respondent. The Tribunal affirmed the respondent's internal review decision dated 10 September 2019 refusing the applicant's application for a contractor licence in the category of general building work under...
Key principles
The Tribunal affirmed the delegate's refusal because the applicant was a director of an externally‑administered company at the time of his application, bringing s 33B(1)(a)(xv)...
A members' voluntary winding up under the Corporations Act is not satisfied by consent orders in the Federal Court alone; the statutory mechanism in s 495 of the Corporations Act...
On the evidence, the applicant had not taken all reasonable steps to avoid liquidation: he became aware of the ATO assessment (13 July 2017) and failed to contribute to satisfy...
There was insufficient evidence to find there was 'no evident risk' to the public that the applicant would be unable to complete future residential contracts: absence of evidence...
Issues before the court
Was the applicant applying for a new licence or for restoration of his previously held licence?
Which provisions of the HB Act apply to the Licence Application?
Plain English Summary
Hotait was refused a NSW general building contractor licence because he had been a director of Skyworks NSW Pty Ltd which had been wound up, and he did not meet the statutory exceptions allowing a licence where a company has been externally administered. The Tribunal found he remained a director when he applied, the winding up was not a members' voluntary winding up, he had not taken all reasonable steps to avoid the company's liquidation (notably he failed to contribute to known tax liabilities after the ATO assessment), and there was insufficient evidence to show no evident risk he could complete future contracts. The Tribunal therefore affirmed the refusal.
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Did the Company's winding up constitute a members' voluntary winding up (which would exempt the applicant from the disqualification)?
Was the applicant a director at the time of making the Licence Application?
Billal Hotait applied on 1 March 2019 for a contractor licence in the category of general building work (the Licence Application). Skyworks NSW Pty Ltd (the Company), incorporated in 2011, had been wound up by court consent and placed into liquidation following proceedings that culminated in Federal Court consent orders on 6 June 2018 appointing a liquidator (Mr Bailey) and winding up the company. The ATO had issued a default assessment to the company on 13 July 2017 for $1,699,202.60 (GST and penalties) and there were substantial unsecured creditor claims (the liquidator's report recorded liabilities totalling over $14m). The applicant and his former co‑director, Mr El Rihani, had previously executed a Separation Deed that, among other things, contemplated contributions to a trust account and equal contribution to tax liabilities [Separation Deed text annexed; see evidence summaries].
NSW Fair Trading refused Hotait’s licence application on 2 April 2019; an internal review on 10 September 2019 affirmed that refusal. The basis of refusal was statutory disqualification because the applicant was a director of an externally‑administered body corporate when the application was made; the discretion to issue a contractor licence despite that disqualification is contained in s 33C of the Home Building Act 1989 (NSW) but is conditioned on several requirements (including that the applicant took all reasonable steps to avoid liquidation and that there is no evident risk the applicant will be unable to complete future residential contracts). Hotait sought administrative review in NCAT (Occupational Division). Senior Member G Blake AM SC heard the matter and affirmed the decision to refuse the licence on 2 April 2020 (reasons issued that day). The Tribunal found (a) the application was a new application, (b) the applicant was a director at the time he applied, (c) the company's winding up was not a members' voluntary winding up, (d) Hotait did not take all reasonable steps to avoid liquidation, and (e) there was evidence of an evident risk that he may be unable to complete future contracts. The Tribunal therefore concluded that the s 33C exceptions did not apply and affirmed the refusal (Decision: "the correct and preferable decision is to affirm the Review Decision" [Decision 1]).
Why the court decided this way
The Tribunal’s reasoning proceeds from statutory text and established administrative jurisprudence:
Characterisation of the Application: The Tribunal treated the form as a "new application" rather than an application for restoration. That characterisation matters because restoration has a three‑month time limit under the applied LR Act/HB Act modifications (s 19(3)(c) HB Act), and because s 40(1) makes restoration be treated as issue; the Tribunal held statutory rules and time limits govern characterisation rather than selections on the form. Treating it as a restoration would have rendered it out of time, supporting the Tribunal's reading that it was a new application.
Statutory disqualification and exceptions: The critical statutory provisions are s 33B(1)(a)(xv)/(xvi) (disqualification where person is or was director of an externally‑administered company) and s 33C(2)/(3) (discretionary exceptions). These provisions were added and tightened by the 2014 amendments to the HB Act aimed to tackle phoenixing and improve consumer protection; explanatory materials were relied upon to illuminate legislative intent.
No members' voluntary winding up: The Tribunal interpreted the statutory exception narrowly. The exception in s 33B excludes companies externally administered due to “a members' voluntary winding up”, but a members’ voluntary winding up requires compliance with the Corporations Act procedure (e.g. s 495 mechanism and s 494 declaration of solvency). The Federal Court consent orders appointing a liquidator did not show the statutory members' voluntary winding up process had been followed; therefore the exception did not apply.
Director status at application time: The Tribunal rejected the applicant's assertion that he resigned on 25 July 2018, because there was no evidence the resignation had been delivered to the registered office or that the company's constitution displaced the replaceable rule (s 203A). ASIC records showed he remained a director on 1 March 2019. Consequently s 33B(1)(a)(xv) (not the s 33B(1)(a)(xvi) path) applied.
Evident risk test: The Tribunal applied established Tribunal authorities (Avila; SM Engineering; Alford) that 'evident risk' means obvious or plain risk. Indicators include prior failures to complete contracts and the applicant's current financial capacity. Although Hotait had completed prior building jobs without complaints, there was no evidence of his present financial capacity to fund future projects. Given the Company’s insolvency and substantial creditors, the Tribunal could not find no evident risk; that limb failed.
Reasonable steps to avoid liquidation: Applying the Clarke/Dimascio framework, the Tribunal asked when Hotait should have become aware of insolvency risk and what objectively reasonable steps he took thereafter. The ATO assessment dated 13 July 2017 put him on notice; on the evidence he did not contribute to the Trust Account as required, did not meet his share of the tax liabilities, and allowed a substantial payment to Beauchamp to be made. The Tribunal concluded he did not take all reasonable steps to avoid liquidation.
These steps moved from statutory text through evidential findings to the final legal conclusion that the applicant had not met the legal preconditions for relief under s 33C and so the refusal was correct and preferable.
Before and after state of the law
Before the 2014 Home Building Amendment Act, restrictions respecting applicants who were directors of externally‑administered companies were in subordinate instruments. The 2014 amendments moved these grounds into the Act and tightened exemptions so that only members' voluntary winding up would not disqualify applicants (the legislative record shows a policy emphasis on countering phoenixing), and required consistent considerations across licensing decisions.
This Tribunal decision applies the post‑2014 statutory framework strictly: it confirms that the statutory phrase “external administration resulting from a members' voluntary winding up” must be read with the Corporations Act mechanism in mind (i.e. formal compliance with the members' voluntary winding up rules), and it reiterates established Tribunal tests for the 'evident risk' and 'reasonable steps' limbs. Practitioners should note the decision as an affirmation that formal corporate procedure matters for licensing exemptions and that factual non‑compliance with split‑the‑liability arrangements (like Separation Deeds) will be scrutinised when assessing reasonable steps and risk.
Key passages with plain-English translation
"I am satisfied that there was not an external administration resulting from a members' voluntary winding up ... the mechanism in s 495 of the Corporations Act must be followed.", Translation: You cannot call a court‑ordered winding up a 'members' voluntary winding up' for the purpose of escaping the licensing disqualification unless the strict Corporations Act process for a members' voluntary winding up was actually followed.
"I am not satisfied that the applicant resigned as a director ... There is no evidence ... the letter of resignation was delivered ...", Translation: A mere unsigned/unserved resignation letter is not enough to remove someone from the company register for licensing purposes; ASIC entries and proof of delivery matter.
"The applicant should have become aware ... on 13 July 2017 when the ATO issued an assessment ... The applicant took no step to meet his share.", Translation: The ATO default assessment put him on notice of insolvency risk; he did nothing practical (no money to the trust, no payment of ATO liability), so he failed the objective standard of reasonable steps.
"There was no evidence of the applicant's financial circumstances ... I am not satisfied the applicant would be able to fund a construction business ...", Translation: Absent clear proof of personal financial capacity to run building projects, the licensing authority cannot be satisfied the applicant will not pose a risk to consumers.
