Eblin and Eblin & Ors
[2020] FamCA 1
•8 January 2020
FAMILY COURT OF AUSTRALIA
| EBLIN & EBLIN AND ORS | [2020] FamCA 1 |
| FAMILY LAW – COMPANIES – WINDING UP OF COMPANIES – where an application is made for a company to be wound up in accordance with s461(k) of the Corporations Act 2001 (Cth) – where the company is an asset of the parties and the subject of proceedings pursuant to s79 of the Family Law Act 1975 (Cth) – where the company is no longer operating and there are issues with respect to the payment of alleged creditors, recovery of monies allegedly owed to the company and valuation of the company for the purposes of the proceedings pursuant to s79 of the Family Law Act – where the application is brought by the husband and with the wife’s consent – where the third and fourth respondents neither consented nor opposed the application – where the company is wound up on the grounds that the court is of the opinion that it is just and equitable to do so – where there is an effective deadlock of the operation of the company. |
| Family Law Act 1975 (Cth) Family Court Rules 2004 (Cth) |
| KL Tractors [1954] VLR 505 Re Trivoli Freeholds Ltd [1972] VR 445 Baird v Lees [1924] SC 83 Re Norvabron Pty Ltd (1987) 5 ACLC 184 Re Dalkeith Investments Pty Ltd (1985) 3 ACLC 74 Netbush Pty Ltd v Fascine Developments Pty and Others (2005) 189 FLR 320; [2005] WASC 73 Catombal Investments Pty Ltd 30 ACLC 12-031; [2012] NSWSC 775 Re Straw Products Pty Ltd [1942] VLR 222 Re Bleriot Manufacturing Aircraft Co Ltd (1916) 32 TLR 253 In the matter of TM Fresh Pty Ltd [2019] VSC 383 |
| APPLICANT: | Mr Eblin |
| FIRST RESPONDENT: | Ms Eblin |
| SECOND RESPONDENT: | B Pty Ltd |
| THIRD RESPONDENT: | Mr Shaban |
| FOURTH RESPONDENT: | C Pty Ltd |
| FILE NUMBER: | MLC | 5519 | of | 2016 |
| DATE DELIVERED: | 8 January 2020 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Macmillan J |
| HEARING DATE: | 28 November 2019 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Crofts |
| SOLICITOR FOR THE APPLICANT: | Aitken Partners Pty Ltd |
| SOLICITOR FOR THE FIRST RESPONDENT | Gil Boffa & Associates |
| SOLICITOR FOR THE SECOND RESPONDENT: | Aitken Partners Pty Ltd |
| SOLICITOR FOR THE THIRD RESPONDENT: | Rigby Cooke Lawyers |
| SOLICITOR FOR THE FOURTH RESPONDENT: | Rigby Cooke Lawyers |
Orders
That D Pty Ltd (ACN …) (“the company”) be wound up under the provision of Section 461(k) of the Corporations Act 2001 (Cth).
Mr E, a registered liquidator, be appointed liquidator of the Company.
Costs
The parties costs of and incidental to the Application in a Case filed 25 November 2019 be reserved for determination in Chambers.
By 4.00 pm on 30 January 2020 the parties file and serve any written submissions in support of any application for costs arising out of or incidental to this application.
By 4.00 pm on 13 February 2020 the parties file and serve any written submissions in reply to any applications for costs.
That any submissions as to costs should be limited to 10 pages.
The Application in a Case filed 25 November 2019, save and except for any applications for costs, be otherwise dismissed.
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 Eblin & Eblin and Ors 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 MELBOURNE |
FILE NUMBER: MLC 5519 of 2016
| Mr Eblin |
Applicant
And
| Ms Eblin |
First Respondent
And
| B Pty Ltd |
Second Respondent
And
| Mr Shaban |
Third Respondent
And
| C Pty Ltd (as Trustee for Shaban) |
Fourth Respondent
REASONS FOR JUDGMENT
introduction
On 25 November 2019, the husband who is the respondent in the substantive proceedings filed an Application in a Case (“the Application”) seeking orders that D Pty Ltd (ACN …) be wound up pursuant to s 461(k) of the Corporations Act 2001 (Cth) (“the Corporations Act”). The husband also sought an order for the appointment of Mr E as liquidator for that purpose and he filed a Consent to Act as Liquidator signed by Mr E.
