Emmerton & Manwaring (No 2)
[2024] FedCFamC2F 966
•26 July 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Emmerton & Manwaring (No 2) [2024] FedCFamC2F 966
File number: ADC 4841 of 2017 Judgment of: JUDGE BROWN Date of judgment: 26 July 2024 Catchwords: FAMILY LAW – PROPERTY – final hearing – marriage of 28 years – marriage produced two children whom are now adult – where the parties operated a small family business – where the husband attended to the physical aspects of business and the wife attended to administration and accounts aspects – where the husband placed the company into liquidation during the part-heard trial without notice to the wife – where loans were taken from the business in respect no liability for tax has been calculation – where the parties have an inchoate debt to the Australian Tax Office – where the family Trust holds various properties – consideration of one party’s non-compliance with previous orders of this court – consideration of add backs – where a two pool approach is adopted – assessment of future needs – considerations of just and equitable – waste – matters to be considered Legislation: Corporations Act 2001 (Cth)
Evidence Act 1995 (Cth) s 140
Family Law Act 1975 (Cth) Pts VIII, VIIIB, ss 75(2), 79, 106A
Federal Circuit and Family Court of Australia Act 2021 (Cth) s 190
Income Tax Assessment Act 1936 (Cth) Div 7A
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) Div 6.1.2, r 12.06
Cases cited: Benson & Drury (2020) FLC 93-998
Bevan & Bevan [2013] FamCAFC 116
Black & Kellner (1992) FLC 92-287
Biltoft & Biltoft (1995) 19 Fam LR 82
Briese & Briese (1986) FLC 91-713
Browne & Green (1999) 25 Fam LR 482
Chang v Su [2002] HCA Trans 549
NHC & RCH (2004) 32 Fam LR 518
Clauson & Clauson (1995) 18 Fam LR 693
D & D [2003] FamCA 473
DJM & JLM (1998) 23 Fam LR 396
Dickons & Dickons (2014) 50 Fam LR 244
Ferguson & Ferguson (1978) FLC 90-500
Fields v Smith (2015) FLC 93-638
Ferraro v Ferraro (1992) 16 Fam LR 1
Fox v Percy (2003) 214 CLR 118
Hickey & Hickey (2003) 30 Fam LR 355
Kennon & Kennon (1997) FLC 92-757
Kowaliw and Kowaliw (1981) FLC 91-092
Kucera & Kucera (2009) FMCAfam 1032
Emmerton & Manwaring [2023] FedCFamC2F 476
Lemnos & Lemnos [2007] FamCA 1058
L & L [2003] FamCA 40
Luciano & Luciano [2000] FamCA 401
Mallett & Mallett (1984) 156 CLR 605
Marker & Marker [1998] FamCA 42
AJO & GRO (2005) 33 Fam LR 134
Prince & Prince (1984) FLC 91-501
Rodgers & Rodgers (No 2) [2016] FamCAFC 104
Rosati v Rosati (1998) FLC 92-804
Russell & Russell (1999) 25 Fam LR 629
Stanford & Stanford [2012] HCA 52
Steinbrenner & Steinbrenner [2008] FamCAFC 193
Townsend & Townsend (1994) 18 Fam LR 505
Trevi & Trevi [2018] FamCAFC 173
Waters & Jurek (1995) 20 Fam LR 190
Watson & Ling [2013] FamCA 57
Weir & Weir (1993) FLC 92-338
Division: Division 2 Family Law Number of paragraphs: 510 Date of last submission/s: 20 March 2024 Date of hearing: 17, 18, 19 and 20 April 2023, 29 January 2024 and 20 March 2024 Place: Adelaide Counsel for the Applicant: Mr Dillon Solicitor for the Applicant: Tindall Gask Bentley Counsel for the Respondent: Mr Heinrich Solicitor for the Respondent: Starke Lawyers ORDERS
ADC 4841 of 2017 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: MS EMMERTON
Applicant
AND: MR MANWARING
Respondent
ORDER MADE BY:
JUDGE BROWN
DATE OF ORDER:
26 JULY 2024
THE COURT ORDERS THAT IN FULL AND FINAL SETTLEMENT OF ALL CLAIMS FOR ALTERATION OF PROPERTY PURSUANT TO PART VIII OF THE FAMILY LAW ACT 1975 (CTH) (AS AMENDED):
K Street, Town L
1.The proceeds of sale of the property situate at K Street, Town L in the State of South Australia, described in Certificate of Title Book Volume … Folio … (“the Town L property”) remaining in the Trust Account of Tindall Gask Bentley, be distributed to the wife.
C Street, Suburb D
2.The proceeds of sale of the property situate at C Street, Suburb D in the State of South Australia, described in Certificate of Title Book Volume … Folio … ("the Suburb D property") remaining in the Trust Account of Tindall Gask Bentley, be distributed to the wife.
Net Proceeds of sale of the Livestock
3.The proceeds from the sale of livestock held in the Trust Account of Tindall Gask Bentley be distributed to the wife.
AB Street, Suburb AC
4.Within twenty-one (21) days of the date of this order the husband do vacate the property situate at AB Street, Suburb AC in the State of South Australia described in Certificate of Title Volume … Folio … (“the Suburb AC property”) and deliver up the keys and any other means of entry to the Suburb AC property to the wife or such other person nominated to him or his solicitor by her or by her solicitor.
5.Within sixty (60) days of the date of this order the parties shall do all things and execute all documents necessary to place the Suburb AC property on the market for sale on the following terms and conditions:
(a)The wife be appointed sole agent to sell the property;
(b)The wife provide all instructions to the said sales agent and conveyancer to give effect to these orders including but not limited to:
(i)The method of sale;
(ii)Advertising and marketing of the property;
(iii)The execution of the contract of sale;
(iv)Release of the settlement statement;
(v)Ascertain the status of rates and payments and any information as to any utility accounts outstanding in respect of the Suburb AC property; and
(vi)The payment of the proceeds of sale in accordance with these orders;
(c)The nominated reserved price be not less than $650,000.00 (SIX HUNDRED AND FIFTY THOUSAND DOLLARS) unless the appointed sales agent recommends a higher figure or the parties agree on a lower figure and in absence of agreement as to such lower figure, it is to fixed by the court;
(d)Upon the sale of the Suburb AC property the net proceeds be distributed in the following manner and priority:
(i)Pay all costs (including commission) and expenses of sale and conveyancing to the relevant persons;
(ii)Reimburse the wife for any reasonably incurred costs to clean the Suburb AC property preparing it for sale;
(iii)Pay arrears of all rates, taxes and outgoings with respect to the Suburb AC property of whatsoever nature and kind;
(iv)To the wife by payment to the Trust Account of Tindall Gask Bentley, such sum as calculated by Mr R that shall be sufficient to meet the anticipated capital gains tax associated with the sale of the Suburb D, Town L and Suburb AC properties, to be drawn upon to pay any assessment of capital gains tax upon issued by the Australian Tax Office;
(v)The parties’ son Mr X be reimbursed TWENTY ONE THOUSAND, FIVE HUNDRED AND SEVENTY SEVEN DOLLARS AND SIXTY SIX CENTS ($21,577.66) to discharge the joint liability in respect of the AA Bank; and
(vi)Any proceeds remaining in the Trust Account of Tindall Gask Bentley to be distributed as follows:
A.70% to the wife;
B.A further and additional sum of FIFTY THOUSAND DOLLARS ($50,000.00) to the wife; and
C.The remaining proceeds to the Starke Lawyers Trust Account for the husband.
P Street, Suburb Q
6.It is declared that the husband is the beneficial owner of the equity in the former matrimonial home being the property situate at P Street, Suburb Q in the State of South Australia described in Certificate of Title Volume … Folio … (“the Suburb Q property”) subject to him satisfying the conditions stipulated in order (7) hereof.
7.Within sixty (60) days of the date of this order, the parties do all things and execute all necessary documents required of them to transfer the wife’s interest in the Suburb Q property to the husband and discharge mortgage registered number … held by H Pty Ltd (“the Suburb Q mortgage”) in the wife’s name at the husband’s sole expense in accordance with the following orders and directions:
(a)The husband is to make all necessary inquiries to obtain the finance necessary to transfer of the Suburb Q property to him and to discharge the Suburb Q mortgage and advise the wife of the financier retained by him to this effect;
(b)Upon the husband advising the wife of the financier selected by him, the wife will sign all necessary documents presented to her by the husband to discharge the Suburb Q mortgage and transfer her legal interest in the Suburb Q property to the husband at the husband’s sole expense; and
(c)The husband shall be liable for and indemnify the wife against all rates, taxes, and outgoings with respect to the Suburb Q property;
8.In the event the husband is unable to obtain the necessary finance and discharge the Suburb Q mortgage pursuant to order 7(a), within ninety (90) days of the date of this order, the parties do all things and execute all documents necessary as to place the Suburb Q property on the market for sale on such terms and conditions as follows:
(a)The wife be appointed sole agent to sell the property;
(b)The wife provide all instructions to the said sales agent and conveyancer to give effect to these orders including but not limited to:
(i)The method of sale;
(ii)Advertising and marketing of the property;
(iii)The execution of the contract of sale;
(iv)Release of the settlement statement;
(v)Ascertain the status of rates and payments and any information as to any utility accounts outstanding in respect of the Suburb Q property; and
(vi)The payment of the proceeds of sale in accordance with these orders;
(c)The nominated reserved price be not less than $850,000.00 (EIGHT HUNDRED AND FIFTY THOUSAND DOLLARS) unless the appointed sales agent recommends a higher figure or the parties agree on a lower figure and in absence of agreement as to such lower figure, it is to fixed by the court;
(d)Upon the sale of the Suburb Q property the net proceeds be distributed in the following manner and priority:
(i)Pay all costs (including commission) and expenses of sale and conveyancing to the relevant persons;
(ii)Discharge the Suburb Q mortgage;
(iii)Reimburse the wife for any reasonably incurred costs to clean the property preparing it for sale;
(iv)Pay arrears of all rates, taxes and outgoings with respect to the Suburb Q property of whatsoever nature and kind;
(v)The remainder of the sale proceeds be deposited into the Trust Account of Starke Lawyers for and on behalf of the husband.
Manwaring Family Trust
9.It is declared that the wife is the beneficial owner of the properties located at 1 Y Street, Suburb Z in the State of South Australia as described in Certificate of Title Volume … Folio … and 2 Y Street, Suburb Z in the State of South Australia as described in Certificate of Title Volume … Folio … (“the Suburb Z properties”)
10.To this end within thirty (30) days of the date of this order, the parties do all things and execute any necessary documents which may be required of them to this effect of order (9) hereof and in particular:
(a)To transfer the husband’s right, title and interest in the Manwaring Family Trust (“the Trust”) to the wife including (but not limited to) any equitable interest held by him in the Suburb Z properties to the wife at the wife’s cost;
(b)The wife indemnify and keep indemnified the husband in respect of all liabilities in particular those register pursuant to mortgage number … in favour of H Pty Ltd and other outgoings relating to the Suburb Z properties including potential capital gains tax.
(c)If deemed necessary by the wife in her sole discretion to give effect to these orders is at liberty to remove the husband as a beneficiary or member of any class of beneficiaries of the Trust.
