Simonelli; Secretary, Department of Social Services and (Social services second review)
[2015] AATA 901
•24 November 2015
Simonelli; Secretary, Department of Social Services and (Social services second review) [2015] AATA 901 (24 November 2015)
Division
GENERAL DIVISION
File Number
2014/6650
Re
Secretary, Department of Social Services
APPLICANT
And
Robin Simonelli
RESPONDENT
DECISION
Tribunal Senior Member A C Cotter
Date 24 November 2015 Place Brisbane The decision of the Social Security Appeals Tribunal is set aside. A decision is substituted that for the purposes of determining the rate of age pension payable to the respondent, the respondent is determined to have disposed of an asset in the amount of $300,297.00 on 25 June 2014.
............................[Sgd]......................................
Senior Member A C Cotter
CATCHWORDS
SOCIAL SECURITY – rate of age pension – income and assets – whether disposal of asset for no or inadequate consideration – where bank guarantee secured by real property provided by mother for daughter’s business loans – guarantee called upon – real property voluntarily sold to satisfy the debts owing – inadequate consideration - decision under review affirmed
LEGISLATION
Social Security Act 1991 (Cth) ss 1064, 1123, 1125
Corporations Act 2001 (Cth) s 601AA
CASES
Frendo v Secretary, Department of Social Security (1987) 77 ALR 682
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
ZJNQ and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 362.
Stilk v Myrick (1809) 170 ER 1168
Musumeci and Anor v Winadell Pty Ltd (1994) 34 NSWLR 723.
SECONDARY MATERIALS
Guide to Social Security Law
REASONS FOR DECISION
Senior Member A C Cotter
24 November 2015
INTRODUCTION
Mrs Robin Simonelli commenced receiving the age pension in January 2008.[1]
[1] Exhibit 1, T Documents, T 12, page 56.
At about the same time, her daughter, Joanne (“daughter”), who had recently returned from living in London, was planning to establish her own restaurant business. She incorporated a company, Soave Pty Ltd (“Soave”), for that purpose. A friend was to have gone into the business with her, but that did not eventuate. As a result, the daughter was the sole director and secretary of the company and held 200 shares.[2] Mrs Simonelli was later allocated 10 shares,[3] although it was not anticipated that she would derive any significant financial benefit from them.
[2] Exhibit 1, T Documents, T 7, pages 31-32.
[3] Exhibit 1, T Documents, T 7, page 30.
Soave operated its business at Maroochydore on the Sunshine Coast. From what the daughter told me, it seemed an ambitious project, with seating for 300 diners, and employing 17 staff.
Two loans were originally negotiated by Soave with its bank, Suncorp-Metway (“Suncorp”): a term loan of $210,000.00 and a small business line of credit for $39,776.86. Both Mrs Simonelli and her daughter executed Deeds of Guarantee and Indemnity in support of those loans,[4] and Mrs Simonelli also gave a mortgage over her residence at Kings Place, Burnside as security for her guarantee. Over time, additional loans were advanced by Suncorp, again supported by the guarantees given by Mrs Simonelli and her daughter.
[4] Exhibit 1, T Documents, T 5, pages 14-22.
In about 2009-2010, the Sunshine Coast experienced a prolonged period of wet weather which affected many businesses, including Soave’s. The impact was such that Soave struggled to meet its loan commitments. By 2011, the daughter found her company in default with Suncorp under the loans. She finally resigned herself to closing the business, but still had the ongoing loans from Suncorp to service.
In April 2011, the daughter moved to Sydney for more lucrative employment, taking her mother with her. Mrs Simonelli’s Kings Place residence was then rented out.
Experiencing continuing pressure from Suncorp, the daughter lodged a complaint with the Financial Ombudsman Service (“FOS”).