What fact patterns trigger this precedent
This decision is engaged where:
An applicant for a contractor licence has recently been a director of a company that entered external administration or was wound up; and
The company was wound up by court process (consent orders) or otherwise and there is a question whether the winding up was a members' voluntary winding up; and/or
There is an ATO assessment or obvious indicia of insolvency before the license application; and
The applicant seeks to rely on informal arrangements (Separation Deeds, guarantees) or on prior resignation letters to rebut disqualification or to show reasonable steps.
In such fact patterns the Tribunal will:
Demand proof of formal compliance with Corporations Act requirements to treat the winding up as members' voluntary;
Require contemporaneous documentary proof of any resignation (e.g. delivery to registered office/ASIC filing);
Scrutinise whether the applicant made tangible financial contributions or took objectively reasonable action to avoid insolvency once on notice; and
Require clear evidence of current financial capacity to rebut 'evident risk' concerns.
How later courts have treated it
At the time of this decision (2020) the Tribunal cited and applied well‑established Tribunal authorities such as Avila, SM Engineering, Clarke and Dimascio for the tests of 'evident risk' and 'reasonable steps'. The decision itself reinforces those lines of authority rather than breaking new ground. It confirms that Tribunal practice will continue to require objective and documentary proof to engage statutory exceptions.
Practitioners should monitor appellate treatment (if any) for possible refinements on: (a) the necessary proof to show a members' voluntary winding up; (b) how flexible the Tribunal may be with respect to resignation proofs; and (c) the depth of financial disclosure required to discharge the 'no evident risk' limb.
Still-open questions
What degree of documentary proof is necessary to establish a members' voluntary winding up where parties rely on court consent orders? The Tribunal required clear compliance with s 495 and s 494, but future cases may test whether certain combinations of shareholder resolutions plus court orders can suffice in particular circumstances.
How much and what kind of financial disclosure will satisfy the 'no evident risk' limb? This decision indicates bank statements and creditor lists will be required in many cases, but practitioners will need more concrete guidance on thresholds.
Resignation formalities: the decision underlines the importance of proof of delivery to the registered office/ASIC update, but subsequent changes in the Corporations Act (s 203AB added February 2020) alter resignation effectiveness rules in some circumstances. How those changes interplay with licensing assessments that relate to conduct before the amendment date raises transitional and retrospective questions.
Parity principle: the Tribunal accepted consistency should guide discretion but declined to apply a strict parity rule. There is room for future elaboration on when co‑director parity should lead to identical licensing outcomes, particularly where evidence differs.
Practical takeaways for practitioners advising licence applicants:
Produce contemporaneous proof of any resignation and ASIC records if you seek to avoid s 33B(1)(a)(xv);
Provide full financial disclosure (bank statements, list of creditors, evidence of personal assets or funding sources) to rebut 'evident risk';
Demonstrate concrete steps taken to meet liabilities (payments to Trust Account, ATO settlements, formal creditor arrangements) if relying on s 33C(2)(c) or s 33C(3)(b);
If relying on a members' voluntary winding up exemption, ensure the Corporations Act s 494/495 processes are properly executed and evidenced.
This decision is a cautionary example that informal arrangements and unproven assertions will not substitute for statutory compliance and documentary proof when licensees seek to avoid disqualification following corporate insolvency.
Judgment (47 paragraphs)
[1]
Introduction
The applicant, Billal Hotait, seeks an administrative review pursuant to s 83B of the Home Building Act 1989 (NSW) (HB Act) of the internal review decision of a delegate of the respondent, the Commissioner for Fair Trading, Department of Finance, Services and Innovation, made on 10 September 2019, affirming the decision of the delegate of the respondent made on 2 April 2019 refusing the applicant's application for a contractor licence in the category of general building work under the HB Act (the Review Decision).
Each of the applicant and the respondent treated the Review Decision as the decision the subject of administrative review, notwithstanding that on 9 July 2019 the internal review was finalised pursuant to s 53(8)(b) of the Administrative Decisions Review Act 1997 (NSW) (ADR Act) by reason of the applicant not having been notified of the outcome of the review within 21 days after the application for the review was lodged.
I have decided that the correct and preferable decision is to affirm the Review Decision pursuant to s 63(3)(a) of the Administrative Decisions Review Act 1997 (NSW) (ADR Act).
[2]
Background
On 6 April 2006, the respondent issued to Hussein El Rihani (Mr EI Rihani) contractor licence no 174444C in the category of general building work under the HB Act only for contracts not requiring home warranty insurance (the El Rihani Licence).
On 18 April 2008, the respondent issued to the applicant contractor licence no 204595C in the category of general building work under the HB Act (the Hotait Licence).
On 14 February 2011, Skyworks NSW Pty Ltd (the Company) was registered as a company under the Corporations Act 2001 (Cth) (the Corporations Act) with the applicant and Mr EI Rihani appointed as directors and each holding one of the two issued ordinary shares.
The Company carried on the business of residential property development.
On 27 October 2016, the Australian Taxation Office (the ATO) in its letter to the Company confirmed the Company had been selected for an audit of its activity statement and income tax returns for the period from 1 July 2014 to 30 September 2016, and advised that the following documents were overdue: five activity statements for the period from 1 April 2015 to 30 June 2016 and the income tax return for the tax year ended 30 June 2015.
On 19 December 2016, the applicant, Mr El Rihani, Beauchamp Developments Pty Ltd (Beauchamp) and Parramatta Project Pty Ltd (Parramatta Project) executed a Deed of Separation (the Separation Deed).
On 19 December 2016, Belair Projects Pty Limited (Belair), Mr El Rihani, the Company and the applicant, executed a Deed of Guarantee and Indemnity (the Belair Guarantee).
On 13 July 2017, the ATO in its letter to the Company gave notification of its audit decision of the amount required to be paid of $1,699,202.60, comprised of increased GST payable of $915,917.00 and a penalty for failure to provide activity statements for the period from 1 April to 31 December 2015 of $783,285.60.
On 1 September 2017, the applicant commenced proceedings no NSD1514/2017 in the Federal Court of Australia (the Federal Court) against Mr El Rihani and the Company seeking orders including that the Company be wound up on the just and equitable ground (the Hotait Federal Court proceedings).
On 6 June 2018, the Federal Court made orders in the Hotait Federal Court proceedings by the consent of the parties including that the Company be wound up and that Liam Bailey (Mr Bailey) of O'Brien Palmer be appointed as liquidator of the Company.
On 10 July 2018, the respondent in its letter to the applicant gave notice of its intention to cancel the Hotait Licence.
On 10 July 2018, the respondent in its letter to Mr El Rihani gave notice of its intention to cancel to the El Rihani Licence.
On 23 July 2018, Mr El Rihani resigned as a director of the Company.
On 21 August 2018, the respondent in its letter to Roc Build Pty Ltd cancelled the Hotait Licence.
On 6 September 2018, Mr Bailey issued his statutory report to creditors in respect of the Company (the Creditors Report).
On 26 October 2018, the respondent in its letter to Mr El Rihani's lawyers cancelled the El Rihani Licence.
On 24 January 2019, the respondent renewed the El Rihani Licence.
On 1 March 2019, the applicant applied to the respondent for a contractor licence in the category of general building work under the HB Act (the Licence Application) in the form of the respondent standard "Application Form - Individual" (the Application Form).
On 2 April 2019, the delegate of the respondent refused the Licence Application (the Decision).
The historical company extract of ASIC dated 2 April 2019 of the Company records that since 31 January 2017 the registered office has been Level 5, 619 Pacific Highway, St Leonards NSW 2065, that the applicant has been a director since 14 February 2011, and Mr El Rihani was appointed and ceased as a director on 14 February 2011 and 23 July 2018 respectively.
On 18 June 2019, the applicant requested an internal review of the Decision.
On 10 September 2019, the delegate of the respondent made the Review Decision.
[3]
The Review Decision
In the Review Decision, the delegate of the respondent found that the Licence Application is for a contractor licence in the category of general building work or swimming pool building, the Company is in liquidation and the applicant was a director of the Company when the Licence Application was lodged on 1 March 2019, and accordingly the respondent was required to refuse the Licence Application pursuant to ss 33B(1)(a)(xv) and 33C(2) of the HB Act.
[4]
Procedural history
On 5 August 2019, the applicant commenced proceedings no 2019/242633 in the Tribunal against the respondent by filing an application in which he is seeking an administrative review of the Review Decision which he understood had been made on 9 July 2019.
The hearing was held on 10 and 24 March 2020. By the consent of the applicant and the respondent the hearing on 24 March 2020 was conducted by telephone.
