R(IS) 13/93

Mr. D. G. Rice	CIS/184/1991
4.1.93 
Capital - person owning 99% of shares in company in which she undertook activities - valuation of capital - whether capital to be disregarded
On 9 October 1990 the adjudication officer revised the award of supplementary benefit/income support for the period 26 January 1985 to 18 September 1989 and determined that there had been an overpayment of benefit recoverable from the claimant. This was because he had failed to disclose that his wife had capital assets in excess of £6,000. On appeal the tribunal upheld the decision of the adjudication officer, finding that the claimant’s wife held 99% of the shares in a private limited company which had assets that included a freehold property worth over £20,000.  The claimant appealed to the Commissioner.
Held that:
1.	the claimant’s wife was in a position analogous to that of a sole owner or partner in the business and consequently Income Support (General) Regulations 1987,  regulation 51(4) applied (para. 6);
2.	she was to be treated as possessing 99% of the capital of the company. This capital should have been disregarded as she was undertaking activities in the course of the business of the company throughout the relevant period: she held the post of director and was engaged in other administrative work on its behalf (para. 6);
3.	the amount of capital she was to be treated as possessing was her proportionate share of the net value of the company after liabilities had been taken into account (para. 7);
4.	it was not the value of any individual items making up the companies capital that was relevant, rather it was the net worth of the company that mattered. It was therefore irrelevant that the company possessed a freehold in excess of £20,000. The net worth of the total assets was far below the statutory limit for the purposes of claiming income support (para. 7).
The appeal was allowed.

DECISION OF THE SOCIAL SECURITY COMMISSIONER
1.	My decision is that the decision of the social security appeal tribunal given on 28 November 1990 is erroneous in point of law, and accordingly I set it aside. As it is expedient that I give the decision the tribunal should have given, I further decide that there was no overpayment of supplementary benefit/income support for the period from 26 January 1985 to 18 September 1989.
2.	This is an appeal by the claimant, brought with the leave of a Commissioner, against the decision of the social security appeal tribunal of 28 November 1990.
3.	On 9 October 1990 the adjudication officer reviewed the award of supplementary benefit/income support for the period from 26 January 1985 to 18 September 1989, and his revised decision was that there had been no title for this period, that there had been an overpayment of benefit amounting to £1,115.30, and that the same was recoverable from the claimant, because he had failed to disclose the material fact that his wife had capital assets at the relevant time in excess of £6,000. In due course, the claimant appealed to the tribunal, who in the event upheld the decision of the adjudication officer. However, they stressed that the failure to disclose was entirely innocent. They found as a fact that the claimant’s wife owned  99% of the shares in a certain private company which had assets in the form of a freehold property worth in excess of £6,000. Accordingly, they treated her as possessed of capital in excess of the statutory limit, and as a result there was no entitlement, throughout the relevant period, to benefit.
4.	It is not in dispute that the claimant’s wife owned beneficially 99 of the 100 shares in the company. Of course, the assets of the company did not belong directly to her. All she had was virtually the entire share capital of the company. But, on any realistic approach to the matter, the company was her creature. She had complete control over it. She could wind it up and take the net assets. Accordingly, her shares should be valued as 99% of the company’s net assets. The company’s auditors have produced accounts for the year ended 31 March 1988, which include, for comparison, the accounts for the preceding year, and it is quite clear that the net assets of the company during those two years were well below £6,000. They were £1,509 for the year ended 31 March 1988, and £2,223 for the year ended 31 March 1987. I do not know what the net assets of the company were for the earlier years falling within the period now under consideration, but there is nothing to suggest that they exceeded £6,000, or for that matter any other lesser figure corresponding to the statutory limit then applicable. Accordingly then, for the period during the subsistence of supplementary benefit, I am satisfied that the shares did not exceed in value the statutory limit for claiming benefit.
5.	When supplementary benefit was replaced by income support the position was governed by regulation 51 of the Income Support (General) Regulations 1987 [SI 1987 No. 1967]. That particular provision, so far as is relevant, reads as follows:
“51. (4)	Where a claimant stands in relation to a company in a position analogous to that of the sole owner or partner in the business of that company, he shall be treated as if he were such sole owner or partner and in such a case‑
(a)	the value of his holding in that company shall, notwithstanding regulation 46 (calculation of capital), be disregarded; and
(b)	he shall, subject to paragraph (5), be treated as possessing an amount of capital equal to the value or, as the case may be, his share of the value of the capital of that company and the foregoing provisions of this Chapter shall apply for the purposes of calculating that amount as if it were actual capital which he does possess.
(5)	For so long as the claimant undertakes activities in the course of the business of the company, the amount which he is treated as possessing under paragraph (4) shall be disregarded.”
6.	Now, in the present case, the claimant’s wife was clearly in a position analogous to that of “the sole owner or partner in the business of” the company. She owned 99% of the shares. She had therefore to be treated as possessing 99% of the company’s capital. Further, even this capital was to be disregarded, if she undertook any activities in the course of the business of the company. The claimant’s wife was undoubtedly a director of the company throughout the period in question, and there was evidence before the tribunal that she took telephone messages and received mail for the company. Although these activities would seem to be low key, I am far from certain that they were de minimis. It would seem to me that she was taking part in the company’s business, and in consequence the capital of which she was to be treated as possessed should have been disregarded. But in any event, even on the basis that the capital should not be so disregarded, it was clearly less than £6,000.
7.	The tribunal appear to have proceeded on the basis that because the company owned a property in excess of £20,000 in value, this should be regarded as belonging beneficially to the claimant’s wife. But, as explained above, the company’s assets belonged to the company, not to the shareholders. And although under regulation 51 the claimant’s wife, being in a position analogous to sole owner or partner, was to be treated as “possessing an amount of capital equal to the value or, as the case may be, [her] share of the value of the capital of that company” such value was the net total value, after liabilities had been taken into account. Accordingly, it mattered not that the company possessed an individual freehold in excess of £20,000. What was relevant was not the value of any of the individual items making up the company’s capital, but the net worth of the total assets. And, as explained above, the net worth of the Company’s assets was far below the statutory limit.
8.	It follows from what has been said above that the tribunal erred in point of law in concluding that the claimant’s wife had assets in excess of £6,000, and I must therefore set aside their decision. However, it is unnecessary for me to remit the matter to a new tribunal for rehearing. I can conveniently substitute my own decision. For the reasons given above, the claimant’s wife on no footing could be said to possess real or notional assets in excess of the relevant statutory maximum, and there would appear to be no grounds for disentitling the claimant to benefit for the relevant period. It follows that there can have been no overpayment, and as a result no liability to repay.
9.	Accordingly my decision is as set out in paragraph 1.

Date: 4 January 1993	(signed) Mr. D. G. Rice
Commissioner