CIS_654_1993
[1994] UKSSCSC CIS_654_1993 (24 June 1994)
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[1994] UKSSCSC CIS_654_1993 (24 June 1994)
R(IS) 13/95
Mr. D.G. Rice CIS/654/1993
24.6.94
Capital - shares registered in the name of a child - whether having no value
The claimant's two children each held 9,750 shares in a public limited company. As at 20 March 1991 each shareholding was valued at approximately £15,000 after the deduction of sale costs at 10% pursuant to regulation 49(a)(i) of the Income Support (General) Regulations 1987. On 26 March 1991 the adjudication officer decided that the claimant was not entitled to income support in respect of his two children because each of them possessed capital in excess of £3,000. On 4 November 1991 the social security appeal tribunal allowed the claimant's appeal and determined that, since the shares held in the name of the children were not immediately realisable, they consequently commanded no market value. The adjudication officer appealed to the Commissioner.
Held that:
when valuing shares registered in the name of children for the purpose of income support, the practical difficulties involved in the realisation of such shares do not render them worthless or virtually worthless. It was irrelevant that the shares might be worthless as far as the claimant was concerned. The shares belonged to the claimant's children not the claimant. The shares should be given their current market value less a discount to reflect the delay and inconvenience occasioned to a purchaser in obtaining good title for example, by means of a Court Order (paras. 5 and 6).
The appeal was allowed and the Commissioner substituted his own decision to the effect that the claimant was not entitled to income support in respect of his two children.
DECISION OF THE SOCIAL SECURITY COMMISSIONER
- My decision is that the decision of the social security appeal tribunal given on 4 November 1992 is erroneous in point of law, and accordingly I set it aside. As it is convenient that I give the decision the tribunal should have given, I further decide that no amount of income support is applicable to the claimant in respect of either of his two children Olivia and Graeme for the period from 20 March 1991 to 29 September 1991, because during that period each possessed capital in excess of £3,000.
- This is an appeal by the adjudication officer, brought with the leave of the tribunal chairman, against the decision of the social security appeal tribunal of 4 November 1992. A nominated officer directed an oral hearing and at that hearing the claimant, who was present, was represented by Ms. G. K. Johal from the Derbyshire County Council Social Services, whilst the adjudication officer appeared by Mr. G. Roe of CAS.
- On 26 March 1991 the adjudication officer decided that the claimant was not entitled to any income support in respect of his two children Olivia and Graeme (born on 26 January 1978 and 20 February 1981 respectively) for the period from 20 March 1991 to 29 September 1991, because each of them possessed capital in excess of £3,000. In due course, the claimant appealed to the tribunal, who in the event determined the matter in favour of the claimant. They decided that the shares held in the name of each of the children were not immediately realisable and as a consequence commanded no market value. Mr. Roe contended that each of the children clearly had capital in excess of £3,000, and that, in asserting that the shares were virtually worthless, the tribunal reached findings and conclusions which no tribunal properly instructed as to the law could reasonably have arrived at. Accordingly, the crucial question at issue in this case is the valuation of the shares. For it was not in dispute, that if each of the children did have capital in excess of £3,000, after deduction from the market value of the shares of expenses attributable to their sale at the rate of 10%, pursuant to regulation 49(a)(i) of the Income Support (General) Regulations 1987, SI 1987 No. 1967, then no amount could be included in the claimant's entitlement to income support in respect of either of the children (regulation 17(1)(b)). However, if they did have that capital, it would not be included in the capital resources of the claimant himself.
