Bennett; Secretary, Department of Social Services and (Social services second review)
[2019] AATA 5828
•18 December 2019
Bennett; Secretary, Department of Social Services and (Social services second review) [2019] AATA 5828 (18 December 2019)
Division:GENERAL DIVISION
File Number: 2019/6335
Re:Secretary, Department of Social Services
APPLICANT
AndAlan Bennett
RESPONDENT
File Number: 2019/6336
Re:Secretary, Department of Social Services
APPLICANT
AndJeanie Bennett
RESPONDENT
DECISION
Tribunal:Deputy President S A Forgie
Date of decision: 18 December 2019
Date of written reasons: 14 January 2020
Place:Melbourne
The Tribunal decides to:
(1)set aside the decision substituted on first level review by the Social Security and Child Support Division of the Tribunal on 31 August 2019; and
(2)remit the matter to the respondent for reconsideration on the basis that:
(a)the amount shown in the financial records of A & A Bennett Pty Ltd as unsecured loans are included in the combined assets of Mr and Mrs Bennett; and
(b)the amount shown in the financial records of A & A Bennett Pty Ltd as unsecured loans by shareholders not be reduced by any amount by which the company is in deficit.
..................[sgd]..................................................
Deputy President S A Forgie
Catchwords
SOCIAL SECURITY – Aged Pension cancellation – Disability Support Pension cancellation – eligibility for pension met – payability of pension not met due to assets test - Social Security Act 1991 s 1122 – whether advance of money to a body corporate is a loan – whether deficit of body corporate can offset assets – decision under review set aside and remitted
Legislation
Social Security Act 1991 s 1122
Acts Interpretation Act 1901
Corporations Act 2001 (Corporations Act) s 124(1)
Cases
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) [2009] HCA 41; (2009) 239 CLR 27; 260 ALR 1
Cabell v Markham (1945) 148 F(2d) 737
IW v City of Perth [1997] HCA 30; (1997) 191 CLR 1; 146 ALR 696; 94 LGERA 224
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355; 153 ALR 490
Residual Assco Group Ltd v Spalvins [2000] HCA 33; (2000) 202 CLR 629
Sydney Futures Exchange Ltd v Australian Stock Exchange Ltd [1995] FCA 1106; (1995) 56 FCR 236; 128 ALR 417; 16 ACSR 148
Thiess v Collector of Customs [2014] HCA 12; (2014) 250 CLR 664; 306 ALR 594
Unicomb v Secretary, Department of Social Services [1998] FCA 204
Secondary materials
Chambers 21st Century Dictionary (1999, reprinted 2004
REASONS FOR DECISION
Deputy President S A Forgie
Before Mr Bennett may receive an Age Pension and Mrs Bennett may receive a Disability Support Pension (DSP), each must qualify meet the relevant criteria for qualification set out in the Social Security Act 1991 (SS Act). There is no disagreement between the parties that each of them was qualified for the relevant pension in the period from 1 January 2017 (relevant period). Even though they are qualified for a pension, neither will receive a pension unless it is also payable to them. Whether it is payable to them, either at the full rate or a reduced rate, depends on the application of the income and asset tests set out in the SS Act.
In this case, the application of the assets test led to a delegate of the Secretary of Social Services (Secretary) deciding on 1 January 2017 that the amount of Age Pension paid to Mr Bennett and the amount of DSP paid to Mrs Bennett has been reduced to Nil in the relevant period. The delegate cancelled Mr Bennett’s Age Pension and Mrs Bennett’s DSP. That decision was affirmed on review by an Authorised Review Officer (ARO) on 12 April 2019. On first level review by the Social Security and Child Support Division of this Tribunal (AAT1) on 31 August 2019, the delegate’s decision was set aside and a decision made that both pensions were reinstated from 1 January 2017. That decision was made on the basis that the amount shown as a loan in the financial records of a company, A & A Bennett Pty Ltd, of which Mr Bennett is the sole shareholder, should not be counted among the combined assets of Mr and Mrs Bennett. Alternatively, and should it be incorrect in its conclusion that the amount is not a loan and should not be included in their assets, AAT1 decided that the amount of the loan to be taken into account in applying the assets test was the amount of the loan less the amount by which A & A Bennett Pty Ltd was in deficit at the relevant time.
