B Pty Ltd and Decastro and Anor
[2020] FamCA 521
•30 June 2020
FAMILY COURT OF AUSTRALIA
| B PTY LTD & DECASTRO AND ANOR | [2020] FamCA 521 |
| FAMILY LAW – PROPERTY – Interim injunctions – Where an urgent interim application is made by the Applicant Company for financial and injunctive relief against the Respondent husband and wife – Where the Board of directors of the Applicant Company comprises of the Respondent husband and wife and their two adult children – Where the company operates as trustee for the family trust and self-managed family superannuation fund and as a service entity for the businesses conducted by the Respondent husband – Where monies are owed to the Applicant Company and its entities – Where it is contended that the exists circumstances of urgency requiring the monies to paid for the Applicant Company to meet its current liabilities and mitigate any potential adverse action against the company by the Australian Taxation Office – Where complex circumstances exists in respect to the affairs of the Company and its directors – Where the parties are in agreement as to repayment of the monies – Where the parties are in dispute about the source of funds for the repayment – Whether the Court should grant injunctive relief – Whether the Court should make an order for partial property distribution between the parties – Orders made for the minimum repayment of the Div 7A of the Income Tax Assessment Act 1936 (Cth) to be payed from the husbands term deposit account – Orders made for the businesses to be sold and, following disbursements, the balance of the proceeds of sale to remain in a joint interest bearing account – Orders made restraining the husband from conducting business and issuing directions on behalf of the Applicant Company. |
| Family Law Act 1975 (Cth) s 114 Income Assessment Act 1936 (Cth) div 7A Superannuation Industry (Supervision) Act 1993 (Cth) |
| Aitken & Murphy (No 2) [2012] FamCA 239 Martin v Martin (2013) 49 Fam LR 606 Mertens & Mertens [2016] FamCAFC 136 Philips & Samuels [2017] FamCA 125 Strahan & Strahan (Interim property orders) (2011) FLC 93-466 |
| APPLICANT: | B Pty Ltd |
| FIRST RESPONDENT: | Mr Decastro |
| SECOND RESPONDENT: | Ms Decastro |
| FILE NUMBER: | SYC | 5179 | of | 2018 |
| DATE DELIVERED: | 30 June 2020 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | McClelland DCJ |
| HEARING DATE: | 19 June 2020 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Ms M A Giles SC |
| SOLICITOR FOR THE APPLICANT: | Landers & Rogers |
SOLICITOR FOR THE FIRST RESPONDENT: | Mr Reeve of Marsdens Law Group |
| SOLICITOR FOR THE SECOND RESPONDENT: | Mr P Doolan of Barkus Doolan |
Orders
That Mr Decastro (“the husband”) forthwith disburse the balance in his Commonwealth Bank Term Deposit Account (BSB: … Account Number: …85) in the following manner and priority:
(a)a sum of $123,548.77 to B Pty Ltd as trustee for the Decastro Family Trust for the purpose of the Decastro Family Trust meeting the minimum repayment required by the Trust to B Pty Ltd under Div 7A and as per the advice of C Pty Limited.
That B Pty Ltd use the funds in Order 1 above, being $123,548.77, to meet its obligations as follows:
(a)The sum of $25,922.99 to be paid to the Australian Taxation Office in satisfaction of the liability presently owed by B Pty Ltd to the Australian Taxation Office;
(b)The sum of $16,565.37 to be paid to the Australian Taxation Office in satisfaction of the liability presently owed by the Decastro Family Trust to the Australian Taxation Office;
(c)The sum of $1,252.00 to be paid to the Australian Taxation Office on behalf of B Pty Ltd ATF Decastro Family Trust in satisfaction of the outstanding BAS referable to the 2019 calendar year.
(d)Meeting its other commitments including those to its professional advisors providing that the spouse parties are provided with itemised accounts for all claimed invoices for both lawyers and accountants in advance; and,
(e)The balance then remaining as determined by the directors.
That the husband forthwith do all things and acts necessary to cause D Business and E Business to be sold at the earliest possible date at a price to be agreed upon between Ms Decastro (“the wife”) and the husband and B Pty Ltd.
For the purpose of Order 3 above, the parties shall do the following:
(a)Continue the appointment of F Firm as the business broker for D Business and E Business;
(b)Ensure that all business financial reports and statements including profit and loss statements and tax returns are up to date and provided to F Firm within seven (7) days of being requested to do so by F Firm;
(c)At the earliest possible date apply the proceeds of sale of the business in the following manner and priority, upon completion of the sale:
(i)payment of the business selling agents’ commissions and expenses, if any;
(ii)payment of legal costs and disbursements for the solicitors acting on the sale;
(iii)A sum necessary to discharge any unpaid loan account of the husband, which he owes to B Pty Ltd as trustee for the Decastro Family Trust.
(iv)the balance then remaining to be paid into a joint interest-bearing account agreed to by the husband and the wife with funds to be disbursed from that account only with the consent of both parties.
That within seven (7) days of the date of these Order, the husband shall provide, or cause to be provided, all relevant particulars and information sought by, and to enable, B Pty Ltd as trustee for the Decastro Family Trust and Decastro Family Superannuation Fund to complete and lodge the Business Activity Statement that fell due on 28 April 2020.