After FOS’s intervention, a new arrangement was reached with Suncorp in June 2012 in respect of Soave’s loans.[5] Unfortunately, little documentation was produced to the Tribunal in respect of the new arrangement, but it appears that Soave’s loans were effectively transferred to Mrs Simonelli and her daughter personally. From that point, they were jointly and severally liable for the term loan and the business line of credit, as well as a loan (the then balance being about $54,000.00) for a bank guarantee that had previously been given by Soave. The Kings Place property remained as security for the first two loans. The total monthly repayments for the loans were $2,300.00, of which the daughter paid $1,300.00 per month and Mrs Simonelli paid $1,000.00 from the rental she received from the Kings Place property.
[5] See Exhibit 4, letter Suncorp to Soave Pty Ltd dated 7 June 2012.
Following advice from the daughter’s lawyer and accountant, Soave was voluntarily deregistered on 22 July 2012,[6] with the consent of the remaining creditors.
[6] See Exhibit 2, Secretary’s Statement of Facts and Contentions dated 22 July 2015, Attachment C
Mrs Simonelli and her daughter returned to Queensland in September 2012, residing on the Gold Coast. The Kings Place property remained tenanted.
The loan repayment arrangements continued. However, Mrs Simonelli became increasingly concerned at the ongoing debt she was continuing to accrue. She told the Social Security Appeals Tribunal (“SSAT”) that the loans were accruing interest of $55.01 per day, meaning that, of the $2,300.00 repaid each month, over half would be used to pay the interest accrued during that month.[7] With her 70th birthday approaching, Mrs Simonelli decided she did not want to be paying off interest for the rest of her life. She therefore made the decision to sell the Kings Place property and pay out the loans. She did not tell her daughter of her decision until almost the day of settlement, after she learnt that there would nevertheless be a shortfall in repaying the debt.
[7] See Exhibit 1, T Documents, T 2, page 6 (paragraph [24]).
On 25 June 2014, the Kings Place property was sold, with the net proceeds of sale, $292,797.78, being paid to Suncorp in discharge of the mortgage it held by way of security.[8] That was still insufficient to fully discharge the debts owed to Suncorp. Mrs Simonelli therefore withdrew money from her superannuation account and used some of it to repay the balance owing, $17,500.00.[9]
[8] See Exhibit 1, T Documents, T 6, page 29.
[9] See Exhibit 2, Secretary’s Statement of Facts and Contentions dated 22 July 2015, Attachment D, page 10.
In July 2014, the Department assessed Mrs Simonelli as having disposed of $292,797.00 on 25 June, before deducting the allowable disposal limit of $10,000. That had the effect of increasing her total assets for the purpose of calculating her age pension rate, such that the fortnightly rate of entitlement decreased substantially.[10]
[10] See Exhibit 1, T Documents, T 12, page 57.
Mrs Simonelli sought a review of the decision, first by an Authorised Review Officer (which was unsuccessful) and then by the SSAT, which set aside the decision and sent the matter back for reconsideration. The Secretary sought a review of the SSAT’s decision by this Tribunal.
I have recorded the events in some detail because the factual case before me appeared to be considerably different to that decided by the SSAT. Further, there is a disappointing lack of supporting documentation, hence my decision to set out the matters in more detail.
Before I consider the key issues, it is useful to reflect on the key legislative provisions.
THE LEGISLATIVE FRAMEWORK
Section 1064-A1 of the Social Security Act 1991 (Cth) (“Act”) outlines how the rate of age pension is to be calculated, using income and asset tests.
An asset disposed of by a person in excess of $10,000.00 is to be included in the value of the person’s assets for five years from disposal of the asset.[11]
[11] s 1125 of the Act.
Under s 1123(1) of the Act, a person disposes of assets if:
a)the person engages in a course of conduct that directly or indirectly:
i.destroys all or some of the person’s assets; or
ii.disposes of all or some of the person’s assets; or
iii.diminishes the value of all or some of the person’s assets; and
b)one of the following subparagraphs is satisfied:
i.the person receives no consideration in money or money’s worth for the destruction, disposal or diminution;
ii.the person receives inadequate consideration in money or money’s worth for the destruction, disposal or diminution;
iii.the Secretary is satisfied that the person’s purpose, or the dominant purpose, in engaging in that course of conduct was to obtain a social security advantage.
