Finamore & Finamore
[2024] FedCFamC1F 192
•28 March 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Finamore & Finamore [2024] FedCFamC1F 192
File number(s): MLC 599 of 2024 Judgment of: BENNETT J Date of judgment: 28 March 2024 Catchwords: FAMILY LAW – INJUNCTIONS – where husband and wife are in a commercial dispute within an application for final alteration of property interests – where husband seeks to control an entity of which the wife is currently in sole control – where husband seeks to do so by mandatory injunction, interim property settlement or appointment of a delegate to exercise powers of a trustee
FAMILY LAW – INJUNCTIONS – where none of the orders proposed by the husband have merit – where husband’s application is dismissed
Legislation: Evidence Act 1995 (Cth)
Family Law Act 1975 (Cth)
Federal Circuit and Family Court of Australia (Family Law) Rules 2021
Cases cited: BP and KS (2003) FLC 93-157
Norton & Locke (2013) FLC 93-567
Strahan (Interim Property Orders) (2011) FLC 93-466
Tsiang & Wu and Ors [2019] FamCAFC 128
Division: Division 1 First Instance Number of paragraphs: 144 Date of hearing: 18 March 2024 & 20 March 2024 Place: Melbourne Counsel for the Applicant: Mr Heath KC Solicitor for the Applicant: Taussig Cherrie Fildes Counsel for the First Respondent: Ms Schoff KC Solicitor for the First Respondent: Lander & Rogers Counsel for the Second Respondent: Ms Coleman Solicitor for the Second Respondent: Arnold Bloch Leibler ORDERS
MLC 599 of 2024 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR FINAMORE
Applicant
AND: MS FINAMORE
First Respondent
B PTY LTD
Second Respondent
ORDER MADE BY:
BENNETT J
DATE OF ORDER:
21 MARCH 2024
THE COURT ORDERS THAT:
1.The husband’s applications:-
(a)for orders in the terms of Exhibit H2;
(b)for a transfer from the wife to himself of all the shares in B Pty Ltd (the “second respondent”) held by the wife, by way of a partial property settlement;
(c)for the second respondent to delegate certain management functions to a registered liquidator;
for the purpose of removing and rendering nugatory Clause 7.2 of the Facility Agreement (Exhibit H3) be, and are hereby, dismissed.
2.My reasons for decision will be published subsequently.
3.The balance of the interim applications of all parties including (but not limited to) the husband’s application for further interim orders, including those for litigation funding, partial property settlement and the applications for discovery be, and are hereby, referred to the Case Management Judge for fixing in due course as an interim defended hearing estimated to take one day or such time the Case Management Judge considers appropriate.
4.Any party wishing to make an application for costs file and serve that application within 14 days and support the application by an estimate of costs calculated in accordance with Schedule 3 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 without prejudice to the entitlement of that party to seek costs calculated on alternative or other basis and the Judge before which the costs application is listed make such other directions as he/she considers appropriate for the hearing of the costs application.
AND THE COURT NOTES THAT:
A.If I am to hear the costs application, I would allow two hours for hearing.
B.The parties should anticipate that the quantum of any costs order will be determined by the Judge hearing the application(s) rather than being sent for assessment by a Registrar.
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).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish 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 s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
BENNETT J
INTRODUCTION
The husband and wife both seek an alteration of property interests consequent on the breakdown of their 17 year relationship. Each have applications for interim relief. This decision quells one urgent controversy between the husband and the wife. Apart from any costs application in respect of this hearing, other interim relief sought by the parties will have to be determined at another time and I will refer the proceedings back to the Case Management Judge for that purpose.
I pronounced the Order set out at the beginning of these reasons on 21 March 2023 and said that I would deliver my reasons subsequently. These are those reasons.
The husband seeks orders requiring the wife to cancel or excise Clause 7.2 of a Facility Agreement which, he says, if not excised by midnight on the morning of 22 March 2024 will, in combination with other contractual obligations, accelerate repayment of $4.5 million lent by the husband and wife’s family trust to E Pty Ltd from a due date of 23 August 2027 to 60 days hence. The husband maintains that the loan was for $4 million rather than $4.5 million. The wife and the trustee say that the $4.5 million is now $5.3 million. For ease of reference I will use the figure of $4.5 million in these reasons but do so without making any finding as to the quantum of funds actually received.
This is an interim hearing in which no evidence has been tested in cross examination. It is based entirely on the affidavits of parties and the written and oral submissions of counsel.
E Pty Ltd is a business which the husband and wife started years ago and in which, until midnight on 21 March 2024, they still had the majority shareholding. I will say something more about the business later in these reasons. The family trust of the husband and the wife is the B Investment Trust of which B Pty Ltd is trustee.
The husband and wife established and incorporated B Pty Ltd in early 2017. B Investment Trust a discretionary trust, was settled by one Mr OO and, contemporaneously, B Pty Ltd was appointed as trustee of the B Trust. Pursuant to the Trust Deed, the Appointors are the husband and wife with nil restrictions, and the primary beneficiaries are the husband, wife and their three children and remoter issue of each of them. The trust deed is Exhibit H5.
The wife has at all times been the sole shareholder of B Pty Ltd. The husband was the sole director and secretary of B Pty Ltd from its inception in early 2017 until early 2023. In mid‑2018, the husband was appointed as the CEO and sole director of E Pty Ltd. The husband resigned as director and secretary of B Pty Ltd in early 2023 for a conflict of interest arising out of his directorship of both B Pty Ltd and E Pty Ltd. Ms D, a third party and friend of the husband and wife, was appointed the sole director and secretary of B Pty Ltd from early 2023 to early 2024. The wife has been the sole director and company secretary since early 2024.
The husband and the wife hold interests in E Pty Ltd through their corporate entities and trusts, as follows:
(a)C Pty Ltd as trustee of the Finamore Family Trust No. 2 which holds 87,001 shares. The director and secretary of C Pty Ltd is the husband. F Pty Ltd is the sole shareholder of C Pty Ltd. The director and secretary of F Pty Ltd is the wife. F Pty Ltd is also the sole shareholder of G Pty Ltd which is the husband’s service vehicle to receive his income from E Pty Ltd.
(b)H Pty Ltd as trustee for H Unit Trust which holds 143,425 shares. The husband is the director, secretary and sole shareholder in H Pty Ltd.
(c)B Pty Ltd as trustee for the B Investment Trust which holds 90,000 shares. The wife is the sole director, secretary and shareholder of B Pty Ltd following the resignation of Ms D from the role of sole director and secretary in early 2024.
The wife also owns one (1) share in her personal capacity.[1] I will refer to the three entities with E Pty Ltd shares as “the [Finamore Entities]”.
[1] ASIC Extract, Exhibit H6.
At my request, the parties cooperated in preparation of a comprehensive list of corporate entities and trusts replete with inception dates, office holders, shareholders, trustees and beneficiaries (as the case may be). It is Exhibit C2.
The Facility Agreement is dated August 2022 and contains the terms agreed between B Pty Ltd (as lender) and E Pty Ltd (as borrower) for the $4.5 million loan. Clause 7 of the Facility Agreement deals with prepayment or accelerated repayment and cancellation of the loan facility. Relevantly, paragraph 7.2 provides as follows:-
7.2 Prepayment on Change of Control/Sale
If a Change of Control or Sale occurs, then the Facility will be cancelled within 60 days of such Change of Control or Sale and the Borrower must within 60 days of such Change of Control or Sale prepay the Principal Outstanding under the Facility in full.
Change of Control is defined as:
Change of Control means if any of the following occur:
(a) there is a change to 30% or more of the legal or beneficial ownership of the shares and/or convertible instruments in the Borrower existing at the date of this agreement;
(b) the [Finamore Entities] (whether directly or indirectly and whether individually or together) do not or cease to:
(i) beneficially own and control at least 50.1% of all the equity and convertible instruments in the Borrower; or
(ii) have the power (by way of ownership of shares, proxy, contract, agency or otherwise) to:
(A) cast, or control the casting of, at least 50.1% of the maximum number of votes that might be cast at a general meeting of the Borrower;
(B) appoint or remove all, or the majority of, the directors or other equivalent officers of the Borrower; or
(C) otherwise 'control' (for the purposes of section 50AA of the Corporations Act) the Borrower.
J Organisation is another lender under the Facility Agreement on the same terms as B Pty Ltd. Acceleration of the repayment of $4.5 million by E Pty Ltd to B Pty Ltd also rendered due and payable a $4 million loan owing to J Organisation. Together with line fees and interest the monies due to both B Pty Ltd and J Organisation on an accelerated basis total approximately $10 million.
It is contended by the husband (who is CEO and a director of E Pty Ltd) that E Pty Ltd’s inability to meet the accelerated liabilities to B Pty Ltd and J Organisation will be catastrophic for the ongoing viability of E Pty Ltd and likely lead to it entering into voluntary liquidation or voluntary administration.[2] The husband alleges that the liquidation of E Pty Ltd will be to the detriment of all parties to these proceedings. It will also put E Pty Ltd employees out of work, wipe out millions of dollars of investment capital raised from institutions and individuals in E Pty Ltd and will deprive shareholders in E Pty Ltd (including B Pty Ltd) of value for their shares. The husband claims that B Pty Ltd and J Organisation will not recover the $10 million owing to them given that they are merely unsecured creditors.