That the husband shall be and hereby is restrained from making representations, authorising transactions, executing instruments, issuing directions and/ or conducting business on behalf of B Pty Ltd, including but not limited to:
(a)issuing directions to, and/or conducting negotiations with, any agent appointed to manage the real property(ies) owned by B Pty Ltd in respect of tenancy arrangements and/or receipt and application of rental income and the like; and
(b)issuing directions to, and/or conducting negotiations with any tenant or prospective tenant in respect of the real property(ies) owned by B Pty Ltd without first obtaining the prior written consent of the Board of B Pty Ltd.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym B Pty Ltd & Decastro and Anor has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 5179 of 2018
| B Pty Ltd |
Applicant
And
| Mr Decastro |
First Respondent
And
| Ms Decastro |
Second Respondent
REASONS FOR JUDGMENT
Introduction
This matter concerns an urgent interim Application by B Pty Limited (“the Applicant Company”) for financial and injunctive relief against Mr Decastro (“the First Respondent husband”) and Ms Decastro (“the Second Respondent wife”).
The First Respondent husband, Second Respondent wife and their two adult children, Mr G and Ms H, are the Directors of the Applicant Company. The Applicant Company operates as trustee of the Decastro Family Trust and Decastro Superannuation Fund and as a service entity for the businesses conducted by the First Respondent husband.
This dispute concerns monies, totalling $940,447.19, owed to the Applicant Company and its entities. As contended by the Applicant Company, there exists circumstances of urgency requiring that these monies be repaid in order for the Company to meet its current liabilities and mitigate any potential adverse action that may be taken against the company by the Australian Taxation Office. It is also necessary for measures to be taken to avoid the Directors being subject to disciplinary or other proceedings in respect to the regulatory anomalies in the conduct of the Company and its affairs.
The financial circumstances of this matter are rather complex, however, all parties are in agreement that the funds are needed and should be repaid by the First Respondent husband to the Applicant Company. The primary issue in dispute is in respect to the source of the funds of the repayment.
The parties are in agreement that one source for some of the required funds is the First Respondent husband’s term deposit account that currently holds a balance of $162,479. However, the parties are in disagreement as to the other appropriate source of funds and as to the how the monies are to be distributed after the immediately pressing debts are paid. A related issue is whether an order should be made for the sale of the businesses or the sale of property held by the parties in circumstances where each of the parties seeks an order, at final hearing, to retain the property that the other party wants to be sold, at this point in time, to satisfy the debt that is required to be paid to the Applicant Company.
Relevant background
The relevant background facts to this matter and, where disputed, the parties contentions are as follows.
On … 1956, the Second Respondent wife was born. She is currently aged 63 years.
On … 1958, the First Respondent husband was born. He is currently aged 61 years.
On 7 April 1981, the First Respondent husband became a registered allied health professional.
On 26 April 1983, the Decastro family trust was established.
On … 1983, the First and Second Respondent husband and wife married.
On … 1984, the First and Second Respondent husband and wife’s child, Mr G, was born. He is currently aged 36 years.
On … 1986, the First and Second Respondent husband and wife’s child, Ms H, was born. She is currently aged 34 years.
On … 1991, the First and Second Respondent husband and wife’s child, Ms J, was born. She is currently aged 29 years.
In 2004, the First and Second Respondent husband and wife separated on a final basis.
On 13 April 1984, the Applicant Company was incorporated, naming the First and Second Respondent husband and wife as the sole Directors and shareholders. The Applicant Company currently operates as the trustee for the Decastro Family Trust, the Trustee for the Decastro Family Superannuation Fund and a trading entity in its own right.
On 30 May 1984, the First Respondent husband purchased the business trading from 2 K Street, Suburb L, as D Business. The Applicant Company and the Decastro Family Trust are the service entities for the D Business.
In 1985, the First Respondent husband purchased the property at 2 K Street, Suburb L (“the 2 K Street property”). The Decastro Family Superannuation Fund currently owns the 2 K Street property.
In 1985, the First Respondent husband purchased the property at 4 K Street, Suburb L (“the 4 K Street property”). The Decastro Family Trust and the First Respondent husband currently own the 4 K Street property as tenants in common. The First Respondent husband currently occupies the upstairs area of the property, and the bottom area of the property is leased to an entity that provides education services. Both the Applicant Company and the Second Respondent wife contend that the First Respondent husband has mismanaged the commercial relationship with the education service and, in particular, they contend that he has not pressed for regular rental payments and that he has diverted some rental income for his own purposes.
On 4 July 1988, the First Respondent husband purchased the business, M Business, now trading as E Business. The Applicant Company and the Decastro Family Trust are the service entities for the E Business.
In 2002, the First and Second Respondent husband and wife purchased the matrimonial property at N Street, Suburb O (“the N Street property”) for the purchase price of $3,700,000. The purchase was partially funded by a mortgage in the sum of $1,800,000 from the Commonwealth Bank of Australia (“CBA”).
In 2002, the Decastro Family Superannuation Fund was established.
On 9 August 2004, Mr G and Ms H became Directors of the Applicant Company. Currently, there are four (4) directors of the Applicant Company namely the First and Second Respondent husband and wife, Mr G and Ms H.
In or around 2004/2005, Mr G and Ms H became members of the family self-managed super fund.
On 1 July 2017, the Applicant Company held a board meeting. The Second Respondent wife contends that she did not receive notice of this meeting and did not attend this meeting, in person or by proxy. The Minutes of the meeting, nonetheless reflect, that both the First and Second Respondent husband and wife were in attendance at the meeting. The Second Respondent wife contends that those Minutes are wrong.
