Erington and Erington

[2016] FamCA 350

FAMILY COURT OF AUSTRALIA

ERINGTON & ERINGTON [2016] FamCA 350

FAMILY LAW – PROPERTY – INTERIM ORDERS – Application by the husband for sale the parties’ business – where the bank has issued a notice of default as a result of the business’ failure to meet its obligations to the bank – where the wife seeks that receivers be appointed – where an offer has been made by a party to purchase the business – orders made as sought by the husband pursuant to s 114

Family Law Act 1975 (Cth)

APPLICANT: Mr Erington

RESPONDENT: Ms Erington

FILE NUMBER: MLC 9064 of 2015

DATE DELIVERED: 14 April 2016

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Johns J

HEARING DATE: 14 April 2015

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Sweeney

SOLICITOR FOR THE APPLICANT: Landers & Roger

COUNSEL FOR THE RESPONDENT: Mr Brown QC

SOLICITOR FOR THE RESPONDENT: RB Flinders

Orders

1. That the husband in his capacity as director and/or shareholder of B Pty Ltd, C Pty Ltd, Erington Pty Ltd, and D Pty Ltd be at liberty to do all acts and things as may be necessary to give effect to the sale of the business businesses at Suburb E and Suburb F (prior to the ANZ’s appointment of receivers over the businesses) to the newly incorporated entities known as Suburb E Pty Ltd as trustee for the Suburb E Trust, and Suburb F Pty Ltd as trustee for the Suburb F Trust, on the terms and conditions set out in annexure ME-2 of the affidavit of the husband filed 11 April 2016.

2. That all questions of costs be reserved.

3. That the husband have leave to withdraw paragraphs 3 and 4 of his Application in a Case filed 11 April 2016.

4. That the husband’s Application in a Case filed 11 April 2016 and the wife’s Response to Application in a Case filed 12 April 2016 be otherwise dismissed.

5. That the transcript of my Reasons be placed on the Court file and made available to the parties.

6. That all extant interim applications be otherwise dismissed.

7. That the requirement that the parties attend a Conciliation Conference is dispensed with on the basis of the representations made by Counsel appearing for the parties this day that the parties propose to engage in private mediation.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Erington & Erington has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 9064 of 2015

Mr Erington

Applicant

And

Ms Erington

Respondent

EX-TEMPORE REASONS FOR JUDGMENT

1. This matter comes before me today for an urgent interim hearing upon the Application in the Case filed on behalf of the husband on 11 April 2016.  The only part of that application pressed before me today is paragraph 2 of the application, which seeks that the husband, in his capacity as a director and shareholder of named entities, be at liberty to effect a sale of businesses conducted at Suburb E and Suburb F operated through those entities.  The wife opposes that application.

2. The material relied upon by the husband is as follows:-

   ·His Application in a Case filed 11 April 2016;

   ·The Affidavit of the husband filed 11 April 2016;

   ·The Affidavit of the husband filed 14 April 2016;

   ·Annexure ME2 to the affidavit of the husband filed 25 September 2015, which is a letter addressed to B from the ANZ Banking Group dated 29 May 2015.

3. The wife relied upon the following material:-

   ·Her Response to an Application in a Case filed 12 April 2016;

   ·Her Affidavit filed 12 April 2016;

   ·Annexures ME1 and 2 to her Affidavit filed 4 November 2015, being heads of agreement which were entered into in July of 2015;

   ·Annexure ME5 to her Affidavit filed 22 December 2015, which is a demand from the ANZ Bank dated 9 December 2015;

   ·The Affidavit of the husband filed 13 January 2016, particularly paragraphs 26 and 27 of that Affidavit which relate to the husband’s evidence in respect of the demands made by the ANZ Bank.

4. The parties to the proceedings are the husband who is aged 45 years.  He is engaged in employment as a businessman.  The wife is aged 44 years.  She is a company director.  The parties married in 1998 and separated in late 2014.  There is one child the subject of the proceedings, G, who is aged 10 years and lives with the wife.

