Barr & Barr
[2022] FedCFamC1F 441
•21 June 2022
Table of Corrections 16 February 2023 In paragraph 5, the sum of $61,93 has been corrected to $61,930 16 February 2023 In paragraph 29, “there” is replaced with “the”, “liability” has been replaced with “liabilities” and “actual dishonesty” has been replaced with “acted dishonestly” Federal Circuit and Family Court of Australia
(DIVISION 1)
Barr & Barr [2022] FedCFamC1F 441
File number(s): MLC 11085 of 2018 Judgment of: MCNAB J Date of judgment: 21 June 2022 Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE – ENFORCEMENT – Enforcement of Final Property Orders – Enforcement of an order for sale where the company has been placed in administration – Insolvency – Discretion to enforce. Legislation: Family Law Act 1975 (Cth) s 79A Division: Division 1 First Instance Number of paragraphs: 33 Date of last submission/s: 3 June 2022 and 30 May 2022 Date of hearing: 14 June 2022 Place: Melbourne (via MS Teams) Counsel for the Applicant: Litigant in Person Counsel for the Respondent: Litigant in Person ORDERS
MLC 11085 of 2018 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS BARR
Applicant
AND: MR BARR
Respondent
order made by:
MCNAB J
DATE OF ORDER:
21 June 2022
THE COURT ORDERS THAT:
1.The applicant wife’s enforcement application filed on 4 April 2022 be dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Barr & Barr has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
Amended pursuant to r 10.14(b) of the Federal Circuit and Family Court of Australia (Division 1) Rules 2021 (Cth) on 16 February 2023
MCNAB J:
Introduction
This proceeding comes before the Court by way of an Application for Enforcement filed on 4 April 2022 by the applicant wife (“the wife”) to enforce Final Property Orders made by Judge Stewart on 17 February 2022 (“Final Orders”). The respondent husband (“the husband”) filed an Initiating Application on 5 April 2022 in response. The matter was heard by Judge Stewart on 12 April 2022 and by Court Order on that same date, these proceedings were transferred from Division 2 of the Federal Circuit and Family Court of Australia (FCFCOA) to Division 1 due to the complexity of the matter.
The matter was listed for a Case Management Hearing on 2 May 2022 and Interim Orders were made on that same day that the husband transfer the sum of $800 to the wife’s bank account by the end of the day (Order 3), and that the husband file an affidavit addressing particular issues raised by the wife in relation to the use of business funds by the husband.
Final Property Orders made 17 February 2022 by Judge Stewart
Following a hearing that ran over 7 days Judge Stewart made Final Property Orders and gave detailed reasons for those orders.
The principal asset dealt with in the Final Orders was the business “B Business” (“the business”), operating under the structure of Barr Pty Ltd (“the company”), of which the husband was the sole director. The business was purchased on 1 July 2014 for $785,000, financed from a loan from Westpac Banking. The business is owned jointly by the husband and wife, with each holding a 50% interest. This was determined to be the only asset of any real value. The business was part of a franchise and franchise fees were calculated based on turnover together with advertising fees.
The Final Orders provided amongst other things:
2. Each of the parties do all such acts and things as may to necessary to sell the business “B Business]” (operating under the structure of [Barr Pty Ltd]) (“the Business” and “the Sale”).
6. The proceeds of the Sale of the Business (including any surplus cash held in the business accounts) upon settlement and the monies in the bank accounts of the business, shall be disbursed as follows: -
(a) first, to pay all costs and commissions associated with the sale;
(b) second, to meet the outstanding liabilities and expenses of the Business including but not limited to creditors, wages, salaries, employee entitlements and tax liabilities, but not capital gains.
(c) third, (if necessary) to pay any tax debt assessed to the Wife for tax liabilities arising from distributions to her from the [Barr Family Trust ] in the last 3 financial years;
(d) forth, the sum of $50,000 to be held in the trust account of the E Solicitors (“the escrow funds”) pending the finalisation of any Capital Gains Taxation liabilities associated with the Sale (CGT Liabilities) and once the husband lodges the financial returns of the [Barr Family Trust ] following the sale and upon receipt of the consequent Notice of Assessment, such sum be paid to the Commissioner of Taxation from the escrow funds, subject to paragraphs 9 and 10 hereof;
(e) fifth, to pay out the [Motor Vehicle 1] in the possession of the Husband ([Motor Vehicle 1]);
(f) sixth, such proportion of the remaining net proceeds to the Wife such that she retains 60% of the total net asset pool available for division between the parties, after accounting for the Wife already receiving $50,000 and the sum of $61,930 by way of part property settlement;
(g) seventh, such proportion of the remaining net proceeds to the husband such that he retains 40% of the total net asset pool available for division between the parties as determined by the Court after accounting for the Husband already receiving $105,000 by way of part property settlement and legal expenses; and
(h) eight, the wife pay to the husband her share pursuant to order 6(f) the sum of $11,380 being the reimbursement for costs for the Family Report, business valuer and mediator in these proceedings.
