[2007] UKSSCSC CCS_1047_2006 (30 May 2007)
CCS 1047 2006 

DECISION OF THE CHILD SUPPORT COMMISSIONER

1	I allow the appeal on all decisions taken by the tribunal. For the reasons below, the decision of the tribunal is set aside. With consent of all parties, I have taken the decision that the tribunal should have taken on the appeals. My formal decisions are:

	The appeal by the resident parent against the child support maintenance made on 
	29 10 2003 with effect from 5 03 2003 is dismissed.

	The appeal by the resident parent against the refusal to vary the decision made on 	29 10 2003 is allowed with regard to the application to vary by reference to assets 	but not by reference to the other grounds sought. 

	I direct the Secretary of State that the maintenance calculation of 29 10 2003 is to be 	revised to include a variation under regulation 18 of the Child Support (Variations) 	Regulations 2000 on the basis that the non-resident parent owned or controlled 	assets of a total value of £190,000 throughout the period from the effective date of 	the maintenance calculation to the date of the decision by the Secretary of State on 	the variation applications.

	The Secretary of State is to notify the parties of the revised calculation made in 	consequence of that decision. If any of the parties do not agree with that 	calculation, that party may apply to me, or to another Commissioner if I am not 	available, to consider the objections and to determine the calculation. Any 	application must be made within one month of the issue of the revised calculation 	to the parties by the Secretary of State and must state the precise grounds for the 	objection.   
	 
2	The non-resident parent and appellant to the Commissioner (“A”) is appealing with my permission against a decision of the Swansea appeal tribunal on 4 04 2005 and 19 09 2005 under reference U 03 204 2004 02042. The first respondent in the appeal is the Secretary of State for Work and Pensions, the minister responsible for the Child Support Agency (“CSA”). The second respondent is the appellant to the tribunal and resident parent (“P”).

3	 I held an oral hearing of the appeal at the Cardiff Civil Justice Centre / Canolfan Llysoedd Sifil Caerdydd on 25 04 2007.   A and P were both present and represented themselves. Mr Huw James, solicitor, instructed by the Solicitor to the Department for Work and Pensions, represented the Secretary of State and attended with an official from the CSA. I am grateful to both for their help, effectively as third parties, in this case.  

REASONS FOR DECISION

Background to the appeals
4	P applied for child support maintenance from A for their daughter, a qualifying child for child support purposes. On 29 10 2003 the Secretary of State decided that A was liable to pay P £5 weekly for their daughter from the effective date of 5 03 2003. P appealed.

5	The CSA issued a form for applying for a variation of the maintenance calculation when issuing its decision to P. P promptly applied for a variation. The application for variation was refused on all grounds for lack of evidence on 25 04 2004. P appealed.  

The tribunal proceedings and decision
6	Normally those appeals, made several months apart, would have been handled separately. In this case the tribunal heard them together. But it is necessary to keep them apart. In my view the tribunal erred in law in failing to do so. I held an oral hearing of A’s application to appeal in Cardiff on 2 02 2007. It was supported at that hearing by Mr James for the Secretary of State, but not on the same grounds as made by A. P attended but admitted that she was not competent to deal with some of the legal issues. 

7	I granted permission to appeal and gave reasons. Drawing on discussions at that hearing, I directed that I would hear the full appeal myself on the basis that all parties accepted that the decision of the tribunal should be set aside for error of law. The parties accepted that at the hearing on 25 04 2007. Accordingly, I set aside the decision of the tribunal with consent of the parties on the grounds of error of law. I record briefly that one of the errors was the failure of the tribunal to recognise that it was looking at a series of appeals against decisions taken on different dates.  

The full hearing by me
8	Although I set aside the tribunal’s decision, the tribunal conducted rigorous case management of this difficult case. It held several hearings and issued a series of directions requiring information and evidence to be produced. I adopted those directions and the submissions made in reply as part of this case, and record and acknowledge that the case had been prepared thoroughly by the tribunal and its chairman for the hearing. I issued a general invitation to all parties to produce any further documentary evidence they wished to produce ahead of the hearing in April. I also gave directions about any witness any party wished to produce. I further directed the Secretary of State to be represented and for an officer of CSA to attend to assist the hearing. No additional documents were produced and no witnesses or witness statements were produced. The CSA was represented as directed, and I am grateful for the assistance. Both A and P gave evidence on affirmation. All parties were invited by me to question the other parties at appropriate stages of the hearing, and all parties exercised those rights. 

The grounds of appeal 
9	 I do not need to consider A’s grounds of appeal to the Commissioner further. The starting point is now with P’s appeals to the tribunal. The central point of P’s appeal is that 
A, in her view, clearly had a large income. It was unfair and wrong that, with so large an income, he should only pay £5 a week for their daughter’s maintenance. She therefore appealed the decision awarding that level of maintenance. At a later stage, on advice of the CSA, she applied for variation of the maintenance order on three separate grounds. All three were refused by the Secretary of State. As noted above, her appeals have come to be heard together. However, it is necessary to decide the appeal about maintenance before considering the variations. This is in part because that appeal was made several months before the other appeals. 

