EL RASHIDY & EL RASHIDY
[2019] FamCA 209
•9 April 2019
FAMILY COURT OF AUSTRALIA
| EL RASHIDY & EL RASHIDY | [2019] FamCA 209 |
| FAMILY LAW – PROPERTY – Interlocutory proceeding – partial property settlement – sale of assets – trial to commence in two months’ time. |
| Family Law Act 1975 (Cth) |
| Strahan v Strahan (Interim Property Orders) [2009] FamCAFC 166 Bearup & Bearup (1993) 16 Fam LR 797 Harris & Harris (1993) 16 Fam LR 579 Furtado & Furtado [2011] FamCA 1018 |
| APPLICANT: | Ms El Rashidy |
| RESPONDENT: | Mr El Rashidy |
| FILE NUMBER: | MLC | 7974 | of | 2017 |
| DATE DELIVERED: | 9 April 2019 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | The Honourable Justice Williams |
| HEARING DATE: | 19 – 21 March 2019 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr North of Queen’s Counsel with Mr Dunlop of Counsel |
| SOLICITOR FOR THE APPLICANT: | Nicholes Family Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Strum of Queen’s Counsel with Ms Burt of Counsel |
| SOLICITOR FOR THE RESPONDENT: | Landers & Rogers |
Orders
Within 7 days the husband pay all arrears of spousal maintenance owed to the wife pursuant to:
(a) Order 7(a) of the orders made 4 October 2017; and such payment be made to the solicitors for the wife;
(b) Order 7(p) of the orders made 4 October 2017.
All extant interim applications are 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 El Rashidy & El Rashidy 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 7974 of 2017
| Ms El Rashidy |
Applicant
And
| Mr El Rashidy |
Respondent
REASONS FOR JUDGMENT
On 26 February 2019, the wife filed an Amended Application in a Case. The application was listed for hearing in the Judicial Duty List on 19 March 2019. The application was heard on 19, 20 and 21 March 2019.
Interim Issues
The following interim issues are disputed:
a)Whether the business B Group should be sold;
b)The wife’s application for litigation funding including the sale of properties;
c)The wife’s application for enforcement of interim consent orders for spousal maintenance;
d)The husband’s application for variation of the interim spousal maintenance orders;
e)Discovery.
Background
The parties married in 1993 in Country A and subsequently migrated to Australia. The wife asserts that they separated in 2017. The husband asserts that they separated under the one roof in 2014, and physically separated in 2015. There are four children of the marriage, three of whom are adult. The youngest child, X, aged 12 years, lives with the wife and the older three children live with the husband.
On 4 October 2017, orders were made by consent for the husband to provide financial support for the wife and X.
The husband is aged 54 and the wife is aged 51. The husband is a health professional and the wife is engaged in home duties. From 2003 until December 2015 the wife was a director of many of the B Group companies and worked in the business. She characterises her former role in B Group as Senior Manager.
The B Group:
a)provides services within Australia; and
b)operates businesses involving the importation of supplies, including software development and a business in a city in Country B.
Subsequent to separation, in 2015 the wife was removed as a director of B Group entities. The husband has been in effective control of B Group, including the El Rashidy Trust, through which most of the business income is derived.
In late 2016, the wife asserts that the husband arranged for her to personally guarantee a $14 million debt facility to D Bank in the name of Mr H Pty Ltd as trustee for the El Rashidy Trust. The wife disputes the liability for this debt because of the circumstances surrounding her execution of the guarantee.
On 4 October 2017, orders were made by consent appointing Ms C of an accounting firm to value the B Group enterprise and business. The valuation has not been completed, despite a meeting between Ms C and both parties and their legal representatives on 21 February 2019. The date of valuation of B Group was agreed as 30 June 2018. Both parties agree that there is no current valuation of the business of B Group.
The parties and or companies/entities controlled by the parties are the registered proprietors of real estate, including residential and commercial properties. As at July 2018 Company R valued the group’s interests in real property at approximately $18 million.
The principal secured creditor of B Group is D Bank, which has advanced between $13 million and $14 million to B Group.
In late December 2018, D Bank commissioned the Z Group report dated 9 November 2018, as to the financial viability of B Group.
Subsequent to the Z Group report, D Bank initiated meetings with the husband and the wife about the financial position of B Group.
On 24 December 2018, the former accountant for B Group, Mr F, via his companies, advanced B Group $2 million. The funds were provided by way of two cheques payable to H Pty Ltd dated 24 December 2018, as follows:
a)$1,488,868 advanced by Company D Pty Ltd; and
b)$511,112 advanced by Company G Pty Ltd.
Mr F is the sole director and secretary of Company D Pty Ltd and Company G Pty Ltd.
Mr F prepared a Ten Year Draft Business Plan for B Group, which is dated 7 January 2019.
On 8 January 2019, the wife’s solicitors became aware of a purported agreement between Mr F and the husband for a loan of $2 million by way of a convertible note for a 20% share in B Group.[1]
[1] Paragraph 13 of the affidavit of Ms Nicholes sworn 15 March 2019.