ISSUES FOR THE TRIBUNAL
The issue to be determined by me is whether Mrs Simonelli engaged in a course of conduct that disposed of the Kings Place property for either no or inadequate consideration. There is no suggestion, and the Secretary accepts,[12] that this is not a case where Mrs Simonelli disposed of her asset in order to obtain some social security advantage.
CONSIDERATION
[12] See Secretary’s Statement of Facts and Contentions, Exhibit 2, paragraph [29].
The loan and security arrangements
Although the loan arrangements changed substantially over time, it is important to consider briefly the original arrangement, since it informs how the later arrangements are to be viewed.
When Mrs Simonelli initially executed the deed of guarantee and indemnity, she committed herself to a contingent liability; her liability would only arise in the event that Soave, as principal debtor, defaulted on its loan(s). While the documentation was not before the Tribunal, it seems that the mortgage was granted as security for the guarantee which Mrs Simonelli provided.[13] Mrs Simonelli not expecting any financial benefit or return from her modest shareholding in Soave, it seems likely that the guarantee and security were given pursuant to an informal family arrangement (or as it is often described, for “natural love and affection”) to assist her daughter in obtaining the necessary finance for her business venture.
[13] See Certificates of Understanding dated 15 and 16 May 2008, paragraph [4]. T Documents, T 5, pages 21 and 22.
The position changed significantly following Soave’s default[14] and the demands made on Mrs Simonelli as a consequence.[15] An attempt to vary the loans was unsuccessful.[16] Following continuing pressure from Suncorp, Ms Simonelli made a complaint to the FOS, which ultimately led to a resolution in June 2012.
[14] See T Documents, T 8, pages 36-39.
[15] See T Documents, T 8, pages 41-43.
[16] See T Documents, T 8, pages 33-34.
As I mentioned earlier, little documentation concerning the negotiated arrangements was produced to the Tribunal. However, it appears from Suncorp’s letter of 7 June 2012 that the negotiations were conducted by each of Mrs Simonelli and her daughter as “owner and Guarantor of (Soave’s) Accounts and as Director of Soave Pty Ltd”.[17] I was told that from that point onwards, Mrs Simonelli and her daughter were treated as if the loans were to them personally, and that they were jointly and severally liable for them. Consistent with that, Soave was voluntarily deregistered, with the consent of the remaining creditors, and presumably, both Mrs Simonelli and her daughter as sole shareholders.[18] The mortgage over Mrs Simonelli’s Kings Place residence remained in place. The practical effect, therefore, was that Soave was removed from the loan arrangements and was replaced by Mrs Simonelli and her daughter personally, who were jointly and severally responsible for the agreed debts which Soave had.
[17] See Exhibit 4, page 3. I note that Mrs Simonelli was not, as far as I am aware, a director of Soave and that her daughter was the sole director at all relevant times.
[18] See s 601AA(2)(a) of the Corporations Act 2001(Cth).
What that meant was that Mrs Simonelli’s liability was no longer contingent – it had effectively crystallised and become a debt owing by her. Similarly, the mortgage which she had earlier given in support of her obligations under the guarantee now secured the actual total debt owed by her.
Disposal for no or inadequate consideration?
The argument before the SSAT and before me focussed on the sale of the Kings Place property on 25 June 2014. There being no suggestion that Mrs Simonelli’s dominant purpose in disposing of the property was to gain a social security advantage, the key question was whether, for the purposes of s 1123(1)(b)(i) and (ii) of the Act, she received no consideration or inadequate consideration, in money or money’s worth, for the disposal.