B Pty Ltd
11.In relation to B Pty Ltd (in liquidation) (“the Company”):
(a)Within thirty (30) days of the date of this order, the wife do all things and execute all necessary documents to:
(i)Transfer, at the husband's expense, her interest in any debit or loan account of the Company to the husband to the intent that the wife thereafter will have no further claim against the husband in relation to the Company or against the Company in relation to the assets of the Company and any monetary entitlement which either party may have in the Company including without limiting the generality of the foregoing any loan account of the husband or the wife in the Company or as to wages or dividends or otherwise either in the past, the present or in the future and any such monetary entitlement of the wife shall thereafter vest with the husband;
(b)The husband shall indemnify the wife and keep her forever indemnified in relation to any current or future liabilities arising out of or in respect of to the Company or the wife’s shareholding or any office in the Company;
(c)The husband shall further indemnify the wife and keep her forever indemnified in relation to any or all liabilities in the future arising out of or in respect of the Company or in the wife’s office in the Company or as a shareholding of the Company including (without limiting to the generality of the foregoing) any past, present or future income tax, capital gains tax, goods and services tax, directors' loans, Division 7A loans or other liability of the wife and/or of the husband and/or the Company;
(d)The husband shall cause to be forgiven, any debt or loan balance owed by the wife to the Company; and
(e)The husband shall indemnify and keep indemnified the wife from any claim, demand, suit, cost or action of the Company against the wife.
12.The parties do all things and execute all necessary documents and pay all monies equally to cause Mr R, Accountant, to undertake the calculation of any anticipated capital gains tax pursuant to these orders.
13.Including but without limiting the effect hereof, the wife shall retain for her sole use and benefit absolutely free from any further claim or demand of the husband:
(a)The property situate at BB Street, Town CC;
(b)Her motor vehicle;
(c)The clothing, jewellery and personal effects currently in her possession;
(d)The furniture and household effects currently in her possession;
(e)All amounts standing to her credit in any bank, building society or Credit Union account;
(f)Her Super Fund 1 superannuation entitlements standing in her own name without adjustment; and
(g)All other property in her possession or control whether registered in her name or not and not otherwise specified herein.
14.Including but without limiting the effect hereof, the husband shall retain for his sole use and benefit absolutely free from any further claim or demand of the wife:
(a)His motor vehicles;
(b)The clothing, jewellery and personal effects currently in his possession;
(c)The furniture and household effects currently in his possession;
(d)All amounts standing to his credit in any bank, building society or Credit Union account held in his sole name or in the name of DD Company;
(e)His Super Fund 2 superannuation entitlements standing in his own name without adjustment; and
(f)All other property in his possession or control whether registered in his name or not and not otherwise specified herein.
15.The parties shall do all acts and things reasonably required including the signing or execution of all necessary documents to give effect to the terms of this order within seven (7) days of being requested to do so.
16.That without prejudice to any other relief that may be available to a party, that if either party shall refuse or neglect or omit to execute any document necessary to give effect to the terms of these orders within seven (7) days after the same shall have been tendered to that party by or on behalf of the other party then in such event of refusal, neglect or omission a Judicial Registrar, Senior Judicial Registrar or other judicial officer of this Court or of any court exercising jurisdiction under section 106A of the Family Law Act1975 (Cth) upon proof by affidavit of such refusal, neglect or omission is hereby appointed to execute and if in that judicial officer’s opinion it shall be necessary to do so to settle the same and do all such other acts and things and execute such other documents as shall be necessary to give full force and effect to these orders.
17.All extant applications be dismissed as finalised.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Part XIVB of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish an account of proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
JUDGE BROWN:
INTRODUCTION
These are matrimonial property proceedings. The parties to them are Ms Emmerton and Mr Manwaring.[1] They married in 1988 and separated in November 2016. The divorce between them became final in 2018. The marriage produced two children, now both adult – they are Ms EE, who was born in 1993 and Mr X, born in 1996.
[1] It is convenient to refer to the parties as “the husband” or “the wife”, although they are long divorced. Indeed, both the husband and wife have now remarried. Out of politeness, I will refer to the wife as “Ms Emmerton” and to the husband as “Mr Manwaring”.
Ms Emmerton commenced these proceedings on 26 October 2018. She sought an equal division of property and superannuation, to be achieved through her maintaining control of the parties’ family trust, which owned a number of real properties; the transfer of the parties’ former family home at Suburb Q to Mr Manwaring, along with a property habitually referred to by the parties as Town L.[2] If necessary, upon the valuation of relevant items, she sought the further payment of a cash sum to achieve such an equality.
[2] I will refer to this property as “Town L” or “the property”.
Mr Manwaring responded to this application on 19 December 2018. He agreed to renounce his interest in the family trust and to pay to Ms Emmerton a sum calculated to equalise what were the parties’ interests in the relevant pool of property. He wanted to retain the Suburb Q property and Town L, along with business premises from which the parties had formerly conducted a small business and which he continued to operate.
Accordingly, at first blush, the respective positions of the parties did not appear to be irreconcilable nor marked by any level of extreme divergence. The unmitigated tragedy of this case is that almost six years later and after the accumulation of well over half a million dollars in legal costs, it remains unresolved and indeed the actual extent of what the parties owe, to the Australian Tax Office[3] in particular, remains unknown.
[3] Hereinafter referred to as “the ATO”.
These reasons for judgment are primarily directed towards attempting to resolve how and why this disaster has occurred and to determine whether, in respect of the property which remains and is identifiable, one of the parties should receive a greater proportion of such property, by way of equitable compensation for the wastage and failure of the other.
It is the wife’s position that the waste and obfuscation emanate solely from the husband and as a result the parties’ assets should be divided 70/30% in her favour. In addition, she asserts that it is the husband’s management of the family’s financial affairs which have led to the current crisis with the ATO and he should bear the consequences of this as they unfold into the future.
On the other hand, it is the husband’s position that given the length of the marriage, when coupled with his uncertain financial future, arising from his age and currently compromised health, an equality of division of marital property still remains the just and equitable outcome of the case.
BACKGROUND
Ms Emmerton was born in 1966. Mr Manwaring was born in 1962. Accordingly, both were in their twenties when they began their twenty-eight-year long marriage. At the time, the wife was employed as a customer service officer and lived at home with her parents. She had some modest savings.
Mr Manwaring also lived with his parents. He had begun a business B Pty Ltd, which he operated from his parents’ garage. He was the only employee of the business at the time. He too had modest assets, chiefly consisting of two motor vehicles.
In 1990, Ms Emmerton left her employment, and began to work at B Pty Ltd, answering the phone and doing the books, which included attending to quotes and invoices. Mr Manwaring attended to the technical side of the business, which was installation, service and repairs. It was physical work, involving climbing ladders.
The business prospered and expanded. Notwithstanding the births of Ms EE and then Mr X, the wife continued to be involved in the administrative side of the business. Other tradespeople were employed to assist with installations and manufacture.
Initially, B Pty Ltd was operated as a partnership, in which the parties were the only partners. However, in 2001, their accountant advised them to incorporate the business as B Pty Ltd.[4] The company issued 5001 shares – the husband holding 5000, as sole director and the wife holding 1, as company secretary.
[4] It is convenient to refer to “B Pty Ltd” as “B Pty Ltd” or “the business”.
The rationale, for the incorporation, was to provide asset protection for the parties concerned. In general terms, a company is a separate legal entity to the individuals who own and operate it. But if there is ever a dispute or issue regarding something which the company has done, the company can insulate the owners from liability. Asset protection was the motive for the parties incorporating their business.
However, incorporation is not without its pitfalls. In this context, a company is to be regarded as a legal person, which has obligations under the law, including the payment of tax. Accordingly, again in general terms, it is important that corporate financial obligations, arising from the running of a business, be kept separate from the personal expenditure of those who own it.
In 2003, again on the advice of their accountant, the parties established a family trust - Manwaring Family Trust.[5] The purpose of the Trust was to provide a mechanism for investments to be made on behalf of the family, primarily through the purchase of both residential property, which was to be leased out and the operation of land for primary production.
[5] Hereinafter referred to as “the Trust”.
The wife was the sole trustee and appointor of the Trust. The husband, Ms EE and Mr X, as well as the wife, were beneficiaries. Ms Emmerton continued to attend to the financial responsibilities of the Trust and the business. She also liaised with its accountant, from 2006 onwards, Mr R, who prepared tax returns, for the various entities concerned. From time to time, Ms EE also worked in the business, helping the wife with her duties.
After the marriage between the parties fell into difficulties, it became increasingly problematic for the wife to continue to perform her administrative tasks in respect of both the business and the Trust. She left in late 2017 and obtained another job as an admin officer elsewhere. At the same time, Mr Manwaring ceased to use Mr R as the accountant for both the business and the Trust.
It is the implications of this decision and what has followed from it in terms of the on-going financial administration of the business, which is the central evidentiary issue in this case. In general and colloquial terms, it is the wife’s position that the hitherto prudently managed and solvent business has gone to wrack and ruin because, in effect, to utilise the phraseology of her counsel, Mr Dillon, the husband has used it as his piggy bank. Essentially, whatever sums have come into the business’s bank account, Mr Manwaring has withdrawn them without making proper arrangements for the defrayal of tax.
Mr R has given evidence in these proceedings, as has an independent chartered accountant – Mr J, in respect of the business’s value and related issues, particularly what is referred to as Division 7A Tax. Division 7A of the Income Tax Assessment Act 1936 (Cth) is directed towards the taxation of profits directed by a private company to the benefit of its shareholders or their associates. The transfers of such sums need to be carefully documented so that they are compliant for tax purposes and the correct amount of tax calculated for payment at the required time.
Mr J indicated, in his sworn evidence to the court, that it is not illegal for individuals associated with private companies to take loans from the companies controlled by them. Difficulties, however, can arise if those loans are not compliant with ATO requirements – that is not properly documented or there is a lack of precision between the payment of legitimate business expenses and monies advanced for an individual’s personal expenditure. In addition, such loans must be repaid to the company in question within 7 years of accrual.
Mr J had undertaken a valuation of the company as at June 2017, which was relatively commensurate with the time Ms Emmerton ceased to be actively involved in its affairs. As at this date, he valued the company as being $378,671.00. However, this sum was somewhat misleading as it included shareholder loans in an amount of $379,552.00.[6]
[6] See Annexure E3 to the affidavit of Ms Emmerton filed 7 April 2021.
This sum is accordingly made up of monies advanced to the parties, from the receipts of the company in the period prior. Clearly, there is no prospect of this sum being paid any time soon and its only provenance can be the sale of other assets. It is not an insignificant sum given the value of other assets owned by the parties. However, what remains unknown is how the ATO will characterise this sum and in whose hands it lies and more significantly what it will do about it, if anything.
Mr J indicated his view that it represented an exposure to Division 7A tax but was unable to quantify such exposure, which he described as a contingent liability. He did not have access to the records of the company and so was unable to determine whether the loans were compliant. The person being able to provide this information being the company’s external accountant. If the loans were compliant, there was the potential for the relevant debtors to be subject to top up tax being the difference between the rate of company tax and an individual’s marginal tax rate.
Much time and effort has been spent exploring this issue in the context of these proceedings, in order to determine what was the likely extent of each party’s potential liability for tax and when such liability accrued. It is Ms Emmerton’s position that this largely occurred whilst Mr Manwaring was in control of the business, namely after 2017, although she concedes some personal liability in the two preceding tax years.
Essentially, it is her case that the parties will come to a point at which the music must stop and it will be time to pay the piper. It is her view that this time is imminent, and the metaphorical piper should be paid by Mr Manwaring rather than she. In this context, it is her case that Mr Manwaring, in the five years since the parties separated has transformed a reasonably successful business into one which has been stripped of any value.
It is the effect of the combined evidence of Ms Emmerton and Mr R that prior to 2017 the somewhat complex financial affairs of the parties, which involved the company, the Trust, the operation of a primary producer and the collection of rents, in respect of negatively geared real property, were properly documented and managed.
Mr Manwaring concedes that he is not particularly adept in respect of financial matters. In addition, he is critical of Ms Emmerton for not being candid with him about her management of the Manwaring Family Trust, which she has continued to manage up until the present time. He complains about having been kept in the dark in this respect.
Since Mr R ceased to act for the parties, Mr Manwaring has retained another accountant to act on his behalf, Mr FF. Mr FF has not provided any evidence in these proceedings. He apparently has some of the current and recent records of the business with him in Country GG, where he has been residing for a significant period of time. It would seem apparent that he is the external accountant identified by Mr J.