5. The background to the current dispute is as follows:

6. The parties, through their corporate entities, operate businesses in Suburb F and Suburb E.  They operate those businesses in partnership with a third party, Mr H.  He holds a 15 per cent interest in the businesses.  The parties, through their entities, hold an 85 per cent interest in those businesses.  The land upon which the businesses are operated is held by the parties through their entities together with the entities of another party, Mr I.  The businesses have leasehold agreements to rent those sites upon which they operate.

7. There are a number of factors about which there is little dispute.

   i)The businesses have been performing badly, and this has been the case for a period of at least 12 months.

   ii)The business is in default in respect of its obligations to the ANZ Bank, particularly with respect to the floor plan arrangements.

   iii)The business has been in default in respect of its obligations to the ANZ Bank since about February, 2015.

   iv)The parties have been in negotiations with the ANZ Bank since early 2015 to resolve issues around their default in their obligations.

   v)On 29 May 2015 the ANZ Bank provided a letter to the directors of B Pty Ltd, one of the parties’ entities, offering an extension of the loan facilities to 30 September 2015 upon certain conditions.  Two of those conditions were that there be a sale of the former matrimonial home in Suburb J, and further, that there be a sale of the Suburb E and Suburb F businesses.

   vi)On 1 December 2015, the parties attended court in relation to interim issues.  On that day, the parties entered into consent orders with respect to the valuation of the businesses, amongst other matters.

   vii)On 9 December 2015, the parties, or their entities, more particularly, were served with notices from the ANZ Bank in relation to default under the finance arrangements with that bank and a demand was served.  Further demands were served upon the entities by the ANZ Bank on 6 April 2016 and on 7 April 2016

   viii)In December 2015, the ANZ Bank engaged L Advisory to oversee the operation of the [business].  The ANZ Bank agreed to delay action under the demands between December 2015 and 6 April 2016.  It did so on the basis that the parties were engaged in negotiations to try to resolve the issues as between them, but also, more particularly, to address issues as to how finance arrangements with respect to the facilities provided by the bank could be regularised.

8. An offer has been made by Mr I to purchase from the parties’ entities an interest in the businesses.  Pursuant to the terms of that offer Mr I will hold a 51 per cent interest in the businesses and the parties’ entities holding a 49 per cent interest.  The effect of that proposed arrangement is that the parties will be relieved, in large part, of their obligations to the ANZ Bank.

9. Significantly, in my view, the arrangement is supported by Mr H, who is the owner of a 15 per cent interest in the businesses.  The effect of the agreement from his perspective is that he will no longer hold an interest in the business but will be relieved from his obligations to the ANZ Bank.  Further, the arrangement proposed is one supported by the ANZ Bank.

10. The position of the bank is set out in the report of Mr K, which is annexed to the husband’s Affidavit filed 11 April 2016.  Again, the role of Mr K is significant.  He is an expert jointly appointed by the parties to provide independent assessment as to the advice provided by L Advisory, who act on the instructions of the ANZ.  Essentially, Mr K was engaged to provide independent verification of the analysis and conclusions reached by L as to the position of the business interests.  In his report, Mr K notes, at paragraph 23, the proposed effect of the sale of interests to Mr I.  At paragraph 29 of that report, he notes the advice of L as to the bank’s position.  He there states:

    [L] has advised that although the ANZ Bank will incur a shortfall under the proposed transaction, the transaction is still favourable to the bank for the following reasons:  goodwill is included in the transaction at a value of $1.5 million which [L] have been advised is higher than market value;  the bailment facilities for new … assets and used … assets are being taken over by the purchaser dollar for dollar, whereas under a receivership scenario, the … assets would likely be recovered at a rate less than 100 cents in the dollar;  and the proposed transaction represents a clean way for the ANZ Bank to resolve the facility breach by the businesses.

