Asif and Ajnun

[2011] FamCA 270

FAMILY COURT OF AUSTRALIA

ASIF & AJNUN [2011] FamCA 270

FAMILY LAW - PROPERTY - interim

Family Law Act 1975 (Cth)
Real Property Act 1900 (NSW)

APPLICANT: Mr Asif

RESPONDENT: Mr Ajnun

FILE NUMBER: SYC 8754 of 2007

DATE DELIVERED: 15 April 2011

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Watts J

HEARING DATE: 6 April 2011

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Langley

SOLICITOR FOR THE APPLICANT: Uther Webster & Evans

COUNSEL FOR THE RESPONDENT: Mr Gould

SOLICITOR FOR THE RESPONDENT: Sage Solicitors

Orders

1. The parties forthwith do all things and sign all necessary documents to list the property at 1 B Street, Suburb C (“Suburb C”) for sale contemporaneously with doing all acts and things and signing all necessary documents to cause D Pty Ltd to sell the business known as “D Pty Ltd” (“D Pty Ltd”) on the following terms and conditions:

   1.1.Suburb C and D Pty Ltd be listed for sale contemporaneously by auction (or private treaty if both parties consent in writing) with First National Real Estate, Suburb C (“the agent”) and if the parties agree, in conjunction with any other agent skilled in the sale of a D Pty Ltd type businesses.

   1.2.Suburb C and D Pty Ltd be sold together to the same purchaser or be sold separately, but at the same time, in a way in which the agent advises will maximise the overall selling price of Suburb C and D Pty Ltd.

   1.3.The reserve price for the sale of the property and the business be in the sum of $1,000,000.

   1.4.The parties accept the highest offer made at auction or prior to auction within 10 percent of the reserve price.

   1.5.The wife’s solicitors be instructed to act on the sale of Suburb C and D Pty Ltd and shall seek the husband’s solicitor’s approval from time to time of essential matters in the course of the transaction to sell Suburb C and D Pty Ltd.

2. Upon completion of the sale of Suburb C and D Pty Ltd, the proceeds of sale be applied as follows:

   2.1.To pay all costs, commissions and expenses of the sale and to pay any council and water rates and maintenance levies outstanding in respect of Suburb C.

   2.2.To pay the mortgage balance then outstanding to the Perpetual Trustee Company Limited.

   2.3.To pay to Perpetual Trustee Company Limited the balance of the loan previously secured over the property at 2 B Street, Suburb C.

   2.4.To pay ASK Funding Limited the amount secured by their registered caveat number ….

   2.5.To pay to ANZ Bank, up to a maximum of $50,000 in relation to the overdraft account for D Pty Ltd being account number ....

   2.6.The balance to be deposited into a controlled monies account to be held in the joint names of the solicitors for the husband and wife pending further order of the court.

3. Either party have liberty on 14 days notice to make an application in relation to the implementation of these orders. 

IT IS NOTED that publication of this judgment by this Court under the pseudonym Asif &Ajnun has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 8754 of 2007

Mr Asif

Applicant

And

Mr Ajnun

Respondent

REASONS FOR JUDGMENT

INTRODUCTION

1. Both parties make interim applications in respect of the future of a property at 1 B Street, Suburb C (“Suburb C”) and a business known as D Pty Ltd (“D Pty Ltd”) conducted at Suburb C.  The wife is the registered proprietor of Suburb C.  The business is owned by “D Pty Ltd” which is the alter ego of the parties, who otherwise await a final hearing in relation to alteration of their property. 

APPLICATIONS

Wife

1. The wife filed an Amended Response to Amended Initiating Application on 6 April 2011.  That application sought by way of interim orders the following:

   1.That the orders made on 4 March 2010 be varied to enable the wife to execute a lease in favour of D Pty Ltd in respect of the whole property on the following terms:

   (a)The term of the lease is two years with an option to renew the lease for two years;

   (b)The rent is to be set at $1,492.31 per week inclusive of GST;

   (c)D Pty Ltd is responsible for 100 per cent of the outgoings on the property;

   (d)The annual increase will be fixed at CPI per annum;

   (e)The rent will revert to market rent at the end of the first term.

   2.That within fourteen days of the date of the orders, the wife do all acts and things and sign all documents necessary to list the property at 2 B Street, Suburb C (the “property”) for sale on the following terms and conditions:

   (a)The property be listed for sale by private treaty or auction with First National Real Estate Suburb C;

   (b)The reserve price for the property be set in accordance with the opinion of a registered valuer instructed by the husband and wife jointly, and failing agreement as nominated by First National Real Estate Suburb C.