Necessarily, it would seem to be the case that Mr FF would be in a position to shed some light on the company’s financial state since 2017, including in respect of the status of any amounts of money taken from its accounts and how these have been (or should be) characterised for taxation and other purposes.
On 21 June 2023 or thereabouts B Pty Ltd was placed into voluntary liquidation. Mr HH, an accountant, was appointed its liquidator. Mr HH attended court on 29 January 2024, in response to an invitation, which he ultimately declined, as to whether or not he wished to become a party in the proceedings.
Mr HH told me that he was concerned about monies which had been provided by the company to the parties concerned but he did not believe that he had received sufficient information, particularly from Mr FF as to how these amounts were to be characterised. From his perspective more tangible liabilities had arisen for the company, which rendered its on-going operation impossible.
In this context, Mr HH informed me that he was aware that the company had incurred significant liabilities to the ATO in respect of the non-payment of GST, PAYG tax and income tax. These were potentially linked to Division 7A tax but were not concurrent with them. Mr HH described what he had seen of the company’s records, which was not complete, was that they were not in good shape.
It is the submission of Mr Dillon that the absence of Mr FF and his apparent lack of cooperation with the wife, Mr J and Mr HH, is further evidence of the husband’s overall lack of candour in these proceedings. She fears that Mr Manwaring has stripped the company of its assets then liquidated it, with the intention of defeating his creditors, before resurrecting the business, in which he has significant skills and contacts, under a different guise.
Given the parties’ circumstances – whilst it might ordinarily be assumed that, after a long marriage of twenty-eight years, which produced two children and in which each spouse axiomatically provided complementary contributions leading to the creation of a significant asset pool, worth well in excess of $2.6m, an equal division of assets would be the appropriate and just outcome – that is no-longer Ms Emmerton’s position.
Rather, she asserts that, as a result of some combination of malice, denial, incompetence or bitterness, Mr Manwaring has unduly protracted these proceedings, failed to cooperate with the court’s processes, engaged in obfuscation and delay and wasted assets to such a degree that the parties’ remaining identifiable assets must be divided, in her favour, on the basis of a 70/30% split. She also seeks the making of a costs order in her favour.
Mr Manwaring has a different view. As I can best understand his case it is that the systemic problems, arising from the operation of the business and its apparent failure to apply itself to its tax liabilities as they fell due, are long-standing and relate to the period when Ms Emmerton was at its financial helm.
He has deposed that in 2015 he suffered an illness which prevented him from working for approximately six months. It was during this period, the business acquired a liability to pay the ATO the sum of $172,000.00. Mr R is of the view that between 2011 and 2018 the parties did indeed incur a potential liability in respect of Division 7A tax.
Mr Manwaring has deposed that he worked assiduously to pay off this debt to the ATO and it was paid prior to separation. Like many matters in this case, the truth or otherwise of this assertion is difficult to determine in the absence of definitive documentary records. In general terms, I am of the view that Mr Manwaring did not have a clear appreciation of the distinction between him and the corporate entity which he operated.
In these circumstances, it is the submission of his counsel, Mr Heinrich, that it would be grossly inequitable for the court to assess the parties’ obvious and significant contributions, made in the context of what was obviously a marriage, which can only be characterised as a joint enterprise, in anything other than equal terms.
In addition, on the basis of his own evidence and that of his occupational doctor, Dr N, it is Mr Manwaring’s position that he is now unable to work due to injuries sustained. As a consequence, he is at risk of falling and so can no longer climb ladders. In these circumstances, at sixty-one years of age, he contends that he has a much-reduced capacity to earn an income.
On the other hand, Ms Emmerton, who is fifty-seven years of age, with sedentary based skills in office administration and acknowledged good health, is well placed to earn her income and support herself for the reasonably foreseeable future.
Given these factors, it is Mr Manwaring’s case that a fair assessment of the parties’ prospective needs dictates that he should receive an approximate distribution of 10% of the net marital assets, leading to a division of the pool of 60/40% in his favour.
The wife characterises Mr Manwaring as a disingenuous person, whose evidence cannot be trusted. In this context, she points to efforts Mr Manwaring has gone to retain the premises from which the business previously operated from. In addition, she relies on the recent liquidation of the business, which occurred unilaterally and without any prior reference to her, as being indicative of the husband’s intention to resurrect B Pty Ltd, in a different form and nomenclature, like a phoenix, after these proceedings are concluded, so that he can continue to earn a reasonable living from his long-standing experience in trades.
These proceedings have been on foot for well over five years. Regrettably they must earn the obloquy of being described as an omnishambles. Like a tornado, over this period, they have aggregated in their destructive force without any concomitant increase in efficacy or direction, particularly in respect of enabling an obvious tabulation of what is owed, particularly to the ATO or in respect of any practically directed rationalisation of their assets to pay down debt.
Part of the problem in this regard has been attributed by Ms Emmerton to Mr Manwaring’s failure to comply with orders of the court directing the sale (and preparation for sale) of various items of real property, which from Ms Emmerton’s perspective have required her to bring additional proceedings, which have added both to her costs and increased delay.
She also points to the fact that the mortgagee of the property has brought foreclosure proceedings against her and Mr Manwaring, notwithstanding orders from this court that he pay the applicable mortgage instalments, as they fall due and that he has had effective control of the property. Again this has added to her costs and compounded delay.
In addition, it is her case that Mr Manwaring has made several outlandish claims that he is on the verge of being able to borrow significant sums of money, from independent financiers, which will enable him to buy out Ms Emmerton’ interests in the parties’ significant real property portfolio and allow him to keep an agricultural property, the former matrimonial home and the business premises from which B Pty Ltd had previously operated, prior to its voluntary liquidation.
In this context, Ms Emmerton asserts that this is evidence that either Mr Manwaring is out of touch with reality or is not being fully frank about his financial circumstances in the post‑separation period. Again, it is her position that Mr Manwaring’s dogged determination to retain these significant items of real property, in the face of compelling evidence that such an outcome is infeasible, has also added to the costs of the proceedings, as has the necessity for her to investigate the implications for her personally of the liquidation of the company.
As a consequence of these matters and the delays which have followed, the costs of the proceedings have risen to an extent which, in my view, is totally out of proportion to the issues raised in the case and more significantly, the asset backing of the parties themselves.
Pursuant to the provisions of rule 12.06 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth), parties to family law proceedings in this court are required to provide written notice of their actual cost incurred, together with an estimate of their future costs.
In the wife’s case, as at 18 March 2024, she had incurred costs of in excess of $500,000.00. In respect of the husband, as at the same date, his costs were calculated to be in the vicinity of $220,000.00. As will be established in due course, it is probable that the parties’ pool of assets, in net terms, is somewhere in the vicinity of $2.1m, the costs represent around 34% of this sum.
In addition, as will be detailed in due course, this calculation also fails to take into account the still inchoate amounts owing to the ATO, including in respect of Capital Gains Tax (“CGT”) arising from the sale of properties and who should be liable for these sums. However, regardless of these difficulties and uncertainties, in my view, it is of paramount importance that these proceedings be finalised as quickly as the convoluted facts and circumstances of the case permit.
These reasons for judgment need to be read in conjunction with earlier reasons for judgment provided to the parties on 28 April 2023, following a trial which had then involved the taking of evidence over four days between 17 & 20 April 2023.[7]
[7] See Emmerton & Manwaring [2023] FedCFamC2F 476.
At the time, perhaps naively, I hoped that the reasons provided and the orders which followed them, would provide structure and direction as to how the case could be concluded in the light of the uncertainties arising from the parties’ likely obligations to the ATO. Specific directions were made to each party in respect of what the court required in respect of detailed written submissions prior to the case resuming with additional oral submissions on 22 June 2023.
Essentially, each party was directed to instruct their accountant – in the case of Ms Emmerton, Mr R; and in the case of Mr Manwaring, presumably, Mr FF; to approach the ATO with sufficient information to enable the calculation of any tax due. In addition, it was ordered that one property owned by the Trust be sold and the mechanisms for its sale were specified.
In the earlier judgment, I attempted to summarise the legal provisions, contained in Part VIII of the Family Law Act 1975[8] which are to be applied to the division of matrimonial property. I will not repeat, at this stage, what I said in that judgment in this respect, other than that I referred to the usual orthodoxy of the court as its first step, in a multi-step process, being to identify and value assets and then deduct from such calculation the amount of any liabilities.
[8] Hereinafter referred to as “the Act”.
However, after reference to authority, I indicated that it remained open to the court, in exceptional cases to depart from such orthodoxy. For the reasons provided at the time, I decided that the point had not reached for such a departure in the current matter, given it seemed improbable that the ATO would not pursue the amounts due to it. Although I conceded that it was a possibility that it might agree to some compromise of them.
In the earlier judgment I wrote as follows:
After hearing four days of evidence, against a background of significant delay and each party incurring large liabilities for legal costs, I was greatly concerned at the apparent lack of cooperation between the parties and their inability to focus on what appeared to me to be a slowly unwinding financial crisis about them, which I likened, I hope not unduly fatuously, to a slow-moving train wreck.
My major concern, notwithstanding the expenses incurred and the weight of documents filed, was that there was no obvious bottom line as to what the parties – individually and collectively – owed to the ATO and what periods it referred to – that is before and after separation.
…
[I]t is my provisional view that I require more detailed evidence regarding the extent of the parties’ joint and individual liabilities to the ATO before it can be determined in what proportions the parties’ existing assets should be divided. Essentially, at this stage, I am more attracted to adopting the conventional approach – that is the identification of liabilities and then their apportionment to the parties concerned.
It would be my preference that this evidence is available concurrently with the parties’ final written submissions and perhaps within the context of an agreed balance sheet of assets and liabilities (or at least one in which the areas of controversy had been narrowed).[9]
[9] Emmerton & Manwaring [2023] FedCFamC2F 476 at [121] – [122] & [137] – [138].
Regrettably, these attempts on my behalf to focus the minds of the parties, particularly Mr Manwaring, who it would seem has access to the vast majority of the material required to quantify such liabilities, have been singularly unsuccessful and have led to the production of still more documents, the generation of more expense and a further delay in the finalisation of the proceedings.
The hope that in June of 2023, after having heard the submissions of each of the parties and then turn to complete the judgment earlier begun proved to be a forlorn one. On 19 June 2023, those advising Mr Manwaring filed an Application in a Proceeding to re-open the trial. It was formally opposed by the wife, but she sought other orders in respect of the matter.
Rather than the hoped for spirit of cooperation, in which there would be some clarity about their potential exposure to the ATO and in which there could be an orderly sale of the Town L property and an investment property at Suburb D, the proceedings became mired down in yet more controversy, leading to still more expense and delay.
As indicated above, the wife is aggrieved that the only apparent response of the husband to the orders of 28 April 2023 was to place the company into voluntary liquidation, which had the potential to add another party to the proceedings and further complicate them. In so doing, at that time, the husband had done nothing to clarify any of the parties earlier incurred potential liabilities to the ATO referrable to advances made by the company to them. Rather, he had added to the liabilities.
THE PERSONAL CIRCUMSTANCES OF THE PARTIES
Both parties have re-partnered. In 2017, Mr Manwaring commenced a relationship with Ms JJ, who was a resident in Country KK. She was born in 1983. Ms JJ has two teenage children. Mr Manwaring and Ms JJ married in South Australia in 2018.
Mr Manwaring travelled regularly to Country KK to spend time with Ms JJ. Ms JJ was granted permanent residency in Australia in 2020. Mr Manwaring and Ms JJ have a daughter, LL, who was born in Country KK in 2021. It is the wife’s case that the expenditure relating to the husband’s need to travel regularly to Country KK and other expenses arising there were drawn from the business but not necessarily funded by its profits or otherwise adequately recorded.