In January 2019, D Bank prepared a Deed of Forbearance in relation to the borrowings of B Group. The husband asserts that D Bank maintains concerns about the financial position of B Group,[2] but the bank is content to continue with this current position, provided B Group complies with the Deed of Forbearance. As at the date of submissions the Deed remained unexecuted.
[2] Paragraph 29 of the husband's first affidavits on 18 March 2019.
On 14 February 2019, Mr F contacted the wife and arranged to meet with her the following day. On 15 February 2019, the wife met Mr F and was informed by him that he had provided the husband $2 million via a convertible note and would be obtaining a twenty percent shareholding in B Group. He also advised the wife that he had been appointed the new Chief Financial Officer of B Group. [3]
[3] Paragraph 16 of the wife's affidavit sworn 26 February 2019.
On 21 February 2019, the husband’s lawyers forwarded an email to the wife’s lawyers, enclosing copies of email exchanges between the husband and Mr F pertaining to the advance of funds. A copy of the email dated 21 February 2019 is exhibit H3 to the affidavit of Ms Nicholes sworn 15 March 2019.
The email exchange between the husband and Mr F contemplates both parties engaging a commercial solicitor, Robert James Lawyers, to prepare the convertible note and other legal documents to formalise the agreement.
As at the date of the hearing of the wife’s Further Amended Application in a Case, no such documentation had been finalised or executed by the husband.
Between 18 February 2019 and 25 February 2019, the wife’s lawyers forwarded a series of letters to the husband’s solicitors seeking disclosure of documentation pertaining to the agreement between Mr F, the husband and Company V Pty Ltd. Copies of the letters from the wife’s solicitors to the husband’s solicitors are exhibits R 1 to R 5 to the wife’s affidavit of 26 February 2019.
On 4 March 2019, the wife filed a further Application in a Case seeking orders enabling her to serve affected third parties with a redacted version of the wife’s affidavit of 26 February 2019. That application was heard on 8 March 2019, when orders were made providing for service of documents on interested parties, including Mr F.
On 12 March 2019, Mr F was served with a copy of the Amended Application in a Case and supporting affidavit of the wife, in accordance with the orders of 8 March 2019. On 12 March 2019 Mr F sent an email to the wife’s solicitors which is exhibit H 6 to the Ms Nicholes affidavit.
The trial is fixed for hearing on 12 June 2019.
Applications and Documents relied upon by the parties
The Wife
The orders the wife sought in the Amended Application in a Case filed 26 February 2019 are summarised in her written Outline of Submissions as follows:
a)injunctions restraining the husband from taking any action to:
i)transfer or divest shares in B Group or any associated entity;
ii)remove the current officers of B Group or any associated entity;
iii)transfer, dispose of, or further encumber any assets or shareholdings of B Group or any associated entity; and/or
iv)alter the records held by ASIC in respect to B Group or any associated entity;
b)orders for the sale of B Group as defined by part D notation A to the Amended Application in a Case, which includes R Group and KEL Group (B Group);
c)interim provision for litigation expenses fixed in the sum of $530,876.53;
d)enforcement of the husband’s obligations:
i)to make weekly payments to the wife in satisfaction of Order 7(a) of the consent orders made 4 October 2017; and to pay the outstanding arrears pursuant to orders made 4 October 2017, in the amount of $24,000;
ii)to make monthly payments into the wife’s superannuation fund in compliance with order 7(p) of the orders made 4 October 2017;
iii)to provide to the wife copies of financial documents and information numerate at annexure “A” of the written Outline of Submissions; and
e)costs of and incidental to the application.
The wife relied on the following documents;
a)Further Amended Initiating Application, filed 26 February 2019;
b)Amended Application in a Case filed 26 February 2019;
c)Application in a Case filed 4 March 2019
d)affidavits of the wife filed:
i)7 February 2019;
ii)26 February 2019;
e)Further Amended Financial Statement filed 7 February 2019;
f)affidavits of Ms J filed 7 February 2019 and 4 March 2019;
g)affidavit of Ms Nicholes filed 15 March 2019.
The Husband
In his Response to an Amended Application in a Case filed 18 March 2019 the husband opposes the orders sought by the wife. The husband sought orders as follows:
a)dismissal of the wife’s Amended Application;
b)variation of the orders made by consent on 4 October 2017 as follows:
i)paragraph 7(a) so that the sum to be paid per week is $1000;
ii)discharge of paragraph 7(p).
The husband relied on the following documents:
a)Response to an Amended Application in a Case filed 18 March 2019;
b)two affidavits filed 18 March 2019.
On the second day of the hearing the parties reached agreement in relation to the injunctive orders. Orders were made by consent, in accordance with the minute submitted by the parties.
I will address each of the category of remaining orders sought by the parties, which are:
a)litigation funding
b)the interim sale of B Group;
c)variation of the interim spousal maintenance orders made on 4 October 2017;
d)discovery dispute.