The maintenance assessment
10	This is the appeal by P against the decision that A was to pay £5 a week child support maintenance to P for their daughter. It is a slightly odd appeal in that in the oral hearing by me of the application all three parties expressed the view that the decision awarding £5 a week looked wrong or at least unfair. The tribunal also found it to be wrong and revised it. Nonetheless my view is that the decision made by the Secretary of State was correct on the law enacted by Parliament at that time, and that of the tribunal wrong. The true target of the criticisms was not the decision itself but the restricted definition of the income of a non-resident parent in operation at that time when combined with the limited grounds on which that standard definition could then be varied. Parliament has since revisited the law and changed what many saw to be an unfair law allowing some non-resident parents to avoid paying child support maintenance by restructuring or diverting the money they received or could receive. This case must however be decided under that law. 

11	It is common ground that the effective date for this decision was 05 03 2003, and that the decision under appeal was made on 29 10 2003. The question is, viewed as at 29 10 2003, what were A’s earnings, as defined by law, at the effective date? 

12	P’s appeal, put at its simplest, was that A’s income could not be so low that he was liable only to the standard £5 a week. A is a fully qualified and experienced graduate engineer working for his own company on international contracts. The decision showed that A’s income for child support maintenance purposes was £16.79 a week. That could not be right. It did not make sense from what P knew of his job and life.

13	The Secretary of State considered A’s gross and net income paid on 28 02 2003 and 31 03 2003 by his employer. A was paid £385 a month for both those months. No income tax or National Insurance (NI) contribution deductions were made. I have no evidence to suggest that A was earning substantial amounts of income as an employee at any other time that year. These were the final two months of the tax year 2002-03. I see no reason to question the absence of any deductions for income tax or NI contributions. The annualised total was less than the personal allowance available to individuals that year, and the monthly amounts of earnings were below the lower earnings limit for NI contribution liability. This is consistent with M’s evidence that his pay level was set to avoid NI contributions and to permit his income to be paid to him as dividends at lower effective rates of income tax and corporation tax. I am satisfied that those figures are a correct application of the tests for employment income provided in the Child Support (Maintenance Calculations and Special Cases) Regulations 2000 (SI 2001 No 155) (“the Calculations Regulations”). I agree with the calculation of income, before deductions, set out in the papers.  

14	Out of that £385 a month A paid a monthly contribution of  £312 to a personal pension plan. It is not clear to me why he did this consistently with his other evidence. He could not claim the standard income tax reduction for a pension contribution as he did not pay any relevant income tax. His employer could not claim a deduction for corporation tax purposes as it was a personal pension plan and not an occupational pension. Unlike his evidence as to his income, this expense could not be justified as being tax efficient. Nonetheless, on the documentation I have seen, I am satisfied that the payments were made. I am also satisfied that A is entitled to deduct those pension contributions for child support purposes under the terms of paragraph 5(c) of the Schedule to the Calculations Regulations.
I therefore agree and confirm that decision. 

15	How is P’s evidence of A’s lifestyle explained? Part of the answer lies in information not available when the original decision was taken and of which P appears not to have been aware. The tribunal directed A to produce all income tax papers and all documents relating to the finances of A’s employer. A’s employer at all relevant times was a company I call  MC Ltd. It is what is often called an umbrella company or pocket book company. Its accounts were drawn up in proper form by a firm of chartered accountants for financial years ending on 31 March each year. The accounts for the year ending 31 March 2003 show A as the sole director of the company until 1 03 2003, when he resigned. He was replaced that day by an individual to whom I shall refer as T. A told me that T was a close friend whom he trusted, and I accept that. 

16	One document produced is the P 11 D form detailing for income tax purposes the expenses and benefits paid to A by MC Ltd for the tax year 2002-03. These show that MC Ltd paid A the following expenses in that year:

	Item								£
	Car mileage allowances and passenger payments		4272
	Other travelling and subsistence payments			9469
	Payments for use of home telephone				  302
	Sponsorship (for what is not stated)				  624 
	Subscription						               127
	Office equipment						  440
	Postage							    32
	Sundries                                                                                             84

In other words MC Ltd met £15,350 expenses incurred by A for MC Ltd as part of his employment. Those figures – totalling over £250 a week in addition to A’s net earnings of £16 a week - make some sense of payments that P could see were being made for or by A in connection with his work. A similar figure is recorded as paid to A the following year. MC Ltd accounts for the year 2002-03 show the matter starkly. In that year the company spent £49,192 on motor, travel and accommodation expenses, but paid only £4,620 as the director’s salary and £9,600 as wages and national insurance. This relates directly to points P made about A’s international travel as part of his job. 

17	I add the general comment that the true employment position of someone like A can only be seen if, as here, the employer and employee disclose all expenses paid to third parties or reimbursed to the employee related to the employment as well earnings received. The P11D or equivalent is clear evidence of this. 