The wife has caused a subpoena to be issued to the Department of Home Affairs seeking details of the periods the husband was absent from Australia between early 2017 and late 2018. These indicate 20 trips each of around ten days in duration. In this context, the wife has deposed as follows:
I have not been able to identify how the husband has met the costs of his travel from the bank account statements held in his sole name and the husband has not provided disclosure that identifies how he met those costs.
As a result it is clear to me that the husband is hiding bank statements and/or receipts of cash payments evidencing the costs of travelling to/from [Country KK] …[10]
[10] See affidavit of Ms Emmerton filed 29 April 2022 at [147] - [148].
In addition, through surreptitious means, Ms Emmerton has discovered that the husband has purchased a piece of real property in Country KK. In response, Mr Manwaring has deposed that the land is owned by his current wife and has a value of $20,000.00 of which he contributed $5,000.00. The truth or otherwise of this assertion is impossible to resolve in the context of the current proceedings, which must remain focussed on tangible assets in Australia.
As will be delineated in greater detail in due course, the parties in matrimonial property proceedings are subject to an obligation to make full and frank disclosure of their financial affairs so that all concerned – their former spouses; legal advisors; and primarily the court, which has a duty to determine any controversies arising justly and fairly.
If it is found that a party has been derelict in respect of such an obligation, the court may make any allowance it considers appropriate, in its required division of assets, to remedy any potential injustice which might follow to the party who has not been provided with the required level of disclosure.
What is clear to me is that the husband’s many visits to Country KK must have resulted in him incurring a significant level of expense. In addition, it seems to me to be a not unreasonable inference that during his prolonged absences, he was not attending to the affairs of the business or the property.
The evidence available to me indicates that after 2017 the parties’ financial affairs have inexorably deteriorated. In this context, what Ms Emmerton has earned, either through personal exertion as an admin assistant or in monies which have been generated by the Trust, primarily in the form of rent received from two investment properties in Suburb Z, is readily identifiable.
On the other hand, what income Mr Manwaring has derived from the business and the Town L property is shrouded in uncertainty other than the business is now in liquidation; and the property has significantly depreciated in value and its mortgagee has commenced foreclosure proceedings. Concurrently with this state of affairs is the fact that the husband must have incurred significant expenses since the parties separated.
In happier times, prior to the parties’ separation, other monies generated by the property through an entity known as DD Company, which sold its products and rent payable by the Suburb AC workshop would have also gone into the Trust to be distributed between its beneficiaries as was thought appropriate.
In this context, it is the submission of counsel for the wife, Mr Dillon, that the only inference which can be drawn is that, to use Mr Dillon’s own phraseology, Mr Manwaring has utilised the funds of both the business and the property as his own personal piggy bank, which drawings have not been properly documented and certainly no allowance has been made for the provision of tax.
As I am at pains to point out to the parties, this is not an exercise in forensic accounting, and I am not an auditor. Rather, in what I regard as challenging circumstances, I am obliged to follow an exercise dictated by considerations of justice and equity. In my view, in such a context, it is open to me to undertake a holistic assessment of the parties’ financial affairs the various aspects of which are interconnected, with a deficit in one area, having consequence for the whole.
At the present time, Mr Manwaring and Ms JJ and their extended family live in the parties’ former family home, which is situate at P Street, Suburb Q. Its purchase price was $482,000.00 and it is subject to a mortgage in favour of H Pty Ltd. It is registered in the sole name of the wife, no doubt as a mechanism to protect the property from potential creditors of B Pty Ltd.
Ms Emmerton vacated the home in February 2017. In these circumstances, at an early stage in the proceedings, it was agreed that Mr Manwaring would pay the mortgage and other outgoings on the former family home along with some other recurrent payments. Consent orders to this effect were made on 28 February 2019.
One of the significant issues in the case is the wife’s assertion that Mr Manwaring has largely been derelict in his obligations under this order and, although income has come in from the business since separation, he has not allocated it towards paying his debts as they fall due. This has led to the financial catastrophe which is currently enveloping the parties and which has caused her credit rating to be trashed.
The most recent evidence of the husband’s financial circumstances is provided by his statement of financial affairs filed on 28 January 2024. It reveals that he receives no income from B Pty Ltd, which as previously indicated has been placed into liquidation. His only source of financial support is a Job Seeker allowance of $330.00 per week.
He has indicated that he supports Ms JJ and his stepchildren and, in this context, he estimates his weekly personal expenditure to be just under $800.00. He owes his sister $17,500.00 and has unpaid fines of $9,401.37. In due course, it will be necessary for the court to attempt to ascertain what are Mr Manwaring’s other liabilities.
From Ms Emmerton’ perspective, the catalyst for her leaving the former family home was a violent altercation between Mr X and his father. It is her case that she was subject to regular family violence from Mr Manwaring during the course of their marriage, which Mr Manwaring denies, asserting that the couple had unexceptional disagreements and arguments from time to time.
At separation, the wife has deposed that she received a wage of $917.85 per week from B Pty Ltd and what she characterises as a weekly dividend of $420.00. She asserts the husband got the same wage and marginally larger dividend payment.
In 2017, Ms Emmerton purchased a property located in Suburb MM, with her daughter Ms EE, for the sum of $482,200.00, which was entirely financed by mortgage. Her parents guaranteed the loan. Mr X lived with her until late 2019. The property was sold in 2021. Ms Emmerton paid all the outgoing in respect of the property.
In late 2019, the wife met her current husband, Mr O. He is self-employed as a tradesperson earning approximately $70,000.00 per annum. After the sale of her Suburb MM property, the wife and Mr O purchased their current home, at BB Street, Town CC for $612,000.00. It is subject to a mortgage in the sum of around $480,000.00. The balance came entirely for the wife from the sale of her Suburb MM property.
The wife pays all the outgoings, including the recurrent mortgage payments on her current home from her salary as an admin officer, which from her financial statement is approximately $72,600.00 per annum.
It is Ms Emmerton’s position that given that her current home was purchased well after the parties separated without any input of marital capital, it should be quarantined from these proceedings. Mr Heinrich, counsel for the husband asserts that it should be included in the parties’ pool of joint assets. It was valued at $760,000.00, as at early 2023.[11]
[11] See Annexure E-10 to the affidavit of Ms Emmerton filed 12 April 2023 at page 211.
EVENTS BETWEEN THE JUDGMENT OF APRIL 2023 AND NOW
The orders made on 28 April 2023 envisaged the parties each engaging with their respective accountant and the ATO to ascertain what was precisely owed to the ATO and by whom. In addition, it was hoped there could be an orderly sale of one of the investment properties and the various jointly incurred liabilities of the parties in respect of valuation issues be defrayed from the proceeds received. Then the case would resume on 23 June of 2023 with the parties’ respective submissions in the light of such information.
Regrettably, what was intended did not come to pass and at this juncture what is owed to the ATO remains shrouded in uncertainly other than it is likely to be a significant sum and, as will be detailed in due course, it seems probable that as the sole director of B Pty Ltd, the liability will be Mr Manwaring’s alone. In addition, any hope that the investment property could be easily sold proved to be misconceived.
As indicated earlier, on 19 June 2023, Mr Manwaring filed an Application in a Proceeding seeking to adduce further evidence. I am not altogether sure what further evidence was necessary. What was noteworthy about this application was the fact that Mr Manwaring had failed to provide any evidence whatsoever regarding what seemed to me to be the central issue in the matter, namely what was the on-going financial viability of B Pty Ltd.
The wife responded to this application on 6 July 2023, seeking its dismissal on the basis that the issues raised relating to inter alia the sale of the investment property, removal of car parts from the Town L property and CGT had been resolved. She did however seek some orders from the husband relating to Division 7A tax liabilities and particularly how it had come about that the business had been placed into voluntary liquidation.
She deposed that her solicitor, Ms Barry had received a one-page printout from ASIC in mid‑2023 which indicated that B Pty Ltd had been place into voluntary liquidation on that date. This was the first time the wife and those advising her had been informed that Mr Manwaring had formed any intention to place the company into liquidation.
Ms Emmerton sought details as to why the decision had been made and what were its ramification for her personal liability in respect to monies theoretically allocated to her as loans from the company, both before and after separation. She sought this information both on the basis that she was a shareholder in the company and given Mr Manwaring’s obligation as a litigant in family law proceedings. It is her perception, which I share, that the husband has not provided any of the details sought by her.
The wife also deposed that she had contacted the ATO, as directed by the court’s order of 28 April 2023, indicating her acceptance of Mr R’s calculations[12] regarding how loans from the company had been allocated prior to separation. She sought that Mr Manwaring advise his solicitors to do what was necessary to record these matters in the balance sheet of the company.
[12] See Emmerton & Manwaring [2023] FedCFamC2F 476 at [95].
Ms Emmerton also deposed that she had not received any information regarding what communications the husband had had with the ATO. She also conceded that it was inevitable given the liquidation of B Pty Ltd it was unavoidable that further evidence would be required but she did not concede that it was in respect of the issues raised by Mr Manwaring.
In the light of these controversies, and others chiefly relating to the sale of Town L, which will be related hereunder, the case was adjourned so that Ms Emmerton and her legal advisors could confer with Mr HH. This meeting did not result in the wife having a better understanding of the company’s financial situation. However, the case could not be indefinitely deferred. In these circumstances on 3 November 2023, I fixed the case for further hearing on 29 & 30 January 2024 and made orders for the filing of any additional evidence by the parties in the lead up to the Christmas period.
This did not end controversies between the parties. On 17 November 2023, the wife filed an Application in a Proceeding seeking the sale of both the former family home at Suburb Q and the business premises in Suburb AC. Following a procedural hearing, the application was listed for hearing on 18 December 2023.
In respect of Suburb Q, Ms Emmerton deposed that Mr Manwaring had been derelict in paying the council rates due on the property and she had attended to the payment of some of them. In addition, she had been served with default notices in respect of the mortgage secured against the property. In respect of the Suburb AC property, it being the wife’s position that, with the liquidation of the company, Mr Manwaring had no obvious use for the property. It is also seems to be the case that there were outstanding liabilities, in respect of Suburb AC, in regards to unpaid council rates and water rates.
Mr Manwaring responded to the wife’s application on 12 December 2023. He conceded that there were arrears on the mortgage on the Suburb Q property standing at $10,535.00 and arrears of council rates in an amount of $2,530.05. He disputed any suggestion that there were arrears of water rates asserting that only rainwater was used on the property.
Mr Manwaring deposed that with the help of family and friends he would be in a position to pay these sums and it remained his intention to establish a corporate trust to discharge the mortgage and secure the property for him and his family.
In respect of Suburb AC, he deposed that four individuals, named by him, again through the agency of a corporate trust, would advance him the sums necessary to purchase the work premises for the sum of $650,000.00.
These individuals, each of whom deposed a brief affidavit of two paragraphs in the same terms as follows:
I have been approached by [Mr Manwaring] and have been made aware of the matrimonial property proceedings involving [Mr Manwaring] and his former wife [Ms Emmerton] who (sic) I have met.
I am prepared to provide financial assistance individually or collectively with others to assist [Mr Manwaring] to retain via a Trust with a corporate trustee, [AB Street, Suburb AC] for $650,000. I can be contacted on [telephone number].
On 17 December 2023, he deposed that he had brought the arrears in respect of the Suburb Q mortgage up to date and had paid the council rates. In respect of Suburb AC, he deposed he had paid the arrears. He did not indicate what was the source of the funds.
In these circumstances, he opposed the wife’s application as being unfair to him. Given the imminence of both the Christmas holiday period and the resumption of the case, I considered that it be both futile and potentially oppressive to order the sale of either of the properties concerned. Firstly, it seemed to me to be improbable that the mechanics of such sales could be organised prior to the resumption of the final hearing. Secondly, it did not seem impossible that the Suburb Q property could not be retained by him.
