As a builder, will you be banned for life?
Among the recent Queensland Building and Construction Commission (QBCC) amendments were some changes to the banning of building licences, in particular what action is taken whereby an insolvency event occurs. These amendments came into force on 1 July 2015.
There were three major licensing changes:
- Reduction of five year exclusion to three years.
- Only applies to building companies.
- No permitted individual applications.
To understand the specifics of these amendments we need to be clear on when the banning provisions apply. For the QBCC to classify licensees, as an 'excluded individual' a relevant event must occur, as follows:
- Relevant company event—this is where an individual is a company director (or has been a director within the last 12 months of the event ) that goes into voluntary administration, provisional liquidation, creditors voluntary liquidation, provisional liquidation or controllers are appointed.
- Relevant bankruptcy event—the individual becomes bankrupt or takes advantage of the Bankruptcy Act 1966 (i.e. a Part IX or Part X). This means that even if the bankruptcy is annulled, the relevant bankruptcy event has still occurred.
Reduction of 5 year exclusion to 3 years
Under the old system, the QBCC would cancel the licence of an individual for five years if a relevant event had occurred.
Under the new system, the QBCC will cancel the license of an individual for three years, rather than the five years. This will result in the individual being classified as an 'excluded individual'.
If a second relevant event occurs, the individual is classified as a 'permanently excluded individual' and will be banned for life from holding a building licence.
If it is determined that the second event occurs from the first event (i.e. director goes bankrupt as a result of personal guarantees from a company liquidation) this is still only considered as one event. But of course, this is discretionary and may become more unclear when multiple entities are involved (i.e. asset holding entity, trading entity, labour hire entity etc.).
Only applies to building companies
Under the old system, the banning provisions apply irrespectively of the company’s industry. For example, if the director had two companies that went into liquidation—one company operated a restaurant and the other company operated a building company—the life-banning would take effect.
However, under the new system, the penalty provisions only apply to companies that “directly or indirectly carry out building work or building work services”. Some debate is certain as to how far this definition extends to the businesses carried out by companies.
No permitted individual applications
Previously, individuals affected by the provisions could apply to become a 'permitted individual' to escape the penalties. Typically, this was granted if it was established that the insolvency event was out of their control and they did everything possible to prevent the insolvency event. If they were successful, their licence could be re-instated.
Now, this is no longer possible. There is no ability for any affected licensee to apply to become a permitted individual. There is however, an ability to make a submission on whether there actually was a relevant event and therefore the excluded individual provisions should not apply. However, this is very different to the old permitted individual system.
What is our take on this?
We welcome the QBCC’s softened position for the reduction of the five years to three years. Five years in our minds was too long a period for a first offence. This also brings it in line with the three-year bankruptcy period.
We strongly agree that a relevant event is not considered when the company is not performing building works. This also gives individuals some comfort, when going into non-building ventures, they are not risking their building licence.
Although, the removal of the permitted individual mechanism seems very unfair and as we understand it, Queensland is the only state that has taken this stance.
Some food for thought, advisors may want to consider when advising clients on start-up structures; it is not uncommon for businesses to setup an asset owning entity and a trading entity. It may be possible that the liquidation of these multiple companies may be considered as two or more events in which case the individual may be banned for life. However, it may be argued that these are the one event, although must be demonstrated to the QBCC.