   (c)That the wife be permitted to accept the highest offer made at auction or prior to auction within 10 per cent of the reserve price.

   (d)That the wife’s solicitor be instructed to act on the sale of the property and shall provide the husband’s solicitor such information as they may reasonably require from time to time.

   3.That upon completion of the sale of the property, the proceeds of the sale be applied as follows:

   (a)Firstly to pay all costs, commissions and expenses of the sale and to pay any council and water rates and maintenance levies outstanding in respect of the property;

   (b)Secondly, to pay the mortgage balance then outstanding to the Perpetual Trustee Company Limited;

   (c)Thirdly, to pay to Perpetual Trustee Company Limited the balance of the loan previously secured over the property at 2 B Street, Suburb C;

   (d)Fourthly, to pay ASK Funding Limited the amount secured by their registered caveat number …;

   (e)Fifthly, to pay to ANZ Bank, up to a maximum of $50,000 in relation to the overdraft account for D Pty Ltd being account number …;

   (f)The balance to be deposited into a controlled monies account to be held in the joint names of the solicitors for the husband and wife pending further order of the court.

Husband

1. The husband opposes order 1 as sought by the wife. The husband consented to an order being made in the terms of paragraphs 2(a) and (b).  The husband sought that an order in the terms of 2(c) as sought by the wife include himself.  The husband opposed 2(d).  The husband was content for an order to be made in the terms of paragraphs 3(a), (b), (c) and (f).  The husband was reluctant to agree to order 3(d).  However, he seemed to accept that in order for a sale to take place, a caveat which had been lodged by ASK Funding Ltd (“ASK”) would have to be removed.  The husband acknowledged that in order to achieve this, the sum claimed by ASK would need to be paid.  No alternate proposal was put by the husband as to how the caveat could be removed.  Paragraph 3(e) was also opposed by the husband. 

2. The matter proceeded before me on the basis of the applications I have just discussed until the end of the proceedings when the husband, without opposition from the wife, amended his application.  He sought an additional order that D Pty Ltd also be sold as a going concern combined with the Suburb C property on a vacant possession basis.  That is to say, the two assets would be sold in one line and potential buyers would include not only investors (who are prepared to wait for up to four years for occupancy), but also to a buyer who was interested, as an owner occupier, to run the business in their own right. 

DOCUMENTS RELIED UPON

Wife

1. The wife relied upon the following documents:

   5.1.Amended Response filed 6 April 2011;

   5.2.Wife’s affidavit sworn 18 February 2011;

   5.3.Wife’s affidavit sworn 5 April 2011;

   5.4.Wife’s affidavit sworn 6 April 2011;

   5.5.Wife’s financial statement sworn 6 April 2011; and

   5.6.Valuation report of F Pty Ltd dated 22 March 2011, which provided a valuation of Suburb C and D Pty Ltd.

Husband

1. The husband relied upon the following documents:

   6.1.Amended Initiating Application filed 6 December 2010;  and

   6.2.Husband’s affidavit filed 4 April 2011 (together with an affidavit of an interpreter).

SHORT HISTORY

1. The husband was born in 1967 and is 44 years of age.  The wife was born in 1968 and is 42 years of age. 

2. The parties married and commenced living together in December 1987.  They separated in 2006 and divorced on 8 March 2008.

3. There are six children who are currently aged 19, 18, 16, 12, 11 and 10.  I am told that the three elder children live with the father and the three younger children spend 8 out of 14 nights with the father.

4. The husband is self employed through a company E Pty Ltd.  That company only employs him.  The evidence I have is that there are no net assets in the company (equipment leases being a greater liability than the value of the equipment).  The financial statement that the husband has filed does not disclose the level of remuneration that the husband earns as a result of his personal exertion. 

5. The wife currently runs the business at Suburb C and I am told that she has the requisite qualifications to enable the company of which she is a director (D Pty Ltd) to do so. 

URGENCY

1. Both parties are consenting to the order for the sale of Suburb C and acknowledge that there is an immediate need to affect that sale. The wife in her affidavit of 18 February 2011 says that on 9 February 2011 her solicitor received a s 57(2)(b) notice under the Real Property Act 1900 (NSW).  The first mortgagee, Perpetual Trustee Company (“Perpetual”), is owed $519,158.02 (as per the default notice) and the parties agree that neither are in a financial position to refinance that loan. 