18	My conclusion is that I am satisfied that there is no error of law or fact in the calculation of A’s child support maintenance according to the formula applying at the time. It looked at a narrow definition of income and not at what might have been earned or other forms of income. Those were left to be considered by way of variations. P was right in principle, on what she perceived to be the position of A, to apply for variations. 

The variations sought
19	P applied on CSA advice for variations of that calculation on three grounds. The Secretary of State accepted that the application was valid but decided on 25 02 2004 that no variation should be made. This was stated to be because there was insufficient evidence to justify any of the variations being sought. The grounds on which P applied are:
	
(a) that at the relevant time A had assets worth over £65,000 and that the assessment made against him should be varied to reflect the income he is treated as having as a result of those assets in accordance with regulation 18 of the Child Support (Variations) Regulations 2000 (“the Variations Regulations”),

(b) that A had diverted income that he would otherwise have earned in 
order to reduce his liability to pay child support maintenance and that 
the assessment should be varied to take that diverted income into account in accordance with regulation 19 of the Variations Regulations, and

(c) that A’s lifestyle was inconsistent with his declared income and that 
the assessment should be varied to reflect the income to be assumed as
financing that lifestyle in accordance with regulation 20 of the Variations Regulations.

20	The tribunal directed a variation on ground (b) but apparently left the other appeals undecided save that by default it made no directions for variations on the other grounds.
The maintenance decision was made on 29 10 2003. The application was received on 10 11 2003 and refused on 25 02 2004. The application was therefore made within one month after the maintenance decision. It is therefore an application for revision of the main decision. See Section 16 of the Child Support Act 1991 and regulation 3A of the Child Support (Decisions and Appeals) Regulations 1999 (SI 1999 No 991). The effective date to be considered is therefore again 05 03 2003. But, consistently with that law, I can also take account on the facts of any changes up to the date of decision on 25 02 2004. The two dates are therefore the critical dates defining the period within which I should consider all relevant evidence.

Ranking order of variations
21	The first issue to be determined is the order in which I should consider the variations. The regulations set out the grounds for an assets variation, then a diversion variation, and then a lifestyle variation. The papers suggest that the Secretary of State decided the assets application, then the lifestyle application, and then the diversion application. The tribunal considered only the diversion application and by implication deferred the assets application until it had considered that.  In other words, it proceeded in the reverse order to the Secretary of State. Is there a correct order?

22	It is now generally accepted that consideration of a variation on lifestyle grounds falls to be considered after any variation for diversion of income has been decided. It is common to see applications on both grounds together. In my view it is clear that a tribunal must establish the nonresident parent’s income before looking at whether the parent’s lifestyle is incompatible with that income. To that extent, I agree the tribunal’s approach.

23	Applications to consider the assets of the nonresident parent are less common. The practical answer to the issue of ranking has therefore been determined by the applicant only asking for a variation on other grounds. The question of assets is therefore not examined. But here P has asked for a variation on this ground also and was right to do so. A non-resident parent can seek to rebut a lifestyle variation by claiming that he or she paid for the lifestyle by “assets as defined for the purposes of regulation 18, or income derived from those assets”: Variations Regulations, regulation 18(3)(c). This suggests that, for the same reasons as for regulation 19, a lifestyle application should be considered only after any question of assets for the purposes of regulation 18 has been considered. 

24	There is also an obvious overlap between a variation to take account of assets and one to take account of diverted income. An individual may divert income to which he or she is entitled as earnings into a company or other vehicle owned by the individual so as not to receive it as earnings. The value of the diverted income will normally then be reflected in the value of the shares of the company or in the value of the other vehicle chosen to receive the diverted income. If the diverted funds are paid out, then the value of the asset will reduce. If the funds are held and not paid out then the increased asset value will remain. It would be double counting, and therefore wrong (or at least not consistent with justice and equity), to attribute diverted income back to the diverter while at the same time attributing the capital value of that same income, as held in the company or vehicle, to the diverter as part of the value of assets held. 

25	Regulation 18 now provides for this overlap in part. Regulation 18(3)(a)(ii) now excludes from the assets to be considered by regulation 18(2) “the value of any asset in respect of which income has been taken into account under regulation 19(1A).” Regulation 19(1A) now allows account to be taken of income diverted by an individual to a company. However, that provision and its recognition in regulation 18 only took effect by amendments to the regulations made on 6 April 2005 by SI 2005 No 785. They do not apply to this case. At the date of P’s application, there is no provision dealing with overlap. But the overlap is clearly there – and still is, beyond the scope of those amendments. 

26	The structure of the provisions for these variations in the Variations Regulations allows the Secretary of State or a tribunal to consider all grounds raised. It does not define a specific order for consideration. The minimum threshold value of assets of £65,000 in Regulation 18 removes many cases from consideration, when read with the assets to be excluded from that total. That provides a practical answer in many cases. Beyond that, and where there are assets other than those potentially caught by any overlap with regulation 19, then regulation 18 should be examined. It may also be necessary to look at regulation 19 and the overlap. If there is an overlap then the overriding test of justice and equity will apply to stop double counting. 