[2] Exhibit H13 is ASIC Information Sheet 43 which gives general information on liquidation, voluntary administration and receivership which counsel for the husband adopted.
The husband’s case is that Clause 7.2 of the Facility Agreement must be removed or cancelled before midnight on 21 March 2024 if E Pty Ltd is to avoid catastrophe.
J Organisation agrees that Clause 7.2 can be removed but the wife, as sole director of the trustee of B Pty Ltd, does not agree that B Pty Ltd should forgo Clause 7.2. The wife considers Clause 7.2 to be the most effective leverage and security that B Pty Ltd has for repayment by E Pty Ltd of the $4.5 million and interest and fees thereon.
Senior counsel for the husband characterises the wife’s position on behalf of B Pty Ltd as self‑defeating, motivated by vengeance for, and punitive of, the husband. It was submitted that the wife is insulated from the losses which will inevitably befall B Pty Ltd by her parents’ considerable wealth. It was submitted on behalf of the husband that the fact that J Organisation agrees to remove Clause 7.2 from the Facility Agreement is proof that the excision of Clause 7.2 is commercially sensible and, ipso facto, proof that the contrary position of the wife is commercially unsound and mala fides.
The wife has no confidence in the husband’s judgment or veracity. The wife expects that E Pty Ltd, which has been able to raise $80 million in capital over the last 2 years, will be bailed out by an investor or related entity sufficiently to be able to cover the $10 million owing to B Pty Ltd and J Organisation. If the wife is wrong, she would rather know now that E Pty Ltd has failed and that B Pty Ltd’s interest in E Pty Ltd (loan and shares) is worthless and, presumably, be able to adjust her expectation in these proceedings accordingly.
THE HUSBAND AND WIFE AND THEIR RELATIONSHIP
The husband is 43 years old having been born in 1980.
The wife is 46 years old having been born in 1977. The wife is employed in senior management at K Company, which was established and controlled by her parents.
The parties’ relationship spans approximately 17 years. The husband and wife met in 2006, commenced cohabitation in 2007 and married in 2008. The husband and wife separated on 7 June 2023, with the husband exiting the former matrimonial home at L Street, Suburb M after being served with an Intervention Order. It is agreed that the separation was largely brought about due to the husband’s poor mental health after the failure of a major capital raising endeavour for E Pty Ltd which was cancelled at very short notice.
Together, the husband and wife have three children, X born 2012 (currently 11 years old), Y born 2017 (currently 6 years old) and Z born 2019 (currently 4 years old) (“the children”). The husband and wife have no other children.
The wife seeks to contextualise certain behaviours of the husband within the relationship as making her apprehensive about his ability to conduct business and be of sound judgement.[3] The wife deposes that there were numerous incidents of the husband being aggressive, intimidating and verbally abusive towards her and the children throughout the marriage. The wife deposes that the husband told her that he suffered from PTSD, and other conditions. For example, the wife deposes that the husband was paranoid that the family’s nanny was feeding information to the wife’s family. She deposes that in late 2023, the husband unilaterally terminated the nanny’s employment contract. The wife deposes that there were previous incidents of threatening and intimidating behaviour which caused the nanny significant distress. The nanny has now filed a Workcover claim.
[3] Affidavit of Ms Finamore sworn on 13 March 2024 [18].
The husband underwent a psychiatric assessment by Dr N in August 2023. The wife annexed a report dated October 2023 to her 13 March 2024 affidavit. Dr N noted the potential presence of impulse control disorders and problematic personality traits, with one episode of brief reactive psychosis. The wife deposes that the report also included information that the husband is bisexual and had between 20-50 affairs over the course of the marriage. The wife deposed she was not aware of the husband’s sexuality nor his affairs until she read the psychiatric report of Dr N in October 2023. Counsel for the husband confirmed that the husband attended a follow up Dr N for an updated psychiatric assessment in March 2024. There has been no psychiatric assessment of the wife.
The current parenting arrangements include the children living with the wife and spending time with the husband on a commercial (paid) supervision basis, each Wednesday and Sunday for daytime periods only. The husband and wife attended upon Dr O, psychologist, for the preparation of a family report which was subsequently released in December 2023 and is annexed to the wife’s affidavit filed 13 March 2024. The husband and wife are scheduled to attend upon Dr O for an updated family report in March 2024 to re-evaluate the current parenting arrangements and the husband’s time with the children.
There has been no reconciliation. The husband and wife are not divorced. There is no indication that either parent has re-partnered.
HISTORY OF THE PROCEEDINGS
Taussig Cherrie Files, solicitors, act for the husband. Lander & Rogers, solicitors, act for the wife. The husband named B Pty Ltd as a second named respondent in his Initiating Application and also sought an order joining B Pty Ltd as a party to the proceedings. B Pty Ltd did not object to being joined and is represented by Arnold Bloch Leibler who are B Pty Ltd’s commercial solicitors of long standing.
The husband’s Initiating Application of 22 January 2024 was filed under cover of a letter of the same date which sought that the husband’s “interim application be urgently listed before the end of January 2024.” Inter alia, the letter of urgency stated:
The wife must transfer control of a trustee company to the husband (from the wife) or in the alternative she must be restrained from taking steps in her capacity as shareholder of that trustee company from pursuing a Default Notice for a loan. The loan is owing by the subject company to a third party entity. The loan, and related financing arrangements, involves third parties including the Victorian […] company [J Organisation]. If the wife continues to pursue the Default Notice (which she unilaterally issued and continues to pursue) there will be catastrophic flow on effects for the subject company (which involves numerous third parties) […]
A Deputy Registrar listed the husband’s application for hearing on 20 March 2024. The wife’s solicitors filed a Notice of Address for Service on 23 January 2024 and on 30 January 2024 filed an Application for Review of the Deputy Registrar’s decision to list the matter on 20 March 2024. The wife’s Application for Review came before Jenkins J on 2 February 2024. Mr PP of Counsel appeared on behalf of the husband and Mr QQ of Senior Counsel appeared on behalf of the wife. Her Honour made Orders listing the matter for an interim defended hearing before a Senior Judicial Registrar on 5 March 2024, dismissed the wife’s Application for Review and reserved the parties’ costs.
The husband filed an Amended Initiating Application on 19 February 2024.
The wife filed her Response to the Initiating Application on 4 March 2024.
On 5 March 2024, the matter came before a Senior Judicial Registrar. Mr Heath KC appeared for the husband with Mr P as junior counsel, Ms Schoff KC appeared for the wife with Mr Q as junior counsel, and Ms Coleman of Counsel appeared on behalf of B Pty Ltd. SJR transferred the proceedings to Division 1 and listed it before me on 18 March 2024 for an interim defended hearing. At that stage, the affidavits of the husband and the wife were already voluminous. The parties were directed to file any “updated material” upon which they relied by certain dates. Instead, the husband filed a consolidated but re-ordered affidavit containing some new content which compelled the wife’s practitioners to prepare a further affidavit by the wife in response, with the associated expense.
The matter was before me on Monday 18 March 2024 and on Wednesday 20 March 2024. On the first morning, the parties handed up a combined colour coded minute of order setting out what each then sought in their own right and the minute of orders which could be made by consent (Exhibit C4). None addressed me on the minute.
On the afternoon of 18 March 2024 the husband produced a refined minute of order (Exhibit H2) that dealt only with the Clause 7.2 issue. By that minute, the husband sought that the Court require the wife, as sole director of B Pty Ltd, to cause B Pty Ltd to accept the proposal to delete clause 7.2 of the Facility Agreement. In the alternative, the husband reverts to the position in the amended Initiating Application, which further proposes either the appointment of an independent delegate to the transaction, replacement of B Pty Ltd as trustee of the B Investment Trust, or otherwise a transfer of the shares in B Pty Ltd held by the wife to the husband by way of interim partial property settlement.
The wife and B Pty Ltd oppose all of the orders sought by the husband in relation to the Clause 7.2. On the afternoon of 18 March 2024 counsel for B Pty Ltd outlined an “open offer” which had been made by B Pty Ltd to the husband but it did not constitute orders sought in response so I will not detail it here. It was marked Exhibit B1.
There is a very large amount of material. Counsel’s submissions were not curtailed by the court. The matter far exceeded the limits as to hearing time and amount of material for interim defended hearings as provided in the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (“FCFCOA Rules”).
The parties’ costs notices pursuant to Part 12.3 of the FCFCOA Rules disclose that:
·The husband has paid $137,054.23 in professional fees and counsels’ fees up to and including the first hearing date of 18 March 2024. He has incurred a further $29,770.42 in unpaid professional fees. The husband has incurred a further $55,133.93 in unbilled costs and $25,691.52 in disbursements. Costs for the first day of hearing were estimated to be $24,430.35. He has paid approximately a further $6000 to expert witnesses.
·The wife has paid $172,426.32 in professional fees and counsels’ fees up to and including 29 February 2024. She has incurred approximately a further $34,784.54 (ex GST) in unbilled costs. Costs for the first day of hearing were estimated to be $22,200.00. She has paid approximately $5300 to expert witnesses.