I have decided to set aside the decision substituted by AAT1 and to remit the matter to the Secretary to recalculate Mr Bennett’s entitlement to Age Pension in the relevant period and Mrs Bennett’s entitlement to DSP on two bases. The first is that the sums shown in the financial records of A & A Bennett Pty Ltd as financial liabilities in the form of a loan made by Mr Bennett are assets, to which regard must be had in applying the assets test. The second basis is that the amount shown in those financial records as financial liabilities in the form of a loan made by Mr Bennett is not reduced by the amount by which A & A Bennett Pty Ltd is in deficit at any time in the relevant period.
BACKGROUND
I find that Mr and Mrs Bennett are a married couple who live together in the same property. Until 1 January 2017, Mr Bennett received the Age Pension and Mrs Bennett the DSP. Mr and Mrs Bennett purchased an investment unit in October 2016 for $300,000 (Unit 1). They obtained a mortgage in the amount of $220,000 to do so. It is agreed that the value of their equity in the investment unit is $80,000 in the relevant period.
Many years ago, Mr Bennett established A & A Bennett Pty Ltd when he was running his own business. Since his retirement, he has maintained A & A Bennett Pty Ltd and holds both of its two ordinary shares. In April 2016, he placed the sum of $300,000 in the account of A & A Bennett Pty Ltd so that it could purchase a further unit (A & A Bennett Pty Ltd Unit).
The sum was recorded in Note 7 to the Financial Statements for A & A Bennett Pty Ltd for each of the financial years ending 30 June 2016 and 2017 under the heading of “Financial Liabilities” and, more particularly, as “Loans to [sic] shareholders” that are unsecured. As at 30 June 2016, the amount of the unsecured loan was $506,854.41. By 30 June 2017, it had reduced slightly to $497,054.28.[1]
[1] Documents lodged under s 37 of the Administrative Appeals Tribunal Act 1975 (T documents); T30 at 167
Those same amounts are shown on A & A Bennett Pty Ltd’s Balance Sheet. The total value of its current assets and non-current assets for the 2016 year was $344,544.07. For the 2017 year, the total was $344,063.33. On the same Balance Sheet, the Liabilities and Equity for each year were recorded:
Note 2017
$2016
$Liabilities Current Liabilities Financial liabilities 7 497,054.28 506,854.41 Total Current Liabilities 497,054.28 506,854.41 497,054.28 506,854.41 Net Assets (Liabilities) (152,990.95) (162,310.34) Equity Issued capital 8 2.00 2.00 Retained profits/Accumulated losses) (152,992.95) (162,312.34) Total Equity (Deficiency) (152,992.95) (162,312.34)
In calculating Mr and Mrs Bennett’s assets at 1 January 2017, the delegate of the Secretary had regard to the following assets:
Asset Mr Bennett Mrs Bennett Loan to A & A Bennett Pty Ltd $506,854 Savings $39,144 $38,935 Equity in Unit 1 $40,000 $40,000 Other assets $51,500 $37,000 Managed investment superannuation fund $120,978
The total value of the combined assets of Mr and Mrs Bennett was $874,411. At the time, a member of a couple was not entitled to an Age Pension or a DSP if their combined assets exceeded the sum of $816,000.
