KEN GEHL and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
[2010] AATA 456
•18 June 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 456
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2009/1959
GENERAL ADMINISTRATIVE DIVISION ) Re KEN GEHL Applicant
And
SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
Respondent
DECISION
Tribunal Dr M Denovan, Member Date18 June 2010
PlaceBrisbane
Decision The Tribunal affirms the decision under review that Mr Gehl has an age pension debt in the amount of $26,134.70 accrued from 22 March 2006 to 29 February 2008, and a pension bonus debt in the amount of $29,503.10. ....................[Sgd].................
Member
CATCHWORDS
SOCIAL SECURITY – Age pension and pension bonus – Whether the applicant’s assets disentitle him to social security benefits – Debt determined to be a debt owed to the Commonwealth – Decision affirmed.
Social Security Act 1991 (Cth) ss 11, 92C, 93C, 1064, 1122, 1223, 1236, 1237A
Boyd and Secretary, Department of Social Security [1994] AATA 580
Stubbs and Secretary, Department of Families and Community Services (2003) AATA 03/0729
REASONS FOR DECISION
18 June 2010 Dr M Denovan, Member 1. Mr Kenneth Gehl, the applicant, has been a director and share holder of Pacific Plantation Timbers Limited (PPT/L), a private company since it was founded in 2002. When he claimed age pension on 22 March 2006 Mr Gehl neglected to mention his interests in this or any other company. As a result, Mr Gehl was assessed as being entitled to age pension and a pension bonus of $29,503.10.
2. In February 2008, Centrelink became aware of Mr Gehl’s involvement in PPT/L. It was determined that Mr Gehl had provided a $1.5 million loan to PPT/L. No explanation was provided as to how he afforded to make this loan, or how he made repayments on various loan and leases since he first commenced receiving age pension. Centrelink considered that the $1.5 million on loan to PPT/L was an asset of Mr Gehl, and raised debts for the amount of aged pension Mr Gehl has been paid for the period 22 March 2006 to 29 February 2009, and the pension bonus he was paid, a total amounting to $55,637.80.
3. On 10 June 2008 Centrelink determined that the loan to PPT/L ought be disregarded for the purposes of calculating Mr Gehl’s entitlement to age pension under the Assets and Hardship rules as the company had no capacity to repay the loan, and Mr Gehl was taking legal action to recover the money.
4. On 12 February 2009 an Authorised Review Officer (ARO) affirmed the decision to raise a debt, and suspended his age pension pending receipt of requested information. On 1 April 2009 the Social Security Appeals Tribunal (SSAT) affirmed the decision in relation to Mr Gehl’s age pension and pension bonus debts, set aside the decision to suspend Mr Gehl’s age pension, and determined that his age pension be restored from the date of suspension. Mr Gehl appealed the decision to affirm his age pension and pension bonus debts to this Tribunal on 1 May 2009.
LEGISLATIVE SCHEME
5. The rules and regulations in relation to age pension and pension bonus are contained in the Social Security Act 1991 (Cth) (the Act), Parts 2.2 and 2.2A respectively. The rate of age pension a person is paid is determined by a rate calculator in s 1064 of the Act. A person’s rate of age pension is reduced by their assets. Assets include monies and property outside of Australia (s 11), and monies loaned (s 1122). Subsection 11(12) defines an unrealisable asset as an asset which cannot be sold or realised or which cannot be used as security for borrowing. At the date that Mr Gehl applied for age pension, the asset limit was $325,000.00.
6. The respondent contends that the proper characterisation of the money given by the applicant to PPT/L is a loan, and that loan is an asset for the purpose of the Act. The respondent further contends that subsection 11(12) does not apply to that loan.
7. Section 92C of the Act provides that a person is qualified for pension bonus if the person starts to receive age pension at or after the time the person makes a claim for age pension. The amount of pension bonus is determined pursuant to s 93J of the Act, and is a multiple of the amount of annual age pension. The respondent contends that the applicant had no entitlement to age pension and had he properly declared his financial interest, pension bonus would not have been paid.
8. Section 1223(1) of the Act provides that if a social security payment is made to a recipient who was not entitled; the amount is a debt due to the Commonwealth.