·The second named respondent did not file a Cost Notice.
Rule 12.06(7) of the FCFCOA Rules provides that a party who has not filed a Costs Notice within time must file and serve the Costs Notice within three days of the hearing or within such other time as the court directs. I have not made a direction in relation to the Costs Notice from ABL to B Pty Ltd.
DOCUMENTS RELIED UPON
The husband relied upon the following documents:
(a)The minute of order tendered on 18 March 2024 as Exhibit H2 and the husband’s amended initiating application filed 19 February 2024;
(b)The affidavit of the husband sworn 8 March 2024;
(c)Outline of Case filed 15 March 2024; and
(d)Financial statement filed 22 January 2024.
The wife relied on the following documents:
(a)The affidavit of the wife sworn 13 March 2024;
(b)The document entitled ‘joint minute of orders sought’ emailed to Chambers on 18 March 2024 at 10:18am;
(c)Outline of Case filed 15 March 2024; and
(d)Financial statement filed 4 March 2024.
The second respondent company relied on the following documents:
(a)The first affidavit of Mr S affirmed on 4 March 2024;
(b)The second affidavit of Mr S affirmed on 14 March 2024; and
(c)Outline of Case filed 19 March 2024.
There were numerous exhibits.
No party took objection to reliance on parts of affidavits or the tendering of any documents.
No party sought to adduce oral evidence or to cross examine any witness.
SOME RELEVANT HISTORY
In around 2012, the husband and wife established and co-founded “[T Brand]” to cater for what they identified was a gap in the real estate industry’s sale-to-settlement process. Due to continued growth of the business, which was then owned via a family trust, the husband and wife created a company and corporate structure to receive capital investment. E Pty Ltd was incorporated in late 2016. The wife held all shares in E Pty Ltd and was appointed as its sole director and secretary. The husband became the CEO of E Pty Ltd.
The Outline of Case filed on behalf of the husband describes E Pty Ltd currently as follows:
•In the 2023 calendar year, the consolidated annual revenue of this group was almost $40 million
•[E Group] undertakes in excess of 5% of all […] transactions in Australia. In Queensland, it undertakes in excess of 15% of all […] transactions in Australia […].
•Collectively, members of [E Group] employ [over 200] people
•One of the businesses of [E Group] has [multiple] franchisees. The husband has estimated that, in addition to employees of [E Group], the average franchisee employs at least four full-time employees.
The husband refers to the consolidated annual revenue of the E Group for the 2023 calendar year as $38,938,707.[4] That description is not contradicted by the other parties save to say that they maintain that E Pty Ltd is in financial difficulty and refer to the fact that E Pty Ltd has failed or neglected to make necessary payments under the Facility Agreement which has resulted in a Default Notice being issued by B Pty Ltd and still not being satisfied (as discussed later in these reasons).
[4] Husband’s affidavit sworn 8 March 2024, [46].
There are three market-facing brands of which E Pty Ltd has 100 per cent ownership:
·T Brand,
·U Brand, and
·V Brand.
A fourth brand, W Brand was sold to J Organisation for $5,500,000 in early 2024 but the sale has not yet settled.
In addition to the Finamore Entities, there are 23 other shareholders in E Pty Ltd, including J Organisation.
There is no agreement as between the applicant and the first and second respondents as to the proportional shareholding of the husband and the wife through the Finamore Entities but the parties agree that the conversion of notes to shares at after midnight on 21 March 2024 will have resulted in a “change of control” within the meaning of Clause 7.2.
The next largest shareholder in E Pty Ltd is the J Organisation which holds approximately 112,988 shares of the issued shares in E Pty Ltd. The court was not explicitly informed of whether J Organisation held notes which have been converted into more shares on 22 March 2024. Senior counsel for the husband quantified J Organisation’s investment in E Pty Ltd to date at approximately $40 million including the $4 million under the Facility Agreement.
In early 2021, Mr R was appointed as an Independent Non-Executive Director of E Pty Ltd. Relevantly, Mr R acts as representative of J Organisation and is also the Chief Financial Officer of J Organisation. He is currently the only other director of E Pty Ltd aside from the husband. Due to the husband’s perceived conflict, Mr R has been the director in charge of relationships with B Pty Ltd.
J Organisation is not a participant in these proceedings. Senior Counsel for the husband told the Court that the J Organisation is on notice of the present proceedings and are “vitally interested in the outcome”.
In early 2021 E Pty Ltd issued its first fundraising convertible note Deed Poll (Exhibit H10, attachment 3). Under the deep poll, an investor advances funds in return for a note with a maturity date. The note converts into equity, in the form of shares in E Pty Ltd, on the maturity date. E Pty Ltd pays interest of 9% per annum on the outstanding principal in respect of each note, accruing monthly, until the conversion date. E Pty Ltd could redeem notes prior to the maturity date but, if it did not, the notes would be converted into shares in the name of the noteholder on the maturity date. The convertible note Deed Poll of early 2021 provided for a maturity date of early 2023. The Deed Poll provided that the price of shares on conversion would be “$110 million divided by the total number of Ordinary Shares on issue on a Fully Diluted Basis immediately prior to completion of the Capital Raising”.
In late 2021 E Pty Ltd issued its second fundraising convertible note Deed Poll (Exhibit H10, attachment 2). E Pty Ltd paid interest of 9% per annum on the outstanding principal in respect of each note, accruing monthly until the conversion date and payable on the conversion date. E Pty Ltd could redeem notes prior to the maturity date but, if it didn’t, the notes would be converted into shares in the name of the noteholder on the maturity date. The convertible note Deed Poll of late 2021 also provided for a maturity date of early 2023. The Deed Poll provided that the price of shares on conversion would be “$140 million divided by the total number of Ordinary Shares on issue on a Fully Diluted Basis immediately prior to completion of the Capital Raising”.
It is the wife’s evidence that in early 2022 the husband was attempting to raise capital for E Pty Ltd and advised her that he had commitment for $6 million from an investor, AA Partners, and that the funds would be available on in mid-2022. However, on the morning of the due date, the E Pty Ltd and CFO learned that the investor had withdrawn.[5] An emergency meeting of the E Pty Ltd board was called to discuss the consequences of the failed investment. Prior to the emergency board meeting the husband approached the wife’s father and asked for funding. The husband deposes that:
[53] In [mid]2022 I met with [Mr BB] at his offices at […] Melbourne. During that meeting I told [Mr BB] that I believed [E Pty Ltd] required additional funding in order to preserve control of [E Pty Ltd] held by the [Finamore E Pty Ltd Entities] and in anticipation of the proposed sale which was then being negotiated. I told [Mr BB] that I believed [E Pty Ltd] required about $5M of interim funding and that I expected other major shareholders to participate in raising those funds. I asked him whether he would be willing to contribute any funds.
[54] [Mr BB] said that he was willing to provide the entirety of the $5M in funding, and asked that, in return, I encourage [Ms Finamore] to maintain her relationship with her two brothers with whom she was in a dispute as to the division of the […] family wealth, which I did. At the end of our discussion [Mr BB] and I shook hands and celebrated with a toast of coffee and sambuca.
[5] Wife’s Affidavit [31].
This meeting was frequently referred to throughout the hearing as the “Sambuca meeting”.
The wife deposes to the following version of events:
[32] Within hours of becoming aware of the failed capital investment, [Mr Finamore] approached my father, [Mr BB] and sought urgent funding. I believe this was so he could turn up to the [E Pty Ltd] board meeting that afternoon and confirm that [E Pty Ltd] had secured funding and was solvent. This was not presented as an opportunity to invest, but rather a request for crisis support under the provisions of our Family Agreement which [Mr Finamore] was familiar with. My father agreed to support [Mr Finamore] with $5 million in funding and gave him an in-principle agreement ([E Pty Ltd] loan). I am aware that [Mr Finamore] then represented to the [E Pty Ltd] board that [E Pty Ltd] was solvent and had secured funding.
It is the husband’s evidence that the first $1 million was transferred from CC Pty Ltd to G Pty Ltd and paid to B Pty Ltd in mid-2022 and transferred to E Pty Ltd on the same date.[6]
[6] Husband’s affidavit of 8 March 2024 [56.1].
Notably, the wife had not been included in the Sambuca meeting of mid-2022. On 5 June 2022 the wife wrote to her father, mother and siblings about the need for the capital injection of $5 million (Exhibit W1) to be made by them. The letter was not signed by the husband but it appears to have been copied to him and the wife deposes that the letter was composed by them together. The letter confirmed that E Pty Ltd had been raising capital throughout 2022 and, as recently as mid-2022, the investor had said they were fully committed to a drawdown in favour of E Pty Ltd of $6 million in mid-2022. Then, on the morning of the due date, the investor withdrew without notice. An urgent meeting of E Pty Ltd Board was called for that evening to discuss how E Pty Ltd could weather the loss of anticipated investment capital. The agreement by the wife’s father to provide $5 million allowed the husband to represent to the E Pty Ltd Board that, whilst the anticipated investment of $6 million had fallen through, there was another mechanism to deal with E Pty Ltd’s immediate solvency problems, namely an immediate loan of $5 million. The wife confirmed that she and the husband wanted to secure family funding rather than shareholder funding because they wanted to “to manage the shareholder register in a manner which allows us (together with others) to retain the right to dispose of the asset/[E Pty Ltd].” They also wanted to avoid the red tape, due diligence measures and delay involved in obtaining the loan from the corporate entities controlled by the wife’s father.