LEGISLATIVE BACKGROUND
The Pension Rate Calculator A
The rate of Age Pension and DSP is calculated in accordance with the Rate Calculator at the end of s 1064 of the SS Act. It is known as Pension Rate Calculator A. Point 1064-A1 sets out the way in which the calculation is made. It begins by working out the person’s maximum payment rate. That is worked out by adding the person’s maximum basic rate using Module B set out in point 1064-B1,[2] the amount of pension supplement using Module BA,[3] that amount of Energy Supplement (if any) using Module C[4] and the amount per year (if any) of rent assistance in accordance with s 1070A(b).
[2] The maximum basic rate depends on a person’s family situation.
[3] The amount payable is a percentage of the pension supplement determined by the person’s family situation: SS Act; points 1064-BA1 to 1064-BA4.
[4] The amount payable is determined by the person’s family situation: SS Act; point 1064-C3.
The ordinary income test
Having done that, the next step is to apply the ordinary income test using Modules E and, in this case, Module F. That is done in order to work out the ordinary income of both Mr and Mrs Bennett and to work out the amount, if any, by which the maximum payment rate of the Age Pension, in the case of Mr Bennett, and the DSP, in the case of Mrs Bennett, are reduced by reason of their income. The amount that remains is known as the “income reduced amount”. The effect of their income and the application of the ordinary income test is not in issue in this case. In calculating the income reduced rate, the income of the members of a couple will be treated as if they have pooled all of their income and share that income between them equally.[5]
[5] SS Act; points 1064-A3 and 1064-E2
The assets test
The next step is to apply the assets test using Module G in order to work out any reduction that must be made to the maximum payment rate by reason of Mr and Mrs Bennett’s assets.
A.What is an asset?
Section 11(1) of the SS Act defines the word “asset” to mean “… property or money (including property or money outside Australia).” Part 3.12 of the SS Act sets out general provisions relating to the assets test. Some of its provisions provide that the value of certain assets may be disregarded or reduced by certain amounts. In Mr and Mrs Bennett’s circumstances, the effect of s 1118(1)(b), for example, is that the value of their principal home is disregarded in the calculation of the value of their combined assets. Other provisions apply to particular liabilities. Section 1121, for example, sets out the effect of a charge or encumbrance on the value of assets. If there is a charge or encumbrance over a particular asset of a person, the value of that asset will, for most purposes, be taken to be its value reduced by the amount of the charge or encumbrance. Division 2 of Part 3.12 of Chapter 3 of the SS Act sets out the circumstances in which the value of a person’s assets may be increased even though the assets have been disposed of.
In this case, the issue revolves around s 1122, which provides:
“If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.”
B. The assets test
In calculating the assets reduced rate, the assets of a couple will be treated as if they have pooled all of their assets and share them equally.[6] Point 1064-G1 sets out the steps taken in working out the way in which a person’s assets affect his or her maximum payment rate:
[6] SS Act; points 1064-A3 and 1064-G2
“Method statement
Step 1Work out the value of the value of the person’s assets.
Note 1: For the amount of assets of members of a couple see point 1064-G2.
Note 2: For the assets that are to be disregarded in valuing a person’s assets see section 1118.
Note 3: For the valuation of an asset that is subject to a charge or encumbrance see section 1121.[[7]]
[7] Section 1121 relates to charges or encumbrances that are not collateral security and that were given for the person or the person’s partner. It provides that, if there is a charge or encumbrance over a particular asset (other than a primary production asset), the value of the asset is reduced by the value of that charge or encumbrance for the purpose of calculating the value of the asset. Where a person is a primary producer or a family member of a primary producer and the person has assets that are used for carrying on of primary production as well as liabilities that are, in the Secretary’s opinion, related to the carrying on of primary production, s 1121 has no effect: SS Act; s 1121A(1). Instead, the value of all assets used in primary production is added together (unencumbered value) and the value of all liabilities is also added together (total liability). The value of the person’s primary production assets is calculated by taking the total liability away from the unencumbered value. If the result is a figure less than Nil, the value of the primary production asset is taken to be nil.
Step 2Work out the person’s asset value limit (see point 1064-G3 below).[[8]]
[8] A person’s asset value limit is determined by reference to his or her family situation and whether he or she or his or her partner is a homeowner.