[5]
The hearing
The applicant tendered the following written evidence:
1. the affidavit of the applicant sworn on 25 November 2019 (ex A1) (the first Hotait affidavit);
2. the affidavit of Mr Bailey affirmed on 25 November 2019 (ex A2) (the Bailey affidavit);
3. the affidavit of the applicant sworn on 4 February 2020 (ex A3) (the second Hotait affidavit);
4. the affidavit of the applicant sworn on 31 August 2017 filed in the Hotait Federal Court proceedings (ex A4) (the Federal Court affidavit).
The respondent tendered the following written evidence:
1. a bundle of documents lodged pursuant to s 58 of the ADR Act (pages 1-134) (ex R1) (the respondent's documents);
2. a supplementary bundle of documents lodged pursuant to s 58 of the ADR Act (pages 1-151) (ex R2) (the respondent's supplementary documents).
Each of the applicant and Mr Bailey gave oral evidence.
[6]
The submissions
The applicant provided the following written submissions:
1. undated submissions;
2. undated further submissions received by the Registry on 23 March 2020.
The respondent provided written submissions dated 26 February 2020.
Counsel of each of the applicant and the respondent made oral submissions.
[7]
The first Hotait affidavit
In the first Hotait affidavit, the applicant in addition to the background relevantly:
1. sets out details of seven projects that involved residential building works he carried out under the Hotait Licence without incident, including no complaints being raised by the customer regarding workmanship, delay or any other issue arising under the construction contract, or by any regulator regarding non-compliance with obligations imposed on him under the HB Act or any other law;
2. sets out details of his risk management regarding contractors including his induction program and approach to health and safety issues;
3. sets out details of the external administration of the Company;
4. asserts that on 25 July 2018 he resigned as a director of the Company by a letter of that date addressed to the Company at Level 5, 619 Pacific Highway, St Leonards NSW 2065 which was expressed to be "with immediate effect".
[8]
The second Hotait affidavit
In the second Hotait affidavit, the applicant relevantly:
1. states that Mr El Rihani has commenced proceedings number NSD807/2018 Federal Court to resolve the proper construction and liabilities arising under the Separation Deed (the El Rihani Federal Court proceedings), and denies that he is in breach of the Separation Deed;
2. states that he did not make a contribution to the debt of the Company to the ATO because Mr El Rihani did not provide documents to enable him to consider whether to consent to the lodgement of an objection to the ATO's GST assessment of the Company.
[9]
The Federal Court affidavit
In the Federal Court affidavit, the applicant relevantly:
1. refers to the following chronology:
1. at the time of the registration of the Company, he and Mr El Rihani agreed that they would equally share in its profits;
2. from its registration to about 2014, the Company completed a number of property developments including on sites at Botany, Campsie, Wahroonga, Drummoyne, Kingsford, Hornsby, Hillsdale and Top Ryde;
3. by 2013, his relationship with Mr El Rihani became strained. Much of the tension arose by reason of the fact that Mr El Rihani was spending time working for other companies he controlled, including Decode Sydney Pty Ltd and Smart Engineering Solutions Pty Ltd;
4. during 2014, he became aware that Mr El Rihani was conducting side deals with clients without informing him, including purchasing property with clients for the purpose of property development where some of those clients owed money to the Company;
5. in or around October 2014, Mr El Rihani opened a separate bank account in the name of the Company with the Commonwealth Bank and became the sole signatory for that account;
6. towards the end of 2015, he decided to effect a commercial separation from Mr El Rihani after he obtained:
1. bank statements from the Commonwealth Bank which disclosed large cash deposits being made into the Company's account with no description; and
2. spreadsheets and dummy invoices regarding works allegedly completed by the Company;
1. there ensued long and somewhat difficult negotiations with Mr El Rihani, during which he provided all information within his control in response to the request on 8 November 2016 by the Company's accountant for information including the Company's accounting files to satisfy the ATO audit, whereas Mr El Rihani was non-responsive to the request and subsequent requests;
2. by 8 June 2017, his relationship with Mr El Rihani had completely deteriorated to the extent that Mr El Rihani commenced proceedings in the District Court of New South Wales against him alleging breaches of the Separation Deed;
3. on 30 June 2017, 7 July 2017 (erroneously dated 6 June 2017) and 11 July 2017, his legal representatives wrote to Mr El Rihani's legal representatives identifying significant concerns regarding the operation of the Company and suggesting it be agreed that the Company be placed into liquidation by way of a member's voluntary winding up;
1. states that there is no way the Company can fund the payment of $1,699,202.60 for GST and penalties;
2. states that in his view the Company is unable to pay its debts;
3. relevantly annexes the following documents:
1. the Separation Deed;
2. the Belair Guarantee.
[10]
The Bailey affidavit
In the Bailey affidavit, Mr Bailey relevantly:
1. annexes the email he received from the respondent on 5 September 2019 requesting information about the applicant and the liquidation of the Company and the email in response he sent to the respondent on 6 September 2019, in which he stated:
I am not aware that Mr Hotait had attempted to resign as Director on 25 July 2018 or at any time. In any event, such a resignation is largely meaningless considering I was appointed as Liquidator on 6 June 2018.
Prior to my appointment, Messrs Hotait and El Rihani entered into a Deed of Separation, a spurious document that purports to divide the assets of the Company and provide for payment of unpaid liabilities of the Company in equal proportion by both directors. I seriously consider this document to be a substantial breach of duty by both directors. Further, it seems apparent to me that the document was wholly ineffectual as an attempt to resolve the insolvency of the Company, in that it has been largely ignored and the Company currently owes creditors as much as $10M.
1. states that as a whole, he presently considers that Mr El Rihani and the applicant are on equal standing when it comes to their involvement in the winding up of the Company. He does not consider one has been a better corporate citizen than the other, and he is of the view that they both ought be treated equally.
[11]
The applicant
In his oral evidence, the applicant relevantly:
1. agreed that the Company had not lodged activity statements for 2015-2016, and in 2017, and an income tax return for 2015;
2. agreed that the ATO was the Company's largest creditor;
3. asserted that the Separation Deed provided a means for the Company's creditors to be paid;
4. stated that he controlled Beauchamp, and that Mr El Rihani controlled Parramatta Project;
5. stated that neither he nor Beauchamp had made a payment to the Company;
6. denied that the first sentence of the answer to question 3.2 of Additional Details Form 5 comprising part of the Application Form was false.
[12]
Mr Bailey
In his oral evidence, Mr Bailey said that it had not been necessary for him to adjudicate on proofs of debt, there was not likely to be any payment to creditors of the Company, and the Company had debts in excess of $10,000,000.00.
[13]
The respondent's documents
The respondent's documents relevantly included:
1. the Application Form;
2. an email from Mr Bailey to the respondent sent on 6 September 2019 (the 6 September 2019 Bailey email);
3. the Creditors Report.
The applicant in the Application Form relevantly:
1. ticked a box stating that he wishes to "reapply for a previously held Licence/Certificate No." (page 1);
2. states that the Hotait Licence expired on 21 August 2018 (page 1);
3. provided twice details of the Hotait Licence (page 1; Additional details form 2, page 1);
4. ticked a box stating that the category for which the application is made is "General building work" (page 2);
5. ticked a box twice stating that information has been provided with respect to a "new application" (Additional details form 2, page 1; Additional details form 5, page 1);
6. ticked a box stating that he is "applying for or seeking to retain a contractor licence" (Additional details form 5, page 1).
The applicant in "Additional Details Form 5" headed "External Administration of a Company" comprising part of the Application Form relevantly provided the following answer to the following question:
3.2 When did you first become aware that the company was experiencing financial difficulties or that there were any problems with finances for the company?
The company never experienced financial difficulty. My co-director Mr Hussein El Rihani, committed gross misconduct in his role as a director of Skyworks NSW Pty Ltd. As part of my obligation as a director to do the right thing, I challenged Mr El Rihani to be forth coming (sic) in providing information that was required for lodgement (sic) of tax compliance, he did not respond and consequently my legal advise (sic) was to wind up the company voluntarily. I then was compelled to seek Federal Court application to windd (sic) up the company under just and equitable grounds. The company was eventually wound up by way of consent order. This is akin to a members (sic) voluntary winding up. After that, I resigned as director. But I engaged a lawyer to respond to a Notice to Cancel my license, in which they failed to inform the Fair Trading that was no longer a director prior to the response being submitted. I attach a copy of my resignation. Therefore, at the time that I responded to my notice, I was not a director of a company under external administration.
