Cottrell and Repatriation Commission

[2003] AATA 911

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2003] AATA 911

ADMINISTRATIVE APPEALS TRIBUNAL      )

)     No. N2002/716

VETERANS’ APPEALS DIVISION )

Re ROY JOHN COTTRELL

Applicant

And REPATRIATION COMMISSION

Respondent

DECISION

Tribunal Senior Member M D Allen

Date29 July 2003

PlacePort Macquarie

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No. N2002/716

VETERANS' APPEALS DIVISION		)
Re		ROY JOHN COTTRELL

Applicant

And REPATRIATION COMMISSION

Respondent

DECISION

Tribunal Senior Member M D Allen

Date29 July 2003

PlacePort Macquarie

Decision FOR the reasons given orally at the hearing in this matter, the decision under review is AFFIRMED.

(Sgd) M.D. Allen
  ..............................................

Senior Member

CATCHWORDS

VETERANS' ENTITLEMENTS SERVICE PENSION - application of assets test to loan to a private company which loan is irrecoverable - effect of statutory demand under Corporations Act - severe financial hardship.

Veteran's Entitlements Act 1986 - Division 4 of Part III; ss52, 52C, 52D, 52Y

Corporations Act 2001 - ss459E, 459G, 459Q

Arcibal v Secretary Department of Family & Community Services (2002) 36 AAR 53 

REASONS FOR DECISION

16 September 2003 Senior Member M D Allen

1. At the conclusion of the hearing in this matter, I stated orally the decision intended to be made. After service of a copy of that decision upon the Respondent, the Respondent's solicitors, pursuant to ss 43(2A) of the Administrative Appeals Tribunal Act 1975 (“the AAT Act”) requested the Tribunal to furnish to the Respondent a statement in writing of the reasons of the Tribunal for its decision. Those reasons are now set out below.

2.      No reasons were given at the time. I announced my decision as the hearing in this matter proceeded in the following manner. The Applicant was unrepresented and most of the hearing was taken up by my explaining the written submissions of the Respondent to him and discussing with the Applicant the applicable legislation, whilst pointing out to him the correctness of the Respondent's submissions.

3.      The Applicant lodged his application for review with the Tribunal on 22 May 2002, seeking review of a decision by a Delegate of the Respondent dated 4 January 2002, affirming a prior determination that by reason of the value of the assets held by him and his wife, the rate of Service Pension payable to him was NIL.

4. There is no dispute that the Applicant is entitled to a Service Pension by reason of his service in the Royal Australian Air Force and the rendering of qualifying service: see s 7A of the Veterans' Entitlements Act 1986 (“the VEA”). On 3 February 1999, he was granted a Service Pension on the grounds of his permanent incapacity for work: see Division 4 of Part III of the VEA.

5. Further, there is no dispute that the Applicant made a full disclosure of all assets in the hands of himself and his wife at the time he claimed his Service Pension. The decision granting his claim which is at T23 of the documents prepared for the Tribunal pursuant to s 37 of the AAT Act reads inter alia:

"Please contact the Department if you receive any income, directors fees, or return from your loan, from Jewellyn Pty Ltd." 

6.      The reference to a loan to Jewellyn Pty Ltd is a reference to the sum of $397,752.00, being an amount loaned by the Applicant and his wife to the company Jewellyn Pty Ltd, which was the private company incorporated by the Applicant by medium of which he conducted his business affairs.  

7.      Originally, the company dealt in costume jewellery but then became a developer constructing a block of units at Wauchope. As I understand the Applicant's evidence, it was the construction of these flat premises that led to the company facing financial difficulties and eventually being placed in administration by its creditors.

8.      In an attempt to salvage the company, the Applicant and his wife obtained a loan from the ANZ Bank Limited upon the security of the family home and had then on lent the sum of $397,752.00 to Jewellyn Pty Ltd in order to discharge that company's debts at the time it was in administration. Currently, the balance of the loan by the Applicant and his wife to the ANZ Bank is $157,887.07 but the sum of $397,752.00 is still showing in the books of account of Jewellyn Pty Ltd as an amount due and owing to the Applicant and his wife.

9.      There is no dispute between the parties that at present, the company has no funds with which to repay the said loan. 

10.     Subsequent to the passage of the Social Security and Veterans' Entitlements Legislation Amendment (Private Trusts and Private Companies - Integrity of Means Testing) Act 2000, the Applicant's circumstances were subjected to review by the Respondent: see T15 at p 48. As a result of that review, the Respondent reconsidered the loan standing in the books of Jewellyn Pty Ltd in favour of the Applicant and his wife and determined that the said loan amount constituted an asset in the hands of the Applicant and his wife.

11. In making this determination, the Respondent was correct. Section 52D of the VEA states:

"If a person lends an amount after 22 May 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."