Note: A person’s asset value limit is the maximum value of assets the person can have without affecting the person’s pension rate.
Step 3Work out whether the value of the person’s assets exceeds the person’s assets value limit.
Step 4If the value of the person’s assets does not exceed the person’s assets value limit, the person’s assets excess is nil.
Step 5If the value of the person’s assets exceeds the person’s assets value limit, the person’s assets excess is the value of the person’s assets less the person’s assets value limit.
Step 6Use the person’s assets excess to work out the person’s reduction for assets using points 1064-G4 to 1064-G7 below.”[[9]]
When the amount of any reduction is calculated, it must be taken away from the maximum payment rate. The result is called the “assets reduced rate”.
[9] The reduction for assets is worked out by multiplying the Assets excess by 19.5 and dividing the result by 250: SS Act; point 1064-G4. Any amount that is not a multiple of $250 is disregarded: SS Act; point 1064-G7.
Although they will not apply in the relevant period in this case, I will use current limits set under point 1064-G3 to illustrate the way the assets test works. The pension asset value limit for a couple in Mr and Mrs Bennett’s circumstances is $394,500. That means that, if the value of their combined assets exceeds that amount, the amount of the excess is calculated and is known as their assets excess. That amount is multiplied by 19.5 and the result divided by 250 in accordance with point 1064-G4. The result of that calculation is taken away from the maximum payment rate for the Age Pension or the DSP as the case might be. In practical terms and again using current limits under point 1064-G3 to illustrate the point, the calculation will mean that a couple owning their own home as Mr and Mrs Bennett do, will receive a part pension if the combined value of their assets exceeds $394,500 but does not exceed $863,500. The amount of that part pension will reduce the greater the amount of the value of the couple’s combined assets. No pension is payable once the combined value of their assets exceeds $863,500 having regard to current limits set under point 1064-G3.
Ascertaining the rate of pension payable
Returning to the Pension Rate Calculator A, the assets reduced rate is compared with the income reduced rate. The lower of the two rates, or the income reduced rate if they are the same, is known as the “provisional annual payment rate”. The final step is to work out the “rate of pension”. That is calculated in the final step set out in point 1064-A1. It requires the deduction of any special employment advance deduction and any advance payment deduction from the provisional annual payment rate. Having done that, the amount payable by way of remote area allowance is added.
CONSIDERATION
What is the proper characterisation of the sum of $506,854 advanced by Mr Bennett to A & A Bennett Pty Ltd?
A. Understanding section 1122 of the SS Act
Legislative provisions such as s 1122 are interpreted using principles of statutory interpretation established by the courts. I will outline them very briefly beginning with the joint judgment of Hayne, Heydon, Crennan and Kiefel JJ in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory)[10] when they said:
“ This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself .... Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text .... The language which has actually been employed in the text of the legislation is the surest guide to legislative intention .... The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision ..., in particular the mischief ... it is seeking to remedy.”[11]
[10] [2009] HCA 41; (2009) 239 CLR 27; 260 ALR 1; French CJ, Hayne, Heydon, Crennan and Kiefel JJ
[11] [2009] HCA 41; (2009) 239 CLR 27; 260 ALR 1 at [47]; 46-47; 16-17 (citations omitted)
In the same case, French CJ expressed the principle in this way:
“ The starting point in consideration of the first question is the ordinary and grammatical sense of the statutory words to be interpreted having regard to their context and the legislative purpose. That proposition accords with the approach to construction characterised by Gaudron J in Corporate Affairs Commission (NSW) v Yuill … as: ‘dictated by elementary considerations of fairness, for, after all, those who are subject to the law's commands are entitled to conduct themselves on the basis that those commands have meaning and effect according to ordinary grammar and usage.’ In so saying, it must be accepted that context and legislative purpose will cast light upon the sense in which the words of the statute are to be read. Context is here used in a wide sense referable, inter alia, to the existing state of the law and the mischief which the statute was intended to remedy … [CIC Insurance].”[12]
[12] [2009] HCA 41; (2009) 239 CLR 27; 260 ALR 1 at [4]; 31; 3 (citations omitted)
The necessary interweaving of the two strands of language and context are illustrated in the passage from the joint judgment of McHugh, Gummow, Kirby and Hayne JJ in Project Blue Sky Inc v Australian Broadcasting Authority:[13]
“ The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute ... The meaning of the provision must be determined ‘by reference to the language of the instrument as a whole’ ... In Commissioner for Railways (NSW) v Agalianos ..., Dixon CJ pointed out that ‘the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed’. Thus, the process of construction must always begin by examining the context of the provision that is being construed ...