9. The Act provides two mechanisms by which a debt may not be recovered. The first is provided for in s 1236 where a debt can be written off (delayed recovery) in certain limited circumstances.
SOCIAL SECURITY ACT 1991 - SECT 1236
Secretary may write off debt
(1A) The Secretary may decide to write off a debt under subsection (1) if, and only if:
(a) the debt is irrecoverable at law; or
(b) the debtor has no capacity to repay the debt; or
(c) the debtor's whereabouts are unknown after all reasonable efforts have been made to locate the debtor; or
(d) it is not cost effective for the Commonwealth to take action to recover the debt.
10. There is also a discretion to waive part or all of a debt owed to the Commonwealth in limited circumstances under s 1237A (1), provided the debt arose solely due to an administrative error and the debt was received in good faith.
11. The respondent contends that Mr Gehl has the capacity to repay the debt and that the debt was not solely the result of administrative error. That being the case, it is contended that the debt should not be either written off or waived.
ISSUES
12. The issue is whether Mr Gehl has debts to the Commonwealth and, if so, whether discretion to waive or write off, part or all of the debt should be applied in Mr Gehl’s favour.
does mr gehl have a debt to the commonwealth?
13. PPT/L was registered in Papa New Guinea on 27 March 2002[1]. Mr Gehl and his business partner Mr Gordon Turner were both directors and equal shareholders. On 2 April 2004 Pacific Plantation Timbers Pty Limited (PPT P/L) was registered with the Australian Securities and Investments Commission. It was deregistered in 2005.
[1] T6/69
14. In 2002 PPT/L leased a property at Spring Gardens Road, Gordons N.C.D. PNG from the Catholic Diocese of Mt Hagen Board of Trustees. Mr Gehl told me that this was for the purposes of establishing a business base. The lease was for an amount of approximately AU$5,000 a month. That property included a two story house, warehouse and yard space. The original lease was for five years and expired in May 2007. Mr Gehl told me that for the first few years his partner Mr Turner resided in New Guinea and managed the business. Mr Gehl was evasive when I asked about the nature of the business. He said that it was intended that the company would trade timber. I note that the first time an application for a timber licence was made appears to be in December 2007[2]. Mr Gehl could provide no coherent explanation as to why this was the case. PPT/L also subleased a large part of the property at Gordons. Mr Gehl claims to have very little knowledge, and that as far as he was aware, the business was making no money, and that he personally derived no money from the venture.
[2] T1/70
15. On 25 June 2002 PPT P/L borrowed $200,000.00 from Mr Peter Griffin. That loan was secured by guarantees from both Mr Gehl and Mr Turner. It is not at all clear from the available evidence what PPT P/L used this money for. Mr Gehl claims the company has no property assets. He claims he is unaware of how the money was used.
16. According to Mr Gehl, Mr Turner became unwell and was forced to return to Australia in approximately June 2006. It was only then that Mr Gehl became actively involved in the company. Mr Gehl told me that he had no desire to reside in PNG, and so he employed a caretaker/manager, Mr Punagi to collect the rents. The agreement between Mr Punagi and Mr Gehl provides for money collected to be deposited into Mr Gehl’s ANZ bank account in PNG. According to Mr Gehl, Mr Punagi did not honour his part of the agreement. He kept all the money he collected, moved into the property himself and replaced the existing tenants with his own. Mr Gehl has been vigorously pursuing legal avenues in an attempt to regain possession of the property and recover damages. He has provided considerable evidence in that regard. It is largely based on that evidence, that I conclude that prior to August 2006 Mr Gehl was deriving an income from PPT/L.
17. In correspondence provided by Mr Gehl in relation to attempts to evict Mr Punagi and recover moneys, he refers to having eight of his tenants removed by Mr Punagi. He also claims that Mr Punagi has collected 19 months of rent totalling K$950,000.00. On today’s currency conversion that is approximately AU$405,000.00, and represents an income from subleasing of approximately $21,315.00 a month. After the expenses of the lease to the Mt Hagen Diocese, and loan repayments to Mr Griffin, there would be a profit in excess of $14,000.00 each month. It is reasonable to assume that as a 50% share holder in the company, Mr Gehl would have been deriving 50% of the income prior to June 2006, and 100% of it after he bought Mr Turner out. I accept that from August 2006 when Mr Punagi became manager, Mr Gehl’s income likely diminished and his liabilities of lease and mortgage continued.
