Greenhill and Secretary, Department of Family and Community Services

[2006] AATA 176

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 176

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No T2005/38

GENERAL ADMINISTRATIVE  DIVISION		)
Re		JENNIFER ANN GREENHILL

Applicant

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Miss Mary Imlach (Senior Member)

Date28 February 2006

PlaceHobart

Decision The decision under review is affirmed.

[Sgd Mary Imlach]

Senior Member

CATCHWORDS

Social Security - partner allowance - assets test - disposal of assets - application of financial hardship rules.

Social Security Act 1991 - ss771HA(1), 771HF(1), (2), 1122, 1124, 1132

Re Williams and Secretary, Department of Family and Community Services (2000) AATA 35

Re Riches and Secretary, Department of Social Security (1995) AATA 10590

Re Wright and Secretary, Department of Social Security  (1994) 82 SSR 1196

Re Secretary, Department of Family and Community Services and Downes (2002) 70 ALD 100

Clayton and Secretary, Department of Social Security (1996) AATA 11131.

REASONS FOR DECISION

28 February 2006 Miss Mary Imlach (Senior Member)         

1.      Mrs Jennifer Ann Greenhill made a claim for Partner Allowance (PA) on 21 March 2003.    Centrelink rejected Mrs Greenhill’s claim on 1 May 2003 on the basis she was not qualified for PA at the date of her claim.    Centrelink maintained that had Mrs Greenhill qualified for PA at 21 March 2003, the assets test would have precluded any payment to her because she had forgiven a loan of $424,049.00 to Thermoform Packaging Pty Ltd on 30 June 2003 without receiving any consideration.   Mrs Greenhill appealed to the Social Security Appeals Tribunal (SSAT) on 18 November 2004.   On 16 February 2005 the SSAT affirmed that Centrelink’s decision was correct.

Issues

(a)Was Mrs Greenhill (the applicant) qualified for PA at the date of her claim on 21 March 2003 or within 13 weeks?

(b)Was the applicant’s loan to the Ayers Family Trust an asset for the purposes of the social security law?

(c)Was the forgiving of the loan on 30 June 2003 a deprivation of an asset for the purposes of the social security law?

Background Facts

2.      The applicant claimed PA on 21 March 2003 (“the claim”).

3.      Partner Allowance had been paid to the applicant previously, but this was cancelled on 19 July 2001 when it became known to Centrelink that Mrs Greenhill had an asset, a loan of $424,049.00 to the Ayers Family Trust which she had not been disclosed by the applicant and therefore had not been assessed against her.

4.      It was decided by Centrelink in July 2001 that because the loan had not been disclosed, the applicant had been paid PA to which she was not entitled and a debt of $22,553.83 was recovered from her.   The applicant asked for a review of this decision which resulted in the decision being affirmed.    It was noted at this time that at 30 June 2001, the applicant’s loan to the Trust amounted to $424,049.00 and that the applicant had received distributions from the Trust of $47,145.00 in 1998/1999 and  $32,168.00 in1999/2000.

5.      On 30 June 2003 the applicant’s loan was transferred from the Ayers Family Trust (the “Trust”) to Thermoform Packaging Pty Ltd (“the company”) and on the same date the applicant forgave the loan without consideration.    A payment of $425,000.00 was also made by the company to the Trust of which the applicant was a beneficiary.

6.      The applicant’s claim for PA lodged on 21 March 2003 was rejected by Centrelink on 1 May 2003 (“the decision”) on the basis that she did not qualify for PA as her partner was not in receipt of a social security payment.

7.      On the applicant’s request an authorised review officer (ARO) reviewed the decision and on 19 August 2004 affirmed the decision as correct.

8.      The applicant then appealed to the SSAT on 18 November 2004 which affirmed Centrelink’s decision as correct on 16 February 2005.

9.      The applicant lodged an application for review with this Tribunal on 30 March 2005.

Submissions of the Applicant

10.     The applicant, who was represented by her accountant, Mr David Wilson, contended that Centrelink’s claim that Mrs Greenhill could have done more to recover the loan moneys was not tenable.    The company has been advised that a formal liquidation would have cost between $20,000 and $30,000.   The funds to cover the costs of such a liquidation would have come out of the pool of funds available to creditors and it was for this reason, to preserve the funds available to the creditors that the family took the morally correct decision to ensure that all non-family creditors were paid in full.

11.     The applicant stated that all funds advanced to the company by the family had been lost irretrievably by the company due to its accumulated trading losses.   The loan amounts therefore had no value prior to them being written off in the books of the company.

12.     The applicant contended that the Tribunal should follow the decision in Williams and Secretary, Department of Family and Community Services (2000) AATA 35, and further that the amendments to the Act relating to the deeming rules only apply to ensure that loans of value cannot be written off by using strategies employing companies. Mrs Greenhill’s loan account Mr Wilson claimed was valueless to start with.