A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals ...”[14]
[13] [1998] HCA 28; (1998) 194 CLR 355; 153 ALR 490; McHugh, Gummow, Kirby and Hayne JJ; Brennan CJ dissenting
[14] [1998] HCA 28; (1998) 194 CLR 355; 72 ALJR 841; 153 ALR 490 at [69]- [70]; 381-382; 509
The interweaving of language and context may mean that words used in a particular context may not be intended to have their literal or grammatical meaning and should not be interpreted as having that meaning. The plurality explained:
“ However, the duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have. Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequence of a literal or grammatical construction, the purpose of the statute or the canons of construction … may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning. In Statutory Interpretation …, Mr Francis Bennion points out:
‘… Unhappily, this state of being able to rely on grammatical meaning does not prevail in the realm of statute law; nor is it likely to. In some cases the grammatical meaning, when applied to the facts of the instant case, is ambiguous. Furthermore, there needs to be brought to the grammatical meaning of an enactment due consideration of the relevant matters drawn from the context (using that term in its widest sense). Consideration of the enactment in its context may raise factors that pull in different ways. For example the disability of applying the clear literal meaning may conflict with the fact that this does not remedy the mischief that Parliament intended to deal with.’ (footnotes omitted)”[15]
[15] [1998] HCA 28; (1998) 194 CLR 355; 153 ALR 490 at [78]; 384; 511 (citations omitted); French CJ, Hayne, Kiefel, Gageler and Keane JJ
In a similar vein, the High Court drew upon s 15AA of the Acts Interpretation Act 1901 (AI Act) as a statutory reflection of the same principle when it decided Thiess v Collector of Customs.[16] Section 15AA provides that:
[16] [2014] HCA 12; (2014) 250 CLR 664; 306 ALR 594; French CJ, Hayne, Kiefel, Gageler and Keane JJ
“In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation.”
It went on to quote from Cabell v Markham,[17] which had been quoted by Kirby J in Residual Assco Group Ltd v Spalvins.[18] I will set out the full passage from Cabell v Markham as quoted by Kirby J and his reflection on it:
“… In construing a statutory provision, we should always keep in mind what Judge Learned Hand said in Cabell v Markham …:
‘Of course it is true that the words used, even in their literal sense, are the primary, and ordinarily the most reliable, source of interpreting the meaning of any writing: be it a statute, a contract, or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.’
Moreover, legislation ‘must not be read in a spirit of mutilating narrowness’ …. If the choice is between reading a statutory provision in a way that will invalidate it and reading it in a way that will not, a court must always choose the latter course when it is reasonably open. …”[19]
[17] (1945) 148 F(2d) 737 at 739 per Judge Learned Hand
[18] [2000] HCA 33; (2000) 202 CLR 629; Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ cited at [2014] HCA 12; (2014) 250 CLR 664; 306 ALR 594 at [23]; 672; 599-600
[19] [2000] HCA 33; (2000) 202 CLR 629 at [27]; 644
Section 1122 is a provision that is quite straightforward in its expression. In its context, it is also clear. Section 1122 is placed in Division 1 of Part 3.12 of the SS Act. That Division identifies certain assets that are to be disregarded in applying the assets test and assets that are to be included. It addresses the way in which certain assets are valued for the purposes of the assets test. At no time does Division 1 purport to determine what might be said to be a person’s real asset backing. Parliament has required regard to be had to all assets and has chosen to exclude some and prescribe the means by which some are valued. The choices it has made to treat some assets one way and other assets another way will be based on policy decisions that will be based on considerations such as the need to provide income support, the circumstances in which income support should be made available and the extent to which income support can be provided from a finite Commonwealth budget that must fund many competing demands.