The First Respondent husband contends that, on 1 July 2017, the Second Respondent wife signed an Application for an Account Based Pension to the husband and directed that the sum of $350,000, at the request of the husband, be paid into the mortgage encumbering the N Street property. The Second Respondent wife contends that she never gave instructions to withdraw that amount from her member benefit in the Decastro Superannuation Fund or signed the Application for an Account Based Pension. As a result of the disputation that has arisen between the parties the First Respondent husband now proposes that that sum be returned to the Superannuation Fund by the method of redrawing against the loan account secured by the N Street Property.
On 4 January 2018, the amount of $50,000 was transferred from the Second Respondent wife’s Decastro Family Superannuation fund member benefit to the N Street property mortgage and, on 2 February 2018, the further amount of $300,000 was transferred from the fund member benefit to the N Street property mortgage.
The Applicant Company contends that, in or around November or December 2018, the First Respondent husband was seeking to sell the D Business and the E Business without the knowledge or involvement of the Board of Directors in circumstances where the Applicant Company and its entities have interests in the businesses. The First Respondent husband accepts that he has been trying to sell the businesses for “over two years” and appointed F Firm as brokers in relation to the sale. All parties now agree to those businesses being sold providing that orders for that to occur include a provision for the Second Respondent wife and the Applicant Company to agree with the First Respondent husband on the sale price.
On 16 December 2018, by resolution of the Board, the First Respondent husband was removed as the managing director of the Applicant Company and the powers conferred by the Board on the Managing Director were reverted to the full Board.
The Applicant Company contends that, after the 16 December 2018 resolutions were passed, the First Respondent husband unilaterally made changes to the ownership and structure of the D Business and E Business without the involvement or authority of the Board of Directors.
From 2 January 2019 and from 4 April 2019, no cash and no EFTPOS deposits, respectively, were made into the Applicant Company’s bank accounts from the operations of the D Business or the E Business.
In May 2019, C Pty Limited was appointed as accountant for the Applicant Company and its entities, including the Decastro Superannuation Fund and Decastro Family trust.
In or around mid-2019, the income of the Decastro Family Trust from its operations in the D Business and the E Business were no longer deposited in the trust bank account.
From June 2019, the Applicant Company’s banking account, in respect to the businesses, remained dormant and effectively no banking activity has occurred in that account.
As at 30 June 2019, the Decastro Family Trust owed to the Applicant Company the amount of $233,492.84 (“the Division 7A loan”). The Applicant Company contends that a minimum repayment is required of $123,548.77 under the Division 7A provisions of the Income Assessment Act 1936 and that sum is due on or before 30 June 2020, otherwise the minimum repayment or whole amount may be deemed as an unfranked dividend and therefore may have adverse tax implications.
On 5 July 2019, Mr G, in his capacity as director of the Applicant Company, received advice from C Pty Ltd that the $350,000 benefit withdrawal may constitute a reportable breach of the Superannuation Industry (Supervision) Act 1993 (Cth).
On 15 July 2019, the First and Second Respondent husband and wife and Mr G and Ms H in their capacity as directors attended a Board meeting for the Applicant Company to discuss the Superannuation fund withdrawal of the amount of $350,000. The Applicant Company contends that the Second Respondent wife maintained her position, in that Board meeting and a further Board meeting on 22 July 2019, that she did not authorise this withdrawal.
The Applicant Company contends that, in November 2019, the Directors received advice from C Pty Ltd that the First Respondent husband was receiving 100% of the rental income for the 4 K Street property and not distributing the 50% share of the rental monies owed to the Decastro Family Trust and 100% of the rental income for the 2 K Street property and not distributing the 100% share of the rental income owed to the Decastro Family Trust.
As at 6 March 2020, the amount of $543,761.19 is owed by the First Respondent husband to the Decastro Family Trust comprising of funds owed including for the unpaid amounts for stock, management fees and outstanding rental income contended to be retained by the husband.
On 26 March 2020, the Applicant Company Board held a meeting and settled the tax returns and financial statements for the 2018 and 2019 financial years and on 27 March 2020 provided the documents to C Pty Ltd to submit the returns to the Australian Taxation Office.
On 31 March 2020, the tax returns for the Applicant Company for the 2018 and 2019 financial years were due.
In March/April 2020, the Decastro Family Trust received a Business Activity Statement form which was due to be completed and provided to the Australian Taxation Office by 28 April 2020.
As at 5 June 2020, the additional amount owed by the First Respondent husband to the Decastro Superannuation Fund was $396,686, being the collective sum of $352.860 withdrawn from the fund, being the disputed member withdrawal referenced above, and interest on that sum calculated by the Company’s accountant, Mr Q of C Pty Ltd, using the current Division 7A rates of the Income Tax Assessment Act 1936 (Cth).
As at 12 June 2020, the Applicant Company owes the following outstanding liabilities to the Australian Taxation Office:
a)Income tax liability owed by the Decastro Family Trust in the sum of $16,676.43;
b)Income tax liability owed by the Applicant Company in the sum of $26,266.08; and
c)Activity Statement liability owed by the Decastro Family Trust for the period April to June 2019 in the sum of $1,252.00.
As at 12 June 2020, the Applicant Company has an outstanding liability to C Pty Ltd in the sum of $39,600, for work carried out for the company.
As at 17 June 2020, the First Respondent husband holds a CBA Term Deposit account in his sole name (BSB: … Account Number: …79), and deposes to the account having a balance of $162,479; and a Business Premium Cheque account with CBA (Account Number: …07) and deposes to the account having a balance of $180,000.
On 30 June 2020, the Division 7A loan minimum repayment of $123,548.77 owed by the Decastro Family Trust to the Applicant Company is due to be paid.