13.     Mr Wilson  submitted that the family had no choice but to wind up the company.    He said “They had to wind up the company and perhaps it is not the strict legal interpretation of irreversible, but certainly in the minds of those people associated with the company there was no choice but to wind up”.    He claimed that what was done was an irreversible winding up.

14.     Mr Wilson claimed further that “… the loan should be disregarded in that it had already been lost.   The company for all intents and purposes was on an irreversible pathway to winding itself up because there really was no practical choice, both commercially or in law, and the knock on effect from that was that the loan was irrecoverable and should be valued on that basis, based under the exception that Mr Sparkes outlined”.

Submissions of the Respondent

15. The Secretary claimed that as the applicant’s partner was not in receipt of a prescribed social security payment on the date of the applicant’s claim or within 13 weeks of that claim pursuant to s771HA(1) of the Social Security Act 1991 (“the Act”),  therefore the applicant was not qualified for PA.

16.     The Secretary submitted that the value of applicant’s assets precluded any payment of PA at the date of her claim even had she been qualified.    The applicant had assets at the date of her claim in excess of $424,049.00.    The Secretary noted that the asset level at which PA would reduce to nil was $217,500.00.

17. The Secretary noted s1122 of the Act which states:

“Loans

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.     In support of his contention that the value of a loan is its face value and not its realisable value, the Secretary referred the Tribunal to the decisions in Riches and Secretary, Department of Social Security (1995) AATA 10590; Wright and Secretary, Department of Social Security  (1994) 82 SSR 1196; Secretary, Department of Family and Community Services and Downes (2002) 70 ALD 100; Clayton and Secretary, Department of Social Security (1996) AATA 11131.

19. The Secretary contended that s1122 stipulates a simple and unambiguous method for valuing a loan and necessarily precludes other methods of valuing, such as determining the amount recoverable commercially. The section gives effect to the principle that in a social security content, a person who has a sum of money and chooses to lend it to another, rather than apply it to his or her own upkeep, should be regarded as having an asset to the value of the amount lent.

20.     The Secretary referred also to the Guide to the Social Security Law at 4.6.5.60 which says also that money loaned by a customer is an assessable asset and the value is the amount owed to the customer.

21. The Secretary contended that the Act and the case law to which he had referred made it clear that an examination of the realisable value of the loan of $424,049.00 made by the claimant is not permitted. The loan must be taken at its face value.

22.     The only exception to valuing a loan at its face value is provided for in the Guide to the Social Security Law at 4.6.5.65 in relation to failed loans and at 4.6.5.110 in relation to failed financial investments.    The Secretary noted that the applicant and her family chose to forego their legal right to repayment of loans so that the creditors could be paid.    The Secretary commented that commendable as this appeared to be it meant that the applicant failed to pursue her legal entitlement to be paid and, therefore, it could not be said that the loan was irrecoverable.   It was for this reason she did not come within  rules relating to failed loans  in the Guide.

23.     In relation to the asset test deprivation rules the Secretary contended that as the applicant forgave the loan on 30June 2003 and received no consideration for so doing, the loan was treated appropriately as a gift and as a deprived asset for 5 years.

24.     The Secretary contended that the applicant had done nothing to recover the loan.   She transferred the loan to a worthless company thereby guaranteeing that she would receive nothing and in these circumstances, the significant concessions in the guide in relation to failed loans should not apply.

25.     The decision in Williams’ case was claimed by the Secretary to be a perfunctory decision lacking in reasoning which should be distinguished on its facts.

Discussion of the Evidence

26.     The Tribunal noted that the claim made for PA by Mrs Greenhill on 21 March 2003 did not disclose her involvement in either the company or trust.

27.     The Tribunal noted also in the minutes of the meeting of directors of the company dated  30 June 2003 the resolution that the loan to Mrs Greenhill was to be “forgiven”.   

28.     The Tribunal was not provided with any evidence why Mrs Greenhill made a loan to the company on 30 June 2003 the date that it ceased to operate.  Nor was any evidence provided why the loans from other members of the Greenhill family were treated differently.

Application of the Law

29. The relevant legislation contained in s771HA(1) of the Act provides that in order for a person to be qualified for partner allowance they must, amongst other things, be a member of a couple and their partner be receiving one of a prescribed list of social security payments. Mrs Greenhill’s husband, Robert Greenhill was not receiving a qualifying social security payment at the time Mrs Greenhill’s partner allowance was cancelled in July 2001 and again when she reclaimed in March 2003. Mrs Greenhill therefore, is not entitled to partner allowance.