Section 1122 is a product of Parliament’s consideration. It is quite unambiguous in its terms and it does not introduce any element of discretion to permit a decision-maker to adjust the way in which it operates. It must be applied in its terms. Those terms do not permit regard to be had to whether an amount that a person has lent another may not be recoverable. The amount that the person has lent is reduced only by the amount that has been repaid.
It is not permissible to look at the consequences of the application of s 1122 and say that it produces an unfair outcome that is not consistent with the broad beneficial purpose of the SS Act. When legislation, such as the SS Act, can be said to be beneficial legislation, it must be given a liberal construction rather than a literal or technical interpretation. Having said that, it cannot be given a construction that is, having regard to the words chosen by Parliament, to be unreasonable or unnatural.[20] It would be unnatural to read into the unambiguous words of s 1122 a qualification that the value of the assets includes so much of the money that a person has lent to another, that remains unpaid and that remains recoverable at the time the decision is made. Section 1122 specifically deals with the first two criteria and omits the third. Its omission must be taken as a deliberate choice by Parliament.
[20] IW v City of Perth [1997] HCA 30; (1997) 191 CLR 1; 146 ALR 696; 94 LGERA 224 at 12; 702; 231 per Brennan CJ and McHugh J
B. A & A Bennett Pty Ltd
A & A Bennett Pty Ltd came into existence as a body corporate when it was registered.[21] As such, it has the legal capacity and powers of an individual.[22] It may, for example, accept a gift or receive a loan of money from another individual such as Mr Bennett. A company is obliged by s 286 of the Corporations Act 2001 (Corporations Act) to keep written financial records that meet two criteria. The first is that they correctly record and explain the company’s financial transactions and financial position and performance. The second is that they would enable true and fair financial statements to be prepared and audited. Financial records of the sort a company is obliged to keep under s 286 may be kept in a variety of ways described in s 1306(1). They are admissible in evidence in any proceeding and are prima facie evidence of any matter stated or recorded in them. That is to say, what is stated in them is presumed to be true unless disproved by some evidence to the contrary.
[21] Corporations Act 2001 (Corporations Act); s 119
[22] Corporations Act; s 124(1)
A small proprietary company such as A & A Bennett Pty Ltd is only required to prepare a financial report for a financial year if directed to do so under s 293 by its shareholders or the Australian Securities and Investment Commission (ASIC) under s 294 of the Corporations Act. A financial report for a financial year consists of the financial statements for the year, the notes to the financial statements and the directors’ declaration about them.[23] Section 297 complements the second criteria in s 286 when it requires financial statements and notes to give a true and fair view of the financial position and performance of the company.
[23] Corporations Act; s 295(1)
Each of Mr Bennett’s shares in A & A Bennett Pty Ltd is regarded as his personal property.[24] The laws applicable to the ownership of, and dealing with, personal property also apply to a share in a company.[25] If he chooses Mr Bennett may, for example, leave his shares to another in his will.[26] His right to do so is qualified only by A & A Bennett Pty Ltd’s constitution, replaceable rules[27] that apply under the Corporations Act.[28]
[24] Corporations Act; s 1070A(1)(a)
[25] Corporations Act; s 1070A(3)
[26] Corporations Act; s 1070A(1)(c)
[27] Replaceable rules are identified in s 141.
