Child Support Registrar and Scully
[2009] FMCAfam 1233
•24 November 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CHILD SUPPORT REGISTRAR & SCULLY | [2009] FMCAfam 1233 |
| CHILD SUPPORT – Enforcement – child support arrears – enforcement summons – Order 33 rule 9. |
| Child Support (Assessment) Act 1989, s.100 Child Support (Registration and Collection) Act 1988, s.116(2) Family Law Act 1975, s.117 Federal Magistrates Court Rules 2001, rr.21.10, 25B.05, Schedules 1 and 5 |
| Child Support Registrar & F & M Pty Ltd [2007] FMCAfam 477 Child Support Registrar & White [2008] FMCAfam 547 Stephens & Stephens [2007] FamCA 680 |
| Applicant: | CHILD SUPPORT REGISTRAR |
| Respondent: | MR SCULLY |
| File Number: | SYC3690 of 2009 |
| Judgment of: | Sexton FM |
| Hearing dates: | 16 October & 16 November 2009 |
| Date of Last Submission: | 16 November 2009 |
| Delivered at: | Sydney |
| Delivered on: | 24 November 2009 |
REPRESENTATION
| Counsel for the Applicant: | Ms V. McWilliam |
| Solicitors for the Applicant: | Australian Government Solicitors |
| Solicitors for the Respondent: | In person |
THE COURT DECLARES THAT:
As at 16 November 2009 there is owing to the Commonwealth in respect of amounts owing under the registered maintenance liabilities of the Respondent the sum of $37,572.37 (being $30,907.46 in arrears of child support and $6,664.91 in late payment penalties).
THE COURT ORDERS THAT:
The Respondent pay the sum of $37,572.37 to the Child Support Registrar within 3 calendar months.
The Respondent pay the Child Support Registrar’s costs in the sum of $6,000 within 3 calendar months.
Pending compliance with Orders (2) and (3), the Respondent in his capacity as a director of Scully & Co Pty Limited, [Scully] Nominees Pty Ltd, [P] Pty Ltd and [D] Pty Ltd be restrained from resigning as a Director, voluntarily winding up or deregistering any of the companies, or effecting any change in the shareholdings of the companies without the prior written consent of the applicant or leave of the Court.
Pending compliance with Orders (2) and (3), the Respondent, in his capacity as a Director of [Scully] Nominees Pty Ltd, the trustee of the [V] Trust, (the trustee company) be restrained from doing any act or thing so as to enable the trustee company to further encumber, sell or otherwise deal with any of the assets of [V] Trust, without the prior written consent of the Applicant, or leave of the Court.
All other outstanding applications be dismissed.
IT IS NOTED
that publication of this judgment under the pseudonym
is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
Child Support Registrar & Scully
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYC3690 of 2009
| CHILD SUPPORT REGISTRAR |
Applicant
And
| MR SCULLY |
Respondent
REASONS FOR JUDGMENT
Introduction
This matter concerns enforcement of a debt owed by the Respondent to the Commonwealth for child support arrears in relation to the Respondent’s children, [X] aged 16 years, [Y] aged 13 years and [Z] aged 11 years.
The Applicant Child Support Registrar was represented by
Ms McWilliam of counsel. The Respondent was unrepresented.
The Child Support Registrar filed an enforcement summons on
23 June 2009. The Registrar seeks a declaration that the amount owed by the Respondent as at 16 November 2009 is $37,572.37[1] and an Order that such sum be paid by the Respondent within 60 days. The Registrar seeks an order that companies in which the Respondent has an interest be joined as parties to the proceedings and a number of further orders in the event of the Respondent’s default.
[1] Exhibit 7
In support of the Application, the Applicant relies on two affidavits sworn by Ms G, an Officer of the Child Support Agency, on 22 June 2009 and 4 November 2009, and an affidavit of Ms N, a solicitor employed by the Australian Government Solicitor. sworn 16 October 2009.
I am satisfied on the basis of Ms G’s evidence that the Applicant has made an administrative assessment of child support payable by the Respondent under the Child Support (Assessment) Act 1989 giving rise to a registrable maintenance liability under the Child Support (Registration and Collection) Act 1988.