The wife did not file a Response to the husband’s Application in a Case and the husband in his supporting Affidavit deposed to the effect that the wife joined him in making the application. This was confirmed by her solicitor at the hearing on 28 November 2019.
Neither the third nor fourth respondents filed a Response to the husband’s Application in a Case and solicitor appearing on their behalf put to the Court that they neither consented to nor opposed the husband’s application.
background
The husband and wife were both born in the Middle East. The husband is currently aged 66 and the wife is aged 53. The husband migrated to Australia in 1977 and the wife followed in November 1982.
The parties married in 1982 and separated on 6 June 2016, being a marriage of 34 years. The parties were divorced in 2017. There are three adult children of the marriage:
a)Ms X born in 1983;
b)Mr Y born in 1985; and
c)Mr Z born in 1990.
In 1998 the parties set up the Eblin Family Trust. B Pty Ltd is the Trustee of the Eblin Family Trust. The husband is the sole director and shareholder of B Pty Ltd. B Pty Ltd is the registered proprietor of three real properties.
The husband is also the sole director and shareholder of D Pty Ltd, which is the trustee of the D Business Trust. D Pty Ltd held two V Company franchises, one in Suburb F (“Suburb F business”) and the other in Suburb G (“Suburb G business”). The wife’s evidence is that throughout the marriage the parties and their children, in particular Ms X, Mr Y and Ms X’s husband Mr H, worked harmoniously in both the Suburb F business and the Suburb G business.
On 17 June 2016, the wife commenced proceedings in the Family Court of Australia (“the substantive proceedings”).
On 3 August 2016, Justice Thornton made inter alia the following orders by consent inter alia in relation to the company:
a)That the husband and wife be restrained by injunction from altering the constitutions, trustee or structure of The Eblin Family Trust and The D Business Trust; encumbering, selling, transferring or assigning the shares or directorships in B Pty Ltd and D Pty Ltd or any other assets or entities which these companies control other than in accordance with the others, as agreed or in the ordinary course of business;
b)That the line of credit linked to D Pty Ltd was unable to be used other than in the ordinary course of business; and
c)The $200,000 in the Term Deposit is unable to be touched.
The wife alleged that the line of credit referred to in the orders had rarely been used during the marriage and it was only after separation that the husband had drawn down the sum of $132,000 from that line of credit.
On 14 October 2016, Justice Cronin made orders by consent capping the line of credit at $150,000. B Pty Ltd was joined as the second named respondent to the substantive proceedings. His Honour also made procedural orders for the valuation of the Suburb F business and the Suburb G business, with a view to placing a value on the party’s interest in D Pty Ltd.
D Pty Ltd
It is the husband’s case, which is denied by the wife, that Ms X and Mr H were mismanaging the businesses, particularly the Suburb G business, and that they were misappropriating funds from the business for their personal benefit. In August 2015, the husband resumed control of the Suburb G business and transferred both Ms X and Mr H to the Suburb F business. The wife deposes that it was the husband’s allegations about Ms X and Mr H and what followed that lead to the breakdown of their marriage.
At about this time the husband says that he began making arrangements to sell the Suburb G business to Mr J, with Mr J taking over control, pending V Company approving the transfer of the franchise.
The husband also deposes that at this time “… the needs of the business” became so pressing he was forced to turn to Mr J for “interim financial assistance”. According to the husband Mr J advanced $254,000 to D Pty Ltd, which consisted of one payment of $150,000 on 11 August 2015 paid on Mr J’s behalf by his sons Mr L Shaban and Mr Shaban and a further payment of $104,000 paid on 25 September 2015 paid on Mr J’s behalf by his son Mr M Shaban. Although Mr J agrees that he lent the husband $254,000, he deposes that he does not have a son called Mr M Shaban and that he personally advanced the sum of $104,000.