Applications
The Applicant Company seeks orders be made in accordance with the Application in a Case filed 5 June 2020, set out as follows:
1. That leave be granted to the Applicant to serve this Application in a Case on short notice.
2. That this Application in a Case be listed on an urgent basis.
3. That by no later than 30 June 2020, the Respondent Husband do all acts and things necessary to cause the sum of $396,686 to be paid to BSB … account #…16 in the name of the Decastro Superannuation Fund.
4. That by no later than 30 June 2020, the Respondent Husband do all acts and things necessary to cause the sum of $123,548.77 to be paid to B Pty Ltd ATF the Decastro Family Trust.
5. That by no later than 30 June 2020, the Respondent Husband shall do all acts and things necessary to cause:
5.1 the sum of $25,922.99 to be paid to the Australian Taxation Office ("the ATO") in satisfaction of the liability presently owed by B Pty Limited to the ATO;
5.2 the sum of $16,565.37 to be paid to the ATO in satisfaction of the liability presently owed by the Decastro Family Trust to the ATO; and
5.3 the sum of $1,252 to be paid to the ATO on behalf of B ATF the Decastro Family Trust in satisfaction of the outstanding BAS referable to the 2019 calendar year.
6. That by no later than 30 September 2020, the Respondent Husband shall do acts and things necessary to cause the sum of $420,212.42 to be paid to B Pty Ltd ATF the Decastro Family Trust.
7. That within seven (7) days of the date of Order the Respondent Husband shall provide, or cause to be provided, all relevant particulars and information sought by, and to enable, B Pty Ltd ATF the Decastro Family to complete and lodge the Business Activity Statement that fell due on 28 April 2020.
8. That the Respondent Husband shall be and hereby is restrained from making representations, authorising transactions, executing instruments, issuing directions and/ or conducting business on behalf of B Pty Ltd, including but not limited to:
8.1 issuing directions to, and/ or conducting negotiations with, any agent appointed to manage the real property(ies) owned by B Pty Ltd in respect of tenancy arrangements and/ or receipt and application of rental income and the like; and
8.2 issuing directions to, and/or conducting negotiations with any tenant or prospective tenant in respect of the real property(ies) owned by B Pty Ltd without first obtaining the prior written consent of the board of B Pty Ltd.
9. That the Respondent Husband pay the Applicant's costs of and incidental to with this Application in a Case.
The First Respondent husband seeks orders be made in accordance with his Response to Application in a Case filed 17 June 2020, set out as follows:
1. That on a without admissions basis, the Wife and the Husband forthwith do all things and acts necessary to:
1.1 Apply any funds available as payments in advance in the parties joint CBA mortgage secured over the Suburb O home and borrow any necessary additional funds sufficient to repay to B Pty Ltd ATF the Decastro Superannuation Fund, the “loan to members”, currently outstanding in the amount of $396,686.00 together with interest owing; and,
1.2 That such borrowing be secured against the Suburb O property and repaid upon sale; and,
1.3 that the Husband shall maintain such loan repayments as required until repayment.
2. That within three (3) months, the Wife and the Husband will do all things and acts necessary to cause the property located and situated at N Street, Suburb O being the whole of the land contained in folio identifier … (‘Suburb O property’) to be placed on the market and sold at the earliest possible date thereafter at a price to be agreed upon between the Wife and the Husband and failing such agreement at a price to be determined by the President of the Real Estate Institute of New South Wales (or any successor of it) or his/her nominee and to disburse the proceeds of the said sale in the following manner and priority:
2.1 Payment of agent’s commission and advertising expenses and legal expense of the sale.
2.2 Discharge of the Commonwealth Bank encumbering the Suburb O property.
2.3 The balance then remaining:
2.3.1 If the Wife and the Husband are unable to refinance and discharge the liability as contemplated and referred to in Order 1, then , the ‘loan to members’ or any part outstanding be paid to the Decastro Superannuation Fund (Commonwealth Bank Cash Management Call Account BSB: … Account Number …16);
2.3.2 A sum necessary to discharge any unpaid loan account of the Husband, which he owes to B Pty Ltd ATF the Decastro Family Trust.
2.3.3 the net remaining proceeds of sale be paid equally to the Wife and the Husband by way of partial property settlement.
3. That upon the receipt of the sum referred to in Order 2.3.2 above or Order 6.3.3 below, B Pty Ltd ATF Decastro Family Trust will do all things and acts necessary to cause a distribution to the Wife and the Husband in equal shares.
4. That the Husband forthwith disburse the balance in his Commonwealth Bank Term Deposit Account (BSB:… Account Number: …85) in the following manner and priority:
4.1 First, a sum of $123,548.77 to B Pty Ltd ATF the Decastro Family Trust for the purpose of the Decastro Family Trust meeting the minimum repayment required by the Trust to B Pty Ltd under Div 7A and as per the advice of C Pty Ltd.
4.2 That B Pty Ltd use the funds above to meet its obligations as follows:
4.2.1 The sum of $25,922.99 to be paid to the Australian Taxation Office in satisfaction of the liability presently owed by B Pty Ltd to the Australian Taxation Office;
4.2.2 The sum of $16,565.37 to be paid to the Australian Taxation Office in satisfaction of the liability presently owed by the Decastro Family Trust to the Australian Taxation Office;
4.2.3 The sum of $1,252.00 to be paid to the Australian Taxation Office on behalf of B Pty Ltd ATF Decastro Family Trust in satisfaction of the outstanding BAS referable to the 2019 calendar year.
