Hayirli and Secretary, Department of Social Services (Social services second review)
[2020] AATA 554
•17 March 2020
Hayirli and Secretary, Department of Social Services (Social services second review) [2020] AATA 554 (17 March 2020)
Division:GENERAL DIVISION
File Numbers: 2019/5526
2019/5527
Re:Mr Dogan Hayirli
Mrs Latife Hayirli
APPLICANTS
AndSecretary, Department of Social Services
RESPONDENT
DECISION
Tribunal:R Cameron, Senior Member
Date:17 March 2020
Place:Melbourne
The Tribunal affirms the decisions under review.
...[sgd]...........................................................
R Cameron, Senior Member
Catchwords
SOCIAL SECURITY – Newstart Allowance rejection – rejection due to assets value limit – whether directors’ loans assets attributable to the applicants – decisions under review affirmed
Legislation
Corporations Act 2001 (Cth)
Social Security (Administration) Act 1999 (Cth)Social Security Act 1991 (Cth)
Cases
Secretary, Department of Social Services v Bennett [2019] AATA 5828
Secondary Materials
Department of Human Services, A guide to Australian Government payments, 1 July – 19 September 2018
REASONS FOR DECISION
R Cameron, Senior Member
17 March 2020
INTRODUCTION
There are two applications before the Tribunal (2019/5526 and 2019/5527) made by Mr and Mrs Hayirli seeking review of decisions made on 5 August 2019 by the Social Services & Child Support Division of this Tribunal (“AAT1”) which affirmed previous decisions to reject the Applicants’ claims for a Newstart Allowance made on 29 August 2018.
BACKGROUND
This is an unfortunate case for the Applicants. One can understand how they feel profoundly disappointed with the way the hand of the government has caused them to suffer significant financial loss. Ultimately, whilst one must have sympathy for their plight, it is the obligation of the Tribunal to apply the provisions of the applicable legislation to the matters before it.
The Applicants, who are husband and wife, have lived in Australia for over 30 years. They have, from approximately 1992 to 2011 through various corporate and trustee alter egos, acquired several taxi licences. There was no dispute that these acquisitions were effected by funds obtained by borrowings from banks, sale of properties and some limited injection of their own.
It was not altogether clear from the material what legal personality was adopted for their initial acquisition of taxi licences. Subsequently, there is evidence to show that from 2002 they traded through a family trust known as “DL Hayirli Family Trust”[1] of which they personally were the trustees. Latterly, they have used two companies Hayirli Pty Ltd (“Hayirli”) and Dilma Taxi Pty Ltd (“Dilma”). The balance sheet for Hayirli at 30 June 2018, records that company holding six taxi licences valued at $2,501,000.[2] The balance sheet for Dilma records that company holding two taxi licences valued at $939,500.[3]
[1] A copy of a Termination Deed and "Minutes of Trustee Meeting" both dated 22 October 2018 signed by both Applicants was in evidence at document T30 of the T documents. The Termination Deed records the trust as being created on 10 June 2002.
[2] The balance sheet for Hayirli Pty Ltd for the financial year ended 30 June 2018 is at page 226 of the T documents.
[3] The balance sheet for Dilma Taxi Pty Ltd for the financial year ended 30 June 2018 is at page 242 of the T documents.
It is quite well known that over three years ago the Victorian State Government deregulated the taxi industry after the arrival of what are known as “rideshare operators”, the most well-known of which is Uber (there are of course several others that have emerged in this competitive market). Prior to the deregulation of the taxi industry, taxi licences were bought and sold for significant amounts of money. This was a classic example of the laws of supply and demand in a regulated market place.
In the financial years relevant to this matter the Applicants were, through their corporate structure, the holders of eight taxi licences. The value of those licences was recorded in the accounts of each of the relevant companies at the price paid for such licences.[4] When the Victorian State Government deregulated the taxi industry, the value of those licences collapsed virtually overnight. The State Government introduced what is known as a “buyback scheme” which was designed to provide some level of compensation to affected licence owners, such as the companies owned and controlled by the Applicants. The amount of compensation paid by the State Government to the individual licence holders under the buyback scheme was significantly less, in most cases, than the amount paid for them previously. The result of this was that overwhelmingly licence holders suffered an immediate and significant loss. The Applicants’ companies were no exception to this.