18. I found Mr Gehl to be a most unreliable, evasive and inconsistent witness. He gave evidence in a haphazard fashion and much of what he said contradicted his earlier evidence. I do not accept that he had no knowledge of the operations of the business and received no profit prior to June 2006. I do not accept that Mr Gehl gave his personal guarantee for a loan of $200,000.00 and then took no interest in the business or how the money was spent.
19. Mr Gehl renewed his lease with the Mt Hagen Diocese on 27 April 2007 for a further period of five years. That he did so supports a conclusion that prior to Mr Punagi’s involvement, the company was making profit from subleasing the property. Mr Gehl claims that he renewed the lease because he thought it likely he would successfully evict Mr Punagi and make PPT/L profitable for the first time. I do not believe that the truth resembles anything like the picture Mr Gehl has attempted to paint. At the time he renewed the lease he was 75 years of age. He was committed to a $5000.00 a month lease for five years, even though he had recently lost his partner and, he had no intention of residing in New Guinea and managing the company. Also at the time, he was solely responsible for repayments of $1,666.67 per month to Mr Griffin, and about to commit to a mortgage of $170,000.00 on his home at Tinberwah, in satisfaction of property settlement arrangements finalised with his ex-wife. I consider that it is far more likely that PPT/L had been making a profit from subleasing for a number of years. Mr Gehl renewed the lease with an expectation that he could evict Mr Punagi and continue to sublease the property for a profit. His expectation of how much profit that subleasing was likely to make is reflected in how much money and effort he has been prepared to expend in order to regain control of the property.
20. At the hearing Mr Gehl stated several times that he has provided money to the company over a period of 10 years and told Centrelink this amounted to $1.5 million. He told the SSAT the value of money advanced to PPT/L was $1,690,000.00. He claims most of this was to finance the legal battles against Mr Punagi. When it was pointed out to Mr Gehl that there was no explanation of where this money came from, he told me the amount was probably less. He has presented evidence from his accountant, sent in after the hearing, to the effect that he advanced the company approximately half a million dollars. I consider it likley that Mr Gehl’s earlier evidence is closer to the truth, and that he has advanced PPT/L an amount in excess of $1.5 million.
21. Mr Gehl sold his home at Terrey Hills, Sydney in March 2003 for $2.9 million. The settlement was not until 12 March 2004. A 'Direction to Pay' letter from Mr Gehl’s then lawyers indicates that he received $1,236,195.02 of the balance due, which totalled $2,707,723.25[3]. There is no indication of what happened to the deposit paid by the purchaser, which would have been an amount of approximately $200,000.00 and presumably payed to Mr Gehl from the Real Estate agent’s trust account after settlement. Mr Gehl told me that with the approximately $1.4 million he received he bought the property at Tinberrwah for $650,000.00 paid his wife $450,000.00, leant his son $200,000.00 of which only $100,000.00 has been repaid, and renovated the property at a cost of $200,000.00. Mr Gehl told me that after the sale of Terrey Hills property he had no additional assets or income. Just where Mr Gehl obtained the $1.5 million he advanced PPT/L from is not at all clear, although the evidence does point to a number of possibilities.
[3] P43 Exhibit 1
22. Mr Gehl is a man with some experience in business. PPT/L and PPT P/L are not the only companies Mr Gehl has had an interest in. Mr Gehl is also a director of Vistapoint Pty Ltd. For many years Mr Gehl operated a business trading as East Coast Telephone Co. through that company. The assets, trading stock, trading name, internet domain, web site, e-mail address, PO Box, telephone and facsimile numbers and the right to operate a business known as East Coast Telephone Co were sold to Mr Stephen Hipsley on 1 October 2005. Mr Gehl claims he made no profit from the sale of that business and that Vistapoint Pty Ltd has not traded since that time[4].
[4] T1/114
23. Mr Gehl has at least two ANZ bank accounts, one in Australia, and one with a different account number in New Guinea. The bond for the lease of the Gordons property was paid out of the PNG ANZ account, and the proceeds of rent from the subleasing were supposed to be banked by Mr Punagi into this account. Mr Gehl may have been running much of his PPT/L financial activities through this account.