In the lead up to the resumed hearing, on 29 January 2024, each party filed further documents as follows:
The Husband:
·An affidavit of himself on 22 December 2023; and
·A statement of his financial affairs filed on 28 January 2024.
In these documents, Mr Manwaring indicated that he was in receipt of a jobseeker allowance of $330.00 per week and his major expense was his mortgage payment on Suburb Q of $430.00 per week.
In addition, in my assessment for the first time, Mr Manwaring attempted to address the issues which had resulted in B Pty Ltd being placed into liquidation. In general terms, he disclosed problems with administrative support after the wife and Ms EE left the business, which had led him to be unable to lodge business activity statements (BAS); pay suppliers invoices; and keep motor vehicles registered.
He provided these reasons to Mr HH as to why, in his view, the business had failed. These problems were exacerbated by issues related to Covid19 pandemic emergency and his failure to retain staff. He also deposed that these problems had coincided with him experiencing on‑going health issues, which had led to him making a claim to the Return-to-Work Corporation (SA workers compensation authority) for income support, which claim had not been granted.
More significantly, in the context of these proceedings, he deposed that he had received a director’s penalty notice in mid-2022 from the ATO indicating that he was personally responsible for unpaid PAYG tax in an amount of $102,405.27.[13] In these circumstances he had instructed his solicitor Mr Starke to approach Mr HH regarding placing B Pty Ltd into liquidation. These matters were not disclosed in the leadup to the April 2023 hearing or during it.
[13] See affidavit of Mr Manwaring filed 22 December 2023 at [7].
Mr Manwaring further disclosed that he first met Mr HH in mid-2023 and at this stage the decision was made to place the company into liquidation, which as indicated above was conveyed to the wife and her solicitor in mid-2023, without any details of what was the company’s level of solvency or the rationale for the liquidation.
Mr Manwaring also deposed that he understood he would be personally liable to Mr HH, the appointed liquidator, for his fees in an amount of around $100,000.00 in addition to the monies owed to the ATO for PAYG tax. In late 2022, Mr HH provided the following information to Mr Starke:
ATO Debt
The company owes the ATO $359,755 for PAYE and GST. The Director may be made personally liable for these debts by the ATO issuing a director penalty notice ("DPN") pursuant to section 222 of the ITAA and the elapsing of 21 days thereafter. If the company were placed into liquidation, the ATO would be unlikely to seek personal liability for its debts. The Director may be able to delay the ATO issuing the DPN by coming to an arrangement to repay the ATO debt over time.
Personal Liability
The Director is also likely to have made himself personally liable for some trade accounts, lease and finance contracts. As the company is solvent these are likely to be paid in full in any event. If the company is leasing premises, that liability may continue and will not be reflected on the balance sheet.
Loan Accounts
In a liquidation of the company, the Directors loan accounts are called in. If the net assets as recorded are correct then all of the loan will not need to be paid as the surplus assets, would be paid back to the shareholders. In that case I estimate loans of $316,523 plus liquidator’s costs would need to be repaid by the Director.
Insolvent Trading
As the company is profitable and has net assets there is no insolvent trading or any claim arising.[14]
[14] See Annexure M-1 to the affidavit of Mr Manwaring filed 22 December 2023.
As will become apparent, in due course, this is no longer Mr HH’s opinion and he is of the view that the company has been insolvent since at least July 2022. In addition, it would also appear to be his view that after further investigation the company’s financial situation is more parlous than originally thought.
Notwithstanding these concerns, it apparently remains Mr Manwaring’s aspiration that he could borrow sufficient funds to retain both the Suburb Q and Suburb AC properties. He expressed the hope that his return to work claims could be finalised shortly. Significantly, he indicated that he would indemnify Ms Emmerton in respect of any claim possibly to be made against her by the liquidator.
The Wife:
·An affidavit of herself filed on 15 December 2023; and
·An affidavit of herself filed on 24 January 2024.
In her most recent affidavit, Ms Emmerton indicated that if the former matrimonial home and Suburb AC premises were to be transferred effectively to the husband, she would want this to be to the husband in his personal capacity in order to avoid capital gains tax assessments. She also deposed that Mr HH had indicated to her his unwillingness to release her from any liability she might have to him in respect of monies owed by her to the company.
THE RELEVANT REAL PROPERTIES
As was indicated in the earlier judgment, the major assets relevant to these proceedings are readily identifiable. In addition, some assets have been sold. These include two agricultural properties[15] utilised for grazing as well as livestock generally.
[15] These can be referred to as the Town NN property (owned by the Trust) and the Town OO property (owned by the wife) respectively.
In the main the relevant property pool consists of real properties, mainly legally owned by the Trust. It is convenient to set them out now and delineate the various controversies which have arisen around them.
In this context, it is important to note that the Trust is the registered proprietor of the following properties:
·Town L;
·AB Street, Suburb AC[16] – this is the business premises of B Pty Ltd;
·2 Y Street, Suburb Z; and
·1 Y Street, Suburb Z.
[16] The parties habitually refer to the business premises as “the Suburb AC property”. I will do the same.
As previously indicated the wife and Mr O are the registered proprietors of their home in Town CC, which Mr Manwaring seeks to be included in the pool of matrimonial assets. In addition, there are two other properties which are relevant to the proceedings, which are:
·C Street, Suburb D; and
·P Street, Suburb Q.
The Suburb D property was sold as a consequence of an order of the court made on 28 April 2023. The property was originally acquired in 2003, for the sum of $146,000.00 as an investment property and registered in the wife’s sole name. It was subject to mortgage and tenanted. It was negatively geared.
As a consequence, any profit made in respect of it is subject to capital gains tax to be assessed at the wife’s marginal tax rate. This is a significant issue in the case. Mr R has calculated the CGT payable at a marginal rate of 47% at an amount of $76,195.11.[17]
[17] See Annexure E-16 to the affidavit of Ms Emmerton filed 6 July 2023.
The orders of 28 April 2023 required the minimum sale price to be $500,000.00 with the proceeds to be applied to discharging the mortgage, in favour of H Pty Ltd, on the property and other expenses, with the remainder to be held on trust.
In any event, the property was sold in mid-2023 for $480,000.00. An amount of $229,201.71 was utilised to discharge the mortgage. This did not occur without difficulty due to the fact that the relevant mortgage was also secured against the Suburb Q property. The Suburb Q property is the parties’ former family home. Mr Manwaring wishes to retain it.
It is the wife’s evidence that Mr Manwaring refused to execute the necessary re-finance documents to transfer the mortgage to the Suburb Q property alone. This necessitated Ms Emmerton bringing an urgent application to the court on 7 June 2023, which ultimately enabled the sale to be finalised.
It is the wife’s case that the conduct of the husband in respect of this this issue typifies his conduct in the proceedings generally and his attitude towards her in particular. Essentially it is one of passive aggression and obstruction, which does not seem to be rationally based. He seems bent on frustrating her case, even if it means it will cause him financial detriment. It can be summed up by that application of the old saw of Mr Manwaring being willing to cut off his nose to spite his face.
As indicated above, although Ms Emmerton ceased to be involved in the management of the company, over which in legal terms she had no control, she has continued to administer the Trust, which as its sole trustee, is her legal obligation. Mr R continues to be her accountant up to the present time.
Issues to do with the management of the Trust are at the heart of the controversy between the parties. It rankles with the husband that the wife has notionally received the rent for the Suburb Z properties, although from her perspective, she has serviced the mortgages. It also rankles with the wife that the husband has not paid the rent due to the Trust relating to his occupation of the Suburb AC business premises, whilst notionally receiving the profits from the business.
Obviously, this controversy has played out in the context of the greater controversy of what has actually occurred in the business over the last 5 or 6 years and where the money generated by it has gone. From the wife’s perspective, it has axiomatically not gone to the Trust, through the payment of rent, as was originally conceived by the parties.
Each of the Trust properties was at relevant times mortgaged and remain so. It is my impression, in general terms, that the parties were, in the jargon of the finance industry, fairly heavily leveraged. In other words, they relied on the payment of rent to service the mortgages, necessarily augmented by the receipts of the business.
In addition, the manner in which the properties were held enabled them to channel income derived from the operation of the business into assets, which they hoped would appreciate, whilst providing them with some level of tax advantage.
Income from the business paid the rent on its premises, and could therefore be deducted as a necessary expense against taxable income (although it is moot that proper accounting was ever made for tax) and the rent in turn was used to pay the relevant mortgage, which was negatively geared.
In order to be effective, it required cooperation and trust between Ms Emmerton, as the trustee and Mr Manwaring as the controller of the business, otherwise potential disaster would ensue. Essentially, funds needed to keep moving between the business and the Trust to pay the mortgages and keep the parties’ financial show on the road.
In this context, one of the themes explored in the proceedings before me was the lack of cooperation in this regard. On the one hand, Mr Manwaring has complained that Ms Emmerton kept him out of the loop in respect of the rent received by her from the two Suburb Z properties, which she retained to his detriment.
On the other hand, Ms Emmerton has complained that Mr Manwaring did not pay to the Trust the funds required from business activities, of which he was in control, to enable the mortgage payments to be made on the Suburb AC property and Town L.
In these circumstances, it is the effect of her evidence that in the period since the parties separated, she has been constantly fending off disgruntled financiers of the parties and municipal authorities who have not been paid what is due to them. This has caused her credit rating to plummet and occasioned her mental stress.
Town L
This is a rural property, which has been leased for agriculture in the past. The wife has asserted that the short-term leases for agricultural use generated around $25,000.00 per annum in the past. It has also generated income from production. There is a dwelling on the property, which in the past has been leased, but I understand it is now uninhabitable.
Overall, it is the wife’s position that the husband has failed to disclose what income the property has generated since the parties separated and his activities on the property and neglect of it have led to it significantly declining in value from around $2m to $1m.
The property was purchased by the Trust in 2014 for $670,000.00. It is subject to a mortgage in favour of V Bank. It also secured a business overdraft for B Pty Ltd. The original mortgage advance for the purchase was $342,000.00 and the overdraft up to $90,000.00.
It is the wife’s evidence that the proceeds of sale of the Town NN and Town OO properties - $260,000.00 and $335.000.00 respectively were used to pay down the V Bank mortgage. Town OO was sold for a modest profit. Given it was registered in the wife’s sole name, she has a liability for capital gains tax in an amount of $12,230.00. Town NN was not subject to capital gains tax.
Up until the date of the parties’ separation, it is the wife’s evidence, that the property was reasonably successful and turned off production in 2016 and 2017. It is her case that since 2017 she was kept in the dark about what was going on in respect of the property other than, in a piecemeal fashion and from sources other than the husband, she came to learn that the property was going to wrack and ruin and what income it did generate was concealed from her and has disappeared into the vortex of the financial disaster that is B Pty Ltd, now in liquidation.
From time to time, the property was tenanted by Mr Manwaring to a person Ms Emmerton has identified as Mr PP. Mr PP has evidently received monies for the sale of produce as did Mr Manwaring himself. The wife has been able to trace some of these sums through bank accounts provided by the husband and subpoenaed from the broker, utilised by Mr PP and the husband.
In mid-2019, a formal valuation was undertaken in respect of the equipment and livestock on the property, which valued the chattels on the property at $118,000.00.[18] Obviously this valuation has long been overtaken by other events. However, from the wife’s perspective, it provides another example of how the parties’ asset base has been eroded, to her detriment, during the period of time these proceedings have been on foot.
[18] See Annexure E-2 to the affidavit of Ms Emmerton filed 8 October 2020.
It needs to be emphasised what these proceedings are not. As I reiterate, they are not an exercise in forensic accounting. It is impossible for me to trace the monies received by the husband from the property in the lengthy period since the parties separated. What is clear is that any such monies did not follow to the V Bank mortgage and the payment of rates or to the benefit of Ms Emmerton. What was generated must have gone to Mr Manwaring and into the accounting nightmare which surrounds him.