In Frendo v Secretary, Department of Social Security, Woodward J considered the use of the word “consideration” in the corresponding provision in the 1947 Act. He held that that term used in this context is used in its technical, legal sense.[19] That, he noted, “underlines the requirement that the ‘adequate value’ received must be ‘in return’ for the disposal of assets- the concept of a bargain is highlighted”.[20]
[19] (1987) 77 ALR 682, 685.
[20] Ibid.
The SSAT concluded that in using the proceeds from the sale of the Kings Place property, Mrs Simonelli was able to extinguish her legal liability to pay the debt. That, together with the discharge of her mortgage, was said to be the consideration she received. As the amount paid was identical to the amount of her liability, the SSAT believed that consideration was adequate. On that basis, that tribunal found that the sale was not a disposal within s 1223 of the Act.
The Secretary disputed that conclusion and sought a review of that decision by this Tribunal. It was contended on the Secretary’s behalf that Mrs Simonelli did not receive adequate consideration for the disposal of the property. While the Secretary accepted that Mrs Simonelli received a benefit from selling the property, in that she avoided the ongoing accrual of interest under the loans, it was submitted that was important to consider the initial consideration that Mrs Simonelli received when she first agreed to guarantee the Soave loans. She did not receive any consideration in money or money’s worth and instead agreed to provide the guarantee so that her daughter could obtain the loan. While there was a benefit in paying the loan early, the Secretary contended that it could not be said to be adequate consideration in exchange for the amount paid to Suncorp totalling $310,297.00.
The Secretary also drew my attention to the Guide to Social Security Law ( “Guide”) which provides:
A person does not dispose of assets merely by agreeing to be guarantor for a loan. However if the borrower defaults on the loan, the guarantor becomes liable to repay the loan.
The deprivation rules apply to the amount the person (guarantor) has repaid, from the date the guarantor repaid the loan (or had an asset sold to repay the loan).[21]
[21] Guide to Social Security Law, Chapter 4.6.5.60.
Relying on the decision in Re Drake and Minister for Immigration and Ethnic Affairs (No 2),[22] it was said that while not bound by Departmental policy guidelines, the Tribunal will ordinarily apply policy in reviewing a decision unless it is unlawful or its application produces an unjust outcome. The Secretary contended that there was no cogent reason not to apply the policy in this case and drew my attention to the rationale for the rule expressed in an earlier decision of the Tribunal:
The intention of the legislation is that pensioners and social security recipients generally must deploy their resources to support themselves. If there were not these stringent rules, and there were no consequences for ill-thought out actions as occurred here, it is easy to conceive of an unsustainable burden on the use of public monies.[23]
[22] (1979) 2 ALD 634, 645.
[23] ZJNQ and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 362.
The Secretary also pointed to an exception to the deprivation rules set out in the Guide which provides:
If the person takes legal action against the borrower to recover the amount they repaid on the borrower’s behalf, the deprivation rules do NOT apply. The amount the person repaid is treated as a debt owing to the person. This means it is assessed as an asset of the person. The assessable value is the recoverable value. Deeming does NOT apply.[24]
[24] Guide to Social Security Law, Chapter 4.6.5.60.
It is said that the exception does not apply in the present case, as Mrs Simonelli did not take any steps to take action against either Soave or her daughter. On the contrary, as a shareholder, she presumably consented to the deregistration of Soave, and as owner of the secured property, apparently proceeded with the sale voluntarily and without reference to her daughter.
In light of those factors, it was said that the policy guidelines did not result in injustice in this instance and therefore, the deprivation rules apply.
For Mrs Simonelli, it was submitted that there was consideration for the disposal in that she received a practical benefit, namely that she was released from the “overwhelming burden of the accruing interest that would, had she not decided to sell her home, otherwise have continued for the remainder of her life”.[25] The extinguishment of the liability with such onerous terms was said to be a clear advantage or “net benefit” to a 70 year old pensioner and thus constituted adequate consideration.
[25] Respondent’s submissions dated 11 September 2015, page 2.