The letter to the wife’s family dated 5 June 2022 (Exhibit W1) advised that E Pty Ltd had raised $80 million in external capital over the previous four years, had good, repeated noteholder support and were preparing E Pty Ltd “for an ASX listing.” It continued:
The sale of [E Pty Ltd]
Concurrent with running the capital raise process, the Board of [E Pty Ltd] has resolved to engage both [DD Financial Services] (as financial advisor) and [EE Business] (as transaction advisor) to represent [E Pty Ltd] in the sale of the group. There are currently material discussions on foot with three parties (all three of which we are under Non‑Disclosure Agreements with).
Both [EE Business] and [DD Financial Services] are incentivised in their engagement where the asset is sold in excess of $350m, based on comparable metrics to the recent acquisition of Realbase by Domain Holding Group (announcement attached). It is clear from recent [news] articles and ASX announcements referencing REA that appetite for acquisitions remains strong […] (see attached).
The only board member of [E Pty Ltd] dissenting with this direction is the [J Organisation] nominee director, whose preference is for retention of the asset and the continued capital raising by [E Pty Ltd] to fund any cash requirements.
[J Organisation] currently won 15.5% of [E Pty Ltd] (before conversion of the convertible notes).
The Shareholders Agreement (SHA)
[…] has spent in excess of $600K negotiating the [E Pty Ltd] SHA over the last 5 years, because of the important role it plays in the governance of [E Pty Ltd], especially when it comes to the ability to affect a sale.
While [J Organisation] holds below 20% of the register, [Finamore] and others, can affect a whole group sale. This threshold is critical, because of [J Organisation’s] preference to retain the asset.
…
Why $15m?
As part of the trade sale negotiations, the strength of the balance sheet continues to be an achilles heal [sic]. A strong showing by the founder/[Finamore] and other significant shareholders at this time, will aid in the negotiations.
As you can see, the circumstances that have precipitated this crisis are highly unusual. Off the back of a difficult start to 2022 in the capital markets, the messaging in the media continues to act against [E Pty Ltd’s] efforts to capital raise. Whilst we have confidence in our ability to raise further funds, we need time in order to do so. At present the [E Pty Ltd] balance sheet does not afford us such time and [Finamore] will need to step in as early as this week.
Our ask
We are asking for family support (not [K Company]) in the amount of $5m. This will enable us to meet the commitment we have represented to the [E Pty Ltd] Board for [Finamore] to cornershone the debt facility with $5m.
We are requesting this amount as a loan to [Mr Finamore] and I with:
•An interest rate of 20% pa (noting the terms of the debt facility to [E Pty Ltd] are 9% pa) on the funds drawn down; and
•Security over the [Finamore E Pty Ltd] holding.
We anticipate $1m of funds required over the coming week, with timing for the drawdown of subsequent tranches dependant on the final quantum of the debt facility.
There may be other ways in which this could be offered through [K Company] (as opposed to the family) however we understand that an investment by the business would require a due diligence process with a timeframe that does not meet the imminent cashflow requirements for [E Pty Ltd]. Therefore, this request is made of the family.
On 20 June 2022, the wife wrote again to her family (Exhibit W2) requesting transfer of the second instalment of $1 million be paid earlier than anticipated in line with “expected draw down requests”. The second $1 million was paid on or around 20 June 2022.[7]
[7] Wife’s affidavit of 13 March 2024 [34], Husband’s affidavit of 8 March 2024 [56.2].
On or around 22 July 2022, the wife’s parents decided to make a gift to each of their children of $5 million (Exhibit W3). With respect to the gift to the wife, the wife’s father wrote:
[Ms Finamore] [the wife]
As you know, you currently have two loans from the business as follows:
1. The “[L Street] Loan” which as of the date of writing these notes has a balance of approximately $3.7 million and is increasing by:
a. $55,000 per month which is paid to you to assist with your mortgage payments.
b. Interest on the balance of the loan calculated at 4% per annum.
2. The “Business Loan” which was paid to you at your request recently to participate in the equity raise for your business. This loan has a further potential $3 million of drawing capacity and attracts interest at a rate which has not yet been documented but which was suggested by [Mr Finamore] to be 20% reflective of the type of loan that was provided.
Mum and I would like to do the following:
1. Use the first $2 million of your gift to offset the $2 million drawn against your recent business loan.
2. Hold the balance of $3 million to offset against the undrawn balance of the potential further Business Loan should you subsequently need to draw it.
3. If at any stage you determine that you no longer need the balance as above of the Business Loan (or any proportion of it), any gift balance remaining will be used to offset against your [L Street] loan.
Internally in [K Company’s] books, we will hold the [L Street] and Business Loan as loans, and I will organize for these to be reduced over time in accordance with our obligations […]. However, essentially from your point of view, we will be reducing your loans by gifting $5 million in the manner I have outlined as a gift to you.
You will also continue to receive the $55,000 / month you require which will be added to your [L Street] Loan as is currently already occurring.
The wife tendered Exhibit W3 in support of the proposition advanced by her that the gift repaid $2 million of the E Pty Ltd loan to K Company, rather than the E Pty Ltd debt to B Pty Ltd under the Facility Agreement. I note that the parties do not agree how the funding was received by B Pty Ltd (the wife contends it was received by the husband in the name of a third-party company controlled by the husband, and the husband contends the amounts were transferred direct to B Pty Ltd). In any event, it is a not a controversy that impacts on the Clause 7.2 issue.
I was informed from the bar table that the wife’s parents have subsequently forgiven the loan of $4.5 million to B Pty Ltd.
The terms of the loan between B Pty Ltd and E Pty Ltd were negotiated at length and eventually set out in the document entitled “A$15,000,000 Term Facility Agreement” dated 22 August 2022 between E Pty Ltd and B Pty Ltd (Exhibit H3). That document is referred to throughout these reasons as the “Facility Agreement”. The Facility Agreement was negotiated by Arnold Bloch Leibler (“ABL”) for B Pty Ltd. It was signed by the husband on behalf of B Pty Ltd (in his then capacity as sole director and secretary of B Pty Ltd). The reference to “$15 million” in the title of the Facility Agreement document was considered appropriate by virtue of further drawdowns, various incidental charges and fees. The terms of the Facility Agreement involved a provision of funds from B Pty Ltd to E Pty Ltd in the sum of $6 million, which was later reduced by agreement, to $4.5 million. The Facility Agreement also provided that interest on the amount lent would accrue an interest rate of 9% per annum.
In September 2022, J Organisation agreed to become a co-lender under that Facility Agreement, advancing $4 million to E Pty Ltd pursuant to the Facility Agreement and receiving the same benefits as B Pty Ltd in regards to the security of clause 7.2.
The Facility Agreement provides for terms for repayment of the principal sum on “the anniversary date which is five years after the date of this Agreement”, that is, August 2027. The Facility Agreement imposes various fees and interest payments payable by E Pty Ltd to B Pty Ltd (and J Organisation). At cl 9(a), the borrower must pay interest in arrears on the Principal from the first Utilisation date. Interest accrues on both the Principal Outstanding and on each unpaid amount which is due and payable by the Borrower including any unpaid interest (cl 9(f)). The Interest Rate is set at 9 per cent per annum. There are also Line Fees paid monthly, computed at the rate of 1.5 per cent per annum of each Lender’s Commitments payable monthly (cl 10.1). There is also a prepayment fee of 10 per cent if prepayment is required as a result of the occurrence of a Change of Control (cl 10.3).
At the time of entering into the Facility Agreement, two further directors sat on the board of E Pty Ltd (Mr FF commencing July 2019 and Mr GG commencing November 2021). Counsel for the husband contends that this prevented the husband from being in a position of conflict despite being on the board of both the borrower (E Pty Ltd) and the lender (B Pty Ltd) of which the husband was the sole director and secretary at the time. In his affidavit of 8 March 2024, the husband deposes that:
[63] To avoid a conflict of interest, I did not represent [E Pty Ltd] or instruct its solicitors in relation to the negotiation of the Facility Agreement. Similarly now I do not involve myself in any [E Pty Ltd] decisions relating to the Facility Agreement with B Pty Ltd.
In 2022, the husband, in his capacity as CEO of E Pty Ltd, together with the executive and board of E Pty Ltd, embarked on “[HH Project]”, a transaction involving prospective investors to raise $70 million additional equity capital in E Pty Ltd and a proposed sale of the shares held by the Finamore Entities in E Pty Ltd for $50 million. The transaction did not eventuate and was abandoned in late 2022. The wife deposes that the husband lost about $1 million.
The wife recounts the period in her affidavit, as follows:
[46] In [late 2022], [HH Project] fell over. The [Finamore] appointed chair and one of the directors of [E Pty Ltd] resigned in what I understand to have been difficult circumstances largely involving difficulties in working with [Mr Finamore]. This was particularly damaging to [E Pty Ltd]. Redundancies also took place due to cash flow pressures on [E Pty Ltd] and [Mr Finamore] secured additional funding by an option agreement with [J Organisation] to acquire [W Brand]. In addition, the [E Pty Ltd] general counsel resigned in [late] ’22.