4.2.4 Meeting its other commitments including those to its professional advisors providing that the spouse parties are provided with itemised accounts for all claimed invoices for both lawyers and accountants in advance; and,
4.2.5 The balance then remaining will be distributed by way of dividend to the Wife and the Husband.
4.3 That the balance of the term deposit funds be available to Husband.
5. That the Husband forthwith do all things and acts necessary to cause D Business and E Business to be sold at the earliest possible date at a price to be agreed upon between the Wife and the Husband and failing such agreement at a price to be nominated by F Firm.
6. For the purpose of Order 5 above, the parties shall do the following:
6.1 Continue the appointment of F Firm as the business broker for D Business and E Business;
6.2 Ensure that all business financial reports and statements including profit and loss statements and tax returns are up to date and provided to F Firm within 7 days of being requested to do so by F Firm.
6.3 Apply the proceeds of sale of the business in the following manner and priority, upon completion of the sale:
6.3.1 payment of the business selling agents’ commissions and expenses, if any,
6.3.2 payment of legal costs and disbursements for the solicitors acting on the sale;
6.3.3 A sum necessary to discharge any unpaid loan account of the Husband, which he owes to B Pty Ltd ATF the Decastro Family Trust.
6.3.4 the balance then remaining to be paid equally to the Wife and the Husband by way of partial property settlement.
The Second Respondent wife seeks orders be made in accordance with her proposed Amended Minute of Order dated 19 June 2020, set out as follows:
1. That the orders sought by the Husband in his Response to an Application in a Case be dismissed.
2. That the Husband forthwith disburse the balance in his Commonwealth Bank Term Deposit Account (BSB:… Account Number: …85) in the following manner and priority:
2.1 First, a sum of $123,548.77 to B Pty Ltd ATF the Decastro Family Trust for the purpose of the Decastro Family Trust meeting the minimum repayment required by the Trust to B Pty Ltd under Div 7A and as per the advice of C Pty Ltd.
2.2 Second, the balance (being about $38,931) to B Pty Ltd as trustee for the Decastro Superannuation Fund in part repayment of the "loan to members".
3. That B Pty Ltd use the funds in paragraph 1.1 above [sic] (being $123,548.77) to meet its obligations as follows:
3.1 The sum of $25,922.99 to be paid to the Australian Taxation Office in satisfaction of the liability presently owed by B Pty Ltd to the Australian Taxation Office;
3.2 The sum of $16,565.37 to be paid to the Australian Taxation Office in satisfaction of the liability presently owed by the Decastro Family Trust to the Australian Taxation Office;
3.3 The sum of $1,252.00 to be paid to the Australian Taxation Office on behalf of B Pty Ltd ATF Decastro Family Trust in satisfaction of the outstanding BAS referable to the 2019 calendar year.
3.4 Meeting its other commitments including those to its professional advisors providing that the spouse parties are provided with itemised accounts for all claimed invoices for both lawyers and accountants in advance; and,
3.5 The balance then remaining as determined by the directors.
4. That the husband and B Pty Ltd as trustee for the Decastro Family Trust do all acts and things necessary to cause the property at 4 K Street, Suburb L, NSW to be placed on the market and sold at the earliest possible date by auction within 90 days of the date of these orders at a price to be agreed within 30 days and failing agreement at an updated price as determined by the previous valuer for the 4 K Street property (being P Firm) and to disburse the proceeds of sale in the following manner and priority:
4.1 payment of agent's commission and advertising expenses and legal expenses of sale;
4.2 to repay to any party any monies expended by them in preparing the property for sale;
4.3 the balance then remaining to repay:
4.3.1 the balance then outstanding being the "loan to members" in the Decastro Superannuation Fund;
4.3.2 any amount outstanding in order to discharge any unpaid loan account of the husband owed by him to B Pty Ltd as trustee for the Decastro Family Trust (being an amount of $543,761.19 at last record);
4.3.3 the balance then remaining to be held in trust pending further written agreement of the parties or order of the court.
5. That the husband forthwith continue to do all things and acts necessary to cause D Business and E Business to be sold at the earliest possible date at a price and upon such terms as agreed upon between the wife and the husband and failing agreement as ordered by a court, and the proceeds of sale to be applied in such manner and priority on completion of sale as agreed upon between the parties and failing agreement as ordered by a court.
6. Costs.
During the course of the hearing the parties reached agreement in respect to some aspects of each parties’ Applications. By way of summary, those areas of agreement are as follows:
Orders 7 and 8 of the orders proposed by the Applicant Company are agreed to by the First Respondent husband.
Order 1 of the orders proposed by the First Respondent husband is agreed to by the Applicant Company
Evidence
The Applicant Company relied upon the following documents:
d)Application in a Case filed 5 June 2020;
e)Affidavit of Mr G filed 5 June 2020 and tender bundle of annexures;
f)Affidavit of Mr Q filed 15 June 2020; and
g)Affidavit of Ms H filed 17 June 2020.
The First Respondent husband relied upon the following documents:
a)Response to Application in a Case filed 17 June 2020;
b)Affidavit of the First Respondent husband filed 17 June 2020; and
c)Tender bundle of exhibits.
The Second Respondent wife relied upon the following documents:
a)Response to Application in a Case filed 16 June 2020;
b)Amended Minute of Order dated 19 June 2020;
c)Affidavit of the Second Respondent wife filed 16 June 2020 and annexures; and
d)Financial Statement filed 14 August 2018.
