Maynard v Secretary, Department of Customer Service [2025] NSWCATOD 27

Did the Applicant take all reasonable steps to avoid the liquidation of the Company?

1. The Applicant contends that he took all reasonable steps to avoid bankruptcy, liquidation or appointment of a controller or administrator for the purposes of section 33(C)(3)(b) of the HBA and he has identified a number of steps that were taken in that regard.

1. As noted above, the Company enlisted the help of the K2 business coaching group to give assistance and advice in running the business when difficulties began to arise until about April 2019. The service was terminated because of the lack of beneficial advice from K2. The Company subsequently joined Coraggio in May 2019.
2. The Applicant submits that seeking the assistance of K2 and Coraggio was a responsible and commendable approach to assist a business which was experiencing financial and other difficulties.
3. The Applicant contends that the relationship with Coraggio and its CEO, Mr Richard Skarzynski was successful. It resulted in the Company changing its accountants and beginning the investigations and discussions of engaging the liquidator. The Applicant submits that this evidences reasonable steps to prevent liquidation, administration or otherwise.

1. The Applicant notes that the relationship with Coraggio brought to light a number of irregularities with the bookkeeping by the Company's external bookkeeper. He contends that the mismanagement of these books and the multiple errors made in conjunction with the Company's growth were the major factors that led to the Company becoming insolvent. The relationship with the accounting practice was terminated and the services of RSM were enlisted.
2. The Director of RSM's Business Advisory Division, Patrick Flanagan, was on the Coraggio advisory board. The Applicant had several meetings with Mr Flanagan about the Company's business and to strategize the most appropriate course of action. The Applicant submits that this demonstrates reasonable steps to prevent liquidation, administration or otherwise.
3. The Applicant denied that he knowingly traded whilst insolvent. Rather, he began to seek assistance to address the solvency issue immediately upon discovering the issues with the Company's accounting. The bookkeeping errors largely consisted of missing emails and/or not entering invoices and expenses onto projects. These errors gave an inaccurate impression that projects were performing better than they actually were, and left cash flow issues that were unrecoverable throughout a project. By the time the issue was addressed, the impact of the financial losses was already too great for the Company to remain solvent.
4. Further, as the Company's accountant had not been advising the business adequately, the true financial position of the business was not known. Mr Flanagan and RSM were able to assist in providing far better information and accounting advice, which immediately helped diagnose the financial problems within the business.
5. Issues pertaining to cost controlling projects also became apparent. The Company moved from engaging subcontractors that were working on an hourly rate basis to engaging subcontractors on unit rates. With the bulk of the funds being more tightly cost controlled, the budget performance showed a significant increase. Additionally, project management software was incorporated and utilised to assist in cost controlling each individual project.
6. The Applicant submitted that this updated process was not only a proactive, responsible, and efficient attempt to address the issues of the business at the time but also provided the methodology by which projects can be more suitably managed in future endeavours. The Applicant took active steps to identify issues in the accounting and to address them as soon as he became aware. Further, it is submitted that the Applicant could not be responsible for the competence of a professional accountant beyond taking the steps which were taken upon realising the issues with the accounting.
7. The Applicant submitted that he had taken all the reasonable steps to address the financial concerns of the business. He contracted the services of professional accountants and bookkeepers to manage the business books properly and upon realising that they were not fulfilling their professional obligations he took steps to have them replaced and to remedy the situation. As such, he submits that all reasonable steps were taken.

1. The Applicant submitted that he voluntarily began injecting personal funds into the entity to keep it afloat and to assist in repayment of debts once all business means were exhausted. He contends that the Company's management accounts disclosed that he was owed $93,302.82, and that his loans to the Company totalled $19,992. In addition, personal credit cards were utilised to pay a total of $113,294.83 towards the Company's expenses. His efforts to prevent the liquidation of the Company therefore included using in excess of $100,000 of his personal funds to assist the Company in repayment of expenses. The Applicant submitted that this is evidence of a responsible director doing all in his power to address the Company's legitimate financial debts.

1. Big River Group Pty Ltd was a former supplier to the Company. The Company was unable to repay a debt owed in respect of timber provided for projects and the Applicant was a personal guarantor for the debt. The Applicant engaged in a payment plan to personally repay the debt. All instalments were paid on time and no further proceedings or issues arose from the agreement. The Applicant submitted that this is further evidence of an ongoing commitment to managing the Company's financial affairs responsibly and reasonable steps to ensure repayment of outstanding debts.
2. The Applicant submitted that a similar course of successful payment plans was adopted in other instances of outstanding debt.

Is there 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?