[28] Corporations Act; s 1070A(2)
If A & A Bennett Pty Ltd has a constitution, that constitution and any replaceable rules that apply to the company have effect as between the company and Mr Bennett as its sole shareholder and so sole member.[29] In Sydney Futures Exchange Ltd v Australian Stock Exchange Ltd,[30] Lockhart J said:
“ A share is a right to a specified amount of the share capital of a company, carrying with it rights and liabilities when the company is a going concern and in the course of its winding up. A share is a chose in action entitling its holder to the rights and subjecting him to the liabilities provided by the memorandum and articles of association and by legislation. In Borland's Trustee v Steel Bros. and Co. (1901) 1 Ch 279 Farwell J described the nature of a share in these terms at 288:
‘A share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders interest in accordance with s. 6 of the Companies Act 1862. The contract contained in the articles of association is one of the original incidents of the share. A share ... is an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money of a more or less amount.’
…
The rights attaching to a share include the right to participate in dividends whilst the company is a going concern and the right to participate in the distribution of assets available for the shareholders upon a winding up. They also include the right to receive capital in excess of the company's wants which the company resolves to distribute upon a reduction of capital: Archibald Howie Pty Limited v Commissioner of Stamp Duties (NSW) [1948] HCA 28; (1948) 77 CLR 143 per Williams J at 156.”[31]
[29] Corporations Act; s 140(1)(a). Had there been more than one member, they would have had effect also as a contract between a member and each other member: s 140(1)(c).
[30] [1995] FCA 1106; (1995) 56 FCR 236; 128 ALR 417; 16 ACSR 148; Lockhart, Gummow and Lindgren JJ
[31] [1995] FCA 1106; (1995) 56 FCR 236; 128 ALR 417; 16 ACSR 148 at 255-256; 166-167
When a company is in deficit when being wound up, liability does not fall upon a shareholder in a company such as A & A Bennett Pty Ltd. Subject to qualifications that do not apply in the case of A & A Bennett Pty Ltd, a member of a company limited by shares need not contribute more than the amount, if any, unpaid on the shares in respect of which the member is liable as a present or past member.[32] As Mr Bennett holds two fully paid $1.00 shares, he has no further liability if A & A Bennett Pty Ltd is wound up when it is still in deficit.
[32] Corporations Act; s 516 In the case of a company having share capital, a shareholder is a member and the details of the shares held by that member must be recorded on a Register of Members: Corporations Act; s 169(3).
C.On what basis did Mr Bennett advance the sum of $506,854 to A & A Bennett Pty Ltd ?
I found Mr and Mrs Bennett to be people of integrity, who have been at pains to ensure that they have given Centrelink all relevant information and have responded to its requests. They have behaved in the same way at the hearing. I accept their evidence.
When read with Note 7 to the Financial Statements, the money was characterised as a loan in A & A Bennett Pty Ltd’s Balance Sheet as at 30 June 2017. The same characterisation was used in relation to funds advanced by Mr Bennett as at 30 June 2016. Did Mr Bennett “lend” the money within the meaning of s 1122 of the SS Act? The ordinary meanings of the word “lend” include:
“… 1 to allow someone to use something on the understanding that it (or its equivalent) will be returned. 2 to give someone the use of something (usually money), especially in return for interest paid on it. …”[33]
The ordinary meanings of the word “loan”, which is also used in s 1122, include complementary meanings:
“… 1 anything lent, especially money lent at interest. 2 an act of lending. 3 state of being lent. 4 an arrangement for lending. 5 permission to use something. …”[34]
[33] Chambers 21st Century Dictionary (1999, reprinted 2004) (Chambers)
[34] Chambers
Mr Bennett did not enter any written agreement with A & A Bennett Pty Ltd but there is no requirement in s 1122 of the SS Act that a loan must be evidenced by a written agreement or written acknowledgment of receipt of the money. There is no need to have evidence of the terms of the arrangement between Mr Bennett and A & A Bennett Pty Ltd as to repayment.[35] Mr Bennett’s evidence is that he made an “investment” when he advanced the sum of $300,000 to A & A Bennett Pty Ltd to purchase the A & A Bennett Pty Ltd Unit. He saw the company as a vehicle through which he could make investments that he would otherwise make in his own name. As the sole director and shareholder, he saw it as an extension of himself.
