Repatriation Commission v Kimpton

REASONS FOR JUDGMENT Introduction 1 Percy and Beryl Kimpton are retired farmers, living on service pensions under the Veterans' Entitlements Act 1986 (Cth) (the Act). During their working lives they were shareholders in two family companies involving cattle farming and other agricultural pursuits. Those companies became dormant in 1993. They had assets comprising loans owing to them by members of the Kimpton family. The loans were made before the companies stopped trading. 2 On 1 January 2002 amendments to the Act came into force which allowed for the attribution of certain assets of private companies to individuals associated with them. Assets so attributed could be taken into account in the means testing of service pensions. 3 The loan accounts held by the Kimptons' companies were taken into account in 2002 as assets affecting their service pensions. The companies were wound up late in 2002 but the Repatriation Commission (the Commission) continued to treat the relevant assets as attributed assets for the purpose of the assessment of the Kimptons' service pensions. 4 After a rather convoluted process of decision and review, the Administrative Appeals Tribunal (the Tribunal) decided, on 20 September 2005, that the loan accounts should be treated as excluded assets and not taken into account for the purpose of means testing the Kimptons' service pensions. 5 The Commission has appealed to this Court against the decision of the Tribunal. It says that the Tribunal failed to accord it natural justice in treating the relevant assets as excluded and that it failed to take into account applicable Decision Making Principles made under the provisions of the Act. On both of those grounds the Commission's appeal fails. It is however apparent that the Tribunal proceedings miscarried in that it failed to decide upon a significant question put to it by the Commission as to whether the winding up of the companies involved an imputed disposal of the shares held by the Kimptons pursuant to the anti-avoidance provision, s 52E of the Act. If the Tribunal decision stands and the matter is remitted to the Commission, it is possible that it may be open to the Commission to decide the matter adversely to the Kimptons on that basis. This may lead to another round of Tribunal review. In my opinion it is appropriate that the Commission be given the opportunity to amend its ground of appeal to expressly raise that question which was argued before me. If the grounds of appeal are so amended by 12 September 2006, then the Tribunal decision will be set aside and the matter remitted to the Tribunal for determination according to law. If the notice of appeal is not amended, then the Tribunal decision will stand and the appeal will be dismissed. In my opinion the Kimptons should have their costs in any event. Factual and procedural background 6 Percy Lawrence Kimpton and his wife Beryl Kimpton receive a service pension under the provisions of the Act. They were both born in rural Victoria, Mr Kimpton in 1924 and Mrs Kimpton in 1929. 7 Mr and Mrs Kimpton carried on cattle farming in the Kununurra region in the 1970s. They formed a company called Kununurra Poll Shorthorn Studs Pty Ltd (KPS) in January 1971 under the Companies Act 1961 (WA). KPS had a nominal capital of $100,000 divided into 100,000 shares of $1 each. Its objects included 'to conduct or carry on the business of stud masters and commercial breeders and fatteners of cattle, sheep and other livestock'. Mr Kimpton was one of the subscribers for its shares. 8 Kimpton & Sons Pty Ltd (KS) was incorporated under the Companies Act in September 1972. Its objects included carrying on the business of 'grazier, butcher, agriculturalist, farmer, horticulturalist, pastoralist, and to deal in all products of animal husbandry and agriculture'. KS was, from the outset, a family company. Mr and Mrs Kimpton subscribed for one share each. In 1984 each of their sons, Gregory, Guy and Scott, were also issued with one share. 9 The cattle business of KPS was short lived. The company's herd became infected with red water fever carried by cattle tick. Mr and Mrs Kimpton, her brother and their son Gregory, used the company for agricultural trading purposes from 1975 to 1979. From 1979 to 1980 KPS carried on business as a transport company carting grain. It did not trade at all between 1981 and 1991. Mrs Kimpton's brother ceased his involvement in 1989. On 2 November 1992 Mr and Mrs Kimpton resigned as directors of the company, thereby relinquishing its control to their son, Gregory, and his wife, Susanne, so that they could use it for their own business purposes. Mr and Mrs Kimpton nevertheless remained shareholders of KPS. KPS ceased to trade after 30 June 1993. 10 KS was involved in agriculture until 1980. It was inactive from 1980 to 1989. In 1989 Mr and Mrs Kimpton and their sons, Scott and Gregory, resigned as directors. Control of KS passed to Guy Kimpton and his wife, Julia, who used it to carry on a transport business. 