Regulation 18
27	There is clear evidence here that A does have significant assets. P stated in her application: “ I believe [A] has many assets. Some are detailed above but he is the director of [MC Ltd}, his company, and has access to its funds solely.” She added later in the form: “he takes the dividend (from the company) and invests it in shares, premium bonds, ISAs etc. He therefore has access to these savings as well as the company account.” But the only evidence of assets accompanying that application was of a BMW case and a house. 

28	Regulation 18 provided, at the relevant times:

  	“Assets
       18.  - (1) Subject to paragraphs (2) and (3), a case shall constitute 
      a case for the purposes of paragraph 4(1) of Schedule 4B to the Act where 
      the Secretary of State is satisfied there is an asset - 

        (a) in which the non-resident parent has the beneficial interest, or 
        which the non-resident parent has the ability to control;

        (b) which has been transferred by the non-resident parent to trustees, 
        and the non-resident parent is a beneficiary of the trust so created, in 
        circumstances where the Secretary of State is satisfied the non-resident 
        parent has made the transfer to reduce the amount of assets which would 
        otherwise be taken into account for the purposes of a variation under 
        paragraph 4(1) of Schedule 4B to the Act; or

        (c) which has become subject to a trust created by legal implication of 
        which the non-resident parent is a beneficiary.

          (2) For the purposes of this regulation "asset" means - 

        (a) money, whether in cash or on deposit, including any which, in 
        Scotland, is monies due or an obligation owed, whether immediately 
        payable or otherwise and whether the payment or obligation is secured or 
        not and the Secretary of State is satisfied that requiring payment of 
        the monies or implementation of the obligation would be reasonable;

        (b) a legal estate or beneficial interest in land and rights in or over 
        land;

        (c) shares as defined in section 744 of the Companies Act 1985[15], 
        stock and unit trusts as defined in section 6 of the Charging Orders Act 
        1979[16], gilt-edged securities as defined in Part 1 of Schedule 9 to 
        the Taxation of Chargeable Gains Act 1992[17], and other similar 
        financial instruments; or

        (d) a chose in action which has not been enforced when the Secretary of 
        State is satisfied that such enforcement would be reasonable,

      and includes any such asset located outside Great Britain.

          (3) Paragraph (2) shall not apply - 

        (a) where the total value of the assets referred to in that paragraph 
        does not exceed £65,000 after deduction of the amount owing under any 
        mortgage or charge on those assets;

        (b) in relation to any asset which the Secretary of State is satisfied 
        is being retained by the non-resident parent to be used for a purpose 
        which the Secretary of State considers reasonable in all the 
        circumstances of the case;

        (c) to any asset received by the non-resident parent as compensation for 
        personal injury suffered by him;

        (d) to any asset used in the course of a trade or business; or

        (e) to property which is the home of the non-resident parent or any 
        child of his.

          (4) For the purposes of this regulation, where any asset is held in 
      the joint names of the non-resident parent and another person the 
      Secretary of State shall assume, unless evidence to the contrary is 
      provided to him, that the asset is held by them in equal shares.

          (5) Where a variation is agreed on the ground that the non-resident 
      parent has assets for which provision is made in this regulation, the 
      Secretary of State shall calculate the weekly value of the assets by 
      applying the statutory rate of interest to the value of the assets and 
      dividing by 52, and the resulting figure, aggregated with any benefit, 
      pension or allowance which the non-resident parent receives, other than 
      any benefits referred to in regulation 26(3), shall be taken into account 
      as additional income under regulation 25.

          (6) For the purposes of this regulation, the "statutory rate of 
      interest" means interest at the statutory rate prescribed for a judgment 
      debt or, in Scotland, the statutory rate in respect of interest included 
      in or payable under a decree in the Court of Session, which in either case 
      applies on the date from which the maintenance calculation which takes 
      account of the variation takes effect.”

29	The relevant period in which to consider the evidence of assets in this case is from the effective dated of the maintenance calculation in March 2003 to 25 February 2004. 

The evidence of assets
30	There is a table of assets totalling £34,062 as at 30 April 2003 in the papers. A added a signed statement, dated 20 September 2004, that no additional shares had been bought or money put into ISAs or any other investments since the document was produced. The document lists an ISA worth in April 2003 £16,674. There are quoted shares in a management account worth at the date of valuation £15,862. There is a smaller fund worth £1,526.  I accept that evidence.

31	A declared two shares in MC Ltd. I consider those below. 

32	A declared a holding of £20,000 premium bonds which, on a statement signed on 20 September 2004, are stated to “have recently been sold”. P referred to a holding of premium bonds held at the date of her application. £20,000 was the maximum holding of premium bonds until the total was raised to £30,000 on 12 05 2003 by SI 2003 No 1085. I find that A owned the maximum holding, as then defined, in March 2003 and continued to hold that sum until at least the summer of 2004. That is consistent with his obvious knowledge of relevant tax provisions.  