His Honour Federal Magistrate Halligan set out the applicable Rules when Orders are sought on an enforcement summons in Child Support Registrar & White[2]. His Honour says:
The enforcement summons is a procedure that is available under the Federal Magistrates Court Rules 2001, in particular r.25B.05 and the provisions of Order 33 of the now former Family Law Rules 1984, incorporated by reference and set out in Schedule 5 to the Rules. That procedure entails the issue of an enforcement summons, as in this case, and contemplates the attendance of the respondent to be examined in relation to his or her financial affairs prior to the applicant determining the most appropriate form of enforcement order that may be sought.
[2] [2008] FMCAfam 547
Order 33 rule 2 states that Order 33 applies to a child support debt as exists in this case. Order 33 rule 9 provides that if a Court is satisfied that a person appearing before it has failed to satisfy an obligation, the Court may take steps as set out in the sub-rule, which includes:
(v) any order it considers necessary to enable enforcement of the obligation or to prevent the dissipation of property or the wasting of assets.
It was apparent from the outset of the hearing that the Respondent had difficulty understanding the nature of enforcement proceedings and the Court’s powers in relation to determining such applications. Mr Scully told the Court he sought to challenge the arrears figure of $37,572.37 on the basis that the Child Support Registrar and the Social Security Appeals Tribunal had used the wrong figure for his income when calculating his liability during at least part of the period during which the arrears accrued. The Respondent had filed a Notice of Objection on this ground, and when the Objection was disallowed, the Respondent had sought a review of the decision in the Social Security Appeals Tribunal. While the Tribunal’s decision was not filed in these proceedings, the parties agree that the Tribunal varied the Respondent’s annual child support liability in favour of the Respondent, but in the Respondent’s view, failed to provide an adequate explanation to the Respondent as to why it arrived at that result. The Respondent did not appeal that decision.
The Respondent did not require Ms G for cross-examination. Mr Scully did not suggest Ms G had made any error in her calculation of the arrears based on the assessments she relied on. The Respondent did not challenge the prima facie evidence of the debt in the s.116(2) certificate[3].
[3] Exhibit 7
I am satisfied on the basis of a Certificate under section 116(2) of the Child Support (Registration and Collection) Act 1988[4] that the Respondent owes the Commonwealth the sum of $37,572.37 as at
16 November 2009, made up of a child support debt of $30.907.46 and penalties of $6,664.91, and that the debt is due and payable.
[4] Exhibit 2
The Respondent relies on a Financial Statement sworn on
17 September 2009 and his own Affidavit sworn on 18 September 2009. At the outset of the hearing he sought an order that the enforcement summons be dismissed. In final submissions, he said he would agree to pay up to $1,000 a month on condition that the penalties sought by the Registrar were waived. He told the Court that he intended to take steps to appeal the SSAT decision.
The Respondent’s financial position
The Respondent is a [occupation omitted] employed by Scully and [S] Pty Ltd. The [business] operates in premises leased by the company at Property G.
Income. The Respondent has not yet lodged his 2009 taxation return. His PAYG payment summary for the 2009 financial year discloses gross payments of $58,114 from his employer[5] but he adduces no other documentary evidence of his income during the 2009 financial year. In his Financial Statement sworn on 17 September 2009, the Respondent deposes to a gross average weekly income of $1,562.00 made up of a salary of $1,307, dividend income from his IAG shareholding of $1.00 a week, rental assistance of $141, benefits from his employer of $81 and “super in addition to 9%” of $32.
[5] Exhibit 4
Expenses
. In his Financial Statement, the Respondent deposes to weekly expenses of $1,429.00. These expenses include $287 in child support. He was not challenged on his expenses figures in cross-examination. However, on my analysis of the Child Support Payer Transaction Statement entries[6] for the past 12 months, I am satisfied the Respondent has paid child support at an average rate of $68.00 a week, not at a rate of $287.00 a week as he deposes. On 9 and
31 October 2009, the Child Support Agency directed the Respondent’s employer to deduct $1,198.33 from his monthly income (equivalent to $276.53 a week). However, according to the transaction statement, this payment has only been made twice. Nevertheless, on the basis of the income and expenses figures the Respondent has provided, I am satisfied that the Respondent’s weekly income exceeds his expenses by a relatively small sum.