11 As at 30 June 2002 the only assets of KS and KPS were loans owing to them by members of the Kimpton family. The loans were made before the companies stopped trading. Subsequent changes in those accounts reflected administrative costs paid by family members on behalf of the companies and payment of a dividend to the shareholders of KPS. 12 On 1 January 2002 amendments to the Actcame into force. The amendments attributed certain assets and income of private trusts and companies to individuals associated with them. By that mechanism the assets and income so attributed could be taken into account in the means testing of service pensions payable to such individuals. The amendments had been foreshadowed in written advice to the Kimptons from the Department of Veterans Affairs (the Department) in 2001. The Department had sought information from them about their interest in KS and KPS. They told the Department that the assets of the two companies consisted entirely of unsecured loans, being $254,860 in the case of KS and $41,770 in the case of KPS. They also told the Department that they had no plans to wind up the companies. 13 On 6 February 2002 a delegate of the Commission wrote to Mr and Mrs Kimpton advising that their service pension had been reduced and that the change would take effect from 19 February 2002 so that the total fortnightly payment made to each of them would be $137.75. The change was based upon the net market value shown for their 'business'. A table incorporated in the letter referred to KS and KPS as designated companies and identified assets of $101,464 attributed to the Kimptons on account of their association with KS and $41,770 on account of their association with KPS. This was later referred to by the Commission, in its Statement of Facts and Contentions to the Tribunal, as 'the attribution decision'. 14 The Kimptons consulted their accountant, Mr Byrnes. Following discussions with the delegate Mr Byrnes wrote to her on 20 March 2002 saying: 'Further to our recent discussion, we enclose signed Balance Sheets for the above two dormant companies as at 18 March 2002 along with letters from the directors of their intentions to liquidate/delist the companies. Both companies have a "nil" asset position at 18 March 2002 and have been dormant for many years. Since the companies have no value, Mr and Mrs Kimpton's pensions should not be affected.' The letter attached a statement signed by Mr and Mrs Kimpton as shareholders of KS that it was their intention to have the company 'delisted/liquidated this financial year'. They made the point that the company had not traded for a number of years and did not have any assets as at the date of their signature, which was 25 March 2002. A similar notice of intention signed by Gregory and Susanne Kimpton dated 21 March 2002, was also included with the letter. Balance sheets for each of KS and KPS were attached showing the only current assets under the heading 'Receivables' as the loans of $252,910 in the case of KS and $41,020 in the case of KPS. 15 A number of discussions followed between April and July 2002 in the course of which Mr Byrnes told the delegate that no action had been taken to prove the debts uncollectible but they were considered doubtful. He advised that as the debts had not been forgiven, KS and KPS would be liquidated. 16 On 24 September 2002 a delegate for the Commission sent a letter to Mr and Mrs Kimpton informing them that as a result of advice about 'changes' to their financial details their service pensions had been increased. That increase was to take effect from 4 April 2002. The letter went on: 'Thank you for the information regarding your private companies. It appears as though the money loaned by these companies has now been gifted. The value of which you and your spouse were attributable has now been recorded as gift from the 18 march 2002'. (sic) Revised figures for the assets attributed to them through KS and KPS were shown as zero. The previously attributed assets appear to have been treated as gifted from 18 March 2002 and so recorded as 'deprived assets' subject to a disposal preclusion period of five years from 18 March 2002 to 18 March 2007. The values assigned to the 'deprived assets' were $91,164 (KS) and $23,955 (KPS). The decision of 24 December 2002 was referred to in the Commission's Facts and Contentions in the Tribunal as 'the disposal decision'. No application was made for review of either of the decisions of 6 February 2002 or 24 September 2002 within the relevant time limits. 17 KS and KPS each entered into a members' voluntary winding up on 31 October 2002. Each had lodged declarations of solvency with the Australian Securities and Investments Commission on 17 October 2002. KS recorded estimated realisable loans and advances of $252,160 and KPS $40,242. 18 Guy Kimpton's wife, Julia, was appointed as the liquidator of KS and made payments thus: Names Receivables as at 31 October 2002 Liquidator's Receipts Liquidator's Payments Mr PL Kimpton $ 5,001 $ 5,001 Mrs BJ Kimpton $ 5,001 $ 5,001 Mr GJ Kimpton $ 1 $ 1 Mr SW Kimpton $ 26,707 $ 26,707 Mr LG Kimpton $244,697 $207,587 $205,046.26 Page Kirk & Jennings $ 2,540.76 $244,697 $244,297 $244,297