24. In addition to having been deriving income from PPT/L and having lent considerable money to that company, I consider it is likely that the shares in PPT/L had some value at the time Mr Gehl applied for a pension in 2006. The 2002 loan agreement included an option for Mr Griffin to convert the principal sum owing to a one third interest in PPT/L[5]. This suggests that the estimated value of one third of the business was $200,000.00. Mr Gehl told the SSAT that when Mr Turner took ill, he agreed to pay him $5000.00 immediately and $100,000.00 at a later date, for his share of the business. From approximately June 2006 Mr Gehl has been the sole director and beneficiary of PPT/L. It would not be unreasonable to conclude that it was estimated by Mr Gehl and Mr Turner that the net value of the company was $210,000.00 when Mr Turner sold his interests to Mr Gehl.
[5] T1/41
25. Just how much of the $1,690,000.00 Mr Gehl had loaned PPT/L at the time he applied for age pension is not able to be determined. Mr Gehl has a Low Doc Loan to the value of $370,000.00[6]. As already mentioned, $170,000.00 of this money was given to his wife as part of property settlement. Thus only $200,000.00 of Mr Gehl’s loan could be explained by money given to PPT/L. At the time Mr Gehl applied for pension I conclude that he already had a loan to PPT/L of $1,490,000.00 or he had other undeclared resources which he subsequently converted to a loan to PPT/L.
[6] Exhibit 5
26. In applying s 1122, the Tribunal and Federal Court has consistently determined that such loans are given their face value[7], and must be included in the calculation of assets. Mr Gehl has expressed his belief that he will be able to make PPT/L a profitable venture in the future. The loan is therefore not an unrealisable asset for the purposes of sub-section 11(12).
[7] Boyd and Secretary, Department of Social Security [1994] AATA 580??
27. I find that Mr Gehl was precluded by his assets and income from receiving both age pension and pension bonus when he claimed in March 2006 and remained precluded until at least 28 February 2008 when his age pension was cancelled. As such, Mr Gehl has been paid at total of $26,134.70 age pension, and $29,503.10 pension bonus that he was not entitled to, and therefore amount to debts owed to the Commonwealth.
28. Mr Gehl has equity in his home at Tinberwah. He is currently repaying the debt by way of deductions from his social security benefits. For the debt to be waived pursuant to s 1236 I would have to find that the recovery of the debt would cause Mr Gehl severe financial hardship. Whilst not defined in the Act, the term ‘severe financial hardship’ has been considered on many occasions by the Tribunal and the Federal court. In Stubbs and Secretary, Department of Families and Community Services[8] the Tribunal stated that ‘…severe financial hardship, while not implying destitution, goes beyond straitened financial circumstances and imports a need for the particular case of a person to include financial suffering of a severe or extreme nature…’. I am sure Mr Gehl’s financial position is not as secure as it has been in the past. He has spent a considerable amount of money pursuing what the rights of PPT/L, in the expectation that he will be able to make profit from that company. It is clear from the material provided by Mr Gehl that his attempts for justice in PNG have been repeatedly frustrated. No doubt his legal expenses have been much higher than he originally anticipated. However, his circumstances are not of a nature that would normally be regarded as severe financial hardship by this Tribunal. Consequently, I consider it would be inappropriate to write off the debt under s 1236 of the Act.
[8] [2003] AATA 729
29. Mr Gehl’s debt arose because he did not disclose his interests in any of the companies he had involvement in when he applied for age pension. Had he done so, he would not have been paid either age pension or pension bonus and no debt would now exist. The money was not received in good faith and was not due to administrative error. The debt cannot be waived.
DECISION
30. The Tribunal affirms the decision under review that Mr Gehl has a debt of age pension in the amount of $26,134.70 accrued from 22 March 2006 to 29 February 2008, and a debt of pension bonus in the amount of $29,503.10.
I certify that the 30 preceding paragraphs are a true copy of the reasons for the decision herein of Dr M Denovan, Member
Signed: ...........................[Sgd]........................................
Kate Slack, Research AssociateDate/s of Hearing 9 March 2010
Date of Decision 18 June 2010
The Applicant was self represented.
Solicitor for the Respondent Ms Suzy Dole, Sparke Helmore Lawyers
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