Legal principles
Although not expressly stated, leaving aside the First Respondent husband’s proposed orders for the distribution of funds to the parties, in substance, the parties’ respective Applications seek mandatory injunctions against the First Respondent husband requiring him to pay monies as set out in the respective Applications.
While not specifically stated in any of the parties Applications, the Applications each enliven consideration of the Court’s power, under s 114(3) of the Family Law Act 1975 (Cth) (“the Act”), to make such order or grant such injunction as it considers proper in relation to the an injunction “in relation to the property of the parties”: Philips & Samuels [2017] FamCA 125 at [65].
In Martin v Martin (2013) 49 Fam LR 606 at [15], Cronin J said:
Section 114 of the Family Law Act 1975 (Cth) (the Act) enables the Court to provide a discretionary remedy. The fundamental principle is that an order should only be made if it is proper.
It is clear that s 114 of the Act empowers the Court to make orders in positive, as well as negative terms, as in the case of mandatory injunctions: Mertens & Mertens [2016] FamCAFC 136 at [56]. Such an order is discretionary and must be considered proper: Jeeves & Jeeves (No 2) [2008] FamCA 1148 at [29] citing F and F (1989) FLC 92-031; Tripp & Tripp [2013] FamCA 1107 at [53]. The term “proper” means “reasonable and just in [the] circumstances”: In the Marriage of Farr (1976) FLC 90-133 at 75,636.
The party moving for injunctive relief carries the onus of establishing that there is a proper basis for granting the relief as sought in their respective Applications: Kelleher & Anderson [2007] FamCA 137 at 195.
Consideration
Should orders be made requiring the husband to pay to the Applicant Company an amount in the sum of $123,548.77?
By letter dated 19 March 2020, C Pty Ltd, the accountants for the Applicant Company, advised:
According to the accounting records provided, an amount of $391,650 is owed to the Decastro Superannuation Fund (the Fund) by Mr Decastro. This amount includes a capital component and interest calculated at Division 7A rates up until 29 February 2020.
The amount has been recorded as a "Loan to the Members" on the Fund's financial statements, as represented to C Pty Ltd by the majority of the directors of the trustee company of the Decastro Superannuation Fund.
The nature of this transaction places the fund in breach of a number of the Superannuation Industry (Supervision) Act 1993 sections, and as a result a qualified audit report will be required and the Auditor is required to report these breaches to the Australian Taxation Office (ATO), along with the steps the Trustees have taken or propose to take to rectify those breaches.
Immediate and full repayment is the best option to rectify these breaches, and limit any further potential penalties or interest, which may be imposed by the ATO.
However, at a minimum the ATO and Auditor would expect to see a plan to rectify the loan immediately, including a significant upfront payment, followed by a series of agreed upon repayments over a specified time period inclusive of additional interest. This route may see the ATO involve themselves directly with the Trustees. There are no guarantees of what amounts and repayment period the ATO will deem to be acceptable. The risk of this route is that failure to comply with the proposed rectification plan could lead to the consequences outlined in Point 3 of this letter, found below.
2. Decastro Family Trust
According to the accounting records provided, an amount of $543,761.19 is owed to the Decastro Family Trust by Mr Decastro.
Immediate and full repayment of the whole $543,761.19 to the Decastro Family Trust by Mr Decastro would be the best option for the beneficiaries of the Decastro Family Trust. We recommend this be done by whatever means is possible including cash and potentially offsetting Mr Decastro’s beneficiary and shareholder entitlements from the Decastro Family Trust and B Pty Ltd respectively. The offset amounts could be quantified quite easily to determine the amount of cash Mr Decastro would be required to pay.
This amount is required urgently to be repaid in order that the Decastro Family Trust can pay it's [sic] outstanding liabilities. We have highlighted below at a) and b) the liabilities that need to be addressed as a priority together with due dates.
a) Decastro Family Trust loan from B Pty Ltd
$233,492.84 - amount owed to B Pty Ltd from the Decastro Family Trust as at 30 June 2019.
There is a minimum repayment required of $123,548.77 under the Division 7A provisions of the Income Tax Assessment Act 1936, due on or before 30 June 2020, otherwise the minimum repayment due or the whole amount of $233,492.84 may need to be deemed as an unfranked dividend. This will result in adverse tax implications for the Decastro Family Trust in relation to the non-repayment of the loan, B Pty Ltd, and Mr Decastro and Ms Decastro as shareholders of B Pty Ltd.
b) 2018 and 2019 Taxation Liabilities
i. B Pty Ltd – tax liability for 30/06/2018 and 30/06/2019 of $25,487.78
ii. Decastro Family Trust – tax liability for 30/06/2018 of $16,808.74 (Please note the 30/06/2019 tax liability will be paid by the beneficiaries presently entitled to the income).
As these tax liabilities are in relation to the 30 June 2018 and 30 June 2019 financial years and the income tax returns are late, we have requested an extension for lodgement with the ATO which has been granted to 31 March 2020. Any outstanding tax liabilities would need to be paid in good faith on lodgement of the returns to mitigate any general interest charges and penalties which could be applied by the ATO for late lodgement and payment.
3. Risk to the Directors of B Ptv Ltd
In regards to the Decastro Family Trust and B Pty Ltd, there is risk of Director penalty notices being served on the Directors of B Pty Ltd for non-lodgement of the tax returns and non-payment of the tax liabilities. Also, the ATO could issue significant fines and penalties to the respective entities.
