A summary of legislation and the recent case law by Simon Taylor, Barrister at Law.
The determination of whether a person is appropriately classified as an “influential person” for the purposes of section 56AC of the Queensland Building and Construction Commission Act 1991 (Qld) (the “QBCC Act”) is not solely determined by a job title or a shareholding. Rather, it requires an additional examination of what that person actually did on a day-to-day basis.
In the view of the author, a person is more likely to be categorised as an “influential person” if that person has executed a document or entered into a contract on behalf of the company and/or if that person has made a financial decision which binds the company. Obviously, the nature of the transaction, contract or financial decision made will be of significance.
It would appear on the current case law that having the real or hypothetical ability to make such a decision on behalf of a company (e.g. as a consequence of certain shareholding) is not necessarily enough to trigger the definition of "influential person".
Introduction: What is an “excluded individual”?
The Queensland Building and Construction Commission (hereinafter the “Commission”) has the power to classify that someone is an “excluded individual”, when that person:
(a) becomes bankrupt or otherwise takes advantage of bankruptcy laws by entering into a Part IX agreement or Part X arrangement or agreement under the Bankruptcy Act 1966;[1] or
(b) is a director, secretary or influential person for a company at any time up to a year before the company has a provisional liquidator, liquidator, administrator or controller appointed, or is wound up or ordered to be wound up. [2]
An "excluded individual" is not entitled, for a period of 5 years, to:
(a) hold a QBCC contractor licence or nominee supervisor licence;[3]
(b) be a director, secretary or influential person for a company holding a contractor’s licence;[4] or
(c) be a partner of a licensed contractor, for five years from the date of the relevant event.[5]
A person involved in two insolvency events faces the classification of “permanently excluded” (i.e. a life exclusion).[6]
The purpose of such a classification system is to ensure public confidence in Commission’s licensing system and to promote security of payment in the building and construction industry.
A person who has been classified as an “excluded individual” may (at least for the current moment), apply to become a “permitted individual”.[7]
Note well however, that the the proposed amendments to the QBCC Act (per section 20 of the Queensland Building and Construction Commission and Other Legislation Amendment Act 2014) will shortly remove any ability to seek categorisation as a "permitted individual".
In order to become a “permitted individual” (whilst this regime still exists) the excluded person must prove they took all reasonable steps to avoid the causes of the relevant event, or that it was entirely outside the responsibility of the individual concerned, and they could not have avoided the relevant financial failure.[8]
Alternatively, the person classified as an “excluded individual” may seek to have that decision (i.e. the decision by the QBCC to classify them as an "excluded individual" reviewed.[9]
A review is effectively a fresh hearing undertaken by the Queensland Administrative and Civil Tribunal to determine the correct and preferable decision.[10]
The scope for review is somewhat narrow because the question as to whether a bankruptcy event has occurred ought to be a relatively easy question to determine. Similarly, whether a person was a director or secretary at the relevant time also ought to be easily resolved.
However, an issue which is open for some argument is whether a particular employee or shareholder of a company is an “influential person” at the relevant time.
What is an influential person?
The term “influential person” is defined at Schedule 2 of the QBCC Act as follows:
“an individual, other than a director or secretary of the company, who is in a position to control or substantially influence the conduct of the company’s affairs, including, for example a shareholder with a significant shareholding, a financier or senior employee.”
Walker v Queensland Building and Construction Commission
In the case of Walker v Queensland Building and Construction Commission,[11] the applicant, Mr Walker, was employed in the position of “General Manger” of a company which had appointed liquidators. It was uncontroversial that the appointment of liquidators was a “relevant company event” for the purposes of section 56AC of the QBCC Act.
The Commission subsequently served notices on Mr Walker (as well as companies of which he was a director), on the basis that they considered him to be an “influential person” of the company because he inter alia carried the job title of a senior employee, namely “General Manager”.[12]
Mr Walker subsequently sought to review the decision. In support of his application, Mr Walker contended that he carried the title of “General Manager” in job name only and that he did not have the ability to either control or substantially influence the conduct of the companies affairs.
In short, the operations of the company were primarily based in New South Wales and Mr Walker acted as the Queensland contact. To that end, Mr Walker attested that his role was effectively administrative and that he did not have the ability to deal with enquires as to payments, receipts, legal matters or any decision about the company.
The director of the relevant company also provided evidence in support of Mr Walker’s application by attesting that Mr Walker did not have any input into the finances or the day-to-day running of the company.
In contrast, the position of the Commission was that Mr Walker was, by virtue of his post, in a position to act on behalf of the relevant company; and further, that Mr Walker did in fact act in a manner which demonstrated that he either had the actual, implied and/or ostensible authority of the company.
The Tribunal ultimately handed down its decision in favour of Mr Walker by setting aside all the decisions of the Commission. The basis for the Tribunal’s decision could be summarised by the following points:
(a) the test for determining whether an individual was an “Influential Person” requires that the Tribunal consider what that individual actually did (that is, rather than a mere title);[13]
(b) there was evidence from the director of the relevant company in support of the proposition that Mr Walker did not have any input into the finances or the day-to-day running of company;[14] and
(c) there were no matters of considerable significance capable of supporting a contrary view to that provided by the individual at the hearing.[15]
McClintock v Queensland Building Services Authority
In McClintock v Queensland Building Services Authority [16] the Authority (as it then was) sought to argue that a 99% shareholding was of itself sufficient to prove that the applicant was an “influential person”.
The Tribunal stated from [37]:
“If the Authority’s approach is adopted, then irrespective of the involvement in the company of the type of individual described in the definition, they would automatically become excluded individuals under s 56AC(2)(c). This includes any third party financier or senior employee. We consider this approach too broad. Generally there would need to be some evidence of the individual’s position within the company to establish they were in fact in a position to exercise control.