[6] Exhibit 8
From 1 December 2009, the Respondent’s monthly child support liability will decrease to $44.50 a month or $10.23 a week[7]. The Respondent’s weekly expenses will then total $1,152, leaving him with an excess of $410 a week or $1,777 a month. I am satisfied the Respondent has the capacity to pay periodic child support in accordance with his child support assessment and from 1 December 2009, will have the capacity to make periodic payments of approximately $400 a week, towards his child support arrears.
[7] Annexure 3 to Respondent’s affidavit sworn 18 September 2009
The Respondent deposes to his assets and liabilities as at September 2009, in his Financial Statement. Apart from an interest in a number of entities, the only assets held by the Respondent are the modest proceeds of a credit union account and 385 IAG shares.
In relation to the entities in which the Respondent has an interest, I accept the following facts, which were not the subject of challenge:
a)Scully & Co Pty Ltd. The Respondent is the sole director and shareholder. The Respondent is the only signatory on the company bank account. The company owns publicly listed shares with a value of approximately $72,000[8]. These assets were acquired by the company as a result of the sale of the business known as Scully & Co when the Respondent established another [business]. Those assets have been in the company for a number of years. The registered address of the company is the address of the Respondent’s accountancy practice at Property G.
[8] Exhibit 5
b)Scully & Co (Administration) Pty Ltd. This company is the Trustee of the [U] Trust. The Respondent and his business partner Mr S are the 2 directors. The [U] Trust is a service entity which conducts the day to day business of the Scully and [S] business. All units in the Trust are held by [V] Trust.
c)[D] Pty Ltd. The Respondent is the sole director and shareholder. The company has cash at bank of approximately $16,500. [D] Pty Ltd has lent money to Scully & [S] Pty Ltd to enable the business to purchase a computer system. No formal agreement exists between the companies in relation to the loan. The loan will be repaid when the Respondent and his business partner finalise a loan agreement with Westpac Bank. The registered address of company is the address of the Respondent’s accountancy practice at Property G.
d)[P] Pty Ltd. The Respondent is the sole director and shareholder. The company has cash at bank of approximately $15,000. The registered address of the company is the address of the Respondent’s accountancy practice at Property G.
e)[Scully] Nominees Pty Ltd. The Respondent is the sole director and shareholder. He is the only signatory on the company bank account. The company owns publicly listed shares with a value of $46,697[9]. The company is the trustee of [V] Trust, a discretionary trust, which receives income from [U] Trust through Scully Nominees. The beneficiaries of [V] Trust are the Respondent, his three children, his brother, [D] Pty Ltd and [P] Pty Ltd. [V] Trust has assets which the Respondent could not identify, in addition to an interest in two parcels of real estate, one in [M] and one in [R]. The company’s registered address is Property G.
f)Scully & [S] Pty Ltd
. The company is the Respondent’s employer. The Respondent is one of two directors of the company. The other is Mr S, his business partner. The Respondent holds 45% of the shares in his name and 22% in the company Scully & Co Pty Ltd of which he is the sole director and shareholder. The Respondent deposes to the company owning
2 motor vehicles on commercial hire purchase. He and Mr S are guarantors on the hire purchase agreement.