Wife’s Application for litigation funding
Wife’s Application
Paragraph 3 of the wife’s Amended Application in a Case filed 26 February 2019 seeks the following order:
That within seven days of the date of these orders being made, the husband do all acts and sign all documents necessary in his capacity as the director of [H] Pty Ltd as trustee for the [El Rashidy] Trust to cause the sum of $530,876.53 to be transferred to the wife’s lawyers, Nicholes Family Lawyers on account of litigation funding for the wife.
Paragraphs 4 and 5 of the Amended Application in a Case filed 26 February 2019, seek orders that in the event the husband fails to comply with the order sought in paragraph 3, then the property at Street L, Suburb K be sold and the net proceeds of sale, after discharge of sale costs, rates and outgoings and any mortgage encumbering the property, be paid to the wife to satisfy her claim for litigation funding.
Paragraphs 6 to 12 of the wife’s affidavit sworn 26 February 2019, sets out the evidence she relies upon in support of her application for litigation funding.
Paragraphs 8, 9, 10 and 11 of her affidavit of 7 February 2019, sets out her expenses including legal fees.
In summary the wife’s evidence is as follows:
a)on 30 January 2019, her lawyers forwarded a letter to the husband’s lawyers requesting the sum of $530,876.53 for litigation funding. As at the date of her affidavit, her lawyers had not received a response from the husband’s lawyers;
b)she has not received a proper accounting from the husband or his lawyers as to the expenditure of the $2 million which was paid to B Group in December 2018;
c)in the absence of an explanation about the disposition of the $2 million, some of the funds may be available to meet her application for litigation funding;
d)if the husband does not have available funds to meet her litigation expenses, then she proposes that the husband’s home, Street L, Suburb K, could be sold to meet her legal expenses;
e)the Suburb K property was valued in May 2018 at $3 million and is encumbered by a mortgage to D Bank, which as at 24 July 2018 was $2,407,500;
f)her original Application in a Case filed 7 February 2019 proposed the sale of an alternative property in Town M, New South Wales, however she has subsequently been informed by D Bank that the D Bank mortgage encumbering the Town M property is, cross collateralised with the D Bank facilities advanced to B Group.
In her written Outline of Submissions and oral submissions of her Senior Counsel, the wife asserts[4] that an order for her legal costs should be made for the following reasons:
i)the husband is in a position of financial strength in stark contrast to the wife, as he remains in control of B Group, and has the capacity to pay his legal fees;
ii)the complexity of the parties financial affairs necessitates the wife being legally represented;
iii)the requirement for expert opinion and that the wife should be in a position to obtain her own independent experts if necessary;
iv)her lawyers will not continue to act for her without funds being paid into trust for legal costs expenses and disbursements;
v)the estimated past and future fees likely to be incurred to the time of final hearing are $922,442.98, and in that regard the wife relies on the affidavit of Ms J, filed 7 February 2019.
[4] Paragraph 51 of the wife's Outline of Submissions.
At paragraph 53 of the Outline of Submissions, the wife submits that, although she is not required to do so, she has identified the equity in the Suburb K property as a source of funding should the husband be otherwise unable to raise capital to make the payment to her.
The wife relies upon the statements in Strahan & Strahan (Interim Property Orders) [2009] FamCAFC 166 to identify the court’s power to order interim funding.
During submissions the sale of another property, Street N, Town P, was referred to by Senior counsel.
Husband’s Response
The husband opposes the wife’s application for litigation funding and seeks orders that the application be dismissed.
The husband’s evidence in opposition to the wife’s application for litigation funding is set out at paragraphs 5 – 12 inclusive of his affidavit sworn 18 March 2019.
In summary the husband’s evidence is as follows:
a)he has no capacity to pay the lump sum sought by the wife;
b)the sum sought is not justified or reasonable, when the wife has received $486,000 for legal expenses since October 2017;
c)the amount expended and to be expended by the wife is significantly greater than the legal fees he has incurred;
d)he has paid for expert valuations including property valuation costs and partial payment of Ms C’s fees;
e)the wife has been responsible for incurring unnecessary and unwarranted legal costs;
f)the amount claimed by the wife for past and future legal costs is disproportionate to the likely asset pool available for distribution.