13. Until the payment or settlement of the sale (whichever is sooner) the Respondent Husband pay or cause to be paid to the Applicant Wife by way of spousal maintenance:
(a) Rent (up to $4,128 per month); and
(b) the health insurance monthly premiums for the Respondent Husband, Applicant Wife and the children at the current level of cover.
Under Order 6(f), Judge Stewart estimated that 60% of the proceeds would be approximately $326,000. This value was arrived at by Judge Stewart based on analysis of expert evidence on 27 January 2022, which valued the business approximately $610,500 (paragraph [103]).
There is currently no application made under S 79A of the Family Law Act 1975 (Cth) to vary the Orders to include payment of this sum, and the Orders remain in terms of distribution of proceeds of sale. Judge Stewart made reference to this provision on 12 April 2022 (paragraph [4]). Section 79A permits:
S 79A Setting aside of orders altering property interests
(1) Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that:
(a) there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance; or
(b) in the circumstances that have arisen since the order was made it is impracticable for the order to be carried out or impracticable for a part of the order to be carried out; or
(c) a person has defaulted in carrying out an obligation imposed on the person by the order and, in the circumstances that have arisen as a result of that default, it is just and equitable to vary the order or to set the order aside and make another order in substitution for the order; or
the court may, in its discretion, vary the order or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside.
The Business
On 9 March 2022, the business was placed into voluntary administration. This voluntary administration was approved by resolution in a meeting of creditors on 18 March 2022, and the appointment of the Administrator, Mr C, was formalised. According to the husband’s affidavit of 16 May 2022, the cost of placing the company into administration was $16,500. The circumstances of the administration were that the company’s profitability had been decreasing over previous years, with losses of $50,332.65 recorded for the financial year ended 30 June 2020, and losses of $313,454.75 for the period ended 9 March 2022, according to the Administrator’s report prepared 6 April 2022 (“the report”). The husband explained that the decline was a consequence of “a highly messy divorce that has been ongoing for a number of years and the ongoing impacts of COVID-19”. He cites a reduction in sales of 45% in the period prior to being placed into administration. The company ceased trading on 4 March 2022 out of fear of trading insolvent. The franchise agreement was terminated on 9 March 2022.
In the report, no breaches of director’s duties were identified, and assets and liabilities at the time of administration were summarised as follows:
Assets Low ($) High ($) Cash at bank 527 527 Debtors 20,000 29,974.55 Motor Vehicles 24,500 37,000 Plant & Equipment 25,000 27,890 Real Estate 0.00 0.00 Stock on hand 0.00 0.00 Work in progress 0.00 0.00 Total assets 70,027.00 95,391.55 Liabilities Low ($) High ($) Secured creditors 13,952.93 13,952.93 Priority creditors 832.68 832.68 Unsecured creditors 253,532.79 253,532.79 Contingent liabilities 0.00 0.00 Total Liabilities 268,318.40 268,318.40 Net Deficiency $198,291.40 $172,926.85
On 13 April 2022, during the second creditors’ meeting, the Australian Taxation Office voted for the business to be wound up. Estimated Administrator’s fees for the completion of winding up of the company are $70,051, and a further $1,245.67 in disbursements. Consequently, the Orders dealing with the application of the profits of sale including distribution to the wife cannot be given effect to because the company that owns the business is in liquidation and the business has ceased to trade.
The wife claimed to be a creditor and lodged a formal notice of debt for $326,000, but the Administrator found this to be unsubstantiated.
Current Proceedings
There are also parenting proceedings on foot, however these proceedings are not the subject of the current application and will not be dealt with at this time.
This matter was listed for defended hearing on 14 June 2022. The wife and husband are both self-represented and appeared in person via Microsoft Teams. The wife relied on her affidavit filed 27 April 2022, and two affidavits filed on 3 June 2022. The husband relied on affidavits filed 16 and 30 May 2022.
Matters raised by the wife at the hearing included inadequate disclosure of the husband’s bank statements, the payment of the franchising fees and the cost of administration. The wife sought the following Orders set out in terms of the Application:
1. That this matter be deemed urgent and all times be abridged.
2. That the husband furnish all bank account statements and personal bank statements in his name from 1 January 2017 to present.