It was not disputed that the loan to Jewellyn Pty Ltd was made after 22 May 1986.

12.     Exhibit A1 annexes a letter from the former Administrator of Jewellyn Pty Ltd dated 29 January 2002. The letter reads inter alia:

"Prior to the company entering into the Deed of Company Arrangement I acted in the capacity as Administrator of the company pursuant to Section 436A of the Corporations Law.

The records of the company at that time disclosed that Roy and Marilyn Cottrell were the largest ordinary unsecured creditors of the company in the sum of $113,776, however the company had no unencumbered assets that could be realised in order to meet their claim. Additionally, Mr & Mrs Cottrell funded the Deed of Company Arrangement costs from personal borrowings.

It is my understanding that the company has not traded since the deed was wholly effectuated and I am advised that the company is still impecunious."

13.     Part of the Applicant's difficulties in this matter was his bewilderment that he was originally granted the Service Pension to be paid at a specified rate which was then reduced to NIL using the same information he had previously supplied. Unfortunately, the answer is clear, namely that a mistake was made by the original decision-maker. That mistake has now been corrected.

14.     The Applicant also sought to deduct from the loan amount the sum outstanding on the loan advanced to him and his wife by the ANZ Bank.

15. Section 52C of the VEA provides, inter alia, that the value of an asset is to be reduced by the value of any charge or encumbrance over the asset. In this matter, there is no charge or encumbrance over the loan by the Applicant to Jewellyn Pty Ltd. The loan by the ANZ Bank is secured against the Applicant's dwelling which is exempt from the assets test - see para 52(1)(b) VEA, consequently the mortgage held by the ANZ Bank cannot be brought into calculation: see ss 52C(3) of the VEA.

16.     Under policy adopted by the Respondent, a loan can be classed as irrecoverable and value lower than its face value can be placed on it after consideration of the following matters, namely:

·Is the company still trading, and therefore does it have the capacity to trade out of difficult circumstances and later repay the loan?

·Has the company divested itself of assets in order to make the loan irrecoverable? Do the deprivation provisions apply?

·Have attempts been made to recover the loan?

17. The Applicant has made statements to the effect that the company may trade again and that if the company did return to profitable trading, there would be tax losses which it may seek to utilise. I regard these statements by the Applicant as mere wishful thinking on his part as he is in receipt of a Special Rate Pension pursuant to s 24 of the VEA, which means he has been assessed as incapable of working more than eight hours a week.

18.     There is no evidence that the company has divested itself of assets in order to make the said loan irrecoverable.

19.     No attempts have been made to recover the loan by taking steps to wind up Jewellyn Pty Ltd. If a demand was made upon the company, it is clear that it would not be able to repay the loan but until such time as the demand is made and the company wound up as a result of default in payment, the said loan still exists.

20. A statutory demand upon the company pursuant to s 459E of the Corporations Act 2001 would create no more than a basis upon which the creditor could seek to have the company wound up: see s 459Q of the Corporations Act 2001.. It is always open for the company upon whom the Statutory Demand is served to have the said Demand set aside: see s 459G of the Corporations Act 2001.

21. The Applicant also raised a question regarding payment of Service Pension pursuant to the hardship provisions. Section 52Y of the VEA reads inter alia :

"(1) Where:

(a) either:

(i) a service pension or income support supplement is not payable to a person because of the application of an assets test; or

(ii) a person's service pension rate or income support supplement rate is determined by the application of an assets test;

…

(e) the Commission is satisfied that the person would suffer severe financial hardship if this section did not apply to the person;

the Commission must determine in writing that this section applies to the person."

22. Before payment can be made pursuant to s 52Y of the VEA, the Respondent must be satisfied that the Applicant would suffer "severe financial hardship". That term is not a technical one and the phrase simply means what it says. In Arcibal v Secretary Department of Family & Community Services (2002) 36 AAR 53, the Applicant was held not to be in severe financial circumstances where he was in receipt of a Disability Support Pension. In this matter, although the Applicant's rate of Service Pension is NIL, the Applicant is in receipt of a Special Rate Pension pursuant to s 24 of the VEA and both he and his wife retain eligibility for Pensioner Concession Cards and pharmaceutical allowance. In these circumstances, I am satisfied that the Applicant and his wife are not in severe financial hardship, all be it in straightened financial circumstances.

23.     For the reasons set out above therefore, the decision under review is affirmed.

I certify that the 23 preceding paragraphs are a true copy of the decision and reasons for decision herein of:

Senior Member M D Allen

Signed:         (K. Wong)
          ....................................................................................……………………………….

Associate

Date of Hearing  29 July 2003    
Date of Decision  16 September 2003

Representative for Applicant      Self-represented

Counsel for Respondent             Ms R. Henderson

Solicitor for Respondent              Ms A. Nanson,

Australian Government Solicitor