In his written Outline of Submissions and oral submissions of his Senior Counsel, the husband asserts that an order for the wife’s legal costs and sale of a property, should not be made for the following reasons:
a)the wife has received a total of over $463,000 by way of lump sums in addition to substantial monthly payments by the husband;
b)the lump sums received by the wife were as follows:
i)on 31 August 2017, the wife was paid $50,000 as partial property settlement;
ii)on 3 October 2017, the wife received $100,000 to be characterised at trial;
iii)on 1 August 2018, orders were made by consent providing for the husband to pay to the wife’s solicitors $313,000.
c)legal costs incurred and estimated to be incurred of approximately $992,443 are remarkable in circumstances when there have been four interim applications, one of which was withdrawn;
d)there are no funds presently available from B Group if the obligations of B Group, pursuant to D Bank and ATO are to be met, to preserve the business assets;
e)of the two properties which the wife suggests could be sold, the husband and the three older children of the marriage live in the Suburb K property and the husband seeks to retain the Suburb K property;
f)the property situated at Street N, Town P, which is currently unencumbered, is the principal office of B Group and the Deed of Forbearance requires B Group to execute a mortgage in favour of the D Bank as further security for the bank’s advances to B Group;
g)a sale of the Town P property would compromise the Deed of Forbearance with D Bank and potentially jeopardise the viability of B Group, when a trial is less than two and a half months away;
h)in circumstances where the parties property applications are to be determined at trial in June 2019, it is not presently just and equitable to make further interim orders under s.79 of the Act, and nor should the circumstances be said to justify an order under s.117 of the Act;
i)the court should approach the sale of an asset with the utmost caution before the upcoming final determination of the substantive applications;
j)an order for the sale of an asset at a preliminary stage cannot be in the interests of justice, given the impact of an order on the court’s discretion at trial;
k)an order for sale would be premature and would not be capable of being reversed and would in effect be a final order precluding the husband from pursuing an application at trial to retain his home;
l)the court should proceed in the manner akin to a stay application pending appeal, namely would the husband’s ability to retain the home be rendered nugatory by sale.
Applicable Law
The submissions of both senior counsel were predicated on the basis that the power to make an order for provision of the wife’s legal costs is properly characterised as a partial property settlement pursuant to s.79 of the Act. It is a matter for the wife how she elects to apply any such funds if an order is made by the court.
The relevant paragraphs of the seminal authority, Strahan, are referred to in the written Outline of Submissions of both parties.
The wife’s Outline of Submissions refer to the court’s power to order interim funding and the principles to be applied in such an application. Paragraph 49 of the wife’s Outline of Submissions states as follows;
The Full Court in Strahan (supra) stated at [132]:
[132] In relation to the first stage, in our view, when considering whether to exercise the power under s 79 and s 80(1)(h) of the Act to make an interim property order the "overarching consideration" is the interests of justice. It is not necessary to establish compelling circumstances. All that is required is that in the circumstances it is appropriate to exercise the power. In exercising the wide and unfettered discretion conferred by the power to make such an order, regard should be had to the fact that the usual order pursuant to s 79 is a once and for all order made after a final hearing.
Paragraph 50 of the wife’s Outline of Submissions refers to the considered and accepted two-step approach adopted in Strahan, at paragraph [137] as follows;
[137] Once a court proceeds to exercise the power in s 79 of the Act, being in the substantive phase, a court is required to undertake consideration of the matters in s 79(4) including by reference to s 79(4)(e) the matters in s 75(2) so far as they are relevant. However consideration of such matters may be brief and if it is established that "it seems likely to the court that … the applicant … will be likely receive by way of property settlement a sum sufficient to cover the advance, that would seem to be sufficient to enable the order sought to be made…
The husband’s Outline of Case refers to further authority relevant to the requirement that any interim order must be capable of variation or reversal at any time prior to, or as part of, the final exercise of the s.79 power.
The husband in his Outline of Case Document at paragraph 13, refers to Strahan at paragraph [136 ] as follows:
[136] As to the third matter identified at 79,930 by the Full court in Harris, in discussion before us it was described as the "adjustment issue" or "claw-back issue". It was submitted by senior counsel for the Wife that it is relevant to consider whether an order would give the applicant "more than they would be indubitably entitled to on a final hearing" or alternatively "would it give them so much that it could not be adjusted on a final hearing?" As we have observed the Full court in Zschokke at 83,220–221 stressed the importance of consideration of the "adjustment issue" if the power in s 80(1)(h) of the Act is being exercised. We accept the submission and observe that this matter is relevant because the discretion conferred by the power in s 79 is to make such order as the court considers appropriate provided it is just and equitable to make the order in circumstances where the power will not be exhausted by the interim order. As Bryant CJ and Coleman J observed in Gabel v Yardley at [69] and [72] the interim order must be capable of variation or reversal without resort to s 79A of the Act or appeal. As Finn J said at [126] the interim order must be "capable of alteration at any time prior to, or as part of, the final exercise of the s 79 power".
During oral submissions the husband’s Senior Counsel took me to relevant passages of Bearup & Bearup (1993) 16 Fam LR 797, Harris & Harris [1993] FamCA 49 and the decision of Murphy J in Furtado & Furtado [2011] FamCA 1018 at [10] and [11] in the context of restraint and caution which should be exercised by a trial judge in making interim orders.
Discussion
It is conceded by the husband that he has no capacity to make a payment of $530,876.53 as sought by the wife.
The issue then remains whether an interim order is made for the sale of the Suburb K or Town P properties, in the face of a trial commencing in June 2019.