It is the wife’s case that Clause 7.2 was inserted into the Facility Agreement to protect and secure the interests of B Pty Ltd. The wife considered that it gave B Pty Ltd a degree of leverage it would not otherwise have. Counsel for the wife points to the email dated 5 June 2022 to her family and copying the husband (being Exhibit W1 and described, extracted and further discussed above at [62]) to support the view that the strategy behind the Facility Agreement was to assist E Pty Ltd with cashflow, pending the success of HH Project without having to relinquish control to others and particularly to the J Organisation, who had expressed a negative view of the sale of the company. Counsel for the wife submitted that that strategy had been successful, pointing to the fact that J Organisation was ultimately persuaded to lend $4 million under the terms of the Facility Agreement.
The other directors of E Pty Ltd, Mr FF and Mr GG resigned their positions from the E Pty Ltd board in late 2022. Counsel for the wife submitted that the timing of the resignation of the two other members of the board coincided with the failure of HH Project and had a direct link with the husband’s poor behaviour during that period.
The husband and Mr R are currently the only two directors of E Pty Ltd.
The husband resigned his offices in B Pty Ltd in late 2022 consequent upon an exhaustion of tolerance for the husband’s conflict of interest with regards to his role in E Pty Ltd. In early 2023, Ms D, a friend of the husband and wife and a lawyer, was appointed as director of B Pty Ltd. The wife deposed:
[47] Due to concerns being raised by shareholders of [E Pty Ltd] as to a potential conflict of interest with [Mr Finamore] being a director of B Pty Ltd (as lender) and [E Pty Ltd] (as borrower), [Mr Finamore] resigned as director of B Pty Ltd in around [early] 2023, and on his instigation, we asked our friend who was a […], [Ms D], if she would accept such an appointment. [Ms D] agreed. [Mr Finamore] noted in an email to [Ms D], inter alia: "From all that I know and from any perspective I have contemplated, I cannot see reputational risk as a result of accepting the appointment. Obviously, in the cut and thrust there may be times when you may need to hold an opinion. I can’t see however how [B Pty Ltd] enforcing its contractual rights under a loan could be anything more than the usual course of business."
Ms D resigned in early 2024 whereupon the wife was appointed sole director and secretary in her place.
As a result of the failure of HH Project, E Pty Ltd needed to raise further capital. In March 2021 and December 2021, E Pty Ltd had issued two Convertible Note Deed Polls (Exhibit H10) the maturity date for the early and late 2021 was early 2023. Prior to the maturity date for the first and second convertible notes (early 2023), noteholders agreement to extend the maturity date to early 2024 was sought and obtained. Accordingly, no conversion took place in early 2023.
In mid-2023, E Pty Ltd made a third Convertible Note Deed Poll (Exhibit H10). The Maturity Date under the Deed Poll was early 2024.
Whilst there are redeeming provisions in all three Deed Polls which would have allowed E Pty Ltd to effectively buy-out note holders at the face-value of the notes plus 10 per cent and interest, it is common ground that E Pty Ltd did not have the necessary funds to do so. Taking all three Deed Poll fund raisers into account, $30.4 million in convertible notes held by noteholders were converted into equity (shares) in early 2024.
It was after the third Deed Poll was issued, mid-2023, the husband and wife separated. At this time, the wife was the sole director and shareholder of B Pty Ltd. B Pty Ltd remains the corporate trustee of the B Trust. The husband and wife both remain appointors of the B Trust. The objects of the B Trust remained both the husband and wife and their issue. The husband and Mr R were the only directors of E Pty Ltd.
I note that there is also a dispute between B Pty Ltd and E Pty Ltd concerning the validity of a Default Notice that the B Pty Ltd caused to be served on E Pty Ltd. This dispute is not overly material to the immediate dispute but is important background as to the motivations of B Pty Ltd and E Pty Ltd. E Pty Ltd takes issue with the fact that the Default Notice was signed by the wife as a company representative when Ms D was director and secretary. Furthermore, the solicitors for the husband conflated the Clause 7.2 issue with the Default Notice in their letter of urgency (extracted at [27] above) so the distinction between the two is worthy of clarification.
The Facility Agreement sets out that each of the events or circumstances set out in Chapter 19 (Events of Default) is an Event of Default (save for clause 19.9 (Acceleration)).
19.1 Non-payment
The Borrower does not pay on the due date any amount payable pursuant to a Finance Document at the place and in the currency in which it is expressed to be payable unless:
a) its failure to pay is caused by administrative or technical error; or
b) payment is made within ten Business Days of its due date.
In late 2023, B Pty Ltd issued a Notice of Default to E Pty Ltd in relation to outstanding Line Fees and Interest (Exhibit W4). The Notice of Default sought immediate payment of $90,123.28 in Line Fees and $576,596.19 in Interest payable to B Pty Ltd as at 30 September 2023 under the Facility Agreement. B Pty Ltd, J Organisation and E Pty Ltd agreed to a temporary standstill in relation to that Notice of Default for three weeks commencing late 2023. The affidavit of Mr S dated March 2024 sets out the resulting events in some detail which I will not recite in these reasons. It is sufficient to say that there were various accusations from both sides as to conflict and inappropriate conduct and that the Notice of Default was not withdrawn, or agreement reached over and above a temporary standstill.
A further issue raised by B Pty Ltd to J Organisation is that there was, in B Pty Ltd’s opinion, an asymmetry of information being provided to B Pty Ltd with respect of the Facility Agreement by virtue of J Organisation having a representative on the board of E Pty Ltd being Mr R appointed early 2021. Exhibit W5 is an email from the solicitors of B Pty Ltd to E Pty Ltd dated October 2023, recalling an agreement between B Pty Ltd and J Organisation that B Pty Ltd temporarily withdraw its Notice of Default for three weeks commencing October 2023 on the conditions that, inter alia, further information be provided to B Pty Ltd regarding E Pty Ltd’s financial position.
In late 2023, E Pty Ltd engaged JJ Company, a corporate advisory consultant, in relation to a potential sale of E Pty Ltd.
By letter dated December 2023 (Exhibit W6) B Pty Ltd advised E Pty Ltd that it required the E Pty Ltd to comply with conditions before it would consider any further standstill of the Notice of Default beyond October 2023. It also advised that Mr KK had become a representative for B Pty Ltd in respect of the Facility Agreement. The letter also asserts that E Pty Ltd had failed to meet its payment or reporting obligations under the Facility Agreement.
On 15 December 2023, B Pty Ltd wrote to the J Organisation requesting a meeting on an urgent basis to discuss the Facility Agreement and outstanding debts (Exhibit W7). The letter also pointed out that B Pty Ltd was concerned that by virtue of J Organisation having it Chief Financial Officer (Mr R) as a director and board member of B Pty Ltd, J Organisation had broader access to information than does B Pty Ltd. B Pty Ltd sought a board observer and a dialogue with J Organisation about how best to manage information.
On 30 January 2024, E Pty Ltd via its commercial lawyer, LL Lawyers, proposed to B Pty Ltd that it pay outstanding fees of $359,289.95 owed under the Facility Agreement to 31 December 2023, into the trust account of Taussig Cherrie Fildes’ (TCF) who are the husband’s legal practitioners in these family law proceedings. Such payment was proposed to be made five business days from the date of that letter (6 February 2024). On 5 February 2024, B Pty Ltd responded by objecting to the proposed payment to TCF as being inappropriate. On 12 February 2024, TCF informed B Pty Ltd on behalf of B Pty Ltd that the funds had been paid to that trust account on 5 February 2024. This was recounted in a letter to LL Lawyers from B Pty Ltd dated 28 February 2024 (Exhibit W10). B Pty Ltd contends that LL Lawyers’ calculations were incorrect and that, in any event, unilateral payment of monies to a third party without the consent of B Pty Ltd does not satisfy E Pty Ltd’s obligations to B Pty Ltd under the Facility Agreement. At or around this time, J Organisation advised E Pty Ltd that its share of the interest and the line fees under the Facility Agreement could be capitalised so as to assist E Pty Ltd with its business improvement program (Exhibit W9).
B Pty Ltd considers that no funds outstanding under the Facility Agreement have been paid to B Pty Ltd. B Pty Ltd contends that the outstanding debt consists of unpaid Interest in the amount of $866,252.95 and Line Fees of $123,965.75 (Exhibit B1). The Court understands that the husband disputes the calculation of the interest included in this figure.
Whereas on or about 5 February 2024, E Pty Ltd paid $359,289.95 to the husband’s family lawyers and into their trust account, B Pty Ltd directed TCF to transfer those funds to B Pty Ltd’s account. As of 20 March 2024, TCF had not done so.
Clause 19.9 of the Facility Agreement (acceleration) may apply if the default pertains to a Majority Lender. However, B Pty Ltd is not a Majority Lender and thus cannot enforce the acceleration of debt without the cooperation of J Organisation also calling in the loan, which the husband submits it is not inclined to do.