[4] Mr Hayirli gave evidence to this effect in the witness box. It is also apparent from an examination of a letter of 21 February 2019 from the Applicant's accountant Mr Acar document T35 of the T documents and an examination of the balance sheets for each of Hayirli and Dilma themselves.
AAT1 affirmed the previous decisions of an Authorised Review Officer to reject the Applicants’ claims for Newstart Allowance. The grounds upon which their claims for Newstart Allowance were rejected by AAT 1 was that the Applicants exceeded the “Assets Value Limit” prescribed by the relevant sections of the Social Security Act1991 (“the Act”).
ISSUES FOR DETERMINATION BY THE TRIBUNAL
The Respondent contends that the issue for determination is whether the decision to reject the Applicants’ claims for Newstart Allowance was correct.
Whilst in one sense this approach is strictly correct, the Tribunal considers that the core issue in this case is whether or not the Applicants’ Assets Value Limit exceeds the amount fixed under section 611 of the Act. It is the threshold question that needs to be addressed in order to determine whether the Applicants qualify for Newstart Allowance.
CONSIDERATION
The relevant sections of the Act need not be reproduced. The substance of those sections will be noted.
As recorded earlier, the Applicants claimed Newstart Allowance on 29 August 2018.[5] Schedule 2 Clause 4(1) of the Social Security (Administration) Act 1999 (“the Administration Act”) fixes the qualification period for Newstart Allowance as 13 weeks after the day on which the claim is made. Therefore, in this matter the qualification period runs from 29 August 2018 to 28 November 2018. This is the timespan within which the Applicants’ Assets Value Limit under section 611 of the Act must be determined.
[5] The Applicants’ claim for Newstart Allowance is document T24 of the 2019/5526 T documents and document T4 of the 2019/5527 T documents.
Some observations should be made about the operation of the Assets Value Limit fixed by section 611 of the Act. Section 611, the precise language of which is referred to in its entirety for its full force and effect, contains an “Assets value limit table”. The table establishes a person’s Assets Value Limit by having regard to the following three items:
(i)a person’s family situation (whether or not they are partnered);
(ii)if partnered, whether or not the partner is getting a pension or allowance; and
(iii)whether either the person or their partner is, or is not, a homeowner.
Some facts concerning the Applicants within the meaning of the Assets value limit table in section 611 are not controversial. By reason of their marriage, they both had the marital status of being partnered. Neither of them were homeowners. Neither of them was in receipt of a pension or allowance in the relevant sense. Therefore, the applicable Assets Value Limit for the Applicants as a non-home owning couple was, during the qualification period, $594,500.[6] If the value of the Applicants’ combined assets exceeded $594,500 as at 29 August 2018 and continued to do so throughout the qualification period, they are not entitled to receive Newstart Allowance under section 611 of the Act.
[6] The contents of document ST3 are referred to. Specifically, "Table A–Assets test limits for allowances" fixes this figure being adjusted for CPI increases.
The Applicants became directors of Hayirli on 31 July 2014 (the same day that it was incorporated) and ceased being directors on 16 April 2018. A company search in evidence before the Tribunal dated 29 January 2019 reveals that Mr Hayirli also transferred 50 issued shares in Hayirli to his son on 16 April 2018.[7] The share transfer was said to be for no consideration.
[7] The company search for Hayirli is document T33 of the T documents.
The Applicants became directors of Dilma on 18 November 2004. Mrs Hayirli ceased being a director on 12 September 2008 and Mr Hayirli ceased being a director on 20 October 2016. A company search in evidence before the Tribunal dated 11 October 2018 reveals that Mr and Mrs Hayirli transferred their shares in Dilma to their son.[8] This share transfer was also said to be for no consideration.
[8] The company search for Dilma is document T29 of the T documents.
For reasons that are not altogether apparent to the Tribunal, Hayirli was paid $250,000 (which was described by the Applicant’s accountant as a “Transition Assistance Payment”) by the Victorian State Government with respect to four of the six licences that it held.[9] Dilma apparently was not compensated for the licences it held. It was not possible to determine why there was no compensation payment made for the other licences.