The wife disputes that D Pty Ltd needed to borrow or that any funds were advanced. It is her evidence that the loans had not been mentioned in any correspondence and that notwithstanding that the husband had filed two Affidavits and a Financial Statement, the first she knew of the alleged loans was on 12 December 2016, when the husband’s solicitor sent a letter to her solicitors enclosing statutory declarations by the husband with respect to the alleged loans from Mr L Shaban, Mr Shaban and Mr M Shaban.
On 23 November 2015, the husband as the sole director of D Pty Ltd having made the decision to sell the Suburb G business signed a memorandum of agreement with Mr J’s sons Mr L Shaban and Mr Shaban, despite the wife’s opposition to any sale, whereby he says she believed it would be a breach of the franchise agreement. The agreement provided for a payment by Mr L Shaban and Mr Shaban of $165,156.17 for stock in trade and a further payment $400,000 for the purchase of the Suburb G franchise itself. As previously referred to Mr J was to operate the Suburb G business for his benefit, pending V Company approving the transfer of the franchise. The agreement provided for Mr J to take over control of the Suburb G business on 21 November 2015. The husband’s evidence is that Mr J and his sons had to take over the Suburb G business to gain the experience they needed to secure the franchise.
The husband also deposes that it was intended that the $254,000 previously lent to D Pty Ltd by Mr J would be treated as part payment of the total purchase price of $654,000.00, the balance of $400,000 to be paid when V Company approved the sale to Mr J. He says that on that basis Mr J’s sons made two payments of $200,000 each as security for the purchase. The first payment was invested in the names of the husband and wife in an interest bearing term deposit with the National Australia bank (“NAB”). The second payment was invested in an interest bearing term deposit in the husband’s name. The husband deposes that he applied $419,156.07 (the total of the loan plus the payment for stock in trade) to discharge debts which he said were incurred as a result of the mismanagement of the businesses when they were was under Ms X and Mr H’s control. The husband further deposes following the breakdown of the marriage and at the request of Mr J he refunded the second security deposit which was invested in his name to Mr J leaving D Pty Ltd with a debt to Mr J of $419,156.07.
In December 2016, V Company became aware of the management arrangement existing between D Pty Ltd and Mr J, and consequently demanded that D Pty Ltd, the authorised franchisee, resume control of the Suburb G business.
The husband deposes that thereafter he “engaged” Mr N as Mr J’s replacement and that on 1 April 2017, Mr J handed over the operation of the Suburb G business to Mr N. Mr N paid J $233,000 for the stock-in-trade he said leaving D Pty Ltd owing Mr J $254,000 and the first security deposit of $200,000. Mr J has filed an Affidavit confirming the debt and his son Mr Shaban and C Pty Ltd as trustee for the Shaban Family Trust, have been joined as parties to the proceedings.
Mr K, a director of O Group was engaged by the parties to prepare a valuation of their various entities. Based upon a comparison of the financial statements for D Pty Ltd and the Master Sales Records maintained by V Company Head Office, Mr K identified what he said was under-disclosed income of $1.899 million for the financial years ending 2013 to 31 December 2017.
On 2 February 2018, the husband without notice to the wife wrote to the Tax Evasion Reporting Centre on behalf of D Pty Ltd enclosing a copy of the valuation of O Group with respect to the non-disclosure of taxable income (Affidavit of Ms U filed 14 February 2018 par 4). In his letter to the ATO the husband alleged that Ms X in cooperation with the wife, was responsible for misappropriating the income, which is the subject of the non-disclosure. As previously referred to this is denied by the wife.
On 24 May 2018, V Company terminated the franchise agreements with D Pty Ltd and took possession of the Suburb G business and the Suburb F business. In June 2018, the husband commenced proceedings in the Victorian Civil and Administrative Tribunal against V Company on the basis that V Company’s termination of the franchise agreements was unlawful. Those proceedings were settled in December 2018 and the husband executed a Deed of Settlement with V Company. Pursuant to that deed V Company paid D Pty Ltd $575,000. Of that amount $83,586.02 was paid to T Lawyers and the balance is invested in a controlled monies account by Aitken Partners. The balance of that account is approximately $491,739.99.
