commission about the relevant event, it would appear that such submissions can only relate to whether or not the Commission can be satisfied of the matters referred to in section 56AC (ie, that the person is, in fact, an 'excluded individual').
Assuming that a person fits within the definition of an 'excluded individual', it does not appear that the Commission has any residual discretion to exercise. The Commission must cancel such a person's licence.
What does it mean?
Whilst the limiting of the 'excluded individual' categorisation to circumstances involving a 'construction company' is likely to be welcomed by licensees, the removal of the 'permitted individual' application is likely to be viewed negatively.
A review of the decisions from the QCAT clearly (at least in our view) demonstrates that the 'permitted individual' application provided some protection against the loss of a licence in circumstances where (largely) uncontrollable circumstances resulted in the financial failure of a company.
Such persons are no longer afforded protection under the QBCC Act. Effectively, licensees will be subject to a 'one strike and you're out' regime.
What can be done?
Prudent financial management is the only true salve in relation to the new regime.
In that regard, we recommend that licensees (in addition to complying with the Commission's Minimum Financial Requirements for Licencing Policy) remain in regular contact with their accountant/financial adviser to ensure that their financial position remains strong.
We also recommend that licensees remain in contact with their legal advisers in order to ensure that debtors and creditors are appropriately managed.
Of course, appropriate business structuring may also assist. Whilst it will be difficult to argue that a person was not a director or secretary of a construction company, the phrase 'influential person' is a hazier concept. It is possible to think of ways in which a business could be structured so as to ensure that a licensee (or Mr Big) may not appear to be 'influential' but may (in practice) have some say in the running of a company, even if they are not a director or secretary. Given the draconian consequences of being considered an 'influential person' it remains to be seen what QCAT will do in such a scenario.
Finally, we recommend that if a person does receive a letter from the Commission suggesting that they are an 'excluded individual', they should seek legal advice as a matter of urgency.
The definition of 'excluded individual' contains a number of 'moving parts' (for example, did the relevant company event occur 'for the benefit of a creditor'), which need to be considered in light of a person's individual circumstances.
If a person not truly an 'excluded individual' then such advice will help you prepare a persuasive submission to the Commission and to QCAT (if the Commission will not alter its views).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.