3. That the husband provided all business accounts including but not limited to profit and loss statements and access to myob files/financials.
4. That the husband provide a list of stock and assets held by the business [B Business].
5. That there be an urgent injunction restricting the husband from placing the business [B Business] into voluntary administration.
6. That the Administrator [D Accountants] be terminated immediately.
7. That the Husband pay the compensation of $326,000 if the business cannot be saved. If the Husband can’t pay immediately, then over a period of months or even if it is over the next 5 years.
8. That the Husband provide the company balance sheet as of 1st March 2022 and as of 17th March 2022 plus the MYOB file of the Business.
9. That the husband continue to pay the wifes rent as per Final Orders made.
The issue for determination is what if any Orders may be made in circumstances where there should be enforcement of the payment to the wife where the previous Orders were for an order for sale rather that an order that the husband pay a particular sum to the wife.
Background
The husband is 47 and the wife is 50. The parties commenced living together in April 2004, married in 2006, and separated in June 2017. There are two children of the marriage. Y (“Y”) born in 2010, and X (“X”) born in 2013. Both Y and X live primarily with the wife and spend five nights per fortnight with the husband during school term, and half of school holidays and special occasions.
Orders are in place currently for the husband to pay spousal maintenance to the wife for rent (up to $4,128 per month) and health insurance premiums for the wife and children pending the sale of the business.
Neither party are currently employed, and both are struggling financially. The husband has incurred legal fees of approximately $300,000. He currently owes $33,000 to his former solicitors in outstanding fees, and $10,597.09 to his current partner from whom he borrowed money to pay for the company to go into administration. The wife has spent approximately $120,000 in legal fees, and owes approximately $26,000 to E Solicitors, and a further $90,000 to her father and sister, from whom she borrowed money to pay previous legal fees. The husband is not an Australian Citizen, and is not eligible for any unemployment benefits.
The assets remaining at the time of the hearing on 14 April 2022 are $10,441.02 $NZ in a New Zealand bank account which is currently in the husband’s mother’s name.
It is apparent that the parties have effectively spent on legal fees a sum which represents about 80% of the ascertained asset pool as at the date of Final Orders.
Consideration
The affidavit filed by the husband on 16 May 2022 was in response to the Court Orders of 2 May 2022 and gave evidence of the circumstances of the company conducting the business being wound up. The affidavit exhibits a report to creditors of the Company prepared by Mr C, the Administrator, dated 8 April 2022 and minutes of the second meeting of creditors held on 13 April 2022. At that meeting it was resolved that the company be wound up and that Mr C be appointed liquidator.
The Administrator’s report noted:
‘“Due to a highly messy divorce that has been ongoing for a number of years and the ongoing impacts of COVID 19 the business unfortunately has not been able to operate at the same level it was with sales and profitability. This has unfortunately meant that I have had to put the business into voluntary administration. The landlord was also threatening to take possession due to unpaid rent. All staff entitlements have been fully paid including super and leave balances etc. Sales reduced by over 45% over this period of COVID with our core markets in aged care reducing their spending on signage overt this period. On the 4 March I terminated the employment of all remaining employees which have been fully paid out. The company had been profitable for many years prior to these effects’.
The Chairman noted the Company’s profitability had been declining ad was moving into a loss position and referred to the company’s internally produced financial records.
The Chairman stated that recorded a loss of $50,332.65 for the year ended 30 June 2021 and $313,454.75 for the period ended 9 March 2022.”
The affidavit sets out evidence of cost of the Administration being $16,500 of which $10,597.09 has been paid by the husband’s partner. The husband gave evidence that he has funds of $10,441.02 $NZ in an account in New Zealand and says that those funds comprise an inheritance from his grandmother in New Zealand and are presently held in an account in his mother’s name to protect the funds from creditors.
As to the use of funds held in the business’ bank account, he gave evidence of the expenditure of funds to pay creditors, particularly the landlord of the business premises who was pressing for payment and threatening proceedings based on a personal guarantee signed by the husband A settlement was reached which resulted in the payment of $30,000 which was funded by company funds ( $18,700) and by the husband’s partner ( $11,300). Written evidence of that settlement and the payments to the landlord were before the Court.
In response to submissions made by the wife that the husband could not explain how the administrator’s cost had been paid, I find that the husband has explained those costs and how they were paid.