Given Woodward J’s comments in Frendo, I initially had some concerns about whether the extinguishment of the liability to pay the loans and the consequent release of the mortgage would constitute real or valuable consideration, since those acts were matters that were already obliged to be undertaken under the existing loan arrangements; there was arguably no “bargain” because the parties were doing what they were already obliged to do.[26] I invited further written submissions from the parties on that point.
[26] See Stilk v Myrick (1809) 170 ER 1168.
Mrs Simonelli’s lawyer referred me to the decision of Musumeci and Anor v Winadell Pty Ltd[27] which is said to be an exception to the general rule, in that the requirement of consideration can be satisfied by the performance of, or the promise to perform an existing duty, even if it causes no legal detriment to the promisee, so long as it results in a practical benefit to the promisor.[28]
[27] (1994) 34 NSWLR 723.
[28] Resondent’s submissions dated 11 September 2015, page 2.
I accept that, in certain circumstances, there can be exceptions to the general rule as to whether consideration is real. However, I still maintain reservations as to whether the consideration here (if any) is adequate, in terms of representing the “concept of a bargain” referred to by Woodward J. It is true that Mrs Simonelli, concerned by the ongoing accrual of interest, took matters into her own hands and decided to sell the property over which the mortgage was registered. That may have given her peace of mind for the future, but it came at a high price – more than the property itself was worth.
When considering the adequacy or otherwise of consideration, some other factors relating to the payment need to be borne in mind. First, the debt that Mrs Simonelli ultimately paid was not initially hers. It was the debt of her daughter’s business, from which there was no expectation of financial benefit on the part of Mrs Simonelli. Second, following the new arrangements in 2012, Mrs Simonelli and her daughter assumed responsibility for the debt. In selling her property and drawing down on her superannuation account, Mrs Simonelli discharged the whole debt, without seeking any contribution from her daughter. In other words, the Kings Place property was disposed of to repay a debt which was not originally hers, and which she later assumed (for no direct benefit) with her daughter.
Although the thought of seeking contribution might have been unpalatable to Mrs Simonelli as a mother, it is not appropriate, or fair, that the burden of such a conscious decision be placed on the public. When the loan arrangements are viewed broadly, the only reasonable assessment is that this was an informal family arrangement which, with some misfortune, regrettably and tragically went wrong. Mrs Simonelli provided the necessary security to help her daughter’s company obtain finance for her fledgling business. There was no expectation that Mrs Simonelli would benefit financially from the arrangement. In deciding to bring a halt to the ongoing interest accruals by selling her property, Mrs Simonelli effectively gifted the sale proceeds, and more, to her daughter to discharge the latter’s business debt. While that is completely understandable and laudable from a personal and family perspective, it is unfair, from a public policy perspective, to expect the public to effectively underwrite that decision.
For those reasons, I accept Mrs Simonelli’s Kings Place property was disposed of for inadequate consideration. As a consequence, the amount that has been disposed of is to be treated as a financial asset of Mrs Simonelli for the purpose of determining the rate of pension. The same reasoning applies in respect of the shortfall that Mrs Simonelli paid from her superannuation account.
That means that Mrs Simonelli disposed of assets totalling $310,297.00. For the purpose of determining the rate of age pension payable to her, the amount of $10,000.00 is to be deducted from that amount.
CONCLUSION
The decision of the Social Security Appeals Tribunal is therefore set aside and in its place a new decision is substituted, that for the purpose of determining the rate of age pension payable to the Respondent, the Respondent disposed of an asset in the amount of $300,297.00 on 25 June 2014.
I certify that the preceding 43 (forty -three) paragraphs are a true copy of the reasons for the decision herein of Senior Member A C Cotter ..............................[Sgd]..........................................
Associate
Dated 24 November 2015
Date of hearing 24 August 2015 Date final submissions received 25 September 2015 Solicitors for the Applicant Department of Human Services Solicitors for the Respondent Basic Rights Queensland
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