UK Social Security and Child Support Commissioners' Decisions

[2006] UKSSCSC CCS_1026_2006 (22 September 2006)

DECISION OF THE CHILD SUPPORT COMMISSIONER
1. My decision is given under section 24(2) and (3)(d) of the Child Support Act 1991:

I SET ASIDE the decision of the Sutton appeal tribunal, held on 23 June 2005 under reference U/45/176/2004/04140, because it is wrong in law.

I REMIT the case to a differently constituted appeal tribunal and DIRECT that tribunal to conduct a complete rehearing of the issues that are raised by the appeal and, subject to the tribunal's discretion under section 20(7)(a) of the 1991 Act, any other issues that merit consideration.

I draw the tribunal's attention to the Secretary of State's comment in paragraph 16 and to the submission on the effective date in paragraph 17 (pages 249 and 250).

Listing

Before this case is listed for rehearing, it must be put before a district chairman to consider whether it is necessary or appropriate to give directions under regulation 38(2) of the Social Security and Child Support (Decisions and Appeals) Regulations 1999. In particular, the district chairman will need to consider:

whether a financially qualified panel member should sit on the tribunal:

what directions to give for the disclosure of evidence. The parent with care's counsel has proposed a list on pages 270-271. I consider that the directions are best given by the chairman likely to hear the appeal, assisted by a financially qualified panel member is appropriate.

The appeal to the Commissioner

2. In terms of the child support legislation, the appellant is the father of Innes and his non-resident parent; the second respondent is his parent with care. I shall refer to them in those terms.
3. The case came before the tribunal on appeal by the parent with care. The non-resident parent was given leave to appeal to a Commissioner by a district chairman and the case was referred to me for case management directions. The Secretary of State supports the appeal. Both parents have made observations through counsel.

The issue

4. This case concerns an application for a variation from the calculation of child support maintenance under Schedule 1 to the Child Support Act 1991. The parent with care first referred to a variation in a letter of appeal against a calculation decision and this was accepted by the Secretary of State as an application for a variation.
5. The issue is whether a variation can be agreed to under regulation 18 of the Child Support (Variations) Regulations 2000. The relevant parts of that regulation are set out at pages 247 and 248. The assets in question are shares in two media companies. One of the companies owns a subsidiary and provides it with working capital. The tribunal found that the non-resident parent had invested £813,000 in the parent company. That company had 'capital by way of shareholding' of £514,772. This figure took account of £316,444 provided to the subsidiary for working capital. The tribunal further reduced it to £500,000 in order to allow for working capital for the parent company. (These figures do not quite add up, but they are the ones the tribunal used.) The tribunal found that the shares were not an asset used in the course of a trade or business and agreed to a variation on the shares amounting to £500,000, having decided that it was just and equitable to do so.

Analysis

6. There is no dispute that shares are assets. That is made clear by regulation 18(2)(c).
7. The non-resident parent argues that the shares are 'used in the course of a trade or business'. If that is correct, they are excluded from regulation 18 by regulation 18(3)(d). It is possible to use shares in the course of a trade or business. The most obvious example is a business which holds shares as an investment or trades in shares. However, that is not the position here. The trade or business in this case is not the non-resident parent's. The trade or business is that of his company, which in law is a separate entity from the owners and managers. The non-resident parent has no trade or business and, therefore, does not use his shares in the course of one. The company has a trade or business, but it does not use its shares in the course of it. The shares represent the non-resident parent's ownership of and investment in the company. They are not an asset that is used in the course of a trade or business. The tribunal correctly interpreted and applied regulating 18(3)(d).
8. The relevant provision in this case is regulation 18(3)(b). This raises the issue whether the shares are being retained for a purpose that is reasonable in all the circumstances. The tribunal went wrong in law by failing to investigate and apply this provision. It is certainly a possible decision that it is reasonable in all the circumstances for the owner of a company to retain the shares in that company. I do not rule out the possibility that it might in all the circumstances not be reasonable to do so, but I would expect there to be exceptional circumstances to justify that conclusion. I have reservations about the propriety of a tribunal second-guessing decisions made by a parent about the financial structure of a company or its business, so long as the arrangement is a genuine one that is not. Nor do I rule out the possibility, discussed by the deputy Commissioner in CSCS/0001/2005, of splitting the asset. However, in the case of shares that would involve a decision that the parent ought to take on a partner in the business. Again, I consider that would only be justified in exceptional circumstances, if at all.

Disposal

9. I allow the appeal, set aside the tribunal's decision and direct a rehearing.

Signed on original on 22 September 2006

Edward Jacobs Commissioner