[9] The letter from the Applicant's accountant Mr Acar of 21 February 2019 is referred to.
Balance sheets for Hayirli and Dilma for the financial year ending 30 June 2018 were in evidence. In each balance sheet under the item “Non-Current Liabilities”, directors’ loans are recorded. In the Hayirli balance sheet, an entry for directors’ loans there is an entry in the sum of $1,232,699. For Dilma the entry for directors’ loans records a sum due of $312,367. There was evidence before the Tribunal that these directors’ loan accounts comprise loans made by the Applicants to each of the respective companies.[10] Therefore, as these loan accounts were to the benefit of the Applicants, they were their assets.
[10] This was noted in paragraph 19 of the reasons of AAT1. It was also not seriously disputed by Mr Hayirli in the witness box. More will be said about this later in these reasons.
The Tribunal refers to the definition of asset contained in section 11, “Assets test definitions”, of the Act. Subsection one defines an asset as, amongst other things, property or money. A loan account is captured by this definition because it is a liquidated sum of money owed by the respective company to the Applicants in the amount recorded in the balance sheets. In other words a debtor/creditor relationship exists between the Applicants and the companies concerned (Hayirli and Dilma) for the amount recorded as a directors’ loan in the relevant balance sheet. The debts due to the Applicants are personal property. Additionally, a debt is usually treated as an asset for the purposes of preparing accounts and taxation returns in accordance with applicable Australian Accounting Standards.
When considering the matters for determination by the Tribunal in this application, reference should be made to Division 1–Value of person’s assets of Part 3.12–General provisions relating to the assets test of the Act. Section 1122–Loans, provides that the value of loans is so much of that amount as remains unpaid, not including any interest payable (emphasis added).
Under section 286 of the Corporations Act 2001 a company has an obligation to keep financial records. Those financial records are required to correctly record and explain the company’s transactions and financial position so as to enable true and fair financial statements to be prepared and audited. Financial records fall within the description or definition of “books”.[11] Under section 1305 of the Corporations Act, books are admissible in evidence in any proceeding (which includes proceedings before this Tribunal) and are prima facie evidence of any matters stated or recorded therein.[12]
[11] The word "books" is defined in section 9 of the Corporations Act 2001. The language of the definition is referred to for its full force and effect. However, it casts a very wide dragnet to capture a broad category of company records within such definition including financial reports, financial records, however compiled, recorded or stored.
[12] The helpful discussion on this topic provided by Deputy President Forgie in Secretary, Department of Social Services v Bennett [2019] AATA 5828 at [26] is referred to.
Therefore, the directors’ loan accounts recorded in the balance sheets for Hayirli and Dilma must be taken to be due and owing by those companies to the Applicants. Applying section 1122 of the Act, as those loans remain unpaid, the value of them for the purposes of the Assets Value Limit is the amount shown as due and owing for such loans in each of the balance sheets.
The Applicants, in both evidence from the witness box by Mr Hayirli and in several documents that were tendered, sought to assert that the directors’ loans recorded in the balance sheet were either not due to them, or simply not capable of recovery or perhaps in legal terms could be described as “impaired assets”.
Mr Hayirli, in the witness box, sought to assert that the loans were not in fact directors’ loans, but loans due to the bank. Mr Hayirli explained the respective companies’ banking histories, which need not be reproduced in these reasons, to somehow contend that the directors’ loans should have been recorded in the companies’ books as bank loans. He was carefully cross-examined by the Respondent about this and, in particular, invited to identify any documentary or corroborative evidence that might support his contentions. He could not do so.
It was also put to Mr Hayirli in cross-examination that both balance sheets, under the heading “Non-Current Liabilities”, specifically identified the amounts due to the National Australia Bank. Presumably, the accountant prepared these balance sheets on the instructions of the companies’ directors and from time-to-time would have examined the respective companies’ accounts to determine what was owing to a bank and what was owing to directors. Mr Hayirli was unable to explain this anomaly or perhaps more accurately, inconsistency with his evidence.