…
In Nation v QBSA (2006) QCCTB 114, the Chairperson said:
“the BSA’s decision relied on the applicant being a substantial shareholder. The fact that the definition of influential person includes by way of example a person who has a substantial shareholding is not determinative of the issue. It does not mean that in every case a substantial shareholder is an influential person…” [emphasis added
Gregory Raymond v Queensland Building Services Authority
In Gregory Raymond v Queensland Building Services Authority [17] the Applicant was the son of the managing director who had the title of “General Manager / Construction Manager”. The question for determination became whether the son, as such a “senior employee”, exerted influence or control over the relevant company.
The Tribunal upon considering the evidence concluded that notwithstanding his title he actually had no influence in the overall finances of the company.
Queensland Building and Construction Commission v Macdonald
In Queensland Building and Construction Commission v Macdonald, [18] Mr and Mrs Macdonald jointly operated a concreting business called Ozmac Concrete Constructions Pty Ltd (hereinafter “Ozmac”) until late 2010 when they became estranged.
Mr Macdonald ceased to be director on 1 April 2011 but continued to hold a 50% shareholding. It was agreed however between Mr and Mrs Macdonald that notwithstanding Mr Macdonald’s shareholding, he would have no say in the running of the company.
In July 2011, the ATO determined that Ozmac had an outstanding taxation liability of $262,250.19 due to the incorrect categorisation of employees as independent contractors.
Mrs Macdonald informed Mr Macdonald of her intentions to liquidate the company. Mr Macdonald opposed that course on the basis that it would have a possible adverse consequence with respect to his BSA licence.
Notwithstanding Mr Macdonald's protests, Mrs Macdonald appointed liquidators on 22 May 2012 thus triggering a “relevant company event” pursuant to section 56AC(1)(a) of the QBCC Act.
The Commission subsequently contended that Mr Macdonald was, as a consequence of his 50% shareholding, in a position to control or substantially influence the conduct of the company’s affairs thus a “influential person” as defined by Schedule 2 of the QBCC Act.
At first instance the Tribunal ruled in favour of Mr Macdonald by providing that he was not an “influential person”, holding at [59]:
“In this matter before me I conclude Mr Macdonald neither understood he had potential as a shareholder to exert influence or control over the affairs of Ozmac Concrete during the relevant period, nor had the relationship capacity to influence or oppose his wife, the director’s, decisions concerning that company. Mrs Macdonald refused to be influenced by her estranged husband in the business decisions of Ozmac Concrete during the relevant period.”
The Commission subsequently appealed on a number of grounds including the ground that the Tribunal erred in applying a test of “actual influence” rather than whether Mr Macdonald was in a “position to influence”.
The Appeal Tribunal disagreed holding at [46] to [38]:
"[36] The Member applied the correct test to determine whether Mr Macdonald was an influential person. The fact the Respondent held a 50% shareholding was not determinative of the matter. He neither understood he had the ability to control or substantially influence Ozmac nor influence his wife’s decisions. In those circumstances the Respondent was not an influential person for Ozmac because he was not in a position to substantially influence.
[37] The Member made his decision on findings of fact based on the evidence of witnesses in a full hearing and it should not be lightly disturbed by an appeal tribunal.
[38] Some hypothetical ability of a party to exert influence over a company, with nothing more, is not sufficient to satisfy the test for influential person. The Chairperson in Nation v QBSA noted that a substantial shareholding must be linked to an ability to influence a company i.e. that the ability of the person must be realistic in terms of the facts specific to the case. I agree with that." [emphasis added]
Conclusion
Every case will fall upon its own unique facts. It would appear on a reading of the above case law that a job title in itself or a substantial shareholding will not be enough to trigger the definition of “influential person”, especially where there is evidence that the individual in question actually had no or little influence over the relevant company.
In the view of the author, a person is more likely to be categorised as an “influential person” if that person has executed a document or entered into a contract on behalf of the company and/or if that person has made a financial decision which binds the company. Obviously, the nature of the transaction, contract or financial decision made will be of significance.
Senior employees and substantial shareholders are obviously most at risk of such a classification. To minimise that risk, some consideration might be given to the wording of employment contracts and shareholders agreements.
If you require professional assistance with a review application then please don't hesitate to contact Simon Taylor, Barrister at Law.
[1] Section 56AC(1) of the QBCC Act.
[2] Section 56AC(2)(ii) of the QBCC Act.
[3] Section 32(1)(c) of the QBCC Act.
[4] Section 31(1)(e) and 31(2)(d) of the QBCC Act.
[5] Section 31A of the QBCC Act; section 56 (1)(d) of the QBCC Act.
[6] Section 58 of the QBCC Act.
[7] Section 56AD of the QBCC Act.
[8] Section 56D(8) of the QBCC Act.
[9] Section 87 of the QBCC Act; section 86(k) of the QBCC Act.
[10] Section 20 of the QCAT Act.
[11] [2014] QCAT 228.
[12] The Commission relied upon a number of other events including the fact that Mr Walker signed an affidavit in an unrelated proceeding in which he referred to the relevant company as “his” company. It was contended by the Commission that such a statement amounted to a conclusion that Mr Walker had the ostensible authority of making statements for and behalf of the company and thus was an "influential person" of the company. The Tribunal disagreed at [22] that anything turned upon this allegation. Notwithstanding, in the view of the author in some circumstances this would be a compelling argument.
[13] [2014] QCAT 228 at paragraph [6].
[14] Ibid at paragraph [13].
[15] Ibid at paragraph [25].
[16] [2011] QCAT 310.
[17] [2012] QCAT.
[18] [2014] QCATA 353.