[14]
The respondent's supplementary documents
The respondent's supplementary documents relevantly included:
1. the statement of the Trust Account referred to in cl 10.1 of he Separation Deed (the Trust Account) as at 4 May 2017 (the Trust Account Statement);
2. the "Declaration by director or officer of a company under external administration" dated 14 September 2018 of Mr El Rihani (the 14 September 2018 El Rihani Declaration);
3. the Statutory Declaration dated 24 September 2018 of Mr El Rihani (the 24 September 2018 El Rihani Declaration);
4. the submission of Mr El Rihani and Decode Pty Ltd to NSW Fair Trading (the El Rihani Submission);
5. the Renewal Assessment Sheet for the El Rihani Licence dated 24 January 2019 of the respondent (the El Rihani Assessment).
The Trust Account Statement records credits totalling $1,487,055.98 and debits totalling $1,476,571.02 including a payment of $896,482.09 to Beauchamp.
In the 14 September 2018 El Rihani Declaration, Mr El Rihani relevantly provided the following answers to the following questions:
8. Who was responsible for the day-to-day management of the company
Operations & delivery - Hussein El Rihani
Finance - Billal Hotait
…
23. What steps did you take to satisfy yourself that the balance sheets and profit and loss accounts were correct
As I was in charge of Operations, I relied on our accountants and my then partner Bill who was delegated the matter of Accounts/Finance as stated in response 8
In the 24 September 2018 El Rihani Declaration, Mr El Rihani relevantly states that:
1. he paid $565,418 55 to creditors or the Company and the applicant did not cover his share of the payments;
2. under the Separation Deed he and the applicant had agreed to pay $200,000.00 into a trust account and if liability exceeded the amount in the account, they would both pay an additional $100,000.00. Due to lack of funds after creditor payments, he deposited a further $200,000.00 into the account pursuant to cl 10.5, $100,000.00 of which was contributed on behalf of the applicant. On 26 April 2017, he sought repayment of $100,000.00 from the applicant;
3. the applicant sought to resile from his obligations under the Separation Deed by initiating the winding up of the Company.
In the El Rihani Submission, Mr El Rihani asserted that he never could have anticipated that audit of the Company by the ATO and the mismanagement of the books and records by the former accountant of the Company would be the catalyst, among other factors, for its winding up.
[15]
Written submissions
The applicant made the following written submissions:
1. the Licence Application was an application for a restoration of a licence pursuant to s 10 of the Licensing and Registration (Uniform Procedures) Act 2002 (NSW) (the LR Act) for the following reasons:
1. in section 2 of the Application Form the applicant has ticked a box stating that he wishes to "reapply for a previously held licence";
2. the fact that the applicant has ticked the box stating that information has been provided with respect to a "new application" cannot be determinative in circumstances where the only options provided were a new application and a renewal application, and there was no box to tick for a restoration application;
3. when the Application Form is read in its entirely, it demonstrates that the applicant was seeking to restore the Hotait Licence. The applicant has provided details of the Hotait Licence on pages 1, 7 and 9 at least three occasions. Had the applicant sought a new licence, it is questionable whether details of any previous licence are relevant to that type of application;
4. the time limit imposed by s 10(1)of the LR Act as modified by section 19(3)(c) of the the HB Act has no work to do on the basis that the Hotait Licence did not expire until 17 April 2020, notwithstanding that it was cancelled on 21 August 2018;
5. s 40(1) of the HB Act does not apply in accordance with the approach of the respondent in the renewal of the El Rihani Licence;
and the respondent's decision to refuse the applicant's application for restoration of his contractor licence is a reviewable decision;
1. there was a member's voluntary winding up of the Company, and accordingly the restrictions imposed by s 33B(1)(a)(xv) and (xvi) of the HB Act do not apply for the following reasons:
1. extensive efforts were made by the applicant to voluntarily wind up the Company to no avail by reason of Mr El Rihani not providing consent;
2. the consent orders made by the Federal Court in the Hotait Federal Court proceedings on 6 June 2018 reflect the agreement of all shareholders to appoint a liquidator. There is no difference that this agreement has been reached and reflected in consent orders rather than minutes of a general meeting of shareholders;
3. had a shareholder meeting been called and circular resolution signed, it would have been in the very same terms as the consent orders;
4. as all shareholders signed the consent orders through their respective representatives, it was open for them to waive any requirement for 21 days' notice to take place to call a general meeting;
5. the fact that a declaration of solvency was required under s 494 of the Corporations Act, there is no evidence that one could not have been proffered by Mr El Rihani and/or the applicant. It was not put to the applicant in cross-examination that he was not prepared or unable to provide such a declaration;
6. even if a declaration of solvency is provided, the liquidator is not bound by it;
1. he does not concede that there is insufficient evidence to find that he resigned as a director of the Company for the following reasons:
1. the constitution of the Company is not in evidence and its content is unknown. The ambit or displacement of the replaceable rules is also unknown;
2. his evidence is that he provided the resignation to his solicitors with express instructions to effect his resignation. There is no evidence that the resignation was served on the Company's registered office;
1. he took all reasonable steps to avoid the liquidation of the Company for the following reasons:
1. firstly, on and from the end of 2015 the applicant went to great lengths to avoid the external administration of the Company. These steps included writing to Mr El Rihani's legal representatives on three occasions seeking a members voluntary winding up of the Company;
2. secondly, the Separation Deed is of no import as the Company is not a party to it, and the question of whether or not the applicant or Mr El Rihani was in breach of their obligations under it is a matter yet to be determined by the Federal Court in the El Rihani Federal Court proceedings;
3. thirdly, it is common ground that the Company was not wound up by reason of insolvency It was wound up on just and equitable grounds on the basis of irreconcilable differences between its two directors;
1. the applicant is otherwise a fit and proper person for the following reasons:
1. firstly, there is no suggestion that the applicant does not hold the requisite knowledge and experience required to hold a contractor's licence nor could there be given the applicant's education and protracted and expansive involvement in the construction industry;
2. secondly, while the applicant acknowledges that it was his responsibility as a director of the Company to properly manage its books and records, he could not have foreseen the conduct engaged in by Mr El Rihani and the mismanagement of the books and records by the former accountant of the Company;
3. thirdly, there is no suggestion that the applicant has engaged in any unlawful or dishonest conduct at any time;
4. fourthly, the character honesty and integrity of the applicant is not in question;
5. fifthly, there is no allegation of faulty workmanship against the applicant;
6. sixthly, the applicant has demonstrated the ability to comply with all obligations imposed on him by the HB Act and its regulations over an extended period of time. His compliance is not in question;
1. the Licence Application should have been treated in the same manner as the application for the renewal of the El Rihani Licence for the following reasons:
1. firstly, the respondent appears to have accepted the submissions made by Mr El Rihani that Mr El Rihani took all reasonable steps to avoid the liquidation of the Company in circumstances where:
1. no input whatsoever was sought from the applicant;
2. no substantive enquiries were made with Mr Bailey;
3. no interim or final hearing had taken place to determine the real cause of any breakdown in relationship as between the applicant and Mr El Rihani;
4. the respondent does not appear to have made any substantive enquiries whatsoever to test the veracity of the evidence provided by Mr El Rihani at the time;
1. secondly, the need to treat Mr El Rihani and the applicant the same is obvious;
2. thirdly, there is a reasonable expectation that the applicant will be treated fairly.
[16]
Oral submissions
The applicant made oral submissions which substantially repeated his written submissions.
[17]
Concessions
The applicant conceded that the additional conditions imposed by s 33C(2)(a) and (d) of the HB Act apply to the Licence Application if it is properly characterised as an application for the restoration of a licence and is to be treated as if it were an application for a new licence pursuant s 40(1) of the HB Act, and there was not a member's voluntary winding up of the Company.