Pursuant to the orders made by Justice Johns dated 20 June 2019, Ms P of Q Group was appointed to conduct a review of the various corporate entities, including D Pty Ltd. On 23 July 2019, Ms P wrote to the parties to advise that she was no longer employed by Q Group. The parties then instructed Mr Q to conduct the review. However, on 22 October 2019 Q Group wrote to the parties to advise that the available information was insufficient for them to commence work on that review.
The Law:
Jurisdiction of the Family Court
The Family Court of Australia has original jurisdiction in respect of all civil matters arising under the Corporations Act.
A ‘civil matter’ is defined by the Corporations Act in s 9 as ‘matter other than a criminal matter.’ Section 233 of the Corporations Act sets out the orders that the court can make and states that the court, which is defined in s 9 of the Corporations Act as a federal court or a court of a State or Territory, can make any orders that it considers appropriate in relation to a company, including an order that the company be wound up (in accordance with s 233(1)(a) of the Corporations Act). Thus, the power of the Family Court of Australia to make orders to wind up D Pty Ltd is found in its exercise of original jurisdiction pursuant to s 1337C of the Corporations Act.
Standing to bring Application
Section 462 of the Corporations Act lists those with the necessary standing to make an application to wind up a company. Relevant to this case they include the company itself and a contributory.
Section 9(a)(ii) of the Corporations Act defines a contributory for a company with share capital, as the holder of fully paid shares in the company. The husband is the holder of the only two issued shares in D Pty Ltd, thus the husband is a contributory who has standing to bring an application to wind up the company. As the husband is the sole shareholder, the court is not required to consider the interests of other shareholders.
Winding up the Company
Parts 5.4 to 5.7 of the Corporations Act contains the relevant provisions with respect to the winding up of a company. There are two ways in which a company can be wound up. The first being voluntary administration and the second the compulsory winding up of the company, which is what is proposed in this case.
Compulsory winding up of companies can occur in two ways. Firstly under Part 5.4 of the Corporations Act, where the company is or is deemed to be insolvent and secondly in circumstances other than the company being insolvent. This is dealt with in Part 5.4A of the Corporations Act. The relevant ground for the purposes of this application is s 461(1)(k), which provides for a company to be wound up if the “...Court is of the opinion that it is just and equitable that the company be wound up.”
The court’s discretion to grant or refuse a winding up order has been described as a “wide discretionary power” (KL Tractors [1954] VLR 505 at 512) that must be exercised judicially. The reasons for the exercise of that discretion must be capable of examination and justification (see Re Trivoli Freeholds Ltd [1972] VR 445; Baird v Lees [1924] SC 83). The court will only make orders that a company be wound up on the just and equitable grounds where there is no alternative and reasonable remedy available. This is apparent in s 467(4)(b) where is states that the order will only be made “‘in the absence of any other remedy.”’ (See Re Norvabron Pty Ltd (1987) 5 ACLC 184 at 295; Re Dalkeith Investments Pty Ltd (1985) 3 ACLC 74; Netbush Pty Ltd v Fascine Developments Pty and Others (2005) 189 FLR 320 at 321).
In Netbush Pty Ltd v Fascine Developments Pty and Others Simmons J held:
…If there is conduct within s 461(1), there is a discretion to order the company be wound up: see Fernlake; and compare the position under an earlier form of the legislation, where it had been held, in Re National Discounts Ltd and Companies Act (1951) 52 SR (NSW) 244, winding up was mandatory. There is provision (in s 467(4)) that where the application is made on the “just and equitable” ground (s 461(1)(k)), or on the ground that the directors have “acted in a manner that appears to be unfair or unjust to other members” (which in my view takes in s 461(1)(e), (f) and (g)), the Court “must make” a winding up order. This is unless it is of the opinion that some other remedy is available to the applicants and that they are “acting unreasonably” in seeking a winding up “instead of pursuing that other remedy”. This confirms that winding up is a remedy of “last resort” that ought not to be granted if “other less drastic relief is available and appropriate.”