g)The Respondent owes his brother, Mr A an amount of $150,000 and is presently paying interest only on that loan. The loan agreement is dated 20 January 2005[10]. Since February 2009, the loan has been secured by way of mortgage over the Respondent’s shares in [Scully] Nominees Pty Ltd, Scully & Co Pty Limited, [D] Pty Ltd, [P] Pty Ltd, Scully and [S] Pty Ltd and Scully & Co (Administration) Pty Ltd.[11]
[9] Exhibit 5
[10] Exhibit 6
[11] Exhibit 6
The Respondent acknowledges that he has control over the assets of the companies of which he is the sole director and shareholder. I refer to these four companies as “the entities”. As an example of his control, the Respondent acknowledged that Scully & Co Pty Ltd could, at the Respondent’s option, pay him by way of dividend, the approximately $72,000 (less tax) held in that company. As a further example, the Respondent acknowledged that he has control over the assets of [V] Trust as the sole director and shareholder of the trustee company, [Scully] Nominees Pty Ltd. According to the taxation return for the 2008 financial year for the trustee company[12], the trust held assets of $398,708 as at 30 June 2008. While the return also includes liabilities of $369,363, those liabilities are not itemised and therefore may be funds owed to the Respondent. There is no evidence before me as to the Trust’s present net asset position.
[12] Annexure G to affidavit of Ms G filed on 4 November 2009
As already noted, the shares in the six companies in which the Respondent has an interest are security for the Respondent’s debt of $150,000 to his brother. I have no evidence as to the value of the Respondent’s shares in those companies. The Respondent has not made his net asset position clear in his Financial Statement. He does not provide details of the value of the assets and liabilities held by each company. The Respondent does not persuade me that he does not have the capacity to pay his child support debt within a short time, if he chooses to do so.
In these circumstances, I am satisfied the Court should enforce the child support debt.
Orders sought by the Applicant
On the basis of the evidence adduced at hearing, the Applicant submitted the Respondent may not have the capacity to pay his child support debt without using some of the assets held by the entities.
I agree with that submission.
At the end of the hearing the applicant’s counsel provided the Court, for the first time, with a Minute of Proposed Orders sought by the Applicant. Counsel told the court the Minute had been sent to the Respondent a week before the second day of hearing. The Respondent denied receiving it. The Minute of Proposed Order includes an order that the Respondent pay the child support debt in full and the Applicant’s costs within 60 days. In addition, the Minute disclosed that counsel sought a declaration that Scully & Co Pty Limited, [Scully] Nominees Pty Ltd, [P] Pty Ltd, [D] Pty Ltd and [V] Trust have, at all material times, been the alter egos of the Respondent and the assets of those companies and the trust are the assets of the Respondent. Counsel sought leave to join these entities as parties to the proceedings and to restrain the Respondent in his capacity as a director of the entities from resigning as director, voluntarily winding up or deregistering any of the companies, or effecting any change in the shareholdings of the companies without the prior written consent of the applicant. Counsel sought orders against the entities in the event of the Respondent’s default.
As already noted, the Respondent accepts that he controls the assets in [Scully] Nominees Pty Ltd, Scully & Co Pty Limited, [D] Pty Ltd and [P] Pty Ltd. The Respondent accepts, that through ownership of the shares in [Scully] Nominees Pty Ltd, the trustee of [V] Trust, the Respondent has control over [V] Trust assets which include a property at Property R and a half share in a property at Property M[13].
[13] Annexure E to affidavit of Ms G filed on 4 November 2009
Discussion
A number of the applicant’s proposed orders affect the interests of third parties. The evidence does not disclose who are the creditors of each third party or how others might be affected by any order made against any of the third parties. The Applicant submits that the orders against the third parties should nevertheless be made because those parties are the alter egos of the Respondent, notwithstanding that they are separate legal entities. I do not accept this submission. Firstly, I am not satisfied the entities have been afforded procedural fairness. Secondly, I am not yet persuaded that the court has the power to make the declaration and orders sought against the third parties. Apart from a passing reference to the 2007 case of Stephens & Stephens[14], when counsel submitted that the court should treat the assets of the [V] Trust as belonging to the Respondent personally, counsel made no submissions on the second critical issue.
