Editors --- "Debt: bankruptcy; whether finding of fraud precludes consideration of waiver under special circumstances" [2006] SocSecRpr 47; (2006) 8(4) Social Security Reporter, Article 4

• GRINDLAY and SECRETARY TO THE DEWR
• Background
• The issues
• Formal decision

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Debt: bankruptcy; whether finding of fraud precludes consideration of waiver under special circumstances

GRINDLAY and SECRETARY TO THE DEWR

Decided: 4th September 2006 by C. Ermert

Background

Grindlay was overpaid parenting payment partnered as the full amount of her husband’s earnings from employment were not taken into account when the rate of benefits payable to her was calculated.

Originally a debt was raised against Grindlay of $12,895.21 in relation to the period 29 June 2001 to 12 February 2004. After the debt was raised, Grindlay advised Centrelink that she had been declared bankrupt on 25 March 2002.

On 31 January 2005, the AAT found that Grindlay owed a debt of $12,297.67 in relation to the period 26 March 2002 to 12 February 2004. The Tribunal found that the debt was recoverable.

On 15 February 2005, Grindlay declared bankruptcy for a second time. She contended that the debt of $12,297.67 was not recoverable as it was provable in bankruptcy. Centrelink determined that the debt was recoverable, as it had arisen due to fraud.

This decision was affirmed on internal review and by the SSAT. The applicant applied to the AAT for a review of the decision.

The issues

The question for determination by the Tribunal was whether the debt was incurred by fraud. If the debt was incurred by fraud, then s.153(2)(b) of the Bankruptcy Act 1966 (the Bankruptcy Act) would allow the debt to be recovered. If the debt did not arise due to fraud, it would be a debt provable in bankruptcy under s.82(1) of the Bankruptcy Act and Grindlay would be released from repaying the debt upon discharge from bankruptcy (s.153(1) of the Bankruptcy Act).

Fraud

The Tribunal found that fraud can be proved by showing that a false representation was made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, carelessly as to whether it be true or false. In this case, the Department contended that Grindlay had acted recklessly when she had incorrectly advised Centrelink of her husband’s earnings from employment.

The Tribunal found that Grindlay was aware that, for the continued receipt of benefits, she was required to provide information to Centrelink in relation to her husband’s earnings.

Whilst Grindlay had not understood the letters she had received from Centrelink during the debt period, the Tribunal considered that Grindlay could have referred the correspondence to her husband for assistance.

The Tribunal found that Grindlay had acted recklessly in not taking reasonable steps to provide correct information regarding her husband’s earnings to Centrelink and that the failure to provide correct information was a result of fraud.

The Tribunal rejected an argument advanced by the applicant that her medical condition prevented her from understanding her notification obligations or impaired her ability to communicate effectively with Centrelink. In particular, the Tribunal noted that Grindlay had been able to effectively communicate with Centrelink at times when her benefits were suspended, which, the Tribunal observed, would have been a particularly stressful time.

The Tribunal concluded that there was no sound evidence that Grindlay was impaired such that she did not understand that she had an obligation to provide correct information to Centrelink or that she was so impaired that it was not reasonable for her to have had her husband check the correctness of the information she supplied to Centrelink.

The Tribunal found that:

- the debt was recoverable at law and not provable in bankruptcy;

- the debt could not be written off under s.1236 of the Social Security Act 1991 (‘the Act’), as the Tribunal was unable to find that Grindlay did not have capacity to repay the debt; and

- the debt did not arise solely due to administrative error on the part of the Commonwealth and therefore waiver was not available under s.1237A of the Act.

Knowingly and special circumstances waiver

The Tribunal then considered whether waiver under s.1237AAD of the Act was precluded by the finding that the debt had arisen due to fraud on the part of the applicant. The Tribunal noted that waiver under s.1237AAD was precluded if the debt was found to have arisen from a knowing false statement or representation or a knowing failure to comply with a provision of the social security legislation.

In this case, as the Tribunal found that the fraudulent conduct arose out of recklessness on the part of Grindlay, consideration of waiver under s.1237AAD was not precluded. The finding of fraud did not imply that Grindlay had knowingly made false statements or representations or knowingly omitted to comply with a provision of the social security legislation.

However, the Tribunal found that the circumstances of this case were not sufficiently special as to justify departure from the general rule that debts owed to the Commonwealth should be recovered.

Formal decision

The Tribunal affirmed the decision under review.

[S.O.]