There was some reference to several bank statements that were tendered in evidence from both the National Australia Bank and the Australian and New Zealand Bank; however those documents did not enable the Tribunal to conclude that the amounts recorded in the balance sheets as directors’ loans were in fact bank loans. In any event, the entries contained in the bank statements concerned were nowhere near the amount recorded in the balance sheets. For instance, Mr Hayirli referred to an entry in a National Australia Bank statement for Dilma on 11 February 2016[13] which showed a deposit of $218,437.32 derived from the settlement of the sale of a property in Pascoe Vale. It was not possible to determine how this affected the amount recorded as a directors’ loan in the balance sheet for the financial year ended 30 June 2018. There is just not any or any sufficient, evidence to enable the Tribunal to accept this contention. The presumption contained in section 1305 of the Corporations Act of the accuracy of matters recorded in company financial records has not been rebutted by the Applicants.
[13] This bank statement formed part of exhibit "A2".
Another contention which the Applicants sought to develop was that they had, as they put it, “renounced all interest in the respective companies”. They pointed to the transfer of shares in those companies for no consideration and also several documents in the T documents (T39) which state, amongst other things, that they renounced any interest in the company and any entitlement to further benefits whether such benefits be income, capital or of any other nature.
There are two problems with this approach. Firstly, the language used in these documents does not specifically release each company from the respective directors’ loans. There is no reference to the loans and it does not have the effect of providing a release, discharge or abandonment of any debt due. Even if it did, without categorically deciding the matter, the Tribunal considers that unless a properly drafted release or discharge from the debt was executed under seal it would probably fail for want of consideration.
The second problem with this contention is that the documents relied upon as renouncing any interest in the respective companies, are all dated 4 May 2019. This is well after the qualification period which it will be recalled runs from 29 August 2018 until 28 November 2018. That is the period in which the asset test must be applied. Therefore, the attempted renouncing of any interest in the companies, being outside the qualification period, does not have the effect of removing the value of the directors’ loans from consideration and calculation of the assets’ value for the purpose of section 611 of the Act.
The Applicants further contended, both in Mr Hayirli’s evidence from the witness box and in the documentary evidence, that the directors’ loans could not be recovered. Mr Hayirli in his evidence submitted this was the practical reality. Mr Acar in his letter of 21 February 2019 asserts that, in effect, there are no assets available to satisfy the debt if it is otherwise due and owing.
Whilst this might well have been the practical reality in 2019, it cannot be said that during the qualification period that that was categorically the case. As is noted above, Mr Acar mentioned in his letter of 21 February 2019 that Hayirli received $250,000 from the Victorian Government. There was no evidence as to what ultimately happened to that money; for instance whether it was paid to the bank or disposed of or otherwise. In both companies there was also cash at bank. In the case of Dilma, as at the balance sheet date of 30 June 2018, there was cash in three bank accounts of approximately $256,000. This leaves open considerable speculation as to whether or not the directors’ loans could have been repaid in whole or in part. It is just not possible to say that they were completely unrecoverable.
Finally, on this topic, it should be repeated, that the Tribunal must apply section 1122 of the Act. This means that the value of loans is so much of those amounts as remains unpaid during the qualification period. That is the amounts recorded in the respective balance sheets for Hayirli and Dilma.
By reason of these foregoing matters, the Tribunal concludes that the directors’ loans amounts recorded as at 30 June 2018 in the balance sheet of Hayirli of $1,232,699 and Dilma in the sum of $312,367 are assets for the purposes of section 611 of the Act. Therefore, the combined value of the Applicants’ assets exceeded the Assets Value Limit during the qualification period and they do not qualify for Newstart Allowance.
The Tribunal wishes to once again record that it has considerable sympathy for the Applicants. Nonetheless, it is required to apply the law as it is. If the directors’ loans are released and/or discharged, the Applicants are not precluded from making a further application to the Respondent for whatever benefit that they may be advised.
CONCLUSION
The Tribunal affirms the decisions under review.
I certify that the preceding thirty-four (34) paragraphs are a true copy of the reasons for the decision herein of R Cameron, Senior Member
...[sgd].....................................................
Associate
Dated: 17 March 2020
Date of hearing: 24 February 2020 Applicants: In person Advocate for the Respondent: Mr Tim Noonan
Litigation and Information Release Branch
Legal Services Division
Department of Human Services
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