In late 2023, the husband entered discussions between E Pty Ltd and parties who held convertible notes in relation to raising additional capital for E Pty Ltd. An “in-principle” agreement was reached whereby an additional $1 million in funding would be provided to E Pty Ltd, provided that the lenders under the Facility Agreement (being B Pty Ltd and J Organisation) agreed not to enforce debts owing under the Facility Agreement until such time as JJ Company completed a sale of the E Pty Ltd, its assets and/or recapitalisation. Ms D (the sole director of B Pty Ltd at the time) the wife and Mr KK (a shareholder representative of B Pty Ltd appointed by the wife) refused to agree to the Facility Agreement standstill.
On 5 February 2024, the solicitors for the second respondent wrote to the J Organisation on behalf of B Pty Ltd (Exhibit H9) proposing an assignment of J Organisation’s debts under the Facility Agreement. In that letter, B Pty Ltd expressed concerns that “[J Organisation] may have been pursuing an unlawful campaign to take advantage of [E Pty Ltd] and its dire financial position for collateral purposes.” It particularised its concerns that J Organisation has been focussed on collateral benefits consequent upon no agreement being reached between B Pty Ltd and E Pty Ltd as to the recovery of funds. According to B Pty Ltd, the collateral benefits included J Organisation pursuing an opportunistic acquisition of 100% of W Brand and protecting its employee and reputation from the consequences of an external administration. The letter includes the statement that J Organisation has a preference for the husband to remain involved in the E Pty Ltd business. At paragraph 14, the letter states that:
[14] To the extent that [J Organisation] has made decisions in relation to the enforcement of the Facility Agreement or otherwise compromised [B Pty Ltd’s] rights in respect of [E Pty Ltd] for the purpose of maximising its leverage or negotiating position with respect to [W Brand], [B Pty Ltd] intends to enforce all its rights to preserve or recover the value of its assets for the benefit of its beneficiaries. This may involve oppression proceedings under s 232 and a derivative action on behalf of [E Pty Ltd] against [Mr R] personally under s 237 of the Corporations Act (Cth).
On 7 February 2024, J Organisation (by way of correspondence from its lawyers) noted that much of the information sought by B Pty Ltd with respect to J Organisation’s relationship with E Pty Ltd is confidential (B2). Further, the J Organisation noted that it may be willing to discuss with B Pty Ltd the potential assignment of the amounts owing to B Pty Ltd under the Facility Agreement, but not for the full amount.
By way of a letter to B Pty Ltd dated 16 February 2024 (Exhibit H7), the husband proposed the deletion of Clause 7.2 of the Facility Agreement and noted that J Organisation were willing to agree to the removal of that clause. The letter requested a response within seven days. B Pty Ltd replied 12 days later, on 28 February 2024 (Exhibit H8). The letter from B Pty Ltd purports to reply to “correspondence since 15 February 2024” and addresses multiple issues not contained within Exhibit H7. B Pty Ltd expressed concerns that E Pty Ltd was insolvent (or imminently insolvent) and that it “simply does not have confidence that E Pty Ltd is capable of avoiding insolvency and achieving an acceptable sale of E Pty Ltd while current management remains in control.” The current management is the husband and Mr R. B Pty Ltd wrote that it does not accept that varying the Facility Agreement to remove clause 7.2 (Prepayment on Change of Control/Sale) will preserve the value of B Pty Ltd’s shares in E Pty Ltd.
In early 2024, E Pty Ltd produced a Chairman’s Update for its shareholders, noteholders and debtholders (Exhibit W13). In his capacity as CEO of E Pty Ltd the husband advised of a new J Organisation loan repayable within 6 months or on the completion of the sale of W Brand. As outlined in the update, E Pty Ltd was formally seeking offers of financial accommodation from all shareholders on the terms of the Term Sheet in their ‘Relevant Proportion’ (as defined in the Shareholders’ Deed) by Monday, 4 March 2024. E Pty Ltd further advised that one pathway being explored with Noteholders is to extend the conversion date of their Notes on terms that are acceptable. J Organisation confirmed that it was prepared to underwrite the new short term loan facility in its reply email on 1 March 2024 (Exhibit W14). Counsel for the wife submits that the offers to noteholders, shareholders and debtholders were made expressly in the context of the acceleration of E Pty Ltd’s debt to B Pty Ltd as envisaged under the Facility Agreement. Counsel noted that there was no evidence produced to the Court as to response received from other shareholders, creditors and noteholders. Ms Schoff KC for the wife invited the Court, it appears quite reasonably, to draw the conclusion that the maturity date was not extended by noteholders.
It is not contested that upon the conversion of the notes into shares under the Deed Polls of early 2021, late 2021 and mid-2023, the share of E Pty Ltd controlled by the Finamore entities will fall below 50.1%. As such, as of midnight on the morning of 22 March 2024, clause 7.2 of the Facility Agreement was engaged, thus requiring the Facility be cancelled within 60 days and requiring full prepayment of the Principal Outstanding under the Facility in full (being of both the B Pty Ltd and J Organisation loans, respectively, on a pro rata basis). Under cl 8.2 and 10.3, this amount also includes repayment of any interest and a prepayment fee of 10 per cent.
It is contended on behalf of the husband, and not contradicted by the other parties, that the amount payable under Clause 7.2 in the event of a Change of Control of E Pty Ltd will be some $10 million, being the principal, line fees and other monies payable to B Pty Ltd and J Organisation. The husband contends E Pty Ltd’s inability to facilitate prepayment of the loans will result in E Pty Ltd going into liquidation, resulting in a major dissipation of “the matrimonial property pool” both in terms of the inability for B Pty Ltd to recover its debts under the Facility Agreement and to the Finamore Entities as shareholders of E Pty Ltd.
In late 2023, E Pty Ltd retained JJ Company to investigate the potential sale of E Pty Ltd. On the second day of the interim hearing, the husband produced a memorandum from JJ Company which indicated that JJ Company will need at least 6 months to run an orderly sale process on E Pty Ltd (Exhibit H14). Needless to say, E Pty Ltd will not have that time if Clause 7.2 remains operative, as it has. There was no explanation of why consultants JJ Company, or someone like them, were not retained earlier. The wife’s letter to her family on 5 June 2022 mentions that “the Board of [E Pty Ltd] has resolved to engage both [DD Financial Services] (as financial advisor) and [EE Business] (as transaction advisor) to represent [E Pty Ltd] in the sale of the group.” I do not know what became of them. The husband and E Pty Ltd have been alive to the consequences of raising funds with convertible notes. They renegotiated the maturity date of the first two Deed Polls to avoid conversions in early 2023. The third Deed Poll was issued mid- 2023, only ten months after the husband signed the Facility Agreement on behalf of B Pty Ltd which contained Clause 7.2.
On 13 March 2024, the solicitors for B Pty Ltd wrote to the commercial solicitors for E Pty Ltd, LL Lawyers, making further requests for information and documents from E Pty Ltd (Exhibit W12). At paragraph 8 of that letter, B Pty Ltd wrote that:
[E Pty Ltd] has known since at least [mid] 2023 that there would be a Change of Control [in early] 2024 triggering an acceleration under the Facility Agreement. You have provided no explanation as to why [E Pty Ltd] waited until [early] 2024 to inform [B Pty Ltd] of the convertible notes and request that [B Pty Ltd] consent to vary the Facility Agreement to avoid acceleration under clause 7.2 of the Facility Agreement.
DISCUSSION
The husband proposed three solutions to the ‘immediate problem’ being the imminent loss of control by the Finamore Entities of E Pty Ltd as a result of the conversion of notes issued under the deed polls and subsequent triggering of the prepayment Clause 7.2 of the Facility Agreement.
Injunction against the wife requiring her to facilitate the deletion of Clause 7.2
The husband’s primary position is contained in Exhibit H2, discussed above at [33]. In effect, that the wife do whatever is necessary to delete Clause 7.2 before it is engaged and that the monies ($359,289.95) which have been paid by E Pty Ltd into the trust account of the husband’s family law solicitors “not be applied otherwise than pursuant to a written agreement between the husband and the wife or order of this court.” This is a mandatory injunction against the wife for which the husband relies on s 114(3) of the Family Law Act 1975 (“the FLA”)
The husband’s position with respect to the cl 7.2 issue is set out at [142] of his affidavit:
I believe that [Ms Finamore’s] conduct, including but not limited to instructing [B Pty Ltd] to issue the Default Notice in relation to the Facility Agreement and thereafter refusing to agree to the Facility Agreement Standstill (which was agreed to by [J Organisation]) and now refusing to delete the debt acceleration clause in 7.2 of the Facility Agreement is made with the collateral purpose of destroying any value or equity which the [Finamore E Pty Ltd Entities] have in [E Pty Ltd] and to reduce the assets which she believes are or will be available for any matrimonial property settlement with me. Conversely [J Organisation] has indicated it agrees to remove clause 7.2 if the [JJ Company] process is able to continue, they have also agreed to capitalise their share of the interest on the Facility Agreement rather than seek payment of that amount now and ongoing as sought by [Ms Finamore]. I estimate the net value of the [Finamore E Pty Ltd Entities’] equity interests in [E Pty Ltd] exceed $50M. I also do not believe that [Ms Finamore] has any intention of reaching a commercial resolution on this issue. I believe [Ms Finamore] is focused on a liquidation/administration and is not seeking to maintain or achieve any value for the [E Pty Ltd] shareholdings in [B Trust] or the other [Finamore E Pty Ltd Entities].