[18]
Written submissions
The respondent made the following written submissions:
1. there was not a member's voluntary winding up of the Company for the following reasons:
1. in form, the winding up of the Company arose from consent orders made by the Federal Court in the Hotait Federal Court proceedings on 6 June 2018 and not a resolution passed at a general meeting of shareholders;
2. in substance, the processes in members voluntary winding up and other forms of external administration are not the same as the former requires a declaration of solvency;
1. the applicant did not resign as a director of the Company for the following reasons:
1. although he prepared a letter dated 25 July 2018 which he instructed his former solicitors to lodge with ASIC, they did not do so. ASIC records indicate that he was a director of the Company on 1 March 2019 when he made the Licence Application;
2. he was prohibited by s 201A(1) of the Corporations Act from resigning as a director of the Company without nominating a replacement director as he was its sole director on 25 July 2018;
1. the applicant did not take all reasonable steps to avoid the liquidation of the Company within s 33C(2)(c) of the HB Act, or s 33C(3)(b) of the HB Act if he was not a director of the Company at the time of making the Licence Application, for the following reasons:
1. he did not meet his share of the Company's tax liability, which the Separation Deed required him to meet;
2. it was unreasonable for him not to meet his share of the Company's tax liability;
3. he was faced with the possibility of insolvency when he failed to pay money into the Trust Account to settle the Company's liabilities. He should have been aware that insolvency was a possibility when the substantial amended assessments were issued by the ATO. After these events, a reasonable person with his financial experience should have taken steps to avoid liquidation including paying money into the Trust Account and contributing money to settle the ATO's claim;
4. the El Rihani Federal Court proceedings are irrelevant to this issue;
1. the applicant poses an evident risk to the public that he will be unable to complete contracts entered into in the future to do residential building work within s 33C(2)(b) of the HB Act, or s 33C(3)(a) of the HB Act if he was not a director of the Company at the time of making the Licence Application, for the following reasons:
1. construction companies that do not meet their tax obligations and enter liquidation with substantial debts pose a risk to the public. They are exactly the sorts of companies that give rise to a risk that they will not complete building contracts in the future;
2. the test does not depend on his skill as a builder, but instead looks to the risk that he will be unable to complete contracts in the future. That risk is informed by the fact that his most recent company entered liquidation with substantial outstanding creditors. Importantly, he has not filed evidence that might rebut such a concern. The Tribunal would need a clear and comprehensive summary of his financial position, including. bank statements and a list of creditors and potential claims that shows a strong capacity to fund ongoing projects and little risk of insolvency;
1. the Tribunal is not required to treat the applicant and Mr El Rihani alike for the following reasons:
1. the parity principle has been rejected by the Tribunal in the context of the cancellation of a licence;
2. if the parity principle can apply to decisions to cancel a licence, it does not apply in the present case as an application for a licence does not involve the same considerations as a decision to cancel. There is no penal aspect to the decision to grant or deny a licence;
3. if the parity principle or some overriding principle of fairness or duty to avoid discrimination applies to an application for a licence, the circumstances of the applicant and Mr El Rihani are different for the following reasons:
1. in the case of the applicant, he:
(A) remains a director of the Company;
(B) failed to make payments into the Trust Account in breach of the Separation Deed;
(C) refused to pay half of the ATO default tax;
(D) said that the Company never experienced financial difficulties, in contrast to the findings of the liquidator that the Company had substantial liabilities and his own claims that he had been advised to wind up the Company after failing to lodge tax returns; and
(E) bore more responsibility as he was in charge of the finances of the Company and he had mismanaged these finances;
1. in the case of Mr El Rihani, the respondent found that:
(A) "a huge part of the liquidation had to do with the fact that it was (the applicant's) refusal to pay his half share of the ATO default assessment as per the (Settlement Deed)";
(B) the applicant bore more responsibility for the winding up of the Company than Mr El Rihani;
(C) the applicant was actively seeking to have the Company wound up through the ATO default assessment.
[19]
Oral submissions
The respondent, in addition to making oral submissions which substantially repeated its written submissions, submitted that s 40(1) of the HB Act applies to the Licence Application.
[20]
Concessions
The respondent conceded that s 201A(1) of the Corporations Act on its proper construction did not prohibit the applicant from resigning as the sole director of the Company without nominating a replacement director.
[21]
HB Act
Part 1 (ss 1-3D) deals with preliminary matters. Section 3 when read with Schedule 1 relevantly contains the following definitions:
Schedule 1 Definitions and other interpretative provisions
1 Definitions
(1) In this Act -
…
externally-administered body corporate has the same meaning as in the Corporations Act 2001 of the Commonwealth.
…
Secretary means -
(a) the Commissioner for Fair Trading, Department of Finance, Services and Innovation, or
(b) if there is no such person employed in that Department - the Secretary of the Department of Finance, Services and Innovation.
Part 3 Division 1 (ss 19-23) deals with contractor licences. Section 19 deals with the application to contractor licences of the LR Act, and relevantly provides:
19 Application to contractor licences of Licensing and Registration (Uniform Procedures) Act 2002
(1) The Secretary may grant contractor licences for the purposes of this Act.
(2) Part 2 of the Licensing and Registration (Uniform Procedures) Act 2002 (the applied Act) applies to and in respect of a contractor licence, subject to the modifications and limitations prescribed by or under this Act.
(3) For the purpose of applying Part 2 of the applied Act to a contractor licence -
(a) the licence may be amended under that Act, and
(b) the references to 2 weeks, 4 weeks and 8 weeks in section 9 (1) (a), (b) and (c) of that Act are each to be read as references to 6 weeks, and
(c) an application for restoration of a licence under section 10 of that Act may not be made more than 3 months after the date on which the licence expires, and
(d) the reference to 14 days in section 24 (1) of that Act (as to the period within which changed particulars must be notified) is to be read as a reference to 7 days.
Part 3 Division 4 (ss 33-48) contains provisions relating to contractor licences, certificates and owner-builder permits. Sections 33A-33D and 40 were inserted by the Home Building Amendment Act 2014 (NSW) (HBA Act) which repealed the Home Building Regulation 2004 (NSW) (HB Regulation) and in relation to these sections commenced on 15 January 2015. The explanatory note to the Home Building Amendment Bill 2014 (NSW) (HBA Bill) relevantly provides:
Outline of provisions
…
Contractor licences, supervisor certificates, tradesperson certificates and owner-builder permits
Schedule 1 amends Part 3 of the Act (dealing with the issue, cancellation and suspension of contractor licences, supervisor certificates, tradesperson certificates and owner-builder permits) as follows:
(a) by transferring from the regulations to the Act provisions dealing with the grounds on which a person is disqualified from applying for or holding a contractor licence, supervisor certificate and tradesperson certificate and amending those provisions as follows:
(i) by providing that a provision that currently prevents a licence or certificate from being issued to a person who is or was a director or a person involved in the management of a corporation that is under external administration at the time of making the decision extends to disqualify those with such involvement in corporations that have already been wound up,
(ii) by amending the exemptions from the grounds on which a licence or certificate can be refused relating to an applicant who is or was a director or concerned in the management of an externally-administered body corporate, to provide for a members' voluntary winding up only to be exempt and for any other voluntary winding up (such as by creditors) to be a ground to refuse a licence or a certificate,
…
(b) by providing for consistent considerations for all licensing and certification decisions (that is, for their issue, renewal, restoration and cancellation), including by requiring the cancellation of a contractor licence if an application for a licence by the person would be required to be refused and making similar provision relating to renewal,
[22]
LR Act
Part 3 Division 1 (ss 6-13) deals with applications. Section 10 deals with the applications for restoration of licences, and relevantly provides:
10 Applications for restoration of licences
(1) An application for the restoration of a licence may be made to the relevant licensing authority by the licensee at any time after the licence expires or is cancelled.
[23]
ADR Act
Chapter 2 (ss 7-9) deals with the administrative review jurisdiction of the Tribunal, and relevantly provides that the Tribunal has administrative review jurisdiction over a decision or class of decisions of an administrator if enabling legislation provides that applications may be made to the Tribunal for an administrative review under the ADR Act of any such decision or class of decisions made by the administrator in the exercise of functions conferred by the enabling legislation (s 9(1)(a)).
Section 63 deals with the determination of administrative review by the Tribunal, and provides:
63 Determination of administrative review by Tribunal
(1) In determining an application for an administrative review under this Act of an administratively reviewable decision, the Tribunal is to decide what the correct and preferable decision is having regard to the material then before it, including the following:
(a) any relevant factual material,
(b) any applicable written or unwritten law.
(2) For this purpose, the Tribunal may exercise all of the functions that are conferred or imposed by any relevant legislation on the administrator who made the decision.
(3) In determining an application for the administrative review of an administratively reviewable decision, the Tribunal may decide:
(a) to affirm the administratively reviewable decision, or
(b) to vary the administratively reviewable decision, or
(c) to set aside the administratively reviewable decision and make a decision in substitution for the administratively reviewable decision it set aside, or
(d) to set aside the administratively reviewable decision and remit the matter for reconsideration by the administrator in accordance with any directions or recommendations of the Tribunal.
[24]
Corporations Act
Chapter 2D Part 2D.3 Division 1 Subdivision A (ss 201A-201M) contains general rules for the appointment of directors. Section 201A deals with the minimum number of directors, and relevantly provides:
201A Minimum number of directors
Proprietary companies
(1) A proprietary company must have at least 1 director. That director must ordinarily reside in Australia.