The wife seeks an order for the sale of the Suburb K property, which is home to the husband and the parties’ three adult children. According to the valuation obtained in July 2018, a sale of the property would provide sufficient funds to satisfy her claim for a partial property settlement. The husband wishes to ultimately retain the property as his home.
The husband contends that there is similar equity in the wife’s Suburb T property, where she lives with the party’s youngest child. The wife did not address the respective merits of sale or further encumbering her home, as opposed to ordering a sale of the Suburb K property, in circumstances where each party seeks to retain their respective homes at trial.
Senior counsel for the wife submitted that it would be appropriate to order a sale of the Town P property, as it is presently unencumbered. It was common ground that:
i)the Town P property is a commercial building which is occupied by B Group as its principal office;
ii)The Deed of Forbearance contemplates D Bank requiring further security, specifically, a mortgage over the Town P property;
iii)The husband seeks to ultimately retain the Town P property.
In terms of the proposed sale of the Suburb K property, it is clear that an order for sale of the property would not be “reversible” in accordance with the authorities referred to in these reasons. Furthermore, to order the irrevocable sale of one party’s home, in the face of a professed desire to retain the home, whilst the other party is permitted to retain her home, seems to be inherently unfair.
An order for sale of the Suburb K property would not only deprive the husband of his home, but would also preclude him from arguing at trial that he should retain the property, in circumstances where there is no evidence that the husband retaining the Suburb K property would be impossible on a final basis.
To make such an order on an interim basis, where there has been no testing of evidence by way of cross-examination and findings of fact would be draconian and could not be construed as exercising caution.
In terms of the proposed sale of the Town P property, clause 5(f) of the Deed of Forbearance (The Deed), which is an exhibit H1 to the affidavit of Ms Nicholes sworn 18 March 2019, provides as follows:
Contemporaneously with the execution of this deed, TPH must provide the [Town P property] mortgage, in registrable form to the Financier
Clause 1.1 of the Deed defines the N Avenue property as ‘the property located at Street N, Town P, Victoria more particularly described in Certificate of Title Volume … folio …’.
As at the date of the hearing the husband did not adduce any evidence about:
a)The reasons D Bank was prepared to accept delay in execution of the Deed;
b)Whether any steps had been taken to execute the proposed D Bank mortgage over the Town P property.
The evidence before me supports the proposition that if the husband sold or mortgaged the Town P property with another financial institution, the future financial viability of B Group could be prejudiced, with a catastrophic impact on the asset pool available for distribution. That is the precise situation the wife seeks to avoid.
It is also evident that an interim order for the sale of the Town P property would also not be “reversible” in accordance with the authorities referred to in these reasons.
Consistent with my remarks at paragraph 58 hereof, an interim sale of the Town P property would also preclude the husband from arguing at trial that he should retain the property, in circumstances where there is no evidence that the husband retaining the Town P property would be impossible on a final basis.
To make such an order on an interim basis, where there has been no testing of evidence by way of cross-examination and findings of fact would again be draconian and could not be construed as exercising caution.
I do not intend to make any interim orders for the sale of either the Suburb K or Town P properties.
In reaching my determination, I have also had regard to the previous sums paid to the wife to enable her to meet her legal costs, and the asserted disparity between the parties’ respective legal costs.
Sale of B Group
Wife’s assertions for immediate sale of B Group
The wife seeks the sale of B Group for the following reasons:
a)she asserts that the financial position and future viability of B Group has now become critical;
b)a forced sale or winding up of B Group by D Bank or another creditor, could deplete the asset pool available for division between the parties;
c)she seeks to preserve the status quo of the financial position of the parties;
In support of her contention that the financial position of B Group is precarious, the wife relies upon evidence/documents disclosed throughout the course of the litigation, including:
a)post separation in 2017 the husband has caused:
i)excess drawings in a sum of $2.5 million being drawings relating to personal expenses and funding of associated businesses;
ii)an increase in operating expenses of the business by 16.9% by way of increases in salary wages, locum doctors and doubtful debt; and because balance-sheet movement in relation to shareholder and related party loans to increase by 52.82%, which loans have been utilised for other businesses outside B Group to create additional sources of revenue and personal use;[5]
[5] Paragraph [41] of the wife's outline of submissions.
b)The husband’s management of B Group in 2018 and 2019 has resulted in the following:[6]
[6] Paragraph [42] of the wife's outline of submissions.
i)B Group being in breach of the covenants of the D Bank loan facilities;
ii)an un-executed Deed of Forbearance;
iii)the Z Group report dated 9 November 2018, stating that the level of directors drawings ‘has placed significant pressure on Tri-Star’s liquidity and is not sustainable’;
iv)without the wife’s prior knowledge or consent arranged to obtain $2,250,000 from companies associated with Mr F, on the basis of a convertible note providing for an absolute discretion to convert the liability to a 20% share in the business;
v)the husband failing to notify D Bank of the terms of the convertible note with Mr F, which constitutes a breach of the covenants under the guarantees entered into by the husband and D Bank;
vi)B Group defaulting under the terms of the D Bank debt and credit facilities;
c)the actions of D Bank, specifically issuing a Deed of Forbearance subsequent to defaults by B Group under the terms of the debt and credit facilities of the group;
d)the husband has not complied with clause 5(c) of the Deed and has not commenced paying D Bank $50,000 per month, in addition to the interest commitments, despite his initial evidence to the contrary;[7]
[7] Paragraph [32] of the husband's first affidavit sworn 18 March 2019.