[14] [2007] FamCA 680
Procedural fairness
On 13 October 2009, 3 days before the matter was listed for hearing, the Australian Government Solicitor, solicitors for the Child Support Registrar, sent separate letters to the Respondent as Director of Scully Nominees, Scully & Co Pty Ltd, [P] Pty Ltd, [D] Pty Ltd and to Mr A advising that this matter was listed for hearing at 12 noon on
16 October 2009[15]. Each letter advised that the Child Support Registrar would be seeking orders “which may affect the assets of” each company. The letter advised that the Registrar would seek an order to join (the company) as a party to the proceedings[16]. The Respondent acknowledged receipt of those letters. Counsel for the Registrar did not bring this information to the attention of the Court until the end of the hearing on 16 November 2009. This was the only notice given to the third parties affected by the orders sought by the Registrar, and this notice was given by letter dated only 3 days before the date of hearing. The Registrar did not file an application seeking to join the entities as parties to the proceedings. The Registrar did not serve copies of documents relied on by the Registrar, or the Minute of Proposed Orders, on the entities. I am not satisfied in these circumstances, that the third parties affected by the orders sought, have been afforded procedural fairness.
[15] Annexure A to affidavit of Ms N filed on 16 November 2009
[16] Annexure A to affidavit of Ms N filed on 16 November 2009
Court’s power to make the declaration and orders
In Child Support Registrar & F & M Pty Ltd[17], his Honour Federal Magistrate Riethmuller carefully examined the legislation and the authorities when considering the question of the Court’s power to make declarations under child support legislation. His Honour said[18]:
It is well established that a company is a separate legal entity from its director and shareholder, even if there is only one director and shareholder… It is also well accepted that the directors and office bearers of the company have obligations to the company under the Corporations Law and in equity (for example fiduciary duties).
[17] [2007] FMCAfam 477
[18] At paragraph 32
His Honour discussed the Court’s powers in section 79 property cases when the Court makes a factual finding that an entity is a person’s “alter ego” and the different principles which apply in a case involving the enforcement of child support. His Honour says[19]:
[19] At paragraphs 41 to 44
If such a factual finding is made then, at least for the purpose of property proceedings under the Family Law Act, the property of the ‘alter ego’ or ‘puppet’ will be included in the pool of matrimonial assets as ‘property’ or taken into account as a ‘financial resource’ for the purpose of s.79 of the Family Law Act.
Notably, orders that are made under s.79 of the Family Law Act requiring a party to a marriage to exercise their control over the ‘alter ego’ or ‘puppet’ relate only to the net assets of the entity.
….
The form of orders ultimately made, however, are generally not orders directly against the company or trust, but rather, orders against the party requiring them to take all reasonable steps necessary to ensure that the company or trust either divests itself of the particular asset, registers share transfers or the like.
In the case before his Honour, as in this case, a declaration was sought by the Child Support Registrar which would operate directly against a company and which may have affected those in commercial relationships with that company. The Court dismissed the application.
His Honour noted, however, that traditional enforcement remedies were available to the Child Support Registrar[20]:
The Child Support Registrar could obtain orders to be appointed receiver of the shares in the company, and then exercise the voting rights to gain control of the company. Once in control of the company, provided that the company’s other obligations under the Corporations Law were satisfied (such as not trading insolvently) a dividend could be declared, and then attached using a s.72A notice.
[20] At paragraph 61
Determination
I have made an order for the Respondent to pay the child support debt within 3 months. Pending compliance with this Order, I have restrained the Respondent, in his capacity as Director, from resigning as a Director or making any changes to the office holders of the company. I have also restrained the Respondent, in his capacity as the director of the trustee company of [V] Trust, from dealing with the assets of the Trust. In the event the Respondent fails to comply with the order to repay his child support debt, it may be necessary for the Applicant to bring further proceedings. If orders are then sought in relation to any of the entities in which the Applicant holds an interest, it will be necessary for the Applicant to serve any application affecting a third party in accordance with the Rules.
Further, given there is no provision in the Child Support(Registration and Collection) Act 1988 that makes entities related to the child support debtor directly liable to the Child Support Registrar[21], it will be necessary for the Applicant to make detailed submissions as to the Court’s power in child support enforcement proceedings (rather than section 79 property proceedings) to make the orders sought. As already noted, counsel for the Applicant made no such submissions in these proceedings.
[21] At paragraph 26 of Child Support Registrar v F & M Pty Ltd [2007] FMCAfam 477
Costs
The applicant seeks costs in the sum of $15,271.36, such sum to be paid within 60 days. The Respondent opposes the application.