On 28 February 2019, which was the date of the second mention of the parties’ competing applications, a consent order was made that Mr Manwaring would be responsible for the payment of all the mortgage payments and rates in respect of Town L.
Pursuant to the same order, he consented to continue to pay the rent on the Suburb AC property to the Trust at the rate of $600.00 per week from the resources of the business. It the wife’s case that this order has been constantly breached placing her and the Trust under financial pressure. She is unsure where the income apparently generated by the business has gone but suspects it has been diverted to Mr Manwaring.
In early 2022, the wife applied to sell the property. The catalyst for her application was her receipt of a foreclosure notice for V Bank, which indicated no mortgage repayments had been made by Mr Manwaring between early 2019 until mid-2021 and thereafter payments had been sporadic. Ms Emmerton indicated that the bank had engaged in Debt Mediation with the parties.
The evidence indicates that Mr Manwaring paid the arrears of $41,000.00 in early 2022 avoiding the foreclosure proceedings. Ms Emmerton asserted that this sum had gone into the overdraft account, bringing the available balance down to $39,821.86 but leaving the mortgage still effectively in arrears.
She also indicated that as at early 2022 rates owing on the property stood at $24,359.42. In effect, Ms Emmerton feared the monies advanced to V Bank had come out of the business account and had not been properly accounted for; other liabilities not met; and the actual level of mortgage indebtedness increased to $386,000.00, which was unsustainable.
Throughout this period, Ms Emmerton continued to maintain that Mr Manwaring was not properly attending to the management of the property. She asserted that he had alienated the share worker and had directed any receipts from the sale of livestock and produce to himself, which he did as a sole trader through an entity known as DD Company. As previously indicated, it is her case that the husband has failed to account to her for these monies.
On 9 May 2022, Judge Parker ordered that Mr Manwaring either pay all the arrears then owed to V Bank or otherwise enter into a payment plan, in respect of the Town L mortgage on or before 8 July 2022 and in the event of non-compliance the property be sold through a process involving the nomination of an estate agent and a sale price to be fixed by such agent. Mr Manwaring was authorised to utilise the property in the meantime. At this stage, her Honour transferred the proceedings to Division 1 of the Federal Circuit and Family Court of Australia.
On 12 October 2022, Ms Emmerton brought a further application seeking further orders in respect of Town L, which remained unsold with its mortgage still in apparent default. She deposed that she had engaged the process envisaged in the orders of Judge Parker to nominate an estate agent to market the property, but the husband had failed to reciprocate in this regard. More significantly, she deposed that Mr Manwaring had been served with a Clean Up Order by the Environment Protection Authority (“EPA”) in respect of the property.
Ms Emmerton provided a copy of the Clean Up Order to the court. It indicated that a large number of waste domestic, commercial and agricultural car parts had apparently been piled on the property. The car parts had been delivered from early 2022, at Mr Manwaring’s apparent expense, with the intention of either preventing erosion or to construct a racing track. The EPA regarded the car parts as an environmental hazard and required their removal within sixty days.
In the relevant order issued by the EPA, its author, an EPA officer, had written that Mr Manwaring had informed him that he (Mr Manwaring) intended to move into the home on the property. In addition, Ms Emmerton deposed that it was her understanding that Mr Manwaring had appealed the relevant Clean Up Order in Court. She wished to know precisely why the car parts had been so deposited and to what financial end.
Needless to say, it was her evidence that she had not been consulted in any way about this use to which the property had been put. She was concerned that firstly, the car parts would prevent the orderly sale of the property, if not preclude it entirely. Secondly, that the on-going presence of the car parts on the property would significantly reduce its value. It was also her case, at this time, that the rates on the property remained outstanding.
On 27 October 2022, Justice Mead ordered the sale of Town L at a price not less than $1.3m. The relevant order appointed a selling agent. Mr Manwaring was directed to vacate the property and surrender the keys. The proceeds of sale were to be utilised to discharge the V Bank loans; pay the arrears of municipal rates; and reimburse the wife for the costs incurred by her of removing the car parts from the property. In addition, orders were made for the sale of livestock and plant and equipment on the property.
By late 2022, it became apparent that Mr Manwaring had not vacated the property as directed. He filed an application seeking to discharge the orders for sale of Town L. At this stage, the trial of the parties’ respective applications for final orders, before Justice Mead, was imminent being listed for the following January. In this context, Mr Manwaring asserted that it was his wish to retain the property and he was engaged in advanced discussions with a mortgage broker to secure the funds necessary for him to do so.
From what she knew of the husband’s financial circumstances, the wife and those advising her greeted Mr Manwaring’s proposal with a certain degree of incredulity, particularly given he also wished to retain the Suburb Q property (the former family home) and the Suburb AC workshop. In these circumstances, the wife wished to know, with some degree of certitude, the basis on which Mr Manwaring had approached his proposed financier.
In all these circumstances, I have come to the conclusion that an assessment of contributions favours the wife 60/40%. I appreciate that this is a somewhat artificial calculation given the idiosyncratic nature of this case, but it seems to me that there must be some accounting in respect of the dramatic waste which has occurred in the case, which is due to the fecklessness of the husband.
Step Three – The prospective needs of the parties
I am now required to consider the various matters set out in section 75(2) and in particular to consider whether any further adjustment should be made in favour of either party. The section 75(2) factors are mainly, but not only, prospective in nature.
Paragraph (a) – The husband is 61 years of age. The wife is 58. I accept that the husband’s state of health, marked by a diminution in robustness and balance, are factors which render it problematic for Mr Manwaring to return to the heavy work involved as a tradesperson, particularly working at heights, where he is at significant risk of falling. The wife appears to enjoy good health. These are factors, which when read in conjunction with the matters delineated in paragraph (b) favour the husband.
Paragraph (b) – B Pty Ltd, the means by which the husband previously earned his income is defunct, with significant liabilities for which the husband may ultimately be found liable. Although the husband must be regarded as a skilled tradesperson, his compromised health renders it problematic for him to return to the physical side as a tradesperson.
Mr Manwaring’s fervent desire to retain the Suburb AC workshop may be indicative of a hope, on his part, that he can return to the trades business in some less arduous role, perhaps providing quotes and technical expertise, whilst overseeing others. However, whether this is anything more than an aspiration on his part is difficult to assess.
Certainly, Ms Emmerton and those advising her are deeply suspicious that Mr Manwaring intends to resurrect the business, in another form, leaving its debt behind with the liquidated company. Apart from this avenue of employment, it is difficult to envisage what other forms of employment Mr Manwaring might pursue given his age and skills. It is my impression that administrative skills are not his forte. In general terms, it is my finding that Mr Manwaring faces bleak employment prospects.
Ms Emmerton is in secure employment as an admin assistant, work which she enjoys, and which complements her skills gained in the finance industry, when she was younger. Her salary is approximately $72,600.00 per annum. It seems more probable than not that, if she wishes, she will be able to stay in this role for the next decade until her retirement. Accordingly, in terms of being in receipt of a guaranteed and regular source of income, she is much better placed than Mr Manwaring, who faces an uncertain employment history.
It has been said, by the Full Court, that the most valuable asset a party can take out of a marriage is a substantial, reliable income-earning capacity.[88] The wife has such an asset; the husband does not. The black cloud, on the horizon, for each of the parties being how the ATO is likely to approach the tax owed to it, which has accrued both before and after the parties separated but in far greater quantum in the period since.
[88] See Clauson & Clauson (1995) 18 Fam LR 693, 710 (Barblett DCJ, Fogarty and Mushin JJ).
As I have already noted, the uncertainty regarding this issue, given the extent of time these proceedings have been on foot, during which period each of the parties, particularly Mr Manwaring, have been given a more than ample opportunity to engage is some form of dialogue with the ATO, cannot be utilised as a reason to delay the finalisation of these proceedings. However, I am well aware that the ATO has the potential to render any distribution of marital assets made by this court nugatory.
I accept, in general terms, a capacity to borrow, can be regarded as a form of financial resource. It would seem to be Mr Manwaring’s position that, in order to retain both the former family home and the Suburb AC business premises, it may be necessary for him to pay Ms Emmerton a sum of money, depending on how the court approaches its task in percentage terms.
In this context, I have limited evidence regarding Mr Manwaring’s capacity to borrow, at least through conventional sources. Given his lack of a secure income stream, it may well prove to be the case that his capacity to borrow is limited.
Paragraph (c) – The parties’ children are now adult and self-supporting. This is not a relevant consideration.
Paragraphs (d) & (e) – Both parties have re-partnered. In Mr Manwaring’s case, Ms JJ and her two children are largely financially dependent upon him. In addition, he is legally liable to support his young daughter LL. I accept that there are many financial demands arising in the husband’s household. Above all, he has a need for secure accommodation for his relatively large family.
There are no such financial pressures in the wife’s home. Mr O is securely employed and contributes his share of expenses to maintain the household. In this context, Ms Emmerton is incomparably more financially secure than is Mr Manwaring.
Mr Manwaring has an obvious need to retain the Suburb Q property which is his home and provided accommodation, not only for himself but also his current wife and two infant children. As previously noted, it seems improbable that Ms JJ has any great capacity to contribute to any mortgage on the property.
In contrast, Mr and Ms Emmerton have, in the period since the parties separated, acquired their own home at Town CC. This was acquired in late 2019 and as I have found is a consequence of the wife and Mr O’s efforts alone. I accept that for these reasons it is to be quarantined from these proceedings.
The Town CC property is not a hugely valuable property and the wife and Mr O’s equity in it, around $125,0000.00 is modest. However, given they are both gainfully employed, they are able to service the mortgage on it. In this sense, as a family unit, Mr and Ms Emmerton are much more secure than Mr Manwaring and his family.
Paragraph (f) – Each of the parties are at the age at which it is prudent to start to make plans for retirement and how it will be funded. Given the nearly four-year differential, this is more pressing for the husband than the wife. In this context, given his early access to superannuation, the husband is currently not at all well equipped for retirement.
The wife is better placed and has more probable years in the work force to enable her to add to her superannuation. However, it seems inescapable that both parties will access the aged pension when it becomes available to them.
Paragraph (g) – The end of the marriage has been a financial disaster for each of the parties. This consideration recognises that one of the inevitable consequences of the end of the majority of marriages is a drop in living standards for the individuals concerned.
It is trite, but true nonetheless, that two households cannot live as economically efficiently as one. What is important is that any drop in living standards should not be borne disproportionately by one party more than the other.
At this juncture, the evidence indicates that the wife has made far more prudent financial decisions than the husband, in the nearly eight years since the parties finally separated. She has purchased a home for herself and ensured the survival of the two real properties she hopes to retain at the end of this process – the Suburb Z properties, which will, she hopes, appreciate in value and provide her with a guaranteed stream of income.
The decisions made by the husband, in respect of the business and Town L have resulted in a diminution of the parties’ asset base. It still remains substantial but may not be sufficient to provide each of the parties with a secure and well-resourced standard of living in their older years, which was no doubt was the motivation for them to invest in real properties in the first place.
One of the more significant (and inexplicable) aspects of this matter is that fact the husband has made one poor financial decision after another. Why this is so remains unclear to me. Whether it as a consequence of being in a state of financial denial; financial ineptitude generally; or some other reason; is unclear to me.
However, the parties have been separated for a significant period of time. The wife, in my view, has done her level best to preserve assets and act responsibility; whilst, in the other hand, the husband has made one poor decision after another. In my view, it would not be fair for the wife to suffer a gross diminution in the quality of her life, in financial terms, because of the husband’s conduct.
Again, it needs to be emphasised that there must be a level of uncertainty as to how the financial future will unfold for each of the parties given the exposure to the ATO. However, on balance, it seems more probable than not that the husband will enjoy a less comfortable standard of living than the wife will in the next decade or so.