‘Just and Equitable’
There are various factual categories which have been considered relevant to the question of whether it is just and equitable to wind up a company. They include but are not limited to the following categories:
a)Where the substratum of the company is gone;
b)Where the company is fraudulent from inception;
c)Where the company is unable to carry on profitably;
d)Where there is a complete deadlock in management of the company’s affairs;
e)Where the company is in a quasi-partnership whose members are unable to co-operate;
f)Where there is fraud, misconduct or oppression in management; and Where there is a matter of corporate paralysis such as an absence of directors and no prospects of any being appointed;
However, as However, as Brereton J said in Catombal Investments Pty Ltd [2012] NSWSC 775 at [20]:
“However, the court is not restricted in exercising its discretion to particular factual categories [Re Straw Products Pty Ltd [1942] VLR 222 at 223]. And, the question whether it is just and equitable is a question of fact, in respect of which each case must depend on its own circumstances [Re Bleriot Manufacturing Aircraft Co Ltd (1916) 32 TLR 253 at 255].”
Discussion
As the sole director and shareholder the husband controls D Pty Ltd. There is also no issue with the appointment of directors and in these circumstances there is not strictly speaking a complete deadlock in the company’s management as referred to by Hetyey JR in the recent decision of In the matter of TM Fresh Pty Ltd [2019] VSC 383. However counsel for the husband submitted, and I accept that in the particular circumstances of this case there is an “effective deadlock”.
The husband is restrained from selling, transferring or assigning his shares in D Pty Ltd other than by agreement, court order or in the normal course of business. Although D Pty Ltd previously operated two V Company businesses under franchise, those franchise agreements were terminated by V Company in or about May 2018. Although D Pty Ltd pursued a claim against V Company for unlawful termination of the franchise agreements it has not traded since those franchise agreements were terminated.
D Pty Ltd has outstanding creditors including former employees, suppliers and a contingent liability to the ATO. Both the husband and although not a shareholder, the wife who commenced the proceedings in this Court attribute responsibility to the other for the state in which D Pty Ltd now finds itself. There are claims by the third and fourth respondents for monies they allege they are owed, which are disputed by the wife. There is also a dispute as to what if any action should be taken to recover funds from either Ms X for the alleged misappropriation of funds or Mr N with respect to the reduced value of the stock when V Company terminated the franchise agreements.
D Pty Ltd’s financial position is central to the determination of the extant property proceedings, however there has been a protracted dispute between the husband and the wife about D Pty Ltd’s financial position and with respect to how that can be resolved. There is little that these parties agree upon, nor have they been able to agree upon a course which will enable any legitimate creditors to be paid and/or their property proceedings to be resolved or determined. It is this impasse, which in my view supports the appointment of a liquidator to wind up the company.
As previously referred to the solicitor for the third and fourth respondent said that he has been instructed to neither consent to nor oppose the orders sought by the husband and supported by the wife. Although the solicitor for the third and fourth respondents indicated that he wished to make submissions as to why the Court might not accede to the husband’s application, there seemed little purpose in him doing so in circumstances where the orders sought were ultimately not opposed. It would also not have been surprising in my view if it had been the third and fourth respondents agitating for the appointment of a liquidator in circumstances where they cannot progress their claims until these matters have been resolved.
For all of these reasons, I am satisfied that it is just and equitable to make an order winding up the company allowing these outstanding issues to be addressed, ending the impasse the parties have faced with respect to D Pty Ltd.
Procedural process of winding up a company
Counsel for the applicant husband helpfully provided submissions with respect to the procedural requirements that need to be met in order for D Pty Ltd to be wound up. I am satisfied that the husband has complied with these procedural requirements.
Chapter 25 of the Family Court Rules 2004 (Cth) (“Family Law Rules”) deals with cases either started in, or transferred to a Family Court under the Corporations Act.
Rule 25.02 of the Family Law Rules states that:
‘The Corporations Rules, as modified by rule 25.03 or an order, apply to an application under the Corporation’s Act 2001 or the Corporations (Aboriginal and Torres Strait Islander) Act 2006 in a Family Court as if those rules were provisions of these rules.’