33	A stated that he has never owned savings or capital outside the United Kingdom. I have seen no evidence nor heard any assertion to contradict that save for the Irish euro bank account mentioned below. Save for that, I find that all A’s assets are in the United Kingdom.   

34	A set out in a document dated 9 07 2004 what he considered his assets to be. He declared an interest in a house that was his home. He declared an interest in a secondhand BMW car and gave considerable detail about why that asset was needed by him. He discussed personal items that he did or did not have, such as clothes and his computer. Save for the house and the car, none appear to be of any significant capital value. At document 203 A valued the car at £11,000. In a reply dated 26 08 2004 P challenged the fact that A lived in the house identified and declared by him. She also identified other items.  Part of her detail is confirmed by a letter dated 30 07 2004 from her solicitor commenting that A had pointed out that the suit he was wearing at a county court hearing cost £2,000 and that he would be leaving the court in his “lovely, big BMW”. The solicitor expressly suggests the production of the letter to the child support agency. In a reply dated 29 09 2004 A denied saying any such thing. I accept the written statement by the solicitor, but consider A’s statements to be provocative in nature rather than evidence of fact.  

35	The papers also contain copies of relevant bank accounts. So that the parties may identify the accounts in question, I refer to them by reference to the page numbers on which relevant bank account statements appear. The following are the balances at the key dates: 

	Current account at doc 169:
	£3,822 at 5 03 2003. Balances fluctuate between £12,000 credit and £200 debit.

	Flexaccount at doc 189
	£1,027.21 at 1 04 2003. Balances decline slowly from that.
	
	Building society account at doc 190
	£15,150 in March 2003. Balances dip then rise to be at that level again in November 	2003. Balance at February 2004 was £12,432 

	Euro designated current account at doc 191
	Incomplete record. Balance 9,672 euros in November 2002 and 2,662 euros at 2 05 	2003.	

There are also accounts for a credit card showing net indebtedness being fully met each month with no standing debit. Without conducting a full audit, my impression of the accounts as a whole is that jointly they contain considerable net free funds throughout the relevant period, as they do not go up and down in concert. The individual totals, at the nearest dates to March 2003, add up to about £22.000. I round that to £20,000 as the figure, on my best judgment, that should be included in A’s relevant assets.  

36	At document 212 is a typed letter from a private address saying that the writer lent a £20,000 “in mid 2003”. There is no date for repayment and no set rate for, or dates of payment for, interest. I was not shown any specific evidence to support this letter, for instance of the purpose of the loan or where it appeared in A’s accounts. It is not a charge or debt specifically aligned to any asset or to the business. If it had been a business loan, I would have expected it to be lent to MC Ltd not to A. I therefore see no reason in law or fact why this should be discounted from any relevant assets and so decide.  

The shares in MC Ltd
37	The papers contain full accounts and other details for MC Ltd. These show that at 31 3 2003 there was a retained profit carried forward of £156,678, and that shareholders’ funds stood at £156,684 (the difference being £6 called up share value). The abbreviated balance sheet for the year ending 31 3 2004 shows net shareholders’ funds as £(26,616), that is, in deficit. The accounts for that year show that the reason for the deficit was payment of directors’ remuneration of £325,000 during the year. It was paid to T. A told me he knew nothing about this and that there was no agreement between him and T about this. There is no evidence in the papers about when or how this large sum was paid to T. I have no evidence about who could sign company cheques. In the absence of any other evidence I assume that the payment to T was made on the last day of the financial year, that is, on 31 March 2004. This large transfer of funds has the appearance of a payment made for some undisclosed purpose not consistent with the ordinary or past running of the company. In the context of the financial steps involving A and MC Ltd of which I did have evidence, I find this was probably taken with or on advice. Such payments are more likely to happen on the last day of a financial year than any other day.   

38	Those figures are critical to deciding the value of the two shares A held in MC Ltd at all relevant times. I asked A about these shares at the hearing and about what they were worth. He stated that they were worth £1 each. I put to him that they could be worth half the assets value of the company each. He had no response to that point.

39	The papers contain all necessary details to consider the value of A’s shares in MC Ltd. There are details of the accounts and tax returns for the company for the full relevant period, and of its shareholders and directors for that period. There are also copies of the memorandum and articles of the company and of relevant board resolutions. I do not propose to go through the documents in detail. Save for the share structure, they are in the form that would be expected of an “off the shelf” umbrella company. The accounts are properly prepared, signed by the director, and certified by chartered accountants. Returns appear to have been made properly to Companies House.

40	At the relevant times there were six issued shares in MC Ltd. Two “A” class shares were issued to A. Two “B” class shares were issued to T. Two “C” class shares were issued to P. It was clear from her reaction at the hearing that P was totally unaware that she held shares in MC Ltd, and she confirmed that this was so. When asked, A did not explain why that was so. There is a Companies House copy of an annual return that confirms these facts. Other papers, also produced from Companies House, show that A personally signed the necessary resolutions on 10 09 2000 to create the Class B shares held by T and on 3 02 2002 to create the Class C shares for P. The subsequent accounts and balance sheets are consistent with this.

