Bentham and Secretary, Department of Family and Community Services

[2001] AATA 1018

DECISION AND REASONS FOR DECISION [2001] AATA 1018

ADMINISTRATIVE APPEALS TRIBUNAL      )

)     No  N2001/1071 and
  )              N2001/1072

GENERAL ADMINISTRATIVE DIVISION          )          

Re      DAVID AND VALeRIE BENTHAM         

Applicant

And    SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES        

Respondent

DECISION

Tribunal       Senior Member M D Allen; Ms C M Prime, Member    

Date15 November 2001

PlaceSydney

ADMINISTRATIVE APPEALS TRIBUNAL  )         No   N2001/1071 and N2001/1072

)  
GENERAL ADMINISTRATIVE DIVISION     )

Re:       DAVID AND VALERIE

BENTHAM

Applicant

And:     SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal              Senior Member M D Allen

Date  15 November 2001

Place                   Sydney

DecisionFOR the reasons given orally at the conclusion of the hearing in this matter, the decision under review is AFFIRMED.

(Sgd)  M.D. ALLEN

.............................

Senior Member
CATCHWORDS

SOCIAL SECURITY: Assets Test. Valuation of shares in proprietary company. Net asset backing method of valuing shares adopted as most appropriate. Interpretation of welfare legislation.

Social Security Act 1991 – s11; s1122

Repatriation Commission v Harrison and Another 78 FCR 442

Re: Pemberton v Repatriation Commission 12 AAR 53

Elder's Trustee & Executor Company Ltd v Deputy Federal Commissioner of Taxation 51 CLR 694

Re: Eimberts and Repatriation Commission 16 ALD 19

REASONS FOR DECISION

Senior Member M D Allen;
  Ms C M Prime, Member

1. At the conclusion of the hearing of the above matter the terms of the decision intended to be made and the reasons therefor were stated orally. After service upon the Applicant of a copy of the decision that was in fact made, the Applicant pursuant to Sub-section 43(2A) of the Administrative Appeals Tribunal Act 1975 requested the Tribunal to furnish to the Applicant a statement in writing of the reasons of the Tribunal for its decision.

1. The oral reasons for decision have been transcribed by Auscript, the Commonwealth Reporting Service.  Whereas those oral reasons may reflect the inelegance of an extempore decision, they are in fact the reasons for the said decision.

1. The said transcript is annexed hereunto and furnished to the Respondent and to the Applicant as it is the reasons for the Tribunal's decision.

I certify that this and the preceding page are a true copy of the decision and reasons for decision herein of:

Senior Member M D Allen;
  Ms C M Prime, Member

Signed:         (Kwai-Ling Wong)
          ..................................................................................……………………………….

Associate

Date of Hearing  15 November 2001
Date of Decision  15 November 2001

Representative for Applicants    Self-represented
Representative for Respondent Angela Smith, Department of Family and
  Community Services

DRAFT DECISION  

ADMINISTRATIVE APPEALS TRIBUNAL

Matter No N2001/1071 and N2001/1072
By MR M.D. ALLEN, Senior Member;

MS. C.M. PRIME, Member
SYDNEY  THURSDAY, 15 NOVEMBER 2001

MR ALLEN:   In this matter pursuant to an application lodged with the Tribunal on 21 July 2001, the applicants seek review of a decision by a Social Security Appeals Tribunal which on 28 June 2001 affirmed a prior determination by the respondent which confirmed the decision of 3 April 2000 to reject the claim by both applicants for an aged pension.  The decision of the Social Security Appeals Tribunal sets out generally the history of the matter and as both applicants have had copies of that decision served on them we see no necessity to canvass the prior history as set out in that decision.

The matter before us today really revolved around the method of
valuation of certain assets held by the applicants or by companies
associated with them.  In particular the following sections of the
Social Security Act 1991 are apposite, namely, subsection 1 of
section 11 which states inter alia:

In this Act unless the contrary intention appears asset means property, including property outside Australia, value has the meaning given by subsections 2 and 3.

Subsection 2 of section 11 reads:

A reference in this Act to the value of a particular asset of a
     person is, if the asset is owned by the person jointly or in
      common with another person or persons a reference to the
      value of the persons interest in the asset.

Certain assets are excluded from the assets test in ascertaining whether an applicant meets the criteria for the grant of a social security pension and one such asset is the principle home of the applicant or applicants.  That has a further result, however, that if there is an encumbrance on that principle home then the encumbrance is not taken into account.

In deciding this matter the Tribunal relied upon the tables of the
value of assets of both applicants as set out at page 4 of the decision
of the Social Security Appeals Tribunal which is before this Tribunal
as page 8 document T2 in the documents prepared for the Tribunal
pursuant to section 37 of the Administrative Appeals Tribunal Act

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1975.  What also is to be taken into account is that we are reviewing
a decision which was made on the third day of April 2000.

Looking at the list of particular assets it is agreed that the applicants
at the relevant time had $537 in the Commonwealth bank account,
an amount of $156 in a St George bank account, they have a debt or
had, one should say, on a visa card and that therefore results in an
amount of nil in their asset value and not a negative amount as
argued by them.  They have some $16,184 worth of shares in public
companies.  There then is an amount of a loan to a company by the
name of Gunite and Grouting Pty Ltd.  That loan was made by the
applicants and we are informed today that it was basically a loan to enable the registration of the company as an incorporated body.  The
company is moribund and it is unlikely that the loan will be repaid.