e)despite a capital injection of $2,225,000, since 24 December 2018, B Group has not paid $50,000 per month towards capital reduction as required by the Deed;
f)the husband has not provided any evidence of the following:
i)arrangements with the ATO for a payment plan in relation to staff superannuation liabilities;
ii)the turnaround plan for the B Group, in accordance with the Z Group report, and which is referred to at paragraph 32 of the husband’s first affidavit of 18 March 2019;
g)Z Group report commissioned by D Bank dated November 2018, which is exhibit H 2 to the affidavit of Ms Nicholes and exhibit R1 to the affidavit of the husband sworn 18 March 2019, refers to the precarious financial position of the B Group;
h)statements of Mr F as to the group trading whilst insolvent and his consequent concerns about the liability of the husband and wife, as expressed:
(i)in the Ten Year Draft Business Plan prepared by him and dated 7 January 2019 (at page 20) which is exhibit R2 to the second affidavit of the husband sworn 18 March 2019;
(ii)to the wife’s solicitor in his email of 12 March 2019. That email is exhibit H6 to the affidavit of Ms Nicholes.
i)If the business is not sold, the parties are at risk of D Bank, or indeed another creditor of the business taking action to force a sale of the B Group which would have a potentially catastrophic effect on the asset pool for division between the parties;
The wife refutes the contention that the Ten Year Draft Business Plan is inconsistent with the email of 12 March 2019, and that the husband’s own evidence, namely exhibit R2 to his second affidavit of 18 March 2019 supports the wife’s contention that the B Group is insolvent.
Husband’s assertions against the sale of the B Group
In support of his contention that the B Group should not be sold three months prior to trial, the husband asserts:
a)the comments which the wife attributes to the husband during the meeting with the appointed single expert valuer, Ms C of Company S, are denied by the husband;
b)the Z Group report is optimistic and does not support the proposition that the B Group should be sold;
c)the husband intends to implement strategies in accordance with the Z Group report and has already closed 10 unprofitable branches and has implemented strategies to close a further two branches;
d)D Bank, the principal secured creditor, has commissioned a further report from the Z Group;
e)The Deed of Forbearance refers to 30 May 2019 as the date to which D Bank will continue to support the B Group;
f)the views expressed by Mr F in the Ten Year Daft Business Plan are inconsistent with the B Group being on the brink of insolvency;
g)the wife purports to rely on the views of Mr F, when she has attended to impugn his credibility and professionalism;
h)there is no report from a single expert as to:
i)the solvency or otherwise of the B Group;
ii)the value of the B Group, if a sale were ordered;
i)to order a sale three months prior to the date fixed for trial is premature;
j)caution should be exercised, as an order for sale would not be capable of being reversed, and would in effect be a final order, which would preclude the husband from pursuing an argument at trial that he retain and continue to operate the B Group business;
k)the wife’s application seeks to deny the husband natural justice to achieve a final order at an interlocutory stage, when there is an evidentiary vacuum;
l)the onus of proof lies with the party seeking an order, with the standard of proof the balance of probabilities. The evidence relied upon by the wife does not satisfy the requisite standard of proof;
Applicable Law
The legal principals applicable to the interim exercise of the power pursuant to s.79 of the Act are set out at paragraphs 47 – 49 hereof, in the context of the wife’s application for litigation funding and the sale of either the Suburb K property or the Town P property.
Discussion
It is the wife’s responsibility to prove on the balance of probabilities that the financial position of B Group is so precarious that an interim sale of B Group should be ordered, in the face of a trial two and a half months away.
Paragraph 48 of the wife’s Outline of Submissions succinctly addresses the issue before the court, namely, what action is necessary to prevent irreparable harm to the assets of the parties, having regard to what is just and equitable, in the context of the rights of secured creditors and the position of Mr F, the former Chief Financial Officer of B Group.
That issue must also be considered in the context of the requirement to exercise an interim power of sale with the utmost caution, prior to the forthcoming hearing of the parties’ substantive applications.[8]
[8] See in the marriage of Bearup & Bearup (1993) 16 Fam LR 797 and Harris & Harris (1993) 16 Fam LR 579.
The wife relied on the email of Mr F to her lawyers, dated 12 March 2019 and the statements (at page 20) of the 10 Year Draft Business Plan, dated 7 January 2017, prepared by him, in support of her proposition that B Group was in a precarious financial position.