41	The papers contain the terms on which the three classes of shares are held. The limited rights and privileges attaching both to the B shares and the C shares are set in identical terms in the resolutions. They are: 

	“As regard voting.

	The holders of Class [B][C] ordinary shares shall not be entitled to receive notice of, or 	attend, or vote at any general meeting of the company.

	As regards income.
	The [“B”] [“Class C”] Ordinary Shares shall not rank pari passu with other classes of 	ordinary shares with regard to entitlement to dividend, and the director may at any 	time resolve to declare a dividend on one or more classes of shares and not one or 	other classes.

	As regards capital.
	On a return of assets on liquidation, reduction of capital or otherwise, the surplus 	assets of the company remaining after payment of its liabilities shall be applied (i) in 	paying to the holders of the [Class B] [Class B and Class C] an amount per share equal 	to the sum paid up or credited as paid up thereon, (ii) next and subject to (i) hereof, the 	balance of such assets shall belong to and be distributed amounts the holders of other 	classes of ordinary shares in the proportion to the amounts paid up or credited as paid 	up thereon.”

I have set out in square brackets the minor differences in wording of the two resolutions.

42	The picture that emerges is clear. Holders of B and C shares can receive dividends, but can play no part in the management of direction of the company or in the decisions to pay dividends. Nor can they receive anything other than £1 a share if the company is liquidated or otherwise pays out its capital. The holder of the Class A shares is in full control of the company at any time, and is entitled to receive all shareholders’ funds from the company on liquidation or other distribution at any time. Further, as the only shareholder with control over the company, the A shareholder – at all times A - can take the necessary decisions to liquidate the company at any time. The two A shares held by A are therefore each worth half the shareholder value of the company at any time. On the evidence of the accounts, the shareholder value was over £150,000 at 31 03 2003, after payment of dividends for 2003. On my findings above, the net shareholder value in February 2004 was at least that much and possibly considerably more.  

43	It is clear that A’s assets were worth more than £65,000 at all relevant times. It is therefore appropriate to consider a direction under regulation 18 and therefore any exclusions.

Excluded assets
44	Regulation 18(3) provides for exclusions. I exclude the car because, having read the documentary evidence, I am satisfied that this asset is retained for a purpose that I consider reasonable in all the circumstances: regulation 18(3)(b). I take the same view with all the other minor assets including the computer, camera, clothes, sports equipment, and furniture. There is no evidence of any valuable asset of a kind that should be regarded as an investment rather than goods for personal use. I exclude the house because I accept the evidence that it was “property which is the home of the non-resident parent”: regulation 18(3)(e). I do not therefore need to consider its value or if there is any charge over the asset. 

45	I also exclude any value for assets “used in the course of a trade or business”. This would exclude any computer or similar equipment. It would also exclude any assets held within the company for the purposes of the business. 

46	According to the balance sheet for MC Ltd as at 31 03 2004 the fixed assets of the company were worth £772 at the end of the 2002-03 year and £579 at the end of the 2003-04 year. Such assets are therefore minimal. The other assets are current assets in the form of debtors and cash at bank and creditors. Debtors were about £10,000 at the end of each year. Creditors are put at £57,000 at the end of the 2002-3 year and £52,000 at the end of the 2003-04 year. It is reasonable, taking a broad view, to allow the company to hold the difference between the sums owed by its debtors and the sums owed to its creditors as assets used “in the course of” the business. In other words, it – and therefore the shareholder owning it - should not be regarded as having any net free asset to the extent that the company owes its suppliers or staff more than its customers owe it. Taking a broad figure from these accounts, I consider it reasonable under this provision to deduct a round sum of £40,000 from the shareholder value of the company for fixed assets and current debts. If I take the shareholder value to be £156,000 then the net value of the MC Ltd shares to be included as A’s assets is £116,000.

Total assets after exclusions
47	On the basis of the above evidence and findings, A’s assets in March 2003 were:

	Asset			Value or estimate

	Shares in MC Ltd			£116,000
	Other shares and savings			  £34,000
	Bank and building society accounts		    £20,000
	Premium bonds 		    £20,000
	Car 			 excluded
	House			 excluded

48	 My conclusion is that A has assets available for a regulation 18 variation of a capital value of £190,000 at the date of P’s application. I find no significant difference in this during the period to the date of decision by the Secretary of State. Subject to any other variations, to whether a variation in that figure would be just and equitable, and to any other necessary matters, I consider that I should direct the Secretary of State to recalculate the child support maintenance in accordance with those findings.

Diversion of income
49	This was also considered at the full oral hearing. The tribunal gave a direction on this basis together with its decision about the underlying maintenance assessment. That decision drew strong criticism from A, but was relied on by P as justified on the facts. For the Secretary of State, Mr James considered that this was a matter to be taken fully into account. He cross-examined A with that in mind.