Legal principles
Pursuant to section 100 of the Child Support (Assessment) Act 1989, the question of costs in child support proceedings is governed by the provisions of the Family Law Act 1975. In accordance with section117(1) of the Family Law Act 1975 the usual rule in family law proceedings is that each party pay his/her own costs. However, section 117(2) provides that the court may order costs if it is of the opinion that there are circumstances that justify it in doing so, subject to section 117(2A).
When the court is considering what order should be made the court must have regard to the matters referred to in section 117(2A) subsections (a) to (g):
i)the financial circumstances of each party;
ii)whether any party is in receipt of assistance by way of legal aid;
iii)the conduct of the parties;
iv)whether the proceedings were necessitated by a failure of a party to comply with a previous court order;
v)whether a party to the proceedings has been wholly unsuccessful;
vi)whether a party has made an offer in writing to the other party to settle the proceedings and the terms of any such offer; and
vii)any other relevant matter.
The financial circumstances of the parties – s.117(2A)(a)
The Child Support Registrar is a Federal Government Agency funded by the taxpayers of Australia.
As already noted, I am unable to make precise findings as the Respondent’s current financial circumstances.
I therefore have no regard to either party’s financial position in determining the costs application.
The conduct of the parties – s.117(2A)(c)
The hearing could not proceed on the first return date because the Respondent had not produced documents as required by the Enforcement Summons and had not filed responding material. This increased the applicant’s costs. I have regard to this factor.
The Respondent’s failure to comply with court orders – s.117(2A)(d)
This factor is not relevant.
The Respondent was wholly unsuccessful – s.117(2A)(e)
The Court has determined that the Respondent must pay the whole of his child support debt within three months. I take into account that the Respondent was therefore wholly unsuccessful in these proceedings.
Offers in writing – s.117(2A)(f)
The Respondent submits he made an offer to settle the proceedings which was ignored by the Applicant. In his affidavit, he offered to make a lump sum payment of $10,000 to the Child Support Registrar on certain conditions. The debt owed is over $ 37,000. I have no regard to this offer on the question of costs.
Decision
Given the fundamental obligation of parents to financially support their children, and given the Applicant has been successful in relation to the substantive issue, I find it appropriate to make an order for costs in favour of the Child Support Registrar.
Quantum
In accordance with Schedule 1 of the Rules[22], the Child Support Registrar seeks costs in the sum of $15,271.36 which includes an amount of $6,255 for counsel on 4 August 2009 when the matter was adjourned, and an amount of $176 in disbursements.
[22] Federal Magistrates Court Rules 2001
Rule 21.10 of the Federal Magistrates Court Rules 2001, states:
Unless the Court otherwise orders, a party entitled to costs in a proceeding… is entitled to:
(a) costs in accordance with Part 1 of Schedule 1; and
(b) disbursements properly incurred.
The Registrar has applied the schedule, as amended by the Federal Magistrates Court Amendment Rules 2009 (No 1), in relation to costs being sought. Counsel submitted an itemised schedule. The schedule includes $1760 being the lump sum for initiating an application, attendances for a mention, for a half day and full day hearing, disbursements of $176.36 and counsel’s fees of $10,455, including $6,255 for counsel’s fees on the first return date.
The question of quantum of costs is discretionary. I have considered each item listed in the Registrar’s submissions. I have reduced the lump sum for initiating the application given the nature of the application and the number of such matters initiated by the Applicant. I have not allowed counsel’s fees in the amount sought, particularly given counsel was at court on the first return date for only a short period. I have taken into account that the Respondent was unwell on the first day of hearing and had to be taken by ambulance from the court, which necessitated a second day of hearing. I have regard to the scheduled fee for an advocate for a full day hearing ($2,640) and a half day hearing ($1320). Counsel was not at court for a full day on 16 November 2009. In all the circumstances, I find an amount of $6,000 reasonable.
I propose to make an order in the sum of $6,000 in favour of the Child Support Registrar.
I certify that the preceding 47 (forty-seven) paragraphs are a true copy of the reasons for judgment of Sexton FM
Date: 24 November 2009
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