2. It was agreed before me that that debt to Perpetual now stands at $530,000.  In addition, the first mortgagee is owed money from the shortfall from a sale of another property of the parties of about $20,000.  There is a caveat on the Suburb C property lodged by a litigation lender to the wife (ASK).  The amount owed by the wife under the loan agreement to which that caveat relates is approximately $160,000.  The husband complained that the wife had not produced a copy of the loan agreement and the husband therefore could not be absolutely sure that ASK had a caveatable interest in Suburb C.  Given that the Suburb C property is registered in the sole name of the wife and that she entered into a litigation lending agreement with ASK, I am prepared to infer for the purposes of this interim hearing that ASK have a caveatable interest.  In any event, as I have said, the husband acknowledged that the amount claimed would have to be paid to clear the title for settlement.

3. The valuation report by F Pty Ltd dated 22 March 2011 (the valuation) indicates that if the freehold was sold with the lease that the wife is prepared to enter into, it would be expected to fetch $730,000.  The liabilities to Perpetual and ASK referred to above add to $710,000.  After the agent’s selling costs there would be very little, if anything, left.  I note also that the $730,000 estimated value by the valuer allows for a selling period between approximately 6 to 15 months.  It is the wife’s proposal (and the husband did not say anything different) that the property needs to be disposed of in a far shorter period than that.  The wife nominated a selling period of only six weeks. 

4. The reason for the shorter selling period is the threat that Perpetual will take possession of the property and that the property will then be the subject of a mortgagee sale.

THE CENTRAL ISSUE BETWEEN THE PARTIES

1. The central issue in dispute between the parties, in this interim hearing, is whether or not the business run at the property should be offered for sale “in one line” with the freehold.

2. It is the wife’s submission that D Pty Ltd is her sole source of livelihood and she should be given every opportunity to attempt to keep it. 

3. It is the husband’s position that the potential for selling the freehold is maximised if the child care business is offered for sale with the freehold.  It is his further contention that the wife cannot realistically assert in this interim hearing that it is likely that she would be able to retain the business at the conclusion of a final hearing for alteration of property between the parties.  It is suggested by the husband that, to maximise the preservation of the property at the current time, the child care business should be sold along with the freehold of the property.

4. The valuation by F Pty Ltd gives, inter alia, the following market values for purposes of this interim hearing:

Scenario 1 - market value - going concern/combined asset on a vacant possession basis (Suburb C + D Pty Ltd)	$1,000,000
Scenario 5 - market value - freehold value subject to estimated annual market rental (Suburb C)	$730,000
Scenario 6 - market value - lessee’s business interest subject to estimated annual market rental (D Pty Ltd)	$320,000

1. It is argued by counsel for the wife that if the wife was granted the lease that she sought, the value of the lessee’s business interest would be $320,000 and the value of the freehold would be $730,000.  It was suggested on the wife’s proposal that the overall market value therefore would be $1,050,000 which is $50,000 more than what the property would be worth if it was sold in one line.

2. The difficulty with that argument is that it is clear from page 38 of the valuation that the figure of $320,000 is based upon an assumption of a standard market lease term (such as 5 or 10 years with one or more 5 year options or similar).  The valuation at that point makes it clear that the sum of $320,000 is not based on the much shorter lease that the wife is proposing by these interim orders.  Consequently I cannot accept the submission that creating a new lease in favour of the wife, with a term of two years with an option to renew the lease for two years, and selling the freehold would create assets which had a greater value than a sale of the assets in one line. 

3. Counsel for the wife initially made a concession that the pool of potential buyers for the subject property would be greater if the sale of the business was offered along with the sale of the freehold.  During submissions, he seemed to back away from that concession saying that there was no evidence as to whether or not a sale of Suburb C and D Pty Ltd together would increase the pool of potential buyers by one or many.  Counsel for the husband said I should take a “common sense” approach to that question.  It is true that the expert evidence I have, does not comment upon the increase in marketability of the property if the property is sold in one line.  I do however continue to have the concession by counsel for the husband that there would be at least some increase in its marketability.  When considering this issue, I take into account the statement made in the valuation at page 40 that:

   It is noted that the [D Pty Ltd] market comprises a very small market in comparison to most other property markets, this being as a result of the …industry being a small industry, and there is therefore a significantly lower level of sales turnover in comparison.  Due to the paucity of recent parable sales evidence, some older sales, and sales situated further afield, have therefore been considered in undertaking our valuation herein.