A’s evidence
50	I found A’s evidence at the full hearing unsatisfactory on several counts. This was not least because it was inconsistent with his application for permission to appeal. At the most general level, A made a strong point at the application hearing that he felt that the £5 a week that the law required him to pay P for his daughter was not enough. He was happy to pay the sum that the law required. That was in part why he asked for permission to appeal. When it was pointed out to him at the full hearing that there were grounds on which I might find that the law did require him to pay more, he completely changed his mind and represented that his daughter did not even need the £5 a week. I take that into account as a background to his specific evidence. 

51	I make the following findings about A’s evidence, given formally and on affirmation, at the full hearing. The first is as to his relationship with T and the company funds. The papers show that MC Ltd paid T £325,000 in 2004 as emoluments. A was the sole effective shareholder in the company at all material times. A told me that he assumed that his shares were worth £1 each. He did not know about the details of the company or its share structure. He had kept money in the company for it to be paid out as dividends. He did this to avoid NI contributions and taxes. But as far as he was concerned, once T took over as director, it was for T to decide what to do with the money. It was nothing to do with him. He stated that T was a good friend of his, but he had no private or other agreement or understanding with T. Nor had he asked T about taking the money out of the company when he found out about it. It was not a matter of concern to him.  

52	I do not believe that evidence. I am required to decide matters on the balance of probabilities, but I make this finding on a higher standard of proof. A is a qualified graduate engineer who is clearly capable of running his own business. He clearly showed a detailed knowledge of how a self-employed person such as him could structure his business and savings to minimise payments of corporation tax, income tax, NI contributions and child support maintenance payments. The evidence of how he set up, and then was paid by, the company together with evidence of how he spent his small earnings and held some of his savings are all entirely consistent with that. 

53	The payment to T of earnings of £325,000 turned the company from one that was cash rich to one that was in significant deficit. I do not believe that a person who is so clearly concerned as A is about paying money to his ex-wife, who has at his fingertips the considerable detail he deployed in his written and oral evidence about his expenses and income, and who clearly works successfully in his own business, would not be aware that someone he worked with had removed £325,000 as emoluments without notice or other explanation from his company. This is particularly so as the accounts of the company prepared that year are in abbreviated form compared with previous years. Alternatively, if A was not initially aware of it, I do not accept that he would have let that much money disappear from his company without either agreeing it in advance or enquiring in detail about it afterwards. I do not know if A had agreed with any third parties that he was personally responsible as shareholder for any debts of the company. If he had so agreed, the payments to T made him liable to meet significant debts of the company. In March 2004 there were debts falling due within a year of £52,000 and only outstanding debts and cash at bank of £25,000 to meet those costs.  There was also nothing from which to pay dividends.

54	A provided considerable detail about matters he considered relevant, and he pressed P, in cross-examining her with some intensity, for precise details of such matters. His demeanour throughout was that of a person confident in, and used to, handling figures and information of this kind. He produced full accounts for the company from a proper source and papers that appeared to be entirely in order. He made points in evidence and submissions on several occasions that the accounts had been drawn up properly and that he had acted as he did on the advice of the accountants. For example, he had held the money in the company so that he could pay it out as dividends. He did that to avoid tax and NI contributions. When I asked him why, in that case, none of it had been paid out as dividends, and none of it had been paid out to him, he had no satisfactory explanation. 

55	I form the clear view from A’s evidence, and from the documents in the papers that A signed, that A acted on advice at all relevant times when he wished to do so and that he kept himself in the picture at all relevant times. The idea of the B and C shares must have had his express approval before the documents were signed because only he could have given the instructions for them to be prepared. He must have known about the resulting corporate structure. He must have chosen to cease to be a director when he did, and he must have been responsible for ensuring T was appointed in his place.  Against that background I do not accept that A did not know that T took so much money out of his company when he did, or at least did not enquire about it when put on notice that this was so. And I do not accept that A did not know, at least after enquiry, why that was so. 

56	I also find that, in so far as it is appropriate to consider a direction under regulation 19, the necessary personal condition for that regulation to be relevant is present. The condition is that “the non-resident parent has unreasonably reduced the amount of his income … by diverting it to other persons or for purposes other than the provision of such income for himself in order to reduce his liability to pay child support maintenance.” In reply to questions put to him by Mr James in cross-examination, A admitted as much almost in terms. In reply to a question about his earning capacity he stated that he could not afford to work while people like the CSA were haranguing him. When asked about diverting income, he replied that paying the CSA was more detrimental than paying dividends. If he took money out of the company he would not waste it. He didn’t go into business to earn money for others but for himself.  I agree with the conclusion Mr James drew from those replies. At least a significant part of A’s motivation in the way that money was held in MC Ltd, and not paid out, was for A to divest himself of income and so reduce his child support maintenance liability.  

Regulation 19 
57	 I am therefore satisfied that this is a case where it would be proper to consider a variation under regulation 19. Should I do so as well as making a regulation 18 variation? I cannot fairly do both without at least an offset. On the facts, if I decide a variation under regulation 19, then I should exclude the assets in MC Ltd from consideration for regulation 18. If I did so, the remaining assets would be over £65,000 but not by a wide margin.  