Paragraphs (h) (j) (k) & (l) – The considerations arising under these paragraphs relate, in general terms to maintenance and the impediments to a party being able to re-train if he or she has familial responsibilities. They are not relevant in the current matter.
Paragraphs (ha) – In Lemnos & Lemnos[89] Le Poer Trench J said as follows of this provision;
Section 75(2)(ha) is only one of many factors the court is required to consider under s 75(2) and is not given any special priority over the other factors. Note that s 75(2)(n) requires consideration of the terms of the order made or intended to be made in relation to property or vested bankruptcy property. Also, s 75(4) clarifies that reference to ‘party’ under s 75 means a party to the marriage not the bankruptcy trustee.
[89] Lemnos & Lemnos [2007] FamCA 1058 at [59].
What will be the extent of either party’s liability to the ATO is unknown to me. It is further uncertain how the parties will approach any such debt when it materialises. Certainly, there has been no indication that either party is considering any application relating to personal insolvency. I am satisfied that this paragraph cannot represent an impediment to the court finalising these proceedings.
At one stage of the proceedings, Mr Manwaring made what I regard as a somewhat inchoate proposal that the Suburb AC property and the Suburb Q home be purchased by a trust, which he would organise and which would be agreeable to him remaining in occupation of the home and business premises. I presume that the trustee of such a trust would be some person other than him, although this was not ultimately revealed to me. No such trust actually materialised.
It is apparent that B Pty Ltd is insolvent. Mr HH has indicated a possibility that it will be determined that the company traded whilst insolvent. What are the implications of this for Mr Manwaring in respect of issues of personal insolvency is unclear to me. Necessarily if he becomes bankrupt it will have implications for his ability to retain the Suburb Q property in the face of claims made by his personal creditors.
However, at this point, in my view, these are considerations beyond the remit of these reasons for judgment. In my view, it is incumbent upon the court to bring these proceedings to an end and finalise the parties’ financial relationship with one another. It is not the role of the court to assist in any mechanism which may result in Mr Manwaring being able to escape the consequences of any subsequent act of bankruptcy which may be committed by him.
Paragraphs (m) (naa) (p) & (q) – These paragraphs are not relevant to this particular case.
Paragraph (n) – Given both the complexity and uncertainty surrounding the various assets which are available for distribution in this case, great care must be taken in respect of any order made altering the parties’ various proprietary interests. Essentially, which assets are retained by each of the parties and which must be sold.
This is particularly so in respect of the former family home and the Suburb AC business premises. I appreciate Mr Manwaring wishes to retain both properties and will feel aggrieved if this does not occur for logistical reasons. However, the lack, on his part, of any obvious and incontrovertible pathway to finance to achieve the retention of both properties may make this an impracticable outcome and so unfair to Ms Emmerton, if, in a fruitless attempt to achieve it, it occasions further delay in the finalisation of these proceedings.
Paragraph (o) – In Ferguson & Ferguson[90] the Full Court of the Family Court held that section 75(2)(o) was to be read ejusdem generis with the other matters listed in the section 75(2) to enable the court to bring into account conduct which has an economic significance in the parties’ dealing with each other or the property in dispute.
[90] Ferguson & Ferguson (1978) FLC 90-500 at 77,607.
In my view, there are many aspects of the husband’s conduct, in the management of the business and the affairs of the Town L property, which have had a deleterious consequence for the wife in economic terms. In general terms, decisions made by the husband have resulted in the parties being far less well off than they would have otherwise been.
These consequences include the expense of clearing the property of the car parts placed there by the husband, which was met from the sum secured by the sale of the Suburb D property. In addition, the wife was put to the expense of having to engage a locksmith to enter the property so it could be readied for sale.
These expenses have been defrayed from joint assets but in my view cannot be approached as being joint liabilities. In the circumstances, I do not propose that these expenses be taken into account by a direct add back but considerations of justice and equity dictate that these factors must be taken into account and allowance made, in the wife’s favour, in respect of how the pool of matrimonial assets is divided.
In my view, the most significant factor for the court’s consideration, arising at the third step of its consideration is the fact that it does not seem improbable that the property has halved in its value and the business rendered worthless, since the parties separated. As I am at pains to point out, this cannot be approached in any direct arithmetical manner but must be taken into account in respect of the court’s assessment of the factors arising under section 75(2)(o).
During their marriage, the parties elected to conduct their financial affairs through the accounting mechanisms of an incorporated business and a related discretionary trust. No doubt they were provided with compelling accounting advice as to why this was an appropriate way for them to manage their affairs.
The Trust must now be determined and the capital gains tax arising from the sale of the various properties owned by it paid. This liability, significant in nature and not fully determined given the recent sale of Town L, will fall on Ms Emmerton and will attract tax at her applicable marginal rate.
It seems to be me to be improbable, given how the proceedings have been conducted to date, that she will receive any assistance – either practical or in dollar terms – from Mr Manwaring in accomplishing these tasks, which she has a personal incentive to deal with expeditiously. Rather the cost of retaining the appropriate professionals to deal with these matters will fall on her. In my view, this is another factor which favours her.
It is the wife’s preference that she retain the two investment properties, which are subject to mortgage. From her perspective, it makes no financial sense to liquidate these properties, at this stage, given her already high current level of exposure to CGT. However, ultimately, this expense will have to be met quite possibly many years into the future. In these general terms, it another financial factor which favours her.
At the conclusion of these protracted proceedings, each of the parties will leave with significant level of liability arising from the legal fees incurred in respect of these proceedings. The wife’s costs are significantly more than those of the husband.
These very significant legal fees have arisen because of the protracted nature of the proceedings. In my assessment, much of the delay can be attributed to the conduct of the husband. In all these circumstances, it is my view that this is also a general economic factor, which considerations of justice and equity dictate should be taken into account in the wife’s favour.
Paragraphs (p) & (q) – These are not relevant considerations in the present matter.
SUMMARY OF SECTION 75(2) FACTORS
At this stage, the court is called upon to balance factors which indicate the husband faces an uncertain financial future as a consequence of his age, compromised health and likely difficulty in earning an income for the foreseeable future with the economic consequence, for the wife, of his conduct, which has wasted the parties’ hard-earned assets, during their lengthy marriage.
In my assessment, the extent of the waste involved, notwithstanding Mr Manwaring’s obvious needs and uncertain financial future, dictates a further distribution in Ms Emmerton’s favour in an amount of potentially up to 10%. In my view, this represents the high-water mark and perhaps will have to be modified when its implications are subject to some arithmetical analysis, which I fear has not occurred in the proceedings to date, despite my earlier attempts to assist the parties to focus on the numbers.
CONCLUSIONS
I am satisfied that in all the circumstances of this case, it is just and equitable to make orders pursuant to section 79(2) of the Act. The marriage between the parties has clearly ended and the financial relationship between them must be brought to an end. This should have occurred long before now.
The next issue is what form those orders should take and where individual items of property should lie. Although there must be reference to asset pools and the value of property, I am not an accountant and this is not a purely accounting exercise.
I am well aware of the disastrous and long-lasting consequences of this case for each of the parties concerned. Mr Manwaring is a person in his early sixties, with a young family, who is facing all manner of fiscal issues, not least with the ATO. It will be both a financial and emotional disaster for him, if he is rendered homeless. Ms Emmerton herself is not in the clear so far as her taxation situation is concerned. However, she has a secure home and a guaranteed source of income.
At the end of the day, although there is much to criticise in the feckless manner in which Mr Manwaring has approached his financial affairs, I must look behind any percentage figures on which I have arrived at and consider the implication of such percentages in the human circumstances of this case. Above all, I must be satisfied that what I propose, in its ultimate outcome, is fair for each of the parties concerned.
It is no easy task and, as these lengthy reasons for judgment demonstrate, it is a case with which I have struggled and have found extraordinarily troubling. It has demonstrably not been in the financial interest of either party that the case has come to this juncture and there has been no orderly realisation of their interests to minimise the harm, which the outcome of this case must inevitably represent.
This has been a messy and disorderly case and necessarily so must be its outcome. There remain many uncertainties in the case and, as a consequence, it is difficult for me to ascertain what will be the ultimate consequence of the orders, which I must make to end the parties’ disastrous financial relationship with one another. Other parties stand in the wings of this particular drama ready to take the stage. Chiefly those parties are H Pty Ltd and the ATO.
There is a degree of complexity about how the parties have chosen to manage their financial affairs during their marriage, the major aspect of which has been their decision to manage property investments via a trust and hold a major item of property – the Suburb Q home, which Mr Manwaring wishes to retain – in the wife’s sole name. In these circumstances, the mechanics of how the actual division of property is to be achieved is not without its complexities.
In Steinbrenner & Steinbrenner,[91] Coleman J observed as follows:
Given the evaluation of contribution based entitlements inevitably moves from qualitative evaluation of contributions to a quantitative reflection of such evaluation, there will inevitably be a “leap” from words to figures. That is the nature of the exercise of discretion, whether it be in the assessment of contributions in the matrimonial cause, assessment of damages in a personal injuries case, or determination of compensation in a land resumption case.[92]
[91] See Steinbrenner & Steinbrenner [2008] FamCAFC 193.
[92] See Steinbrenner & Steinbrenner [2008] FamCAFC 193 at [234] (Coleman J).
I have reached the point in the judgment at which the court must make the metaphorical leap from words to figures or from abstractions to what is concrete. After all, it is all well and good to talk in percentages, so far as orders and outcomes are concerned, but what matters to the parties is what the orders mean to them in dollars and cents and what effect they have on their long-term plans and aspirations. This leap from abstraction to the concrete must be undertaken in terms of what is just and equitable to each of the parties concerned.
As I am at pains to point out, the chief difficulty presented by the case is that it is uncertain, if orders are made conferring various items of real property on each of those parties, how secure such transfer will be from the efforts of creditors of the parties to recover what is due to them. Most relevant in this context, for self-apparent reasons, is the Australian Taxation Office and H Pty Ltd.
I am well aware that it is not beyond the bounds of probability that these creditors and others of Mr Manwaring may seek to recover any monies and assets, which may ultimately accrue to Mr Manwaring to satisfy any debt proven in their favour. However, as noted above, it is not the function of the court to fashion its orders to assist Mr Manwaring in evading his potential personal creditors.
In addition, uncertainty about such issues, in my view, cannot authorise any further delay in the court fulfilling its obligation under section 79 of the Act to make the final orders altering the parties’ interests in the pool of property it has identified. The case needs to be resolved. It has been on foot for far too long, during which period the parties’ asset base has eroded.
It seems doubtful that either of the parties can be regarded as being out of the woods, so far as their future financial security is concerned. This is particularly the case so far as Mr Manwaring is concerned given the information available from Mr HH regarding the possibility that the business was trading whilst insolvent and his possible liability as a sole director.
However, at the present point, there is no obvious optimal point at which this case and the remaining assets can be distributed best between the parties. Such an optimal time was long ago. The tragedy of this case is the amount of money it has consumed; the time it has taken; against a background of assets being diminished in value.
From the wife’s perspective, she needs to salvage what she can from the disaster and then negotiate, as best she can, with the ATO, as to how she can best resolve any taxation issues she has arising from the conduct of B Pty Ltd, prior to its liquidation. She will also have to deal with the defrayal of capital gains.
At this juncture, the husband too needs to preserve whatever he can. The most important thing, from any objective perspective, for him, is for him to secure the Suburb Q property with a level of debt, which is serviceable so far as he is concerned. In this overall context, the court must determine whether the husband’s professed desire to retain the Suburb AC business premises can be assessed as being financially viable or based on any feasible assessment of the husband’s current circumstances.
For the reasons which follow, I have come to the conclusion that it is not realistic for the husband to retain Suburb AC. It seems to me highly probable that given the liquidation of B Pty Ltd and his current travails with the ATO, that he can have any assured level of borrowing with a reputable lender.