In regards to the Decastro Superannuation Fund, failure to repay the amount owing to the fund would expose the trustees to the following risks and costs:
i. An ATO Compliance audit - potential estimated costs $10,000 to $30,000.
ii. ATO penalties levied on B Pty Ltd in its capacity of trustee of the fund of up to $12,600.
iii. In the event the loan is not repaid with interest, the ATO has the power to make the fund "non-complying", meaning that:
a. for every year the fund remains non-complying, its assessable income is taxed at the highest marginal tax rate (45%);
b. in the year it becomes non-complying, it includes in its assessable income an amount equal to the market value of the fund's total assets less any contributions the fund has received that are not part of the taxable income of the fund.
c. Additional accounting and audit professional services costs each year to deal with the extra reporting and work required due to the above issues. Estimate of $3,300 cost.
Should you have any queries in relation to the above please contact Mr R or myself [Mr Q, director]
Yours sincerely
As noted, in accordance with advice provided by C Pty Ltd, the accountants to the Applicant Company, all parties agree that, in accordance with Div 7A of the Income Tax Assessment Act 1936 (Cth), a minimum repayment of $123,548.77 must be repaid by the Decastro Family Trust to the Applicant Company on or before 30 June 2020. Otherwise negative tax consequences for the trust as well as for the First and Second Respondents will follow.
To facilitate that payment, the Applicant Company proposes that proposed orders 3 and 4 of their Application be made. The Applicant Company opposes, however, an order directing the Applicant Company as to how the amount of $123,548.77 should be applied.
Comparatively the First Respondent husband contends that from an amount of approximately $160,000 currently held in a Commonwealth Bank Term Deposit Account, in in his name, he pay to the Applicant Company as trustees of the Decastro Family Trust the sum of $123,548.77, as set out in order 4 of the First Respondent husband’s Application. Further, the First Respondent husband proposes that orders be made in accordance with orders 4.1 and 4.2 of his proposed orders setting out how the funds should be distributed.
The Second Respondent wife proposes orders in similar terms to those proposed by the First Respondent husband save insofar as the Second Respondent wife proposes that the totality of funds held in the Commonwealth Bank Term Deposit be paid to the Applicant Company as trustee for the Decastro Family Trust with the surplus amount above the sum of $123,548.77, being approximately $38,931, being paid in part repayment of the Decastro Superannuation Fund benefit withdrawal, “loan to members”, which, it is contended, was improperly made.
In order to ensure that the potential adverse consequences referred to in the March 2020 letter from C Pty Ltd are addressed, the Court will make orders in accordance with orders 2, 2.1 and 3, including the subparagraphs in order 3, of the orders proposed by the Second Respondent wife.
The Court does not, however, make orders in accordance with order 2.2 of the orders proposed by the Second Respondent wife as the Court has not, in the context of these interim proceedings being bought on urgently, been able to properly assess whether requiring the First Respondent husband to pay the additional amount, of approximately $38,931, to the Applicant Company from his Commonwealth Bank term deposit account would, as he contends, adversely impact upon his ability to properly operate his businesses including, meeting wages and acquiring necessary supplies. I have done so in circumstances where all parties contend that there is an alternative source of funds available to satisfy the husband’s obligation to repay monies withdrawn from the Decastro Superannuation Fund.
Should orders be made requiring the First Respondent husband to cause the sum of $396,686 to be paid to the Decastro Superannuation Fund?
Once again, consistent with the advice of C Pty Ltd, all parties agree that an order requiring the sum of $397,686 to be paid to the Decastro Superannuation Fund should be made. There is, however, on the part of the First Respondent husband, a dispute as to when that payment should be made. Even without that dispute, however, the proposals by both the Applicant Company and the Second Respondent wife as to the appropriate source of funds to enable that payment to be made necessarily recognises that the payment could not be made by 30 June 2020. This is because both the Applicant Company and the Second Respondent wife contend that the funds should be obtained from the sale of the 4 K Street property. Clearly, even if an order were to be made for the sale of that property it could not occur before 30 June 2020.
The First Respondent husband, on the other hand, contends that the funds should be obtained by way of utilisation of a loan facility secured against the N Street property.
The Second Respondent wife, however, opposes the First Respondent husband utilising that loan facility which is secured against the N Street property in circumstances where that property is in the names of both the First and Second Respondent husband and wife.
As an alternative to sourcing the funds by utilisation of that loan facility secured against the N Street Property, the First Respondent husband proposes that orders be made causing the sale of N street property and the D Business and E Business.[1]
[1] See the First Respondent husband’s proposed orders 5 and 6.
Although proposing that the funds required to pay the amount of $396,686 should be obtained from the proceeds of the sale of the 4 K Street property, the Second Respondent wife also agrees that the two (2) specified businesses should be sold.[2]
[2] See the Second Respondent wife’s proposed order 5.
During the course of the proceedings, senior counsel for the Applicant Company indicated that the Applicant Company did not oppose the sale of the businesses providing that the Applicant Company was a participant with the First and Second Respondent husband and wife in agreeing to the sale price.
In Aitken & Murphy (No 2) [2012] FamCA 239 at [158], in the context of an application for orders for the interim distribution of property pursuant to s79 and 80 of the Act, Young J said that, in considering whether to make such an order, that applied pending final hearing, “care must be taken not to potentially defeat any parties claim or legitimate expectations in a final hearing”, including, the fact that a party should not be “required to liquidate an asset reasonably sought to be retained in the final hearing”. That reasoning is apposite to the Court considering an application pursuant to s 114 of the Act insofar as the injunctive relief sought would result in the liquidation of an asset that a party reasonably seeks to retain in the final hearing.