[35] Unicomb v Secretary, Department of Social Services [1998] FCA 204; Branson J
For the reasons I have given above, the A & A Bennett Pty Ltd is not an extension of Mr Bennett or his alter ego, as it were. It is a separate legal entity. When that is understood, I find that Mr Bennett did not intend to give the sum of $300,000 to A & A Bennett Pty Ltd as a gift or a loan to spend as it liked. He advanced the money for a particular purpose but, in his mind, that money remained his “investment”. He has also advanced other moneys over the years as indicated by the portion of the Balance Sheet I have set out at [7] above. So far as A & A Bennett Pty Ltd is concerned, all of the moneys advanced by Mr Bennett are amounts he has lent to it. That is consistent with the way in which the sum of $300,000 has been included in the amounts shown A & A Bennett Pty Ltd’s Balance Sheet as financial liabilities and shown in Note 7 to the Financial Statements as “loans”. Those loans are also shown among its “liabilities” because they are amounts lent to it by Mr Bennett and its Financial Statements record them as such. Its liabilities in respect of Mr Bennett reflect precisely his loans to A & A Bennett Pty Ltd.
The words of s 1122 are clear. Once I have found that Mr Bennett has lent the amounts to the A & A Bennett Pty Ltd and has done so after 27 October 1986, the amount of the loans that “remains unpaid” must be included in the value of his assets. Those words do not leave me any room to read into them a qualification that Mr Bennett’s assets only includes the amount of the loans that remains unpaid and that is recoverable from A & A Bennett Pty Ltd.
Can account be taken of A & A Bennett Pty Ltd’s deficit in calculating assets?
For the reasons I have given, while A & A Bennett Pty Ltd remained in deficit during the relevant period, the value of Mr Bennett’s shares in it were zero. He was not liable to fund its deficit even if it had been wound up. Therefore, no regard can be had to the deficit carried by A & A Bennett Pty Ltd for it cannot affect the value of his assets.
I realise that seems a harsh outcome for Mr Bennett when, from his point of view, he has made the funds available to A & A Bennett Pty Ltd to make the purchases that he would otherwise have made in his own name. It is, however, a consequence of corporations law and from fact that a company is a legal entity in its own right and quite separate from Mr Bennett. Had Mr Bennett conducted the same transactions and used his money to make purchases in his own name or that of his wife, it is possible that he might have been in a better position when it comes to the application of the assets test. For example, the money he lent to A & A Bennett Pty Ltd to purchase the A & A Bennett Pty Ltd Unit would not have been included in his assets as a loan. It would have been part of the equity in that unit. Whether Mr Bennett would have been in a better position is not something that I can say but he might want to obtain financial advice.
DECISION
For the reasons I have given, I have decided to set aside the decision made by AAT1 and to remit the matter to the Secretary for reconsideration on the basis that:
(1)the amount shown in the financial records of A & A Bennett Pty Ltd as unsecured loans are included in the combined assets of Mr and Mrs Bennett; and
(2)the amount shown in the financial records of A & A Bennett Pty Ltd as unsecured loans by shareholders not be reduced by any amount by which the company is in deficit.
| I certify that the preceding thirty eight (38) paragraphs are a true copy of the reasons for the decision herein of Deputy President S A Forgie |
..............................[sgd]..........................................
Associate
Date of decision: 18 December 2019
Date of written decisions: 14 January 2020
| Heard: | 18 December 2019 |
| Applicant’s solicitor: | Mr David Brown |
| Respondents: | Self-represented |
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