In these circumstances, to avoid complete finalisation of the proceedings on the basis of a nebulous possibility that Mr Manwaring will be able to purchase the wife’s superior interest in the Suburb AC premises, would seem to me to be a recipe for disaster and almost certainly guarantee more proceedings.
The best that Mr Manwaring can hope to achieve, at this stage, is the retention of a roof over his head, for him and his family, in the form of Suburb Q. This is by no means an easy outcome to achieve, given the current circumstances and will require focus, cooperation and financial discipline, so far as Mr Manwaring is concerned, which have not been attributes I have noted in him in the proceedings so far. There must be a very real prospect that Mr Manwaring himself will be subject to personal insolvency proceedings by one or other of his creditors.
In general terms, subject to the uncertainty of what will be the actual level of CGT to be paid by the wife in respect of Town L in particular but also in respect of the sale of the Suburb D property, the net asset backing of the parties totals $2,110,727.71. 30% of this sum is represented by a figure of $633,218.31 and 70% by the figure of $1,477,509.40.
This is a somewhat artificial construction given the manner in which each party wants the court to proceed. The wife wishes to retain the investment properties and discharge the liability related to them. The husband wants to retain Suburb Q and discharge the liability related to that.
There is a controversy relating to what should occur to the Suburb AC property – the wife contending that any realistic analysis dictates that the property should be sold; the husband wishing to retain it. In these circumstances, in my view, it is necessary for the court to approach the case on the basis of two asset pools – one consisting of assets and liabilities which all agree are to be retained and a second one in respect of Suburb AC and other liabilities, which I have found to be joint ones, particularly the CGT liabilities as well as the monies owed to Mr X.
On my calculations, in the form of the assets already realised; the Trust properties which the wife wishes to retain; and the former family home; the parties have assets to the value of $2,017,286.60, which is subject to mortgages totalling $402,737.78. In net terms a pool of $1,614,548.82.
Accordingly in net terms, if this asset pool is to be notionally divided 70/30% in the wife’s favour, she needs to retain assets to the value of $1,130,184.17 and the husband assets to the value of $484,364.65.
If the husband retains Suburb Q, with its current level of debt, he will have an asset with a net value of $583,226.90, a little less than I have currently calculated his entitlements. If the wife retains all the remaining assets and mortgage related to the two Suburb Z properties, she will have asset to the net value of $1,031,321.92. In these circumstances, on my calculation, it will be necessary for the husband to pay the sum of $98,862.25 to the wife to achieve the distribution calculated by me.
In my view, he has no obvious source from which to achieve this sum given he is not currently working, and B Pty Ltd is defunct. As a consequence, it seems to me to be inevitable that Suburb AC property must be sold. In my view, this is the only source from which the monies due to the wife can be sourced, as well as the relevant amount of capital gains tax paid.
In these circumstances, I will make the necessary order directing the sale of the Suburb AC property on the terms largely proposed by the wife, namely that she manage its sale. Given the level of dysfunction between the parties, she must be in charge of the sale process and be appointed the sole agent for its sale. She has a vested interest in ensuring the property goes for its maximum value.
The minimum sale price should be an amount of $650,000.00 and from the proceeds, after the deduction of all selling costs (including tidying the property and preparing it for sale) should be deducted the monies due to be paid by the wife in respect of CGT in respect of the sale of the Suburb D property; Town L; and indeed Suburb AC. However, whether CGT will attach to Suburb AC has not been made clear to me and certainly not the overall quantum of it.
I appreciate that there must be a level of uncertainty regarding what will be the exact amount of the CGT. The wife is directed to account for these amounts, when actually assessed by the ATO, to the solicitors for the husband, and will be authorised by the court to retain a sufficient sum to cover the potential amount of CGT, as advised to her by her accountant Mr R.
If the Suburb AC business premises sell for their anticipated value and from the relevant proceeds the current CGT assessment paid, it will realise, in theoretical terms, an amount of just under $500,000.00. If the proceeds are divided 70/30% in the wife’s favour, she will receive, on my estimation (not taking into account selling costs) an amount of around $347,000.00; whilst the husband will receive a sum of around $148,00.00.
It seems to me that each party should utilise the sum to be realised by each of them from the sale of the Suburb AC property to pay Mr X the monies due to him. I will direct that each pay him the sum of $10,788.66 from the proceed of sale of Suburb AC.
The next issue for the court is to determine both the justice and equity and the actual mechanics of how the sum ($98,862.25), arising from the first round of calculations, is to be approached. Essentially, whether from perspective of how the orders will operate, in practice, it remains a fair and feasible outcome.
The payment was posited on the basis of what the wife had been calculated to be entitled from the court’s calculation of a 70/30% division on the basis of the value of the asset and liabilities, which the parties each wished to retain rather than realise or discharge. In my view, this outcome must be revisited. Again, I point out that this is not purely an arithmetical or accounting exercise.
Rather, it must be a more nuanced exercise for the court. Essentially, at this stage of the proceedings the court must look to the mixture of assets and liabilities, which each party has at the end of their lengthy relationship.
In cases such as L & L[93] consideration has been given to how the court should determine the mix of assets and superannuation each party should receive and how assets should be allocated. Relevant factors warranting the court’s consideration include the following:
·the purchase price of appropriate accommodation and re-housing costs for both parties;
·the need for a financial buffer for ordinary exigencies of independent living;
·the current level of the parties’ superannuation;
·their ability to borrow in future; and
·the earning capacity of the parties concerned.
[93] See L & L[2003] FamCA 40.
The major problem thrown up by the current matter is that there is little evidence available to indicate, other than by inference or, worse still, conjecture, to indicate whether Mr Manwaring has any realistic capacity to borrow any sum whatsoever, either commercially or from a member of his family or a friend, given his current parlous financial circumstances.
As indicated above, in my view, the prospect of Mr Manwaring being able to put together some form of trust structure for his overall benefit, which will acquire the Suburb Q property must be regarded as nebulous in the extreme. In addition, I am concerned at the implication of such a scheme so far as any other of Mr Manwaring’s creditors are concerned.
As recently as late 2023, the wife deposed that the amount of $266,773.10 was owing to H Pty Ltd in respect of the mortgage, secured against the Suburb Q, which included arrears of $10,535.00. For obvious reasons, she is concerned that this remains her personal liability and if it falls again into default will prejudice her credit rating.
In my view, in the light of the compulsory sale of Suburb AC and quite possibly the necessity for the court to order the sale of the Suburb Q property, if the husband is unable to discharge the mortgage liability relating to it, it is necessary for the court to consider the overall justice and equity of deduction a sum of around $100.000.00 from the husband’s otherwise entitlement of around $148,000.00 from the sale of Suburb AC.
At the end of the day, this process is not an accounting one. In addition, nothing is easy about how the parties have elected to hold their assets up to this stage. One glaring example of this is that the former matrimonial home, which the wife does not wish to retain and which is subject to a mortgage, also in her name, which has proven to be problematic for her to say the very least.
The mechanics of how the wife is to transfer her interest in the property to the husband and whether the relevant mortgagee will release her from the mortgage and will accept the husband as the new mortgagor in her place is not clear to me. If all goes to plan, which I accept cannot be assured, he will have a mortgage somewhere in the vicinity of $260,000.00, which he can conceivably minimise modestly, if he chose to do so, from his share of the sale of Suburb AC.
As noted above, the transfer of Suburb Q, from the wife to the husband, is not a transaction which can be anticipated to occur seamlessly. It is one involving more moving parts that the parties themselves, the chief of which is the mortgagee concerned. Mr Manwaring will have to have sufficient funds to discharge the current mortgage and will have to secure an alternative source of funds.
How he will service this mortgage, given he is not working at present and given his age and state of health is not clear to me. In addition, how he will pay his legal fees, in these circumstances, is not readily apparent to me. On any view, this case has been a disaster for him. However, at the end of the day, it is my view, that he is largely the author of his misfortunes.
At the final stage of proceedings, looking at the overall circumstances of the case, from the perspective of what is just and equitable, the major problem, which the case presents, is that the wife will be left with the not insignificant cash proceeds arising from the sale of Town L; Suburb D; and the livestock. In total, this amount comes to over $600,000.00 plus the lion’s share of the sale of Suburb AC.
I appreciate, a very significant proportion of this will go to the payment of her very considerable legal fees. At the same time, she has the security of the two rental properties, in which she has significant equity, and which will provide her with either a modest revenue stream in future or some tax advantage; whilst also representing an asset, which she can realise at an appropriate time. She also has the security of the Town CC property in which she has modest equity but significantly the assistance of Mr O to maintain it.
Mr Manwaring has none of these things. It is concerning to me that he has no accessible sources of capital. Clearly, notwithstanding her liability for legal fees, Ms Emmerton leaves the case in a much more secure financial position than the husband. I am concerned that it is not just and equitable for Ms Emmerton to retain all the cash generated by the proceedings and leave Mr Manwaring without any access to any significant lump sum or nest egg to meet his existing and potential exigencies.
In all these circumstances, it does not seem to me to be just and equitable that the monies flowing to the husband from the sale of Suburb AC should be subject to a deduction of approximately $100,000.00 leaving him possibly with a small amount of cash; and if all goes to plan (which cannot be assured) the Suburb Q property subject to a mortgage.
I propose to ameliorate this situation by reducing the amount to be paid to the wife from the sale of Suburb AC to the sum of $50,000.00. In broad terms this is slightly less than 2.4% of the asset pool as calculated and will give Mr Manwaring a larger amount of cash (around $100,000.00) which he can provide as some form of collateral to any financier whom he elects to approach to discharge the current mortgage in favour of H Pty Ltd.
It is in Mr Manwaring’s interests to do all within his power to access the finance to enable him to retain the Suburb Q property and release Ms Emmerton from the mortgage relating to it. I am not particularly confident that he will do so.
I will allow him sixty days from the date of these orders to obtain the necessary finance, if he does not do so, there must be a mechanism to sell the property so that Ms Emmerton can be released from her liability under the mortgage and the last major tie of her financial relationship with Mr Manwaring broken.
In many ways, Ms Emmerton’s situation is analogous to that of a mortgagee. She has no interest in retaining the Suburb Q property, which is a millstone around her neck. Apart from her credit rating, she does not care whether H Pty Ltd exercises any rights it may have under its mortgage if it falls into default. Mr Manwaring has more compelling reasons to wish to avoid the mortgagee taking action.
If Mr Manwaring does not obtain the necessary finance to discharge the mortgage and arrange for the transfer of the property from Ms Emmerton to him, I will direct that the wife be appointed to sell the property with a reserve price of $850,000.00. After the payment of necessary selling costs, Mr Manwaring will be ordered to receive the proceeds of sale.
It seems to me to be in his interests to cooperate with Ms Emmerton in such a sale because the current mortgagee is not likely to be concerned to achieve the best possible price for the property provided it receives the sum due to it. It is necessary for the property to be either sold or for Ms Emmerton to be released from it. Whether Mr Manwaring is capable of achieving its retention is not clear to me.
If he does not, he will have cash in the vicinity of about $680,000.00. Such a sum will provide him with some measure of security, albeit that it may be subject to the attentions of potential creditors. Again, this is a factor in this messy and problematic case the ultimate outcome of which is unclear to me.
The wife will have a much larger sum, in excess of $1.3m. I appreciate that what I propose is, as I said above, somewhat messy in its nature. However, in my view, this is a reflection of how the case was presented to me.
I am satisfied that, notwithstanding, it deficits and uncertainties, it represents a just and equitable outcome, in difficult and challenging circumstances. For all these reasons the orders of the court will be as set out at the commencement of these reasons for judgment.
I certify that the preceding five hundred and ten (510) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Brown. Associate:
Dated: 26 July 2024
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