Chapter 2D Part 2D.3 Division 3 (ss 203A-203F) deals with the resignation, retirement or removal of directors. Section 203A deals with the resignation of a directors, and provides:
203A Director may resign by giving written notice to company (replaceable rule - see section 135)
A director of a company may resign as a director of the company by giving a written notice of resignation to the company at its registered office.
Section 203AB, which provides that the resignation of a director has no effect if the company has no other directors, does not apply where the resignation is to take effect on or after the day that the winding up of the company is taken, because of Division 1A of Part 5.6, to have begun, was added by the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) which commenced on 17 February 2020.
Chapter 2G Part 2G.2 Division 3 (ss 249H-249M) contains provisions on how to call meetings of members. Section 249H deals with the amount of notice of meetings, and relevantly provides:
249H Amount of notice of meetings
General rule
(1) Subject to subsection (2), at least 21 days notice must be given of a meeting of a company's members. However, if a company has a constitution, it may specify a longer minimum period of notice.
Calling meetings on shorter notice
(2) A company may call on shorter notice:
(a) an AGM, if all the members entitled to attend and vote at the AGM agree beforehand; and
Chapter 5 deals with external administration. Parts 5.1-5.5 deal with different ways in which a company may come under external administration including voluntary winding up in Part 5.5.
Part 5.5 Division 1 (ss 490-494) deals with a resolution for voluntary winding up. Section 491 deals with the circumstances in which company may be wound up voluntarily, and relevantly provides:
491 Circumstances in which company may be wound up voluntarily
(1) Subject to section 490, a company may be wound up voluntarily if the company so resolves by special resolution.
[25]
Jurisdiction
The Tribunal has jurisdiction to review the Review Decision under s 9 of the ADR Act when read with s 83B of the HB Act. The Tribunal is required to determine what is the correct and preferable decision having regard to the material then before it including any relevant factual material and any applicable written or unwritten law: ADR Act, s 63(1).
[26]
The issues
The following issues arise for consideration in undertaking this administrative review of the Review Decision:
1. whether the applicant applied for the issue of a new licence or for the restoration of a licence;
2. what provisions of the HB Act are applicable to the Licence Application;
3. whether there was a members' voluntary winding up of the Company;
4. whether the applicant was a director of the Company at the time he made the Licence Application;
5. whether there is no evident risk to the public that the applicant will be unable to complete contracts entered into in the future to do residential building work or specialist work;
6. whether the applicant took all reasonable steps to avoid the liquidation of the Company;
7. whether the discretion under s 33C(2) or (3) of the HB Act should be exercised to issue a contractor licence in the category of general building work to the applicant.
[27]
Whether the applicant applied for the issue of a new licence or for the restoration of a licence
[28]
Consideration
I am satisfied that the Licence Application is an application for a new licence. While there is information in the Application Form which is consistent with an application with for the restoration of a licence, the word "restoration" is not used. On the contrary, the expression "New application" is used. Of greater importance than the language used in the Application Form are the statutory provisions governing its consideration. While there is no time limit for an application for a new licence, there is a time limit for an application for the restoration of a licence of three months after its expiry pursuant to pursuant to s 19(3)(c) of the HB Act. The word "expiry" in this provision applies the circumstances where a licence is surrendered, cancelled or expires by effluxion of time. To read "expiry" in this provision as limited to an expiry by effluxion of time would lead to the incongruous result that that there was no time limit where the licence had been surrendered or cancelled. To treat the Licence Application as an application for the restoration of a licence would mean it would have been rejected for being out of time.
[29]
What provisions of the HB Act are applicable to the Licence Application
[30]
Applicable legal principles
Since the commencement of the HBA Act on 15 January 2015, s 40(1) of the HB Act has provided that the provisions of the HB Act that apply in respect of the issue of an authority also apply to the restoration of an authority as if the restoration of an authority were the issue of the authority. The effect of the amended s 40(1) is that s 20 of the HB Act, which provides for circumstances in which the Commissioner must or may refuse an application for a contractor licence, applies to an application for restoration of such a licence made after the amendments made by the HBA Act: Hamdan v Commissioner for Fair Trading [2016] NSWCATOD 6 at [53].
[31]
Consideration
If the Licence Application is properly to be characterised as an application for a new licence, then:
1. if the applicant was a director of the Company at the time he made the Licence Application, s 33B(1)(a)(xv) of the HB Act is applicable, and the discretion to issue a contractor licence to the applicant arises under s 33C(2) of the HB Act if the four conditions therein are satisfied;
2. if the applicant was not a director of the Company at the time he made the Licence Application, s 33B(1)(a)(xvi) of the HB Act is applicable, and the discretion to issue a contractor licence to the applicant arises under s 33C(3) of the HB Act if the two conditions therein are satisfied.
If the Licence Application is properly to be characterised as an application for the restoration of a licence, then the effect of s 40(1) of the HB Act is that it is to be treated in the same manner as an application for a new licence. I do not accept the submissions of the applicant that the conditions in s 33C(2)(a) and (d) of the HB Act do not apply. Whatever may have happened with respect to the renewal of the El Rihani Licence, I regard the provisions in s 40(1) of the HB Act as being clear in requiring the Licence Application to be considered as if it were an application for a new licence.
[32]
Whether there was a member's voluntary winding up of the Company
[33]
Consideration
I am satisfied that there was not an external administration resulting from a members' voluntary winding up of the Company within s 33B(1)(a)(xv) or (xvi) of the HB Act. For there to be an external administration of a company resulting from a members' voluntary winding up the mechanism in s 495 of the Corporations Act must be followed. This mechanism was not followed.
There is no warrant for reading "an external administration resulting from a members' voluntary winding up" in s 33B(1)(a)(xv) and (xvi) of the HB Act as encompassing other forms of winding up of a company where the members might have undertaken such a course. I do not accept the submissions of the applicant to this effect. In particular, I reject the submission that the applicant and Mr El Rihani could have made a declaration of solvency as the applicant in the Federal Court affidavit said in his view the Company was unable to pay its debts.
This construction of the expression "an external administration resulting from a members' voluntary winding up" in s 33B(1)(a)(xv) and (xvi) of the HB Act as not encompassing other forms of winding up of a company is confirmed when regard is paid to the explanatory note to the HBA Bill and second reading speech for the HBA Bill in the Legislative Assembly pursuant to s 34(1)(a) and (2)(e) and (f) of the Interpretation Act 1987 (NSW).
[34]
Whether the applicant was a director of the Company at the time he made the Licence Application
[35]
Applicable legal principles
Section 201A of the Corporations Act cannot be intended to deny or control an individual's right to resign as a director of a company: Re Continental Pacific [2002] NSWSC 789 at [9].
[36]
Consideration
I am not satisfied that the applicant resigned as a director of the Company on or shortly after 25 July 2018. The is no evidence of the constitution of the Company or whether the replaceable rule in s 203A of the Corporations Act was displaced or modified by the Company's constitution. Even if the replaceable rule in s 203A of the Corporations Act applied, there is no evidence that the applicant's letter of resignation was delivered or sent to the registered office of the Company.
If, contrary to my finding, the applicant's letter of resignation was delivered or sent to the registered office of the Company, s 201A of the Corporations Act did not prevent the resignation being effective. The Corporations Act at that time did not contain s 203AB of the Corporations Act which if the delivery or sending of such a letter had occurred since 17 February 2020 would prevent the resignation being effective.
I find that the applicant was a director of the Company at the time he made the Licence Application. It follows that s 33B(1)(a)(xv) of the HB Act is applicable to the Licence Application and the discretion to issue a contractor licence to the applicant arises under s 33C(2) of the HB Act.
If, contrary to my finding, the applicant was not a director of the Company at the time he made the Licence Application, then s 33B(1)(a)(xvi) of the HB Act is applicable to the Licence Application and the discretion to issue a contractor licence to the applicant arises under s 33C(3) of the HB Act.