Just and equitable
58	Before I make any direction for a variation I must satisfy myself that it is just and equitable to make that variation. This is required by section 28F of the Child Support Act 1991. In reaching that conclusion I must have in mind, or must exclude, the factors identified by regulation 21 of the Variations Regulations. I raised this with the parties at the hearing and heard their views on it. Before I did so, I asked Mr James to take instructions on the likely effect on the maintenance assessment of variations. I note the figures about which I and the parties were informed below. These were in the minds of all concerned when I invited comments on this. 

59	I asked Mr James to take instructions for the purposes of considering the justice and equity of making a direction based on assets totalling £100,000 and a direction based on diversion of income of £30,000. His instructions, from the child support officer present, were that if I directed that assets of £100,000 were to identified for a variation, then on all the other information available A would be liable to pay £24 a week maintenance. If I were to direct a diversion of income of £30,000 then A would be liable to pay £65 a week. It is clear from this that there is a strong spreading effect of a regulation 18 variation as compared with a regulation 19 variation. Both figures are to be compared with the figure, without variation, of the standard £5 a week.  

60	The submissions made by the parties about justice and equity were made against that background. A’s submission was, in effect, that no variation could be justified. I reject his submission, inconsistent with his own submission at the hearing on the application, that P did not need any help in bringing up their daughter and that it would be in the interests of justice and equity that he be ordered to pay nothing. I accept Mr James’ submission that this is a case where the obvious justice and equity is in imposing the full amount of liability that would arise from the variation by law. He suggested that there were no special factors here to prevent a full variation being ordered. There is no mention of other children whose welfare I should consider. I agree with that approach. 

61	I record my view of one special factor. Regulation 21(1)(a)(i) requires that I consider whether agreeing to a variation would be likely to result in A ceasing paid employment. I consider this because A commented in his replies to cross-examination that he had no intention of working to pay the CSA. I have already indicated my views on A’s evidence generally. As with his comments to the solicitor at the court hearing, I regard that as provocative rather than definitive. I put little weight on the comment. In any event, A was only earning, after his pension payments, about £16 a week, so loss of that employment would be of limited importance. I recognise that, in the narrow sense, A might well terminate paid employment. But that does not mean that he will stop earning directly or indirectly. He could probably obtain direct self-employment readily, without using an intermediate company, if he wished. Nor does his employment status change the fact that he had considerable capital assets at the relevant time on which he could have lived, at his declared lifestyle, for some years without significant additional income. I do not consider this a factor of any significant weight in my decision. Nor do I consider that maintenance payments made, or not made, by A before these applications suggest any limitation on a variation direction. 

62	I must also decide if it is fairer to decide between making a direction under regulation 18 as indicated or a direction under regulation 19 with a more limited direction under regulation 18. In my view it is fairer and more equitable in this case to make the variation by reference to total assets, and not one only under regulation 19 or under both regulation 18 and regulation 19. A’s pattern of behaviour at the time was to hold assets and avoid having income. That is precisely the point that P took in her original application. It is therefore appropriate to consider attributing income to him from those assets. That is the effect of regulation 18. Further, the figures involved spread a lighter burden of liability over all his relevant assets rather than subject some of them to the direct consequences of being assumed to be income not capital. And it makes for a more consistent position throughout the period relevant to my decision. Making a variation under regulation 18 only also deals with A’s own argument that the money in the company was to be paid out as dividends. I have already commented on what actually happened. For the purposes of regulation 18, I need look only at actual assets, not at what would, could or might happen to income streams.    
I therefore direct a variation under regulation 18 only. Based on the figures given me by the child support officer and Mr James, that will result in a weekly liability of the order of  £50 a week.

63	Having taken that view, I note the extensive holdings of capital rather than income by A. I have also noted the extent to which A’s lifestyle was funded by expenses payments by his employer. With those in mind, I do not propose to consider the lifestyle application further. It is clear that A’s lifestyle was funded by expenses and capital rather than income as deliberate ways in which A handled his funds. A variation based on assets deals with that, in my view, to the extent that the Variations Regulations fairly allow that to be done at the time of the application by P. 

64	I further find, having considered the submissions of the parties and the other matters set out above, no special factors that should release A from the full liability for a variation based on his relevant assets. 

Conclusion 
65	I therefore, acting as a tribunal, dismiss P’s appeal against the assessment that A should pay £5 a week but at the same time direct a variation by way of revision to that assessment on the basis that A held relevant assets of £190,000 at the relevant times. My formal decisions to that effect are at the head of this decision.

66	As I do not know the precise figure that will emerge from the calculations for the Secretary of State on the basis of this decision, I direct that any party that wishes to challenge the precise figures resulting from my decision may do so by application made within one month of receipt of the figures from the Secretary of State. Any application must state the specific grounds on which it is made. 

									David Williams
									Commissioner 
									30 05 2007
[Signed on the original on the date stated]