1. The Applicant submitted that there is no evident risk to the public if he was to be granted a contractor licence.
2. Since 20 December 2019 the Applicant has been employed as a manager with Infinitum Group Pty Ltd ("Infinitum"). Infinitum is a company that operates in both residential and commercial industry settings. The Applicant has worked alongside Ms Frances Quinn, the Director and Shareholder of Infinitum, in managing the Company's capacity to complete projects. He has acted directly and in a managerial capacity with Infinitum. His involvement with the construction process has included quoting, budgeting, and payment management, and supplying Operations Manuals to the clients for the finished products. There have been no judgements, orders or claims made against Infinitum in that time. It has been able to meet its debts and has not encountered any regulatory issues.
3. The Applicant submitted that his recent working history is a matter directly relevant to the discretion afforded under section 33C(3)(a) of the HBA. It is submitted that his involvement with the site management, hands on carpentry work and business management with Infinitum has clearly had no detrimental impact upon that business and has clearly been done to the requisite industry standards. While he has not completed any projects as the principal contractor, his involvement within the industry is reflective of completion of contracts with no issues or adverse findings. It is submitted that the only thing evident from the past few years of the Applicant's working conduct is a successful working history partly managing a successful construction company with no adverse findings or judgements made against them.
4. The Applicant appears to be managing his affairs well and without issue over a period of nearly 5 years at Infinitum. It is submitted that this supports the proposition that there is no evident risk to the public if the Applicant was to be granted his contractor licence.

Has the Applicant put in place sufficient risk mitigation measures to avoid a future bankruptcy, liquidation or the appointment of a controller or administrator?

1. The Applicant submitted that he has taken and will continue to take active steps to avoid future bankruptcy, liquidation and appointment of controller or administrator and that this should alleviate any concerns about the operation of any future entities where the Applicant is the licence holder.
2. If the application is granted, the Applicant would join the Master Builders Association or Housing Industry Association and utilise their contracts to engage in building works. Both of these industry associations have legal support relating to contractual disputes or any other issues in addition to progress payment points, cost structures and suggested margins within contracts. He would only accept projects which he has the capacity to service. Subcontractors would be utilised on trade works such as plumbing, electrical, concreting, landscaping, and he would only utilise fixed price payment structures and not hourly rates. This would allow him to monitor and manage the cash flow position of the business effectively and ensure that the cost position of projects is accurately managed. This would allow the business to keep contingency costs to a minimum and assist in overall cashflow, ensuring the business did not overextend itself or fall upon economic hardship. In addition to setting up the appropriate relevant accounting structures, the Applicant would oversee all future accounting personally. He would ensure a monthly account reconciliation to avoid any slippage or other additional costs which could detrimentally impact business cashflow. The structure which is intended to be utilised is the exact one currently in place at Infinitum.
3. Further, as an added safety net and as noted above, the Applicant has been advised that Ms Quinn has the capacity to provide a loan of up to $200,000 for cash flow, project funding and any other purpose should the need arise.
4. The Applicant also relies on a letter from his accountant, Mark Williams, based upon a current understanding of the Applicant's financial capacity. It is submitted that this additional capacity to secure funding demonstrates a significant and well thought out risk alleviation measure.
5. In conclusion, the Applicant submits that the criteria under section 33C(3) of the HBA are met and on that basis the application can and should be granted.

1. It is common ground that the Applicant is subject to the provisions in section 33B(1)(a)(xvi) of the HBA. He was a director of a company that was placed under external administration within 10 years before the date of the application.
2. As such, his application cannot be granted unless he is able to satisfy the criteria set out in section 33C of the HBA.
3. The Tribunal stands in the shoes of the Respondent and may exercise all of the functions that are conferred or imposed on the Respondent by the HBA. Section 33C(3) of the HBA provides that a contractor licence may be issued if the Secretary, and therefore the Tribunal, is satisfied 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, and

(c) the relevant person concerned has put in place sufficient risk mitigation measures to avoid a future bankruptcy, liquidation or the appointment of a controller or administrator.