Notwithstanding that fact, however, subsection 1 of section 1121 of
the Social Security Act reads:

If there is a charge or encumbrance over a particular asset, the value of the asset for the purposes of calculating the value of a person's assets for the purposes of this Act is to be reduced by the value of that charge or encumbrance.

And then section 1122 which is the relevant section reads:

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.

In other words, contrary to the situation which existed in earlier
matters before the Tribunal the legislature has now stated
unequivocally that loans are to be taken into account having regard
to so much of the amount of the loan as remains unpaid and it is not
permissible for the secretary or this Tribunal upon review to enter into any calculations as to whether the loan is in fact repayable at its full book value therefore a sum of $1004 shown as a loan to Gunite and Grouting Pty Ltd is regarded as an asset in the hands of the applicants in the full sum of $1004.

A similar situation exists in a loan to Bentham Investments Pty Ltd.
There is also the valuation of shares in Bentham Investments Pty Ltd. At the outset despite arguments to the contrary by the applicants the Tribunal determined that the only appropriate method of valuing the shares in Bentham Investments Pty Ltd was the net asset backing method.  There are two reasons for this.  The first is the decision of

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the Federal Court in Repatriation Commission and Harrison 78 FCR
442 at page 450 his Honour, Tamberlin J stated:

"The respondents submit that the attribution of a nil value must be accepted as correct because if the shares were sold then on a winding up basis the price received for the shares would be cancelled by the assumed collection of the debts and their financial position would not be advanced.

However, section 41F(1) is concerned with the value of the shares and not with the ultimate financial effect which would result as a practical matter if the value of the shares were realised by the respondents". 

Also, one must take into account that this is a matter concerning the value of assets for aged pension purposes.  In the case of shares in a private company members are restricted in the manner they may dispose of their shares.  The shares cannot be traded on an open market such as the stock exchange and on one argument they have no current market value.

The net asset backing method can be said to represent what a person might expect to receive should the company be wound up, its debts paid and any surplus distributed amongst the members.  The net asset backing of a private company share is arrived by dividing the net company assets figure by the number of shares issued which carry rights to distribution of the company's assets on wind up.  Affecting the value of the shares in Bentham Investments Pty Ltd was the value of the company's principle asset, a block of land.  The value of that particular piece of real estate was said by the applicants on 14 January 2000 to be $650,000, see document T15.

There was an argument by the applicants that in having regard to the
value of that land the Tribunal should take into account the fact that
upon any sale of the said land they would be liable for capital gains
tax.  Suffice it to say that any tax at the time the balance sheet of the
companies were prepared or at the time the value was nominated by
the applicants was a contingent liability and at any stage until the
land was sold not possible of being ascertained.

In any event, that confuses the difference between the value of land
and the proceeds of sale in the hands of the vendors.  This matter
was referred to by the Tribunal in re Pemberton and Repatriation
Commission, 12 AAR 53. At page 57 the Tribunal referred to the
decision of his Honour Stark J in Elders Trustee and Executor
Company Limited and Deputy Federal Commissioner of Taxation, 51
CLR 694 where his Honour said at page 697:

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"It is the value of the property that must be assessed.  The price it will fetch if sold in the open market is one test of value.  The price that a purchaser will give for it.  Brokerage would normally be reflected in this price in the case of bonds and shares sold on a stock exchange but the amount that is

produced to the seller or that comes home to the seller after
      deducting the costs of realisation is not the value of the
      property but the result to him of its sale".

Therefore, it seems to us that the value of the property owned by
Bentham Investments Pty Ltd for the purposes of this review is the
sum of $6500 as nominated by the applicant.  There is also as
disclosed in the balance sheets various companies at page 98
document T21 a loan of some 401,757 documents by Bentham
Investments Pty Ltd.  Again, section 1122 mandates that it is the
book value of that loan which was taken into account not the amount
which would in fact be repaid upon a winding up of the various
companies.

The loan was to an associated company but it has been pointed out
both in the decision of this Tribunal in re Eimberts and Repatriation
Commission, 16 ALD 19 more importantly in the case of Repatriation
Commission and Harrison, Supra.  It is not permissible to lift the
corporate veil to consider the reality of the situation and the nature of
the relationship between the applicants in this case and the various
companies.

The only other matter we would refer to is a submission by the
applicants as to the intent of the Social Security Act. We would only
say that to apply the law beneficially does not mean that in a case
where there is no ambiguity the plain words of the statute can be
ignored or read so as to give what the Tribunal might think is an
interpretation more consistent with the intent behind the Act.  In these
circumstances, therefore, notwithstanding that there has been minor
adjustments to the value of various assets in the hands of the
applicants we decline to make any alteration in the values of the
shares in Bentham Investments Pty Ltd which have being valued in the sum of $616,342 and again we would refer back to the balance
sheets at document T21.

Then as the cut off point for assets in the hands of the applicants in
order to entitle to receive an aged pension is $387,500.  It is
clear that they exceed the asset level.  If those circumstances have
changed in any way it is of course open to the applicants to make
fresh applications and indeed we understand that this they have done.
However, for the reasons we have just stated decision under review
will be affirmed.

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