The applicable Corporation Rules are the Federal Court (Corporation’s) Rules 2000 (Cth) (“Corporation Rules”). Rule 25.03 of the Family Law Rules states that the Corporation Rules, in their application under Rule 25.02, are modified in accordance with the table outlined in this rule. Furthermore rule 25.04 of the Family Law Rules states that an application must not be dismissed only because it has been made in the wrong form.
Division 5 of the Corporations Rules relates to winding up proceedings and rule 5.1 within this division states that it applies to applications for the winding up of a company under part 5.4A of the Corporations Act (an application under s 461 is contained in Part 5.4A).
Rule 5.4 states that there must be an originating application with an affidavit in support of an originating process seeking an order that a company be wound up. On 25 November 2019, the husband filed an Application in a Case and a supporting Affidavit sworn on 15 November 2019. An application made to the court to wind up the company on the grounds that it is just and equitable does not require any specific content other than as required by rule 2.4.
Rule 2.4 of the Corporations Rules provides as follows:
2.4 Supporting affidavits
(1) Unless the Court otherwise directs, an originating process, or interlocutory process, must be supported by an affidavit stating the facts in support of the process.
(2) Subject to rule 2.4A, an affidavit in support of an originating process must annex a record of a search of the records maintained by ASIC, in relation to the company that is the subject of the application to which the originating process relates, carried out no earlier than 7 days before the originating process is filed.
Note: An example of the affidavit in support of an application for winding up in insolvency for failure to comply with a statutory demand is shown in Schedule 3 (Notes to these Rules).
The husband annexed a copy of an ASIC search of D Pty Ltd dated 28 November 2019 to his Affidavit sworn and filed on that date.
Corporation Rule 5.5 requires that the consent of an official liquidator to act as liquidator be filed in accordance with Form 8 before the hearing and a copy be served on the company a day before the hearing. During the hearing before me on 28 November 2019, the husband was granted leave to file the consent of Mr E of S Group to act as Liquidator/Provisional Liquidator of D Pty Ltd if appointed, as well as a copy of the notice of the Corporation Rules rule 5.3. I accept counsel for the husband’s submission that in circumstances where the husband is the sole director and shareholder that the requirements of Rule 5.5 with respect to service upon the company have been satisfied.
I note that the solicitor for the third and fourth respondents also sought and was granted leave to file a consent of an alternative liquidator. The basis of this appeared to be that the liquidator he proposed would be less expensive. Although he also sought to rely upon a schedule of that liquidators fees, I am not in a position based upon that schedule to determine whether or not the liquidator he proposed would cost less than the liquidator proposed by the husband. I am also mindful that it is the husband and not the third and fourth respondents who is seeking the appointment of a liquidator, albeit the third and fourth respondents could have taken steps to do so. In all of the circumstances, where there was otherwise no criticism of the liquidator nominated by the husband, I propose to accede to the husband’s application.
Rule 5.6 of the Corporation’s Rules requires notice of the application for winding up to be published in a daily newspaper circulating generally in the State or Territory where the company has its principal, or last known, place of business. That notice is to be published at least 3 days after the originating process is served on the company and at least seven days before the date fixed for the hearing of the application. As time was abridged for the hearing of the husband’s application publication seven days before the hearing was not possible. In order to meet the seven day notification period requirement in rule 5.6, the matter was adjourned to 17 December 2019. On 13 December 2019, the solicitors for the husband filed an Affidavit confirming that the Notice of the Application for Winding Up Order was placed on the ASIC Insolvency Notices Website on 6 December 2019.
Although the matter was listed for hearing on 17 December 2019 the parties did not appear. Nor was there any application filed by or any appearance on behalf of any other interested party at the hearing that day and the matter was accordingly adjourned to a date to be fixed for judgment.
In all of the circumstances, I propose to make the orders sought by the husband. I will also make orders with respect to any applications for costs.
I certify that the preceding fifty two (52) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Macmillan delivered on 8 January 2020.
Associate:
Date: 8 January 2020
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