- It is not in dispute that each of the children had, during the relevant period, 9,750 shares in MFC Plc and that these had a value, based on the market price at the commencement of the period (after deduction of the cost of sale at 10%), of approximately £15,000. The claimant would not challenge this figure were it not for the fact that the shares are listed in the name of each child, with resulting difficulties from the standpoint of realisation. Ms. Johal argued that, although a child might in theory be able to dispose of his shares, and provided that he received proper consideration, give good title to the purchaser, there were sufficient practical difficulties involved to prevent this happening. She said that, when the claimant in the present case approached a stockbroker and revealed that the holders of the relevant shares were minors, the stockbroker refused to deal. Moreover, she pointed out that, according to the evidence of the claimant, Lloyd's Bank, the registrars of the company to which the shares related, were aware that Olivia and Graeme were children, and their co-operation in any transfer could not be relied upon. She contended that, as a result, the shares were in practice not immediately marketable and argued that, as their valuation had to be fixed at the date of claim, it was unrealistic to attach any value to them in view of the aforesaid difficulties.
- Difficulties there are in this case, but their effect is not to render such shares worthless or virtually worthless. In the hands of the children, they clearly commanded considerable value. They might be worthless as far as the claimant was concerned, but that was wholly irrelevant. The shares belonged to the children, not to the claimant. And if it was thought desirable to realise the shares and reinvest the proceeds in some other form e.g. national savings, a building society account, or shares in another company, this could clearly be done. So long as the children retained the benefit of any realisation of the shares, there was nothing to stop this course of action. I appreciate that there would in all probability be certain technical difficulties to overcome. Potential purchasers might be reluctant to enter into a contract with a minor and stockbrokers might be unwilling to act on behalf of the children, at least without some considerable additional financial inducement over and above their normal fees. The company registrars might also make difficulty, although I would imagine that having once committed the "error" of registering the shares in the names of minors, they would welcome the opportunity of regularising the position by sanctioning transfers to adults. Nevertheless, all the various problems postulated above could be resolved by an order of the court, something which would not be difficult or particularly expensive to obtain if the proceeds of sale were to be properly reinvested for the benefit of the children concerned, and no attempt made to deprive them of their beneficial interest in favour of another party. Under that arrangement the shares would, of course, command their market price, although the proceeds of sale would be subject to the cost of the application to the court.
- However, Ms. Johal laid stress on the fact that the above exercise would necessarily require time, whereas the shares had to be valued as at the date of claim. In other words, the shares had to be valued immediately without any time being allowed for the kind of exercise recited above. But, even on this basis, it was, in my judgment, totally unrealistic of the tribunal to treat the shares in the case of each child as being worth less than £3,000. Admittedly, an immediate sale would clearly require a discount from the normal market price to allow for the inconvenience of awaiting whatever steps were necessary for title to be given. Moreover, the stockbroker might require a fee over and above the normal commission rate to reflect the unusual nature of the transaction. But what is absolutely clear is that, in any commercial sense, any discount awarded could not possibly absorb so much of the value of the shares as to reduce them from £15,000 to less than £3,000. Such a reduction would be wholly unrealistic. Manifestly, the shares were worth more than £3,000 at the commencement date of the period in issue and in taking the contrary view the tribunal erred in point of law.
- Accordingly, I must set aside the tribunal's decision as being erroneous in point of law. 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, I am satisfied that, throughout the period in question, the shares were worth, after deduction of 10% for costs, well in excess of £3,000, and in consequence the claimant was not entitled to the inclusion in his income support of the applicable amount for Olivia and Graeme.
- Ms. Johal pointed out what she regarded as a flagrant injustice, namely that the claimant in this case should be required, out of his meagre income support, to maintain the two children without the benefit of the applicable amount and without any advantage accruing to him from their possession of the capital resources in question. As a general principle, I see the force of that criticism, although in the present case the effect of this burden was presumably mitigated (or, for all I know wholly removed) by the dividends paid in respect of the shares. For these dividends are credited to two building society accounts, each in the joint names of one of the children and their mother, and drawn upon to defray expenses properly attributable to the relevant child. In other cases, particularly where the amount of capital is only slightly over £3,000, the income arising therefrom could not approach the applicable sums lost and some hardship would ensue. However, that would appear to be the effect of the regulations and I have to apply them in the form in which they appear. I have no jurisdiction to disregard them or mitigate their effect.
- Accordingly, my decision is as set out in paragraph 1.
Date: 24 June 1994 (signed) Mr. D. G. Rice
Commissioner
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