[37]
Whether there is no evident risk to the public that the applicant will be unable to complete contracts entered into in the future to do residential building work or specialist work
[38]
Applicable legal principles
It has been held in relation to cll 26(2)(b)(i) and 39A(1A)(a) of the HB Regulation (which is the statutory predecessor of s 33C(2)(b) and (3)(a) of the HB Act) that:
1. "evident risk" is equivalent to:
1. "obvious risk": Avila v Director-General, Department of Finance & Services, NSW Fair Trading [2014] NSWCATOD 53 at [27]; or
2. "plain, clear or apparent risk": SM Engineering & Construction (NSW) Pty Ltd and Mehajer v Director General, NSW Fair Trading [2015] NSWCATOD 27 at [49];
1. one obvious indicator of risk would be the person's financial circumstances. A person with meagre financial resources, or little or no access to trade credit, or a generally poor credit record, would have difficulty funding a construction business. A person unable to pay for building materials, or to buy or hire the required tools or equipment, unless first put in funds by clients, would present an "evident risk" that building contracts could not be completed: Alford Building and Construction Pty Ltd v Commissioner of Fair Trading [2005] NSWADT 254 at [44]; Avila at [28]; SM Engineering & Construction at [50];
2. another obvious indicator of risk would be if the person had demonstrated an inability, in the past, to complete building contracts he had entered into: Avila at [31]; SM Engineering & Construction at [50].
[39]
Consideration
There was uncontradicted evidence of the applicant's past building contracts. I am satisfied that the applicant has demonstrated an ability, in the past, to complete building contracts he entered into.
There was no evidence of the applicant's financial circumstances. In the absence of such evidence and having regard to the fact that the Company was wound up with substantial outstanding creditors, I am not satisfied that the applicant would be able to fund a construction business, including paying for building materials, or buying or hiring the required tools or equipment.
I find that there is not no evident risk to the public that the applicant will be unable to complete contracts entered into in the future to do residential building work or specialist work within s 33C(2)(b) and (3)(a) of the HB Act.
[40]
Whether the applicant took all reasonable steps to avoid the liquidation of the Company
[41]
Applicable legal principles
In Clarke v Commissioner of Fair Trading, Office of Fair Trading [2004] NSWADT 273 at [10]-[11] the predecessor of the Tribunal relevantly held that the following approach was to be taken under s 16(1)(e) of the Property, Stock and Business Agents 2002 (NSW) in examining the question of whether the licence holder took reasonable steps to avoid the bankruptcy or insolvency (citations omitted):
(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 or was 'aware' or 'should have been aware' of that possibility. The focus is the steps taken to avoid the relevant event ….
(ii) Subject to (i), in assessing reasonableness the Tribunal must examine all the relevant facts and circumstances.
(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]'.
(iv) The person under notice has the task of satisfying the Commissioner that he or she took all reasonable steps to avoid the insolvency.
The approach in Clarke has been followed in relation to cll 26(2)(b)(ii) and 39A(1A)(b) of the HB Regulation (which is the statutory predecessor of s 33C(2)(c) and (3)(b) of the HB Act) on many occasions in the context of an application for a contractor licence under the HB Act: see, for example, Dimascio v Commissioner for Fair Trading, Office of Fair Trading [2006] NSWADT 144 at [40]; Poytress v Director General, NSW Fair Trading [2015] NSWCATOD 100 at [40].
In Dimascio at [41], the predecessor of the Tribunal relevantly held that the questions which the Tribunal must ask are:
i) When did (the applicant) become aware, or when should he have become aware, of the possibility of the liquidation in question?
ii) What steps did (the applicant) take, or fail to take, after that time?
iii) Has (the applicant) satisfied the Tribunal that those steps were objectively reasonable in all the circumstances?
In Dimascio at [43], the predecessor of the Tribunal found, in circumstances where it was "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", it was not satisfied that Mr Dimascio took all reasonable steps to avoid the liquidation or administration of Dima Homes (NSW) Pty Ltd.
[42]
Consideration
I am satisfied that the applicant should have become aware of the possibility of the liquidation of the Company on 13 July 2017 when the ATO issued an assessment for $1,699,202.60. The applicant knew he had an obligation with Mr El Rihani to pay all outstanding liabilities of the Company, to equally contribute to the tax liabilities of the Company and to make a further contribution to the Trust Account under clauses 5.4(f), 5.6 and 10.5 respectively of the Separation Deed. The applicant took no step to meet his share of this tax liability. The applicant took no step to pay other liabilities of the Company. The applicant did not make any further contribution to the Trust Account. I am not satisfied that his rights under the Belair Guarantee against Mr El Rihani provided any reasonable excuse for this failure as there was no abrogation of his obligations under the Separation Deed. Further, as set out in his answer to question 3.2 in Additional Details Form 5 comprising part of the Application Form, he relied on legal advice to wind up the Company voluntarily when Mr El Rihani failed to provide information "that was required for lodgement (sic) of tax compliance". There was no information which the applicant reasonably required to be able to make a payment in satisfaction or reduction of the ATO assessment. Moreover, while it is difficult to draw conclusions as to the operation of the Settlement Deed, it is clear that the applicant gained a substantial benefit through the payment of $896.482.09 to Beauchamp which was correspondingly at the expense of a payment to other creditors with whom the applicant was not associated.
I do not accept the submissions of the applicant. The Separation Deed was a step towards avoiding the liquidation of the Company, but the applicant failed to fulfil his obligations thereunder so far as paying all outstanding liabilities of the Company, equally contributing to the tax liabilities of the Company and making a further contribution to the Trust Account under clauses 5.4(f), 5.6 and 10.5 respectively. The applicant was aware at the time of the commencement of the Hotait Federal Court proceedings that the Company was insolvent.
I find that the applicant did not take all reasonable steps to avoid the liquidation of the Company within s 33C(2)(c) and (3)(b) of the HB Act.
[43]
Whether the discretion under s 33C(2) or (3) of the HB Act should be exercised to issue a contractor licence in the category of general building work to the applicant
[44]
Applicable legal principles
In the context of the exercise of a discretion under the HB Act to impose a penalty in disciplinary proceedings on a company and individuals, and to cancel a contractor's licence the Tribunal has considered but not determined that the parity principle operates. Even if it does, there is no rule of law which requires co-offenders to be given the same sentences for the same offence, even if no distinction can be drawn between them. However, justice should be even handed and this has led to sentences being varied by Courts of Appeal in order to reduce the disparity between sentences separately imposed on co-offenders: Champion Homes Sales Pty Ltd v Commissioner for Fair Trading [2018] NSWCATAP 18 at [53]-[57]; Service Today (NSW) Pty Ltd (now known as Georges River Holdings Pty Ltd) & Magerovski v Commissioner for Fair Trading [2019] NSWCATAP 113 at [131].
The role of a tribunal in undertaking an administrative review of a decision is to facilitate the making of consistent decisions in the exercise of the same discretionary power: Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 645.
[45]
Consideration
The question of whether the discretion under s 33C(2) or (3) of the HB Act should be exercised to issue a contractor licence to the applicant does not arise because the applicant has not satisfied any of the four conditions in s 33C(2) of the HB Act or either of the two conditions in s 33C(3) of the HB Act.
If, contrary to my finding, the four conditions in s 33C(2) of the HB Act, or the two conditions in s 33C(3) of the HB Act, have been satisfied, then this question arises.
I am not satisfied that the parity principle which operates in the context of sentencing for criminal offences applies in the context of the issue a contractor licence under s 33C(2) or (3) of the HB Act. However, I do accept that there should be consistency in the exercise of the discretion under s 33C(2) or (3) of the HB Act to issue a contractor licence.
I am satisfied that the circumstances of the applicant and Mr El Rihani are different so as warrant the refusal to issue a contractor licence to the applicant. An important distinguishing factor is that the applicant failed to fulfil his obligations under cl 10.5 of the Separation Deed by making a further contribution to the Trust Account.
Further, the applicant failed in cross-examination without any convincing reason failed to accept that the Company was insolvent at the time it was wound up, notwithstanding his evidence to the contrary in the Federal Court affidavit and his statement "The company never experienced financial difficulty" in his answer to question 3.2 in Additional Details Form 5 comprising part of the Application Form. I regard this evidence of the applicant in cross-examination as an adverse reflection on his character and as demonstrating his unfitness to hold a contractor licence. On this basis I would have exercised my discretion under s 33C(2) or (3) of the HB Act against issuing a contractor licence in the category of general building work to the applicant.
[46]
Decision
I find that the correct and preferable decision is to affirm the Review Decision.
[47]
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: 02 April 2020
Parties
Applicant/Plaintiff:
Hotait
Respondent/Defendant:
Commissioner for Fair Trading, Department of Finance, Services and Innovation
The Tribunal affirmed the respondent's internal review decision dated 10 September 2019 refusing the applicant's application for a contractor licence in the category of general building work under the Home Building Act 1989 (NSW).