However, as submitted by senior counsel for the husband, the wife impugned the credibility and conduct of Mr Fs and relied on the Enforceable Undertaking to ASIC signed by Mr Fs, which is included in exhibit 6 to the wife’s affidavit of 26 February 2019 to demonstrate his impropriety, improper conduct, and lack of appropriate qualifications.
Neither Senior Counsel, when making submissions about the evidence pertaining to Mr F, raised the issue of Mr F’s significant position of a conflict of interest. It is not surprising that Mr F would allege in the email to the wife’s solicitors of 12 March 2019 that B Group is insolvent and should be sold, as he stands in a position of an unsecured creditor who has advanced the group $2,225,000.
It would obviously be in his interests for B Group to be sold to enable him to recoup the funds he has advanced to the company on an unsecured basis, which was contrary to the original agreement between himself and the husband. The email correspondence between the husband and Mr F supports the proposition that as at 24 December 2018, when the $2 million was advanced by his companies, the agreement between the husband and Mr F was that he would be granted a convertible note to enable him, at his option, to obtain 20% equity in B Group.
It is also remarkable that Mr F, via companies controlled by him, was prepared to advance $2 million to B Group on 24 December 2018, on the basis of an exchange of emails, yet by 7 January 2019, he is of the view that B Group is insolvent.
Both Senior Counsel directed my attention to sections of the Z Group report and the Ten Year Draft Business Plan dated January 2019, prepared by Mr F. Each contended the documents supported their respective positions as to the financial viability or insolvency of B Group.
I am satisfied that an examination of both documents establishes that both include statements, information and analysis favourable and adverse to B Group. Neither document is conclusive.
The husband did not adduce any evidence as to his recent dealings with D Bank, and in particular, why the Deed had not been executed and why D Bank has refrained from commencing enforcement action, in the face of a default of the terms of the Deed. Such evidence would have been of assistance.
Despite having subpoenaed the records of D Bank, the principal financier of B Group, no documents were sought to be tendered by Senior Counsel on behalf of the wife, which supported his submissions that B Group was on the brink of insolvency and that D Bank was poised to foreclose on its securities.
Senior Counsel for the husband sought to tender a letter of proposed terms of engagement from Z Group to D Bank, which presupposes further monitoring and reports to be prepared by that organisation. It was submitted that letter was evidence of D Bank’s ongoing support of B Group, or at least a commitment to refrain from immediate exercise of its securities.
The evidence presented by the wife, which she submits is compelling proof of the inevitable insolvency of B Group, is in my opinion, contradictory and far from conclusive.
Senior Counsel for the husband referred to the engagement of Ms C from Company S, to value B Group and submitted that if her report, as a suitably qualified expert had identified B Group is insolvent, then the husband would have consented to a sale.
Regrettably, no such report has been prepared by a suitably qualified expert as to the insolvency or otherwise of B Group. The Z Group report dated November 2018, does not provide qualified expert evidence as to the current financial viability or insolvency of B Group.
Whilst I have no doubt that B Group has had and is currently experiencing financial difficulty and pressures, I cannot be satisfied on the balance of probabilities, on an interim basis that the financial viability of B Group warrants an order for immediate sale.
I cannot make any findings about the evidence on an interim basis and the counter allegations and assertions should be subject of testing of evidence and cross-examination at the trial, when appropriate findings can be made. The trial date is approximately 2 ½ months away.
Furthermore, in order to conduct a transparent and orderly sale of B Group, if such an order were to be made on an interim basis, a valuation of B Group would need to be conducted by an appropriately qualified expert prior to any marketing or sale of the enterprise.
As there is no independent evidence as to the value of B Group, it is difficult to make an assessment on an interim basis, whether it would be just and equitable, in the context of the assets available for final distribution, to make such an order.
I have no confidence such a valuation could be carried out expeditiously, in the context of the time which has elapsed between the date of the order for Ms C to value the business and the difficulties with production of documents and discovery. I am also concerned about the allegations that the B Group accounts which have been prepared by Q Company, contain significant problems and discrepancies.
The issue of proper disclosure and discovery and an examination of the B Group accounts prepared by Q Company would need to be resolved prior to a proper valuation of B Group. I have significant reservations that both issues could be satisfactorily addressed quickly.
Senior Counsel for the husband submitted that it cannot be in the interests of justice to order the sale of B Group at a preliminary stage if such an order would impact on the ambit of the court’s discretion at a trial. I agree with that submission.
Furthermore, a sale of B Group prior to trial would not be “reversible”, in terms of the authorities previously referred to in these reasons, particularly when the husband seeks to retain B Group at trial. B Group is a business he has operated for over 20 years.
I do not intend to make an order for the interim sale of B Group.
Applications for enforcement/variation of the orders made by consent on 4 October 2017 providing for the wife’s financial support
On 4 October 2017 orders were made by consent for financial provision for the wife.
