Rest Home Subsidy: Broadbent v. Social Development

Social Development can reduce rest home subsidies by treating as residents’ income that income lost in respect of assets given away, but not where the value of assets given away is below an annual threshold of $27,000, the High Court decided in a test case.

Stephen Broadbent took up his mother’s cause after she was levied fortnightly residential contributions of some $1210 on the basis she had deprived herself of income by the mere fact of gifting assets to two family trusts.  She sold assets to the trusts, taking a debt back for their value.  This debt back was reduced by $328,750 following a long-term gifting programme of up to $27,000 each twelve months.  The High Court was told the trusts’ assets now greatly exceed in value the amount gifted, due in large part to the property boom and the trusts’ own investment activities.

The court was told of growing political concerns over the practice of wealthy individuals depriving themselves of valuable assets, and associated income, to qualify for rest home subsidies.  Current rules impose both an asset threshold and an income threshold.  Mrs Broadbent was below the asset threshold. She was above the income threshold following a Social Development assessment of $45,398 in annual income, based on income received plus “deprived income”.   It argued all assets gifted at any time (with an exception for gifts in any one year totalling $6000) should be treated as notionally available to earn income of any applicant for a rest home subsidy.  Income on these assets would be treated as Mrs Broadbent’s, even though she no longer owned the assets or received the income.

Justice Katz ruled Social Security Act regulations allow deprived income to be imputed from assets gifted in excess of $27,000 in any twelve-month period, but not to gifts below that annual threshold.  The $328,750 gifted was not to be treated as a notional asset for determining levels of deprived income for Mrs Broadbent.       

Broadbent v. Social Development – High Court (30.06.17)

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Asset Forfeiture: Commissioner of Police v. Mihaka

Two Tokoroa properties held by family trusts, a Nissan Liberty station wagon, cash and dealing profits of $168,000 were all forfeited to the Crown after a P bust.  A request that one property used as a home be exempted on grounds of hardship was refused.

Sharon Marie Mihaka fronted a family business dealing in methamphetamine out of her Tokoroa shop trading as Sharon Fine Leather Ltd.  Also convicted of supply were Lionel Geoffrey Mihaka and Leah Marie Green, also known as Ramanui.

In the High Court, Justice Whata ordered forfeit to the Crown properties in John Street, Tokoroa and part-share of 2.1 hectares of land on state highway one near Kinleith.  This land was held in the Mihakas’ names as trustees for a family trust.  The Mihakas and their children are named beneficiaries of the Trust.  The Criminal Proceeds (Recovery) Act allows courts to treat family trusts as the personal property of those controlling the trust.   

Mrs Mihaka asked the court to exempt the John Street residence from forfeiture on grounds of hardship.  She is 60 and unemployed.  Her shop assets were plundered while in jail after she was sentenced to four and half year’s imprisonment.  She needs John Street for accommodation since her release.  The property is in a bad state of repair and needs considerable work.  Police acknowledged the John Street purchase was not funded from the proceeds of methamphetamine dealing for which she was convicted.       

Justice Whata refused to exempt John Street from forfeiture.  Relief requires evidence of “undue hardship”.  The clear policy of the Act is to discourage repeat offending, he said.  Mrs Mihaka has a methamphetamine possession conviction which preceded her conviction for supply.  Her difficult financial circumstances are not sufficiently exceptional to justify relief, Justice Whata ruled.

Commissioner of Police v. Mihaka – High Court (29.06.17)

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Securities: FMA v. Warminger

A five-year ban from securities trading and a $400,000 fine followed Mark Warminger’s market manipulation of shares in Fisher & Paykel Healthcare and a2 Milk.  He could not claim any reduction in his fine for the $1.1 million penalty paid earlier by Milford Asset Management when accepting responsibility for failing to properly supervise Warminger’s trading.

Before Warminger’s trial, Milford Asset Management Ltd pleaded mea culpa negotiating a settlement with the Financial Markets Authority.  Warminger was found liable following a High Court trial for creating a false market in both a2 and Fisher & Paykel shares in mid-2014.

Warminger said he should get credit for Milford Asset’s payment against any fine imposed on him personally.  The Securities Act imposes fines totalling either three times the benefit gained/loss avoided or the value of the transaction itself.  Justice Venning ruled the maximum fine Warminger faced was $3,845,900; the value of the impugned transactions.  Warminger said the Fisher & Paykel transaction generated a gross profit of no more than $16,000.  The a2 transactions were in effect a loss; shares were bought unnecessarily on-market at a higher price than off-market offers in attempts to force up the price.

Justice Venning ruled Warminger could not claim the benefit of Milford Asset’s payment.  When trading, Warminger was acting “for” Milford on behalf of its clients.  He was not then acting “as” Milford in executing trades.  Milford Asset’s payment was not in mitigation of Warminger’s market manipulation; it was punishment for the lack of internal controls which left Warminger inadequately supervised.

Justice Venning ruled the appropriate starting point was a $500,000 fine.  This was reduced by $100,000 for the fact Warminger was now effectively barred for life from securities trading and was presently unable to undertake meaningful employment because of medical conditions disclosed to the court.  A criminal conviction, rather than Securities Act liability, would have exposed Warminger to a potential maximum fine of $300,000.  

Justice Venning pointed out that Milford Asset negotiated its $1.1 million penalty at a time when Warminger faced significantly more extensive market manipulation charges than were later found proved.  The Financial Markets Authority has first claim on Warminger’s $400,000 fine to meet its costs.       

Financial Markets Authority v. Warminger – High Court (29.06.17)

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