Glenn and Secretary, Department of Families, Community Services and Indigenous Affairs

[2006] AATA 919

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 919

ADMINISTRATIVE APPEALS TRIBUNAL          №V2004/1332

GENERAL ADMINISTRATIVE  DIVISION           

Re:           JAMES WILLIAM GLENN

Applicant

And:secretary,

department of familIES, community services AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal:       Mr Egon Fice, Member

Date:30 October 2006

Place:Melbourne

Decision:The Tribunal affirms the decision under review.

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

Member

SOCIAL SECURITY - debt recovery – assets limit – company loan – company financial statements – retrospective amendment of accounts – directors’ declarations – true and fair view of company accounts

Administrative Appeals Tribunal Act 1975

Corporations Act 2001

Corporations Law 1995

Social Security Act 1991

REASONS FOR DECISION

30 October 2006  Mr Egon Fice, Member

1.      Mr J.W. Glenn was a butcher operating a business owned by his company which supplied meat to retail customers.  In November 1997 Mr Glenn had a heart attack which caused him to have open heart surgery.  His medical condition prevented him from working and in January 1998 he lodged an application with Centrelink for newstart allowance.  Centrelink is the service agency for the respondent.  This was granted and payments commenced as of 3 December 1997 and continued to 20 April 1999.  Mr Glenn was paid a total of $14,929.44 during that period.

2.      In April 1999 Mr Glenn, who was over the age of 60 and had no recent experience in the workforce, made a claim for mature age allowance.  Centrelink accepted Mr Glenn’s claim and between 21 April 1999 and 8 May 2001 he received $23,821.08 by way of mature age allowance.

3.      In August 2003, after Centrelink had further investigated Mr Glenn’s assets, it cancelled his mature age allowance and raised two debts against Mr Glenn being the total amounts he had received by way of newstart allowance and mature age allowance.

4.      An Authorised Review Officer (ARO) affirmed Centrelink’s decision to raise debts totalling $38,750.52.  The Social Security Appeals Tribunal (SSAT) affirmed the ARO’s decision on 22 October 2004.

5.      Mr Glenn operated his butcher’s business through a private company known as Sixteenth Eastway Pty Ltd, ACN 005832 431 (Sixteenth Eastway).  Mr Glenn has been a director of that company since 25 March 1985 and the sole director, company secretary and shareholder since at least 1997.  Sixteenth Eastway’s accounts have recently been amended to reflect what his accountants believe is the true financial position since 1997.  The only issue before the Tribunal was whether those amended accounts should be considered when calculating Mr Glenn’s net asset position, and therefore his entitlement to the benefits he received. 

RELEVANT FACTS

6.      After Mr Glenn suffered a heart attack in 1997 he ceased working in the butcher business although Sixteenth Eastway continued to trade until at least the end of the 2000 financial year.

7.      When Mr Glenn applied for newstart allowance on 7 January 1998 he was the registered proprietor of two properties in Bendigo: 30A Rose Street and 4 Ella Court.  Sixteenth Eastway was the registered owner of a property at Bulleen and another at Ocean Grove.

8.      At the time of applying for the newstart allowance Mr Glenn resided in the Bulleen property and paid rent to his company, Sixteenth Eastway.

9.      The company sold the Bulleen property in February 1998 and, after settlement in April 1998, Mr Glenn moved into a unit at the Rose Street property which he had built on half of the sub-divided block he owned.

10.     Sixteenth Eastway sold the Ocean Grove property in March 1999.

11.     Mr Glenn provided Sixteenth Eastway with its operating capital and those monies were recorded in its financial statements as loans made by him to the company.  Although Mr Glenn had the financial statements amended in 2004, the original balance sheets for Sixteenth Eastway disclose the following loans by Mr Glenn:

1997 -   $171,981

1998 -   $168,061

1999 -   $196,955

2000 -   $263,267

2001 -   $263,267

The shareholder loans were recorded in the company’s tax returns for the years set out above.

12.     Centrelink was advised on 2 May 2001 that Sixteenth Eastway had no assets which could be realised to repay the shareholder loan and, because the company was about to be de‑registered, the loan was to be written off.  This was confirmed in a letter dated 20 November 2001 from Walker and company, Mr Glenn’s accountants and advisers.

13.     On 24 March 2004 Mr Glenn contacted Centrelink to advise that his accountant had amended the company’s financial statements and tax returns for the years 1997, 1998, 1999, 2000 and 2001.  The amended financial statements for those years have had the shareholder’s loan removed entirely.  According to Mr Walker, this was a true reflection of the company’s financial position for that period.

14.     Centrelink refused to amend its assessment of Mr Glenn’s assets as a result of the amended financial statements and tax returns. 

Amendment of Financial Statements

15.     The only issue before the Tribunal is whether the amended financial statements of Sixteenth Eastway should be taken into account in assessing whether Mr Glenn was entitled to newstart allowance and mature age allowance between 1997 and 2001.  The Secretary of the Department of Families, Community Services and Indigenous Affairs is seeking to recover monies paid to Mr Glenn over this period because he maintains that the value of Mr Glenn’s assets exceeded the maximum allowable for the allowances to be paid.  The reason for this was that the monies owed to Mr Glenn by Sixteenth Eastway, and which were originally disclosed in the accounts of that company, constituted an asset which was taken into account in determining whether the total of Mr Glenn’s assets exceeded the maximum limit.  If the shareholder’s loan accounts were reduced to zero for each of those years, Mr Glenn would not have exceeded the maximum asset limit and therefore he would have been entitled to newstart allowance and mature age allowance.