The husband’s primary position with respect to the Clause 7.2 issue is that:
by 4.00pm on 19 March 2024 the Wife in her capacity as sole director of [B Pty Ltd] (in its capacity as the Trustee of the [B Trust]) must do all acts and things to cause [B Pty Ltd] to accept the proposal to delete clause 7.2 of the Facility Agreement entered into between [B Pty Ltd] as original lender and [E Pty Ltd] as the borrower [in mid] 2022 and acceded to by [J Organisation] as lender [in late] 2022 (“Facility Agreement”) (being the proposal set out in the letter from Taussig Cherrie Fildes to Arnold Bloch Leibler dated […] February 2024, being exhibit [HF-24] of the husband’s affidavit filed on 8 March 2024), without prejudice as to the parties to that agreement reaching a future agreement to reinstate that clause.
Section 114(1) of the Family Law Act 1975 (Cth) provides that in property proceedings the Court may make such order or grant such injunction as it considers proper with respect to a matter to which the proceedings relate including the making of an injunction in relation to the property of a party to the marriage. Further, section 114(3) of the FLA confers power on the Court to grant discretionary remedies, including orders designed to preserve assets. This section provides relevantly as follows:
A court exercising jurisdiction under this Act in proceedings other than proceedings to which subsection (1) applies may grant an injunction, by interlocutory order or otherwise (including an injunction in aid of the enforcement of a decree), in any case in which it appears to the court to be just or convenient to do so and either unconditionally or upon such terms and conditions as the court considers appropriate.
In the decision of Tsiang & Wu and Ors [2019] FamCAFC 128 the Full Court comprising Strickland, Ainslie-Wallace & Aldridge JJ considered principles in relation to interlocutory injunctions. Their Honours stated:-
[20] The grant of an injunction is discretionary and the basis on which such an order is made is well established. A purpose, as in this case, is to preserve the status quo pending resolution of the controversy. An applicant must demonstrate first that there is a serious issue to be tried. While that statement has been the subject of various iterations, in essence it requires the demonstration of an arguable case or as was said in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at [65], the applicant must “show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo”.
[21] Next the applicant must demonstrate that the balance of convenience favours making the order sought. As part of this, the applicant must show that there is a “danger” or risk of dissipation of or dealings with assets which will frustrate any judgment in favour of the applicant.
Fundamental to that question is whether there is any evidence that the order is necessary to prevent the dissipation of assets which are the subject of the proceeding.[8] In this case, the wife opposes any order being made. She proposes the Facility Agreement remain as drawn, that the conversion of notes into shares take place in the terms of the Deed Polls and Clause 7.2 is brought into play.
[8] Waugh v Waugh (2000) FLC 93-052 at [45]-[46] (Lindenmayer, Coleman and Brown JJ); M v DB (2006) FLC 93-293 at [46]-[49] (Kay, Warnick and Boland JJ); and Soldo v Soldo (2017) FamCA 181 at [21] (McMillan J).
The husband is the major architect of the current scenario. The husband had a very significant involvement in setting up both the convertible notes with maturity dates and the Facility Agreement including Clause 7.2. The husband is seeking that the Court use its injunctive power to materially change the terms of the Facility Agreement (by deleting Clause 7.2) to which he affixed his signature for B Pty Ltd. The husband’s proposed course of action is the reverse of seeking to preserve the status quo. The status quo is to permit Clause 7.2 to take its course. The husband resigned from B Pty Ltd in late 2022 to avoid a conflict of interest given his directorship of, and place on the board of, E Pty Ltd. Ironically the husband now seeks to impel the wife to facilitate a transaction on behalf of B Pty Ltd (of which she is sole shareholder, director and secretary) contrary to her firmly held view as trustee that Clause 7.2 is a major source of leverage for B Pty Ltd against E Pty Ltd (and the J Organisation).
It is the husband’s position that if B Pty Ltd, under instruction from the wife, was acting properly from a commercial perspective, then B Pty Ltd’s position would mirror that of the other financier under the Facility Agreement, J Organisation. The husband informs the court that J Organisation will consent to the deletion of Clause 7.2. With respect to the other outstanding debt and line fees, J Organisation’s position is documented as being a standstill for so long as the transaction plan (of key milestones and dates for the sale transaction) is being met. The transaction plan itself is not in evidence.
On behalf of the wife Ms Schoff KC submitted, inter alia, as follows:
The evidence before the court is that the [J Organisation] is prepared to engage in discussions to purchase [B Pty Ltd’s] debt. That’s apparent from its most recent correspondence. It’s not a foregone conclusion, in other words, that [E Pty Ltd] will need to repay the entire facility 60 days – or that [E Pty Ltd] will not be able to repay the entire facility within 60 days from 22 March, or that it will be required to do so. It’s possible that if the court refuses to make the orders sought, [J Organisation] will buy the debt before payment is due 60 days later. [J Organisation] might do so to protect its investment in [E Pty Ltd] and to protect itself and its CFO from liability and insolvency. If the court enables the facility agreement to be varied in any way, [B Pty Ltd] will lose its leverage and negotiating power with [J Organisation]. In other words, the court would be depriving [B Pty Ltd] of the single strongest lever that it has with respect to [J Organisation].
Mr Heath KC for the husband submits that the wife’s prediction that E Pty Ltd will be bailed out by an investor and escape liquidation or administration is merely speculation. I do not accept that submission. My impression is that Mr Heath uses “speculative” in a pejorative sense. That is, to act without knowledge or sound judgment and without due regard to the risks of loss. I am not satisfied that the wife is acting without knowledge or sound judgment. In this case, no course of action is without risk. Managing risk well is regarded as good commercial acumen. The husband and the wife are both intelligent and trained. The wife has extensive experience of E Pty Ltd and of the husband. The wife brings her accumulated experience and predictive capacities to bear as the sole controller of B Pty Ltd as trustee for the family trust. On her watch, the sound commercial law firm, ABL, acts for B Pty Ltd. The wife is in receipt of their advice. The wife has appointed Mr KK as an advocate for B Pty Ltd. It can be discerned from the submissions of Ms Schoff KC for the wife that the wife’s strategy is to secure the best outcome for B Pty Ltd by putting E Pty Ltd in a position where an existing or perhaps a new investor will pay what is required to meet E Pty Ltd’s obligations under the Facility Agreement so that E Pty Ltd can remain a going concern and their own investment is protected. In the wife’s scenario, the $5.3 million is repaid and the Finamore Entities also keep their shares in E Pty Ltd which will, hopefully, proceed as a successful enterprise.
On the husband’s scenario (that is, without Clause 7.2), the earliest that B Pty Ltd can recover the $5.3 million is the due date of mid-2027 and the husband and wife would remain joined at the hip until 2027 in circumstances where the Finamore Entities have lost their controlling majority in E Pty Ltd. The Finamore Entities may even be subject to majority control which wants to keep E Pty Ltd as a going concern rather than to sell E Pty Ltd and realise the value of their equity (shares). The considerable equity held indirectly by the wife and the husband in E Pty Ltd may remain locked indefinitely in a ship they have no power to steer.
The injunctive relief sought by the husband is entirely contrary to the course of action decided by the wife in her capacity as trustee of the family trust through B Pty Ltd. The husband seeks to dictate how the wife will exercise B Pty Ltd’s fiduciary duty to the trust and to the beneficiaries who are the equitable owners of the trust property, including the loan to E Pty Ltd. The beneficiaries include the husband as well as the wife and the children and further issue. In BP and KS (2003) FLC 93-157, to which I will refer again shortly, Warnick J stated that a trustee must make a determination as a result of the trustee’s own consideration and deliberation. A trustee must consider the beneficiaries or objects as potential recipients of benefits from the trust including how the legal and equitable interests in trust property are best maintained or protected. The trustee may take advice but the decision to which the trustee comes cannot be decision dictated by someone else including, in this case, the husband or the Court.
On the husband’s submission, the authorities refer to the first principle to be addressed in considering whether to grant an interlocutory inunction is that the applicant must show a sufficient likelihood of success to justify the preservation of the status quo.[9] The concept of “success” is not a good fit for this case. However, it is fair to say that in terms of estimating what will transpire, the husband has merely put forward his conjecture about what may flow from an acceleration of E Pty Ltd’s obligation to pay $10 million of debt. Notably, the husband is his only witness. It is his commentary alone.
[9] Husband’s Outline of Case filed 15 March 2024 at [35] citing Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57, [19] and [65]-[72].
Mr Heath KC, for the husband, submitted that, if Clause 7.2 remains in the Facility Agreement, the consequences will be catastrophic for all shareholders and all noteholders, all employees and franchisees because in a liquidation scenario, that would be “scorched earth”. The husband’s solution is articulated as an injunction to preserve the Finamore Entities’ shares. However, in reality, he is not seeking to preserve the shareholding of the Finamore Entities. Instead, the husband is seeking to re-write a loan agreement to his own advantage and in a way not achievable under contractual, trust or corporations’ principles.