Discretionary exercise: Given the statutory prerequisites in s 33C(2) were not satisfied, there was no occasion to exercise the discretion favourably. The Tribunal also considered, but did not treat as decisive, the parity argument that the applicant should be dealt with similarly to his co‑director; it concluded circumstances differed materially and consistency did not require granting the licence.
The Separation Deed relevantly provided for the Company to transfer its assets to each of the applicant and Mr El Rihani for nominal consideration, and contains the following provisions:
5. Skyworks NSW
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5.4 If the parties do not unanimously agree to sell Skyworks NSW then for the purpose of clause 5.3, the parties must attend to the following to ensure the deregistration of Skyworks NSW:
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(f) pay all outstanding liabilities of Skyworks NSW;
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5.6 Hotait and El Rihani shall equally contribute to the tax liabilities of Skyworks NSW.
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10. Trust Account
10.1 The parties acknowledge and agree that moneys shall be held in the Trust Account on behalf of Skyworks NSW.
10.2 The parties agree that these funds shall be held in the Trust Account on account of future liabilities of Skyworks NSW, including, but not limited to, potential building defect liabilities arising from construction works undertaken by Skyworks NSW in the state of New South Wales,
10.3 The parties acting reasonably and in good faith, agree to direct Madison Marcus Law Firm Pty Ltd to pay the liabilities of Skyworks NSW from the Trust Account.
10.4 Upon execution of this Deed, El Rihani and Hotait agree to each pay $200,000.00 info the Trust Account.
10.5 In the event that any liability exceeds the amount held in the Trust Account at any given time, Hotait and El Rihani each agree to contribute equally to the amount exceeding the amount held up to a maximum of an additional $100,000.00 each on each occasion.
The Belair Guarantee relevantly provided that Mr El Rihani guaranteed to Belair the performance of all obligations by the Company arising out of the "construction contract" which was defined as the contract dated 10 October 2014 between Belair and the Company in respect of the properties at 2-8 Belair Close and 43 Sherbrook Road, Hornsby.
The 6 September 2019 Bailey email was sent in response for the respondent's request to provide information in relation to the applicant and the liquidation of the Company, and relevantly provides:
Prior to my appointment, Messrs Hotait and El Rihani entered into a Deed of Separation, a spurious document that purports to divide the assets of the Company and provide for payment the unpaid liabilities of the Company in equal proportion by both directors I seriously consider this document to be a substantial breach of duty by both directors. Further, it seems apparent to me that the document was wholly ineffectual as an attempt to resolve the insolvency of the Company, in that it has been largely ignored and the Company currently owes creditors as much as $10M.
In the Creditors Report, Mr Bailey relevantly states:
1. the Separation Deed was executed to terminate their business relationship between Mr El-Rihani and the applicant, and contained terms relevant to the Company to cause all litigation relating to Company to be concluded, to pay the Company's outstanding liabilities, to equally attend to payment of the Company's tax liabilities, to distribute all net assets to the shareholders pari passu, and to deregister the company. These terms were not adhered to as none of the Company's tax liabilities were paid;
2. the directors had yet not provided a report as to affairs setting out the company's assets and liabilities to the date of the report and that it was his intention to request the assistance of ASIC to enforce compliance;
3. there were known unsecured creditors with liabilities totalling $14,344,439.59, including $8,959,650.35 for trade creditors and $3,884,789.24 for the ATO;
4. indicia of insolvency are overdue Commonwealth taxes and the Company's inability to produce timely and accurate financial information.
The El Rihani Assessment relevantly includes the following findings and recommendation:
Findings and reasonings:
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Taken from Statutory Declaration from Hussein El Rihani dated 24 September 2018
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• In Mr El Rihani's view, it was Mr Hotait who was actively seeking to have Skyworks wound up by pursuing the Federal Court proceedings and supporting the ATO's Default Assessment which did not reflect the true liabilities of Skyworks.
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Taken from Submissions for licence restoration application
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Steps taken by Mr El Rihani to avoid the liquidation of Skyworks
From about December 2016, he ended up expending significant amounts of his own money (via entities which he owned and controlled, such as Decode) directly to creditors or Skyworks
As per the Deed of Settlement, Mr Hotait was required, but failed to continue to deposit funds into the Trust Account to cover his share (50%) of the payments.
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Recommendation
Based on the following information submitted by Mr El Rihani (Statutory Declaration and Submissions for licence restoration application) as well as information from Liam Bailey -Liquidator of Skyworks NSW Pty Ltd I am of the view that:
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• Mr El Rihani had taken all reasonable steps to avoid the liquidation Further I believe that a huge part of the liquidation had to do with the fact that it was Mr Hotait's refusal to pay his half share of the ATO default assessment as per the Deed of Settlement.
The responsible Minister on the occasion of moving HBA Bill be read a second time in that Legislative Assembly on 6 May 2014 said:
This amendment bill also addresses a number of licensing issues. This bill enforces the Act's consumer protection objectives by refining the current system of licensing under the Act to ensure that consumers are contracting with fit and proper people with appropriate knowledge and skills, and to help address the risk of phoenixing activity.
Section 33B contains general requirements for issue of certain authorities, and relevantly 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 -
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(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 an externally administered body corporate (other than external administration 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 an externally-administered body corporate at any time within that 3-year period (other than external administration resulting from a members' voluntary winding up of the body corporate), and
Section 33C sets out additional requirements for obtaining contractor licences, and relevantly provides:
(2) Despite section 33B(1)(a)(xiii) and (xv), a contractor licence may be issued if -
(a) the licence does not authorise its holder to do general building work or swimming pool building, and
(b) the Secretary is of the opinion that there is no evident risk to the public that the applicant will be unable to complete contracts entered into in the future to do residential building work or specialist work, and
(c) the Secretary is of the opinion that the relevant person concerned took all reasonable steps to avoid the bankruptcy, liquidation or appointment of a controller or administrator, and
(d) the licence is subject to a condition that the holder must not enter into a contract to do work if the contract price exceeds $20,000 (inclusive of GST) or (if the contract price is not known) the reasonable cost of the labour and materials involved in the work exceeds $20,000 (inclusive of GST).
(3) Despite section 33B (1)(a) (xiv), (xvi) and (xvii), a contractor licence may be issued if the Secretary is of the opinion that -
(a) there is no evident risk to the public that the applicant will be unable to complete contracts entered into in the future to do residential building work or specialist work, and
(b) the relevant person concerned took all reasonable steps to avoid the bankruptcy, liquidation or appointment of a controller or administrator.
Section 40 deals with the renewal or restoration of authorities, and relevantly provides:
40 Renewal or restoration of authorities
(1) The provisions of this Act and the regulations that apply in respect of the issue of an authority also apply to the renewal or restoration of an authority (as if the renewal or restoration of an authority were the issue of the authority).
Part 4A (ss 83A-83B) deals with administrative reviews by the Tribunal. Section 83A relevantly defines "authority" to include a contractor licence. Section 83B specifies the circumstances in which a person aggrieved by a decision of the Secretary may apply to the Tribunal for an administrative review under the ADR Act, and relevantly provides:
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.
Section 494 deals with a declaration of solvency, and relevantly provides:
494 Declaration of solvency
(1) Where it is proposed to wind up a company voluntarily, a majority of the directors may, before the date on which the notices of the meeting at which the resolution for the winding up of the company is to be proposed are sent out, make a written declaration to the effect that they have made an inquiry into the affairs of the company and that, at a meeting of directors, they have formed the opinion that the company will be able to pay its debts in full within a period not exceeding 12 months after the commencement of the winding up.
Part 5.5 Division 2 (ss 495-496) deals with a members' voluntary winding up. Section 495 deals with the appointment of a liquidator, and relevantly provides:
495 Appointment of liquidator etc.
(1) The company in general meeting must appoint a liquidator or liquidators for the purpose of winding up the affairs and distributing the property of the company.
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(4) The meeting must be held in the manner provided by this Act or by the company's constitution or in such manner as is, on application by any contributory or by the continuing liquidators, determined by the Court.
Section 496 deals with the duty of a liquidator where company turns out to be insolvent, and relevantly provides:
496 Duty of liquidator where company turns out to be insolvent
(1) Where a declaration has been made under section 494 and the liquidator is at any time of the opinion that the company will not be able to pay or provide for the payment of its debts in full within the period stated in the declaration, he or she must do one of the following as soon as practicable:
(a) apply under section 459P for the company to be wound up in insolvency;
(b) appoint an administrator of the company under section 436B;
(c) convene a meeting of the company's creditors;
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