The wife raised that the husband had not explained why he had not paid franchise fees and allowed a debt to arise to the franchisor in the sum of $128,364.40 (second report to creditors page 36 of the affidavit of the husband filed 16 May 2022). The wife raised that money had been made available out of an account that had been frozen by Court orders in 2019 to pay for those fees. The husband referred to evidence filed in the proceeding that funds were released by agreement from an account that had been frozen by Court order to enable the business to receive about $80,000 and the wife to receive about $45,000. It is not established on the evidence before me that the husband or the business failed to pay the franchise fees from 2019 when the funds were released.
In her affidavits, the wife sets out that:
(1)She is currently not working and has no income;
(2)She is currently in debt as a result of legal fees;
(3)She is of poor health;
(4)The husband breached Court orders by placing the company into voluntary administration;
(5)She believes the cost of placing the business into administration is $70,051, and finds this outrageous, especially considering she believed the business had cash flow and did not need to be placed into administration. She queried where the husband could have found this money since he claims to have nothing;
(6)She believes that the husband deliberately made the business less profitable and has placed the business into administration as part of a premeditated attempt to prevent her from receiving anything from the sale of the business. In relation to the business’ finances, she sets out the following in support of her argument:
(a)The bank account for the business had large sums of cash moving through the account, including $1,090,552.95 in the period between 1 April 2021 and 29 April 2022, and there was an amount of $185,000 in the business’ combined accounts in January 2021; and
(b)The creditors that have been identified by the report prepared by the Administrator are clients who left deposits.
(7)D Accountants has been dishonest in their handling of the administration, including falsifying the meetings of the first meeting of creditors;
(8)The husband is disposing of money to prevent her from accessing it, and the husband’s discovery has been insufficient to show this, which she believes is a sign of the husband’s dishonesty; and
(9)The husband has breached Court Orders in that he is no longer paying child support.
In my view, the husband has provided a rational explanation for the appointment of an administrator and the subsequent winding up of the company owning the business. The company was, at the time of the appointment of the administrator, unprofitable and had significant creditors. It also had 8 employees and a responsibility to make provision for the employment entitlements of those people. Continuing to trade may have exposed the husband to significant personal liabilities and the lack of profitability of the business may have made the sale of the business difficult.
The evidence does not support a finding that money has been hived off by the husband or that the insolvency of the business has been brought about by the husband diverting funds. Nor is there evidence that the husband has access to a fund of money that would enable him to pay and amount representing the putative value of 60% of the business as found by Judge Stewart. The husband gave sworn oral evidence at the hearing on 14 June 2022 and was cross examined by the mother. The husband referred to the bank accounts of the business and was able to give explanations regarding the use of the funds. I am not persuaded that the husband has diverted funds for the purpose of defeating the Orders since Judge Stewart heard the evidence at trial and reserved her decision. Business funds have been used to pay child support and some other non-business purposes, but not at a level where the Court could reasonably find that the husband had contrived a circumstance by diverting funds to place the company in administration. The wife refers to revenues of the business but fails to refer to the ongoing liabilities of the business which go to profitability. I cannot see any evidence to support a finding that D Accountants have acted dishonesty in its administration of the company.
Neither party has sought an Order varying the Final Orders pursuant to S 79A of the Family Law Act 1975 (Cth). The option of S 79A was raised by Judge Stewart to the parties on 12 April 2022. In circumstances where there are no matrimonial assets to distribute, the Court cannot make an Order that the husband pay a sum of money to the wife. Further, no Application has been made to vary the Final Orders pursuant to S 79A and therefore the Court does not by this decision purport to determine whether or not there are grounds to make such an Order particularly pursuant to S 79A(1)(a).
The husband gave evidence that he continues to pay child support of $400 per week and continues to pay private health insurance costs of the children. He is currently unemployed and would appear on the evidence before me not to have the financial resources to continue paying the rent on the property where the wife and children live. He is currently subject to an Order that he pay ongoing maintenance which he cannot afford and will have to make an application to vary the Final Orders pursuant to S 79A of the Family Law Act 1975 (Cth). Again, this was specifically raised by Judge Stewart. It may be appropriate for him to do so once he has obtained new employment and is in a position to establish what ongoing financial support he is able to pay.
I note that the Final Orders provide that the husband could access funds of the business to draw a salary equivalent to a salary of $115,000 per annum (Order 5(c)) which explains how he was able to pay some non-business expenses from the business funds.
In the circumstances I dismiss the wife’s Enforcement Application filed on 4 April 2022.
I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McNab. Associate:
Dated: 21 June 2022
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