11. Further, at paragraph 30 of his report, Mr K notes as follows:

    [L] has stated that if the transaction does not proceed, the ANZ Bank will likely appoint a receiver or receivers and managers in order to recover the full value of its debt.  [L] has stated that should the ANZ Bank appoint a receiver and manager over the [business] and/or its assets, it is highly unlikely that the property assets and cash will form part of the asset pool for family law property settlement purposes.

12. In essence, the position of the husband, which, seemingly, is supported by L and Mr K, is that from a financial perspective, the parties are likely to be in a stronger position than were receivers to be appointed.  The appointment of a receiver is the wife’s preferred course.

13. At paragraph 19 of his Affidavit filed 11 April 2016, the husband sets out his assessment as to the potential impact of the appointment of a receiver.  He deposes as follows:

    As well as being the only interested purchaser, Mr I is the landlord for the main [premises] at the [Suburb E business] due to his control of the companies which own the properties at [M Street, Suburb E], and also one of the premises at [Suburb F], being [N Street, Suburb F].  Under the terms of our lease agreements, the appointment of a receiver would constitute a default and, in those circumstances, [Mr I] has the ability to withhold his consent to a new tenant taking an assignment and/or renewal of the leases.  Without these leases, the site goodwill associated with the [Suburb E business] would be lost.

14. It was submitted on behalf of the husband that the appointment of a receiver would give rise to a breach of covenants under the existing leases and thereby diminish the parties’ bargaining position in terms of any future sale of the business interests.  There was no serious challenge to that proposition on behalf of the wife.  Further, there is a risk that the husband will be made bankrupt in the event that the defaults under the loan facilities continue.  Both parties have provided personal guarantees in respect to the ANZ loan facilities.  Further, Mr H would likely also be exposed to action by the bank due to the defaults under the loans.

15. On behalf of the wife, it was said that orders should not be made permitting the sale due to the high level of distrust between the parties.  It is alleged by the wife that the husband has actively sought to run down the business and devalue the parties’ interests.  It was further asserted on her behalf that the husband has acted fraudulently and not fully disclosed the true position of his interests to this Court.

16. At an interim hearing, I am not in a position to make any findings in relation to those allegations.  They are matters that can be raised by the wife at trial.  The evidence in relation to those matters can be tested. 

17. It was further said by the wife that the business should be put on the open market and sold at arm’s length.  It was asserted by her that there are other potential buyers of the business and that would be a preferable course to her.  There is no evidence before me today of any other interested party in the business. 

18. It was also said on behalf of the wife that she had not been kept fully informed of the position of the businesses and of the negotiations with the bank, Mr I or other parties.  I do not accept that submission.  The reality is that both parties have been on notice as to the bank’s position since its letter to them dated 29 May 2015 which is the letter annexed to the husband’s Affidavit filed in September of 2015.  The parties took joint steps to appoint Mr K to investigate and oversee the role of L.  The wife has been on notice of the proposed sale since 1 March 2016.  It has been open to her to make any application with respect to disclosure of information with respect to that sale since that time. 

19. The orders sought on behalf of the husband are essentially orders for the protection of the parties’ assets. The Court has wide powers to grant injunctions pending the determination of proceedings. Section 114 of the Family Law Act 1975 (Cth) enables the Court to make such orders as it considers proper for the protection of property. The orders sought by the husband are orders for the protection of the parties’ property.

20. To allow a situation to unfold where receivers are appointed is likely to place additional burden in terms of costs upon the parties and, as is noted in the report of Mr K, it is likely that the ANZ would seek to recover the full amount of the debts owing to it.  The husband’s proposal to which the ANZ Bank consents provides discounts to the parties in relation to some of the liability in order to have the sale proceed.

21. I am satisfied that were receivers appointed it would likely compromise the ability of the parties to sell their interests in the business to third parties having regard to the consequential breach of covenants under the lease for the site upon which the business operates.   

22. Accordingly, I will make orders as sought by the husband permitting the sale of the parties’ interests in the business on the terms and conditions specified.

I certify that the preceding twenty- two (22) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Johns delivered on 14 April 2016.

Associate: 

Date:  14 April 2016