The relevant paragraphs of Order 7 of the 4 October 2017 orders provide:
7. Until further order, the husband pay the following:
(a) to the wife $4,000 per week;
(p) to the wife’s superannuation account $2,916.67 per month
The consent orders of 4 October 2017, do not characterise the nature of the payment to the wife. Sensibly, neither counsel made submissions that the payment to the wife could be characterised as anything other than spousal maintenance. I note that both parties were represented by Senior Counsel on that date.
The wife seeks to enforce ongoing weekly payments and arrears of same, which as at 18 March 2019, amounted to $24,000.[9]
[9] Paragraph 1[d] of the Wife’s Outline of Submissions dated 18 March 2019.
The husband seeks to:
i)reduce the weekly payment as provided in order 7 (a) to $1,000;
ii)discharge the monthly payment to the wife’s superannuation account, as provided in order 7 (p).
The wife asserts that she is entitled to compliance with the orders made by consent on 4 October 2017 and that the husband should pay to her full arrears outstanding.
The husband asserts:
a)He and/or B Group cannot sustain the level of drawings required to pay the wife $4000 per week, in addition to his obligations to pay her expenses, including those relating to her home, her medical expenses and insurance, her vehicle and the expenses relating to X;
b)His financial obligations to pay the non-periodic payments amount to $352,000 per annum;
c)He is no longer drawing a salary from B Group despite working in the industry;
d)He otherwise relies on the wife’s assertions that the business is not viable;
e)On 17 February 2019, the wife forwarded him an email referring to her being away for work for 3 days[10]
f)the monthly payment to the wife’s superannuation account could not be regarded as a spousal maintenance, but rather a contribution to accumulation of capital.
[10] Paragraph 21 of the husband's first affidavit.
Applicable Law
Section 83 of the Family Law Act 1975 (‘the Act’) delineates modification of spousal maintenance orders.
Section 83(2) of the Act states:
(2) The court shall not make an order increasing or decreasing an amount ordered to be paid by an order unless it is satisfied:
(a) that, since the order was made or last varied:
(i) the circumstances of a person for whose benefit the order was made have so changed (including the person entering into a stable and continuing de facto relationship);
(ii) the circumstances of the person liable to make payments under the order have so changed; or
(iii) in the case of an order that operates in favour of, or is binding on, a legal personal representative—the circumstances of the estate are such;
as to justify its so doing;
(b) that, since the order was made, or last varied, the cost of living has changed to such an extent as to justify its so doing;
(ba) in a case where the order was made by consent—that the amount ordered to be paid is not proper or adequate;
(c) that material facts were withheld from the court that made the order or from a court that varied the order or material evidence previously given before such a court was false.
Discussion.
The husband relies on the email from the wife dated 17 February 2019, as evidence of her working, and therefore a change in her circumstances which would justify a reduction in the weekly payment. There was no other evidence about the wife’s asserted employment including the quantum of any salary the wife was asserted to be earning.
In the face of objection by the husband’s counsel, the wife’s counsel submitted that the wife’s work was voluntary and that she was not earning an income.
In relation to the husband’s change in circumstances, it was submitted that:
a)his statement that he was no longer drawing a salary from B Group;
b)the deterioration in the financial situation of B Group;
should satisfy me that his circumstances had changed sufficiently to justify a variation of the weekly payment.
At paragraph 25 of his affidavit of 18 March 2019, the husband deposes that he is not still receiving his salary of $500,000 gross per annum. He does not however provide any evidence of:
i)which of his personal expenses are paid by B Group; or
ii)any other financial benefit he may receive from B Group.
That deficiency in evidence does not assist me to determine, applying the requisite standard of proof, that a variation is justified.
As the trial is scheduled to commence on 12 June 2019, the husband is effectively seeking a reduction of his spousal maintenance obligations of approximately $12,000 per month, for a three month period. When viewed in the context of the income of B Group, as referred to in the evidence before me, the amount of variation sought by the husband does not seem substantial.
The submission that payment into the wife’s superannuation account was effectively an accumulation of capital, rather than payment of spousal maintenance was, most sensibly, not vigorously pursued.
The scant evidence of the husband of a change in circumstances for both the wife and himself, does not persuade me that the order for variation of spousal maintenance is justified. I do not intend to make interim orders varying the husband’s current spousal maintenance obligations. The issue of the wife’s future spousal maintenance is properly a matter for trial, when more comprehensive evidence will be adduced and tested.
Discovery
During submissions I was advised by both Senior Counsel that the parties required an opportunity to inspect documents which had been produced pursuant to subpoenae by both D Bank and Q Company, accountants. Both parties were reasonably optimistic about reaching agreement about outstanding discovery.
As at the date of these reasons, there have been no requests to relist the matter to obtain consent orders or to pursue further discovery. In the event the parties are unable to reach agreement about discovery, I will relist the matter for submissions on that issue.
I certify that the preceding one hundred and seventeen (117) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Williams delivered on 9 April 2019.
Associate:
Date: 9 April 2019
Key Legal Topics
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Family Law
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Civil Procedure
Legal Concepts
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Remedies
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Procedural Fairness
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