30.     The main issue argued by the applicant before the Tribunal was the fact that the loan from her to the company should not be considered as part of her assets.   The reason that Mr Greenhill had not qualified for a Centrelink payment was the fact that Mrs Greenhill’s assets exceeded the permissible amount.  The Tribunal must determine this issue.

31. Section 1068 of the Act provides that a person’s rate of partner allowance is to be worked out according to the Rate Calculator at the end of the section. The section provides that a person’s assets combined with those of their partner must be below the limit which at the date of Mrs Greenhill’s claim in March 2003 was $217,500.00.

32.     The loan from Mrs Greenhill to the Ayers Family Trust was used to finance the company.   On 30 June 2003 the loan was “forgiven”.

33.     Centrelink determined that Mrs Greenhill had disposed of the loan asset on 30 June 2003 when she transferred the loan to the company and then forgave the debt on the same day without receiving any consideration.

34.     Mr Wilson for the applicant argued that Mrs Greenhill’s loan had no value due to the fact that the company had lost the funds in its trading.   He stated that the loan had lost its value prior to it being written off in the books of the company.    He cited the decision in Williams and Secretary, Department of Family and Community Services (2000) AATA 35 as the only example to support his contention that the loan should be treated as having no value.

35.     The Tribunal is bound by the case law cited by the respondent in Riches, Wright, Downes and Clayton’s cases as referred to in paragraph 18 which establishes clearly that in all similar cases before the Tribunal the manner of valuing a loan for the purposes of s1122 of the Act has been its face value and no other.

36.     The Tribunal must reject the applicant’s contention that the loan in effect is worthless and accepts the respondent’s contention that the applicant should be regarded as having an asset to the value of the amount lent, $424,49.00.

37.     Mr Wilson argued forcibly that the company “for all intents and purposes was on an irreversible pathway to winding itself up because there was no practical choice both commercially and in law”.

38.     The Tribunal would have been able to accept Mr Wilson’s argument had he been able to convince the Tribunal that the case fell within one of the exceptions to the disposal rule listed in 4.6.5.65 of the Guide to the Social Security Law – Loans that no longer exist.

39.     The Guide states clearly under the heading:

“When a loan no longer exists – loans made to a company trust or individual.

Legally a loan ceases to exist at the time it is repaid, or when the debtor is formally released from the loan.   A debtor is released from a loan contract under a bankruptcy or where the loan is forgiven”.

40. For social security purposes there are some other situations where a loan is also treated as no longer existing. Loans that no longer exist are sometimes referred to as irrecoverable loans, though this term is not mentioned in the Act. Although there is no longer a loan, there may be another type of asset such as a debt. A loan no longer exists for social security purposes when:

“…

The lender forgives the loan usually via a deed or gift of release (see explanation 1); or

…

The company (or trust) that borrowed the money is in the process of irreversible winding up (see explanations 1 and 5)); or

…

Explanation 1:

Deprivation rules apply where a loan is forgiven, except where this occurs in the process of an irreversible wind up (i.e. deregistration for a company) of a company or trust.

…

Explanation 5: 

A delegate should be satisfied that the wind-up of the company (or trust) is irreversible and that the wind-up (or deregistration) will be completed within a reasonable time (i.e. it will not drag on for years).”

41.     The company had taken no formal steps at 30 June 2003 to wind up.   There had been no special resolution by the company that it be wound up voluntarily.   A voluntary winding up commences at the time of the passing of the resolution for voluntary winding up.   Had the meeting of the company conducted on 30 June 2003 included such a special resolution, the position would have been different.   There was no liquidation, and the company continued to carry on business as is evidenced by the payment of $425,000.00 to the Ayers Family Trust.    The Tribunal, cannot accept Mr Wilson’s submission that what was done was an irreversible winding up.   The company did not cease to carry on its business at 30 June 2003.

42.     The Tribunal finds that at the date Mrs Greenhill forgave the debt, the winding up of the company was not irreversible and in fact the company continued to be in existence “when the loan was forgiven”.    Mrs Greenhill could not be said to have fallen within one of the exceptions to the disposal rule listed in 4.6.5.65 of the Guide.

43.     The family may well have felt that they were on a pathway to winding up.   Mr Wilson said “…in the minds of those people associated with the company there was no choice but to wind up”,  but at the date Mrs Greenhill forgave the loan, 30 June 2003, the company had not taken the first legal step in a members’ voluntary winding up, a resolution by the company to dissolve.

Decision

44.     The decision under review is affirmed.

I certify that the 42 preceding paragraphs are a true copy of the reasons for the decision herein of Miss Mary Imlach (Senior Member)

Signed:  K L Miller (Administrative Assistant)

Date/s of Hearing  20 December 2005
Date of Decision  28 February 2006
Representative for the Applicant    Mr David L Wilson
Counsel for the Respondent     Mr Brian Sparkes
Solicitor for the Respondent     Advocate, Centrelink