In these interim proceedings, I am not in a position to make an assessment as to reasonableness of each party’s desire to retain, at final hearing, in the Second Respondent wife’s case, the N Street property and, in the First Respondent husband’s case, the 4 K Street property. In those circumstances, I do not propose making an order requiring the sale of either of those properties.
I will, instead, make an order requiring the sale of the businesses to which I have referred because the sale is not opposed by any party providing that any order causing the sales to be affected includes the safeguard of all parties agreeing to the appropriate price.
In making that order, I have had regard to the First Respondent husband’s evidence that he is in active negotiation with a prospective purchaser in the expectation of obtaining a price that represents fair market value for the businesses.
I have also taken into consideration that deferring payment of the $396,686 until the businesses are sold risks adverse consequences as referred to in the C Pty Ltd March 2020 letter. However, in considering that risk, I note that both the Applicant Company and the Second Respondent wife each proposed a solution, to the current dispute, that involved the sale of real property which necessarily would have resulted in the payment being made subsequent to 30 June 2020, being the time specified in the Applicant Company’s proposed order 3.
In circumstances where the Second Respondent wife’s proposed order 5 does not address the issue as to how the proceeds of the sale of the businesses should be applied, I will make an order in accordance with orders 5 and 6 as proposed by the First Respondent husband save insofar as, in order 5, I will include a reference to the Applicant Company as being a party whose agreement is required for the sale price and I will delete the reference to the default position of the price being determined by F Firm in the absence of agreement. I will also remove proposed order 6.3.4 as such an order would amount to a partial property distribution in circumstances where I have not been addressed in respect to the relevant considerations that are a precondition to making such an order. I will further explain that aspect of my reasoning below.
As I will not be making an order in accordance with order 6.3.4 for the balance of the proceeds of the sale of the businesses to be distributed in equal portions to both of the parties, I will, instead, require the funds to be deposited into a joint interest-bearing account agreed to by the parties with those funds being disbursed from that fund only with the agreement of both the First Respondent husband and the Second Respondent wife.
Should an order be made requiring the First Respondent husband to cause the sum of $420,212.42 to be paid to the Applicant Company as trustee for the Decastro Family Trust?
As previously noted, all parties agree that, consistent with the advice of C Pty Ltd, the First Respondent husband should cause such a payment to be made. Once again, the issue is identifying the source of funds that can be used to facilitate that payment.
For reasons set out under the immediately above subheading, I am of the view that the source of the funds should be obtained from the sale of the D Business and E Business. That outcome is achieved by orders being made in accordance with proposed orders 5 and 6 by the First Respondent husband as amended in the manner in which I have set out above.
Once again I note, that making orders in accordance with orders 5 and 6 as proposed by the First Respondent husband will be unlikely to result in the amount of $420,212.42 being paid by 30 September 2020 being the date proposed in the Applicant Company’s proposed order 6. However, I again note that, in circumstances where both the Applicant Company and the Second Respondent wife proposed that the funds be sourced from the sale of real property, there was, similarly, under their proposals, no guarantee that the funds would be obtained and paid by 30 September 2020.
Should orders be made, as proposed by the First Respondent husband, requiring the Applicant Company as trustee for the Decastro Family Trust to cause to be distributed to the First Respondent husband and the Second Respondent wife funds repaid by the First Respondent husband?
Proposed order 3 of the First Respondent husband’s Application would require the Applicant Company to cause funds repaid by the First Respondent husband to be distributed to the First and Second Respondent husband and wife. I decline to make such an order as it requires the exercise of power invested in the Court, pursuant to s 79 and 80 of the Act, to make orders for the partial distribution of the matrimonial property to the parties, in circumstances where I have not been addressed in respect to the issues I am required to consider in the exercise of that power.
In that respect, there are two stages to considering an application for interim property settlement orders: Strahan & Strahan (Interim property orders) (2011) FLC 93-466 (“Strahan”) at 85,641.
The first stage is a “procedural step” which requires an analysis of whether the circumstances of the case trigger the Court’s power to invoke s 80(1)(h) of the Act to make an order for partial property settlement. At this stage, the “overarching consideration” is the interests of justice: Strahan at 85,645.
The second stage is the “substantive step” where the provisions of s 79 of the Act must be considered and applied, but with limitations, given that it is not the final hearing: Strahan at 85,645-85,646
An applicant for such orders is required to show more “than the mere fact that, upon a final hearing, they would receive the property being sought (or an amount in excess of them) from the other party”: Strahan at 85,646.
Sufficient particulars must be provided to enable the Court to determine:
·that the application is “genuine”: Strahan at 85,657;
·to “identify the circumstances that make it appropriate to give consideration to exercising its power”: Strahan at 85,657); and
·to sufficiently weigh the identified need “against the benefit of having only one exercise of a s 79 power”: Strahan at 85,656, citing, with approval, Riethmuller FM in Wenz v Archer (2009) 40 Fam LR 212.
In circumstances where I have not been addressed on these matters, I decline to make an order in terms of proposed order 3 as sought by the First Respondent husband.
Additional orders made by consent
I as previously noted, the First Respondent husband consents to orders being made in accordance with proposed orders 7 and 8 of the Applicant Company’s Application and, in circumstances where those orders do not adversely impact upon the interests of the Second Respondent wife, I will make orders in those terms.
Conclusion
For all these reasons, I make orders in accordance with those set out at the commencement of my reasons for judgment
I certify that the preceding ninety-three (93) paragraphs are a true copy of the reasons for judgment of the Honourable Deputy Chief Justice McClelland delivered on 30 June 2020.
Associate:
Date: 30 June 2020
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