16.     According to Mr Walker, the financial statements of Sixteenth Eastway should not have reflected a debt owed to Mr Glenn as the company was never in a position to repay, out of its assets, those loan monies.  According to Mr Walker, the loans should never have been regarded as an asset of Mr Glenn.  That is why the decision was made in May 2001 to write off the company’s debt.

17.     A newstart allowance is not payable to a person if the value of that person’s assets is more than the person’s assets value limit (s 611(1) Social Security Act1991 (the Act)).  Similarly, s 660YCJ of the Act provides that:

A mature age allowance is not payable to a person if the value of the person’s assets is greater than the person’s assets value limit.

Assets are broadly defined under the Act simply as property.  A loan that has not been repaid in full is defined as a financial asset under s 9(1) of the Act.  Section 1122 of the Act specifically deals with loans and it 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.

18.     The Act therefore makes it quite clear that where a claimant for newstart allowance or the mature age allowance is owed money under a loan, the principal sum must be accounted for when calculating the value of the claimant’s assets.

19.     The problem which arises in this case is that although the financial statements for the years 1997 to 2001, when they were prepared, disclosed loans by Mr Glenn to Sixteenth Eastway, it would appear that Mr Glenn only decided in May 2001 that the debt owed to him by the company in respect of the loan account should be written off.  That is because, according to Mr Walker, the company was to be de-registered and it did not have any assets which could be realised in order to repay Mr Glenn.

20. There is a significant problem with Mr Glenn’s submission that the revised financial statements prepared for Sixteenth Eastway are a true and correct reflection of its accounts between 1997 and 2001. Although not included amongst the documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975, the directors are required to attach to the company’s accounts and statements a declaration stating that in the directors’ opinion, the balance sheet gives a true and fair view of the company’s state of affairs at the end of the financial year in question (s 301(2) and (3) of the Corporations Law 1995).  Further, the declaration made by the directors requires them to state, whether in their opinion, when the declaration was made, there were reasonable grounds to believe that the company would be able to pay its debts as and when they fall due.  Although the required declarations were not in evidence, given that the company continued to trade between 1997 and 2001, I would expect that the statutory declarations were made by Mr Glenn in respect of those years.  The amended statements submitted by Mr Glenn in 2004 each have attached to them the required Directors Declaration stating that the accounts fairly represent the company’s financial position and that there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.  If, between 1997 and 2001, Mr Glenn was of the view that Sixteenth Eastway could not repay his loan, he would have forgiven the company’s liability to repay him; the company would have written off its legal obligation to repay the loans; and that would have been reflected in its financial statements.

21.     It is most unusual for the company statements to be amended some years after the directors have signed off on those accounts and made the statutory declaration regarding their content.  There is no provision in the Corporations Law 1995 or the Corporations Act2001 which suggests that financial statements can be amended after the directors have made the required declaration although I accept that obvious errors ought to be corrected and an explanatory note provided.  This of course is not what has happened with the Sixteenth Eastway accounts.  It appears that when Mr Glenn decided in 2001 that Sixteenth Eastway would no longer trade, it would be de-registered.  Because it could not repay his loan at that time, the loan would be written off and the financial statements for that year would reflect the true position.  However, as the company continued to trade prior to the decision to de-register it in 2001, I have no doubt that Mr Glenn was of the view that his loan account might be repaid at some future date.  The statutory declarations made in the preceding years confirm that.  When, in May 2001, Sixteenth Eastway ceased to trade and Mr Glenn decided that the company should be de-registered, it was appropriate to write off the loan because the company could not repay Mr Glenn. 

22.     When Centrelink was advised on 2 May 2001 that Sixteenth Eastway would be wound up and de-registered, it considered the loan to be written off from that date.  That seems to me to be the correct decision.  Unfortunately for Mr Glenn, it also means that the loan amounts standing in Sixteenth Eastway’s accounts between 1997 and 2000 must be taken into account when assessing the value of his assets in accordance with s 1122 of the Act.

CONCLUSION

23.     At the hearing of this matter Mr Glenn accepted that the amounts constituting the debts in respect to the newstart allowance and the mature age allowance were correct.  There was no dispute about whether it was appropriate that a debt be raised in respect to the amounts paid to Mr Glenn by way of newstart allowance and mature age allowance.  There was no issue before the Tribunal regarding the recoverability of the debt and therefore no argument that it should be written off.  There was also no argument about the waiver provisions in the Act or waiver for special circumstances.  The only issue before the Tribunal was whether Centrelink was required to reconsider Mr Glenn’s asset position following an amendment of Sixteenth Eastway’s financial statements for the years 1997 to 2001.

24.     The financial statements for the years 1997 to 2000, at the time that they were prepared, represented a true and fair view of the company’s position.  The corporations law in force at the time required a statutory declaration to that effect from the company’s directors and there is no provision in that legislation for retrospective amendment of financial statements.  Although I am satisfied that after May 2001 Sixteenth Eastway’s financial position altered and the loan amounts due to Mr Glenn were properly written off, that does not affect the company’s position between 1997 and May 2001.

25.     Therefore, the decision made by the SSAT on 22 October 2004 was correct and must be affirmed.

I certify that the twenty‑five [25] preceding paragraphs are a true copy of the reasons for the decision of:

Mr Egon Fice, Member

signed:     Ursula Noyé

Clerk

Date of hearing:  22 September 2006

Date of decision:  30 October 2006
Advocate for the applicant:        Mr G. Flack

Solicitor for the respondent:       Sparke Helmore