4. The parties face an urgent need to sell the Suburb C property.  Given the valuer’s opinion that the market comprises a very small market in comparison to most other property markets, I am prepared to infer that a not insignificant number of potential buyers in that market are looking to run the business (as opposed to simply holding the freehold as an investment).  I do not make any finding as to what percentage of potential buyers will be lost if the property is not sold along with the business but I am content to find that some potential purchasers will be lost. 

5. The husband also pointed to the lack of evidence called by the wife to establish the suggestion that she made that she might be able to refinance the business so as to make a final cash payment to the husband in the context of an overall adjustment of property between the parties.

6. In that context, reference can be made to the wife’s most recent financial statement.  The wife’s level of personal debt is significant, as detailed below.

7. Firstly, it is likely at the final hearing that the money that the wife has expended by her participation in the litigation lending arrangement with ASK (in the sum of $160,000) will be counted against her. 

8. The wife has indicated that there is currently a $50,000 loan to the ANZ Bank by way of overdraft on the business.  The wife has sought that this be paid back from the sale of Suburb C but as I have said, there is unlikely to be any surplus to do so.

9. The wife has further indicated that she has various debts which total $203,603 (although a part of that amount is an estimated $10,000 to the Perpetual Trustee Company which I have referred to earlier as being a $20,000 debt arising from the short fall of the sale of 2 B Street).

10. The most recent financial statements of D Pty Ltd which are annexed to the husband’s affidavit sworn 1 April 2011, do not give any comforting indication that the profitability of the business is sufficient to firstly refinance the wife’s current debts and secondly raise sufficient funds to make a payment to the husband of any sort to satisfy any likely final property order which saw the wife retaining D Pty Ltd.

11. The accounts show that for the 2009 financial year, the business ran at a loss of $20,481.  I am told, without demur, that those figures contain income and expenditure in relation to another business that the wife ran.  Even allowing for those figures to be removed from the profit and loss account, it is still not clear that any profit was made.  Part of the expenses in that profit and loss account are interest on borrowings of $50,472 and it is rightly said that that money will no longer have to be paid.  The provision for directors’ fees in the 2009 accounts was nil.  The wife in her most recent financial statement indicates that she is receiving “director’s fees” from the company in the sum of $1,200 per week.  It is not clear how the current directors’ fees are being paid. Given that the company does not seem to be operating at a profit, I infer it is from borrowings.  There are significant business debts and I could not confidentially conclude that drawings have been made from profit.  The wife in her most recent financial statement indicates that her accountant has not completed the 2010 company tax return and has not advised her on how much money she has actually made out of the business in the last financial year. 

12. On the evidence that has been presented to me in this interim hearing, I conclude that it is probable that the wife would not be able to retain the business at the final hearing and it would have to be sold in order to make a just and equitable adjustment of property between the parties. 

CONCLUSION IN RELATION TO THE CENTRAL ISSUE IN DISPUTE

1. I find that an order should be made that the business and the freehold be sold together and do so for the following reasons:

   32.1.There is an urgent need to dispose of the real estate. That need will be more likely satisfied if the business is sold along with the freehold.

   32.2.The wife’s current employment needs to be balanced against the risk that the parties face in respect of the diminution in the value of their overall assets by a forced sale.

   32.3.The wife otherwise has an earning capacity.

1. If I am wrong about that, then in the alternative, I find that the wife has not established that it is more likely than not that she would be able to refinance the business in such a way as to be in a position to provide a cash payment to the husband that would achieve a just and equitable division of assets between them. 

OTHER MATTERS

1. Although the husband expressed some opposition at the payout of ASK, that must necessarily happen in order to effect a sale of the property and I will be making an order to that effect.

2. The wife sought that her current overdraft with ANZ Bank be discharged.  Given that the husband’s application to sell the business has been successful, it is appropriate that the debts associated with that business also be extinguished. 

3. It is appropriate that both parties be involved in the sale process.

4. There is an argument as to whether or not the wife’s solicitor could have the carriage of the sale.  That dispute will be resolved by the wife’s solicitor being given the primary carriage of the sale with the husband’s lawyers having an involvement in the process on the husband’s behalf.  An order will be made that they be consulted in relation to contracts, settlement figures and the like. 

I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts delivered on 15 April 2011.

Associate:

Date:  15 April 2011