1. The Tribunal must be satisfied that each of these criteria are met.
2. After reviewing all the information that has been provided by the parties, it is my view that the greatest obstacle for the Applicant to overcome is establishing that he took "all reasonable steps" to avoid the liquidation. This is assessed on an objective basis. The steps taken by the Applicant must be objectively reasonable. The inquiry commences from when the Applicant was or should have been aware of the possibility of insolvency.
3. It appears that the Applicant became aware that the Company was experiencing difficulties in about June 2018 and he engaged the services of K2 to give assistance and advice in running the business. The association with K2 continued until about April 2019. The Applicant then entered an association with Corragio in May 2019. It was the association with Corragio that alerted the Applicant to the extent of the Company's problems.
4. It is not clear how the engagement of K2 was intended to address the difficulties that the Company was experiencing. It is apparent however that issues related to bookkeeping and accountancy were not detected.
5. The Respondent identified that the coaching services that K2 provided were focussed on growth and scaling-up businesses. It is unclear how this approach would have addressed the issues which ultimately led to the Company's insolvency. It seems that the Applicant ultimately reached the same conclusion about K2 and this led to the Company parting with K2 and entering an association with Corragio.
6. The failures that the Applicant identified included poor project management; poor management of financial records; and poor financial advice. The liquidator considered that the failure of the Company related to poor financial control and inadequate cash flows.
7. It is difficult to understand how K2 could advise on development of the business without first establishing the reasons for the difficulties that the Company was experiencing. If it had done so, the issues related to bookkeeping and accountancy would likely have been detected.
8. As the Respondent has identified, the risk of not being able to service the Company's debts and the potential for insolvent trading would likely have been revealed if the Company's accountant had been given the necessary documentation for lodgement of 2018 income tax returns in 2018.
9. I agree with the Respondent that the Applicant should have been aware of the possibility of the Company's insolvency from June 2018. It appears that the involvement of K2 did not address the Company's problems and that the Company was insolvent from about December 2018.
10. I agree with the Respondent that the Applicant had a duty to ensure that he was properly informed about the Company's financial position and that the Company did not trade while insolvent.
11. I accept that the Applicant had entered into informal payment agreements with creditors and invoice financing to assist with cash flow. I also accept that he injected his own funds towards payment of the Company's debts. These steps show the Applicant's responsible attitude and a commitment to addressing the Company's legitimate debts. However, I am not satisfied that these were steps that would have avoided the liquidation.
12. In my view, the engagement of K2 was not a step in avoiding the liquidation but rather it merely postponed the inevitable because it failed to address the reasons for the difficulties that the Company was experiencing.
13. This raises the issue of whether the steps taken by the Applicant are those that would be taken by a reasonable person endowed with the knowledge and experience of the Applicant.
14. As noted above, 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.
15. It is apparent that the Applicant became aware that the Company was experiencing difficulties in about June 2018. At that time, the Company used an external accountant and bookkeeper to manage its business books. I accept that a reasonable person in the Applicant's position would have adopted a similar practice. However, in my view a reasonable person endowed with the knowledge and experience of the Applicant who was aware that the Company was experiencing difficulties would have challenged the accountant and bookkeeper to identify the Company's true financial circumstances.
16. There is no evidence before me that suggests that the Applicant adopted that approach. This failure masked the Company's true financial position. The engagement of K2 did not alert the Applicant to the reasons why the Company was experiencing difficulties. Despite the engagement of K2, the Applicant did not become aware of the Company's true financial circumstances or the causes of the financial difficulties. In my view, a reasonable person endowed with the knowledge and experience of the Applicant would not have adopted that approach.
17. In these circumstances, I am not satisfied that the Applicant "took all reasonable steps to avoid the bankruptcy, liquidation or appointment of a controller or administrator".
18. As I have reached this conclusion, it is not necessary that I consider the question of whether the Applicant has met the requirements in subsections 33C(3)(a) and 33C(3)(c) of the HBA. However, in my view the Applicant's experience with Infinitum suggests that he has developed a knowledge of proper industry practice which would be of great benefit to him in the future should he ultimately be authorised to enter contracts to do residential building work. This knowledge and experience would mitigate the risk to the public that the Applicant will be unable to complete future contracts.
19. The lack of available assets at this time is of greater concern. As was noted in Avila there is a risk that a person with limited assets would not be able to complete building contracts. The Applicant has provided a letter of support from Ms Quinn who indicated that she has capacity to lend the Applicant "an amount of approximately $200,000 for the purpose of cash flowing any building projects that he may be engaged in and require this money for cash flow purposes". However, there is no indication of what terms might apply to the loan or the Applicant's ability to meet those terms. Nevertheless, if the Applicant were to implement the measures that he has identified, these may well be sufficient risk mitigation measures to avoid a future bankruptcy, liquidation or the appointment of a controller or administrator.

1. As has been noted above, because of the provisions of section 33B of the HBA, the Applicant is unable to be granted the licence that he seeks because he was the director of a Chapter 5 body corporate within 10 years of making the application. However, the licence can be granted under section 33C of the HBA if certain conditions are met. Relevantly, the licence can be granted if the Respondent (and therefore the Tribunal standing in the shoes of the Respondent) is satisfied that the Applicant "took all reasonable steps to avoid the bankruptcy, liquidation or appointment of a controller or administrator". I have found that I am not satisfied that the Applicant took all reasonable steps to avoid that outcome.
2. It follows that the application must fail. Accordingly, the decision under review should be affirmed.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.