Mr Heath KC, for the husband describes the havoc which will ensue if Clause 7.2 remains. He said:
The rights of third parties also have to feature in all of this. […] the High Court said that in an assessment of the pros and cons of an application for interim relief it’s appropriate to take into account the interests of third parties, and this is such a case, because there at 16 noteholders. There are 23 other shareholders in [E Pty Ltd], including a superannuation fund […]. There are employees […] of the [E Pty Ltd] group, and there are […] franchise agreements that have been put in place with franchisees, that is, between one element or one unit in the group, one subsidiary and franchisees to do with the online […] business that the entire group operates through different entities, and if those franchise agreements collapse, as they will in an insolvency or an administration scenario, then employees of franchisees go too.
However, if Mr Heath KC is correct, all of those consequences have been foreseeable since the Facility Agreement containing Clause 7.2 was agreed to on behalf of E Pty Ltd and signed by the husband on 22 August 2022. If the implications are as catastrophic as the husband contends, it is curious that the consultants, JJ Company (or someone else) were not retained until November 2023. That is, 12 months after the failure of HH Project in November 2022, to sell or fund-raise for E Pty Ltd.
If the husband had satisfied me that this case qualified for injunctive relief (which he has not). I would have considered the balance of convenience. Mr Heath KC submitted that the Court should grant the injunction vis a vis the wife causing Clause 7.2 to be deleted to preserve the interests of the Finamore Entities for consideration by the court at the final hearing. It must be recognised, that a final hearing for this matter is something like 6 or 12 months away or, I suppose, even longer depending on the number of interim defended disputes in which the parties wish to indulge along the way. Come what may, the premise on which Mr Heath’s submission is based is false. The orthodox approach in alteration of property interests is that the Court considers assets as it finds them. Parties do not go into a state of suspended animation upon separation and assets are not put into stasis until a final hearing. Further the relief sought by the husband is not a temporary measure. It is to revoke or excise Clause 7.2 for all time. On the husband’s case, Clause 7.2 or anything akin to it is not automatically resurrected. To the extent that the husband says that the removal of Clause 7.2 can be without prejudice to the B Pty Ltd and E Pty Ltd agreeing subsequently to re-insert the clause, that is clearly never going to happen. It is abundantly clear that, if Clause 7.2 is removed now, B Pty Ltd can never be returned to the position it now occupies. The leverage will be gone for all time.
The husband, in his written submissions, also raises the issue of a quia timet injunction, an injunction granted to prevent a threatened infringement of the rights of the applicant. In other words, it is granted where the commission of the infringement is apprehended. The applicant must show that what the respondent is threatening and intending to do will cause imminent and substantial damage to the applicant.[10] In this case, it is not a breach of the husband’s rights for the wife to adhere to the processes provided in the existing Facility Agreement and the intersection between the Facility Agreement and the convertible notes. The husband facilitated or knowingly permitted the lender (B Pty Ltd) and the borrower (E Pty Ltd) to enter into the current arrangement which the wife says should be preserved.
[10] Apotex Pty Ltd v Les Laboratoires Servier (No 2) (2012) 293 ALR 272 [46] (Bennett J)
I am not persuaded that the Court should grant the injunctive relief sought by the husband. I am not satisfied that it is just and convenient within the meaning of s114(3) of the FLA to grant the injunction.
Partial Property Settlement
The next measure sought by the husband was a partial property settlement in which there be a transfer of the B Pty Ltd shares to the husband. The husband cites a value of $12 for the shares, being the face value of the 12 by $1 shares purchased by the wife. The husband claims this is the ‘neatest solution’. The rationale behind the partial settlement is set out in the husband’s Outline of Case:
[17] If granted, this interim relief would enable the husband to remove the wife as the sole director of [B Pty Ltd] and replace her with a new director. As a sole member company, the husband could pass resolutions to effect such changes. On behalf of [B Pty Ltd], the new director could agree to the proposed deletion of clause 7.2 of the Facility Agreement, thereby avoiding the Conversion, Change of Control and other adverse consequences.
The Court cannot make an order under section 79 of the Act unless it is satisfied that, in all the circumstances, it is just and equitable to make an order, including an interim order. In Strahan (Interim Property Orders) (2011) FLC 93-466 the Full Court stated a two-step test to justify an order for partial property adjustment on an interim basis prior to final hearing. The Court said:
“In relation to the first stage, in our view, when considering whether to exercise the power under s 79 and s80(1)(h) of the Act to make an interim property order the “overarching consideration” is the interests of justice. It is not necessary to establish compelling circumstances. All that is required is that in the circumstances it is appropriate to exercise the power. In exercising the wide and unfettered discretion conferred by the power to make such an order, regard should be had to the fact that the usual order pursuant to s79 is a once and for all order made after a final hearing”.
The second stage is the “substantive step” where the provisions of section 79 must be considered and applied but with limitations, given that it is not the final hearing. This involves the exercise of the power pursuant to section 79 of the Act and effectively imposes an obligation on the Court to identify the parties’ property and their interests in it, and then to consider and apply the provisions of section 79 of the Act.
The interim property order sought by the husband would remove the wife from B Pty Ltd and install the husband in the wife’s place. He would have complete control of B Pty Ltd and paragraph 17 of the husband’s Outline of Case discloses precisely what the husband will do and why. That is, he will delete Clause 7.2 to avoid repayment of $10 million being accelerated to 60 days hence. An analogous situation was considered by Warnick J in BP and KS (2003) FLC 93-157. In that case the parties had entered into a s 87 maintenance agreement which provided for the wife to receive something in excess of $1 million. The wife was to transfer her shares in a company which was trustee of the family trust to the husband and it was contemplated that the husband would draw upon that discretionary family trust to access monies as a distribution to himself and with which he would pay out the wife. Within a few days of the s 87 deed being approved, the husband suffered a significant reversal in his health and the monies owing to the wife were not paid. By way of enforcement, the wife sought that the corporate trustee and the family trust be transferred to her because the value of the trust was equivalent to the amount which remained outstanding to her from the husband. Amongst other things, Warnick J considered whether it was appropriate for the Court to grant such relief vis-à-vis the purpose of the trust and the interests of the objects or beneficiaries of the trust. His Honour accepted that the husband could draw on all of the trust property for his own benefit. However, his Honour was not prepared to transfer control of the trust to the wife based on the fact that she had already made clear that she was not going to consider the interests of the other objects or beneficiaries of the trust but would appropriate the total value of the trust to herself in satisfaction of monies owed to her by the husband personally. After a careful analysis of various authorities and consideration of the duty of trustees of discretionary trusts, his Honour concluded as follows (emphasis in original):
[78] There are a number of Family Court cases in which findings were made that the capital of discretionary trusts was either “property” of a person who could control the trust or the “defacto property” of such a person. While such findings might impliedly leave the court at liberty to deal with that property as the court sees fit, this is not necessarily so.
[79] The significance of such a finding may initially be that the assets of the trust can properly be included in a “pool” of assets for division between the parties. To do so is a notional step in a process of reasoning, as distinct from the executive nature of a court order dealing with trust assets.
[80] Even when such a finding underpins a court order, there is a difference between first, an order requiring a payment from, for example, husband to wife, (albeit the only source of funds is the capital of a discretionary trust of which the husband is trustee or appointor or otherwise in control), leaving it to the husband to act, presumably according to law, and second an order requiring a trustee to pay funds from a trust to satisfy an order for property settlement.
[81] As seen, Ellis J in Davidson (No 2), Maxwell J in Alcaine and Santow J in Andco Nominees were circumspect in the “reach” of the orders they made, or were prepared to countenance.
[82] While the distinction between orders designed to facilitate satisfaction of other orders for property settlement by distribution from a trust and orders that direct that result may seem fine, it is nonetheless real.
[83] In the instant case, the wife seeks a transfer to her of the husband’s shares in a the trustee company NTE. In other words, the wife is not even yet a trustee. She does not seek an order (as she originally did) requiring the husband as trustee to take particular steps (which no doubt she would argue were lawful) in relation to the trust, for example, to distribute money to himself, albeit perhaps by indirect means through a nominated beneficiary. Nor does she seek an order which in practical terms might only be met by the husband “accessing” trust funds. She seeks that she become the trustee solely for the purpose of making amendments to the trust to obtain for herself the trust assets.
[84] I find that the wife has pre-determined that if she is placed in a position of control of NTE she intends to distribute all (or alternatively some) of its capital to herself.
[85] In my view, this goes a step beyond the position under consideration in Davidson, and the orders sought, on the evidence, cross the line between facilitation and even expectation, to pre-determination. Therefore, they should not be made.
At risk of repeating myself, the husband’s rationale for an interim property settlement in his favour is to cancel clause 7.2. For reasons apparent in BP and KS (2003) FLC 93-157 that would not be just and equitable. That is, I am not satisfied that it is just and equitable to make an interim property settlement order in the current circumstances.
Addressing the second test for an interim property settlement, it was submitted by senior counsel for the husband that it was likely that the husband would be entitled to the Finamore Entities’ interests in E Pty Ltd on an alteration of property interests between himself and the wife. That is curious given that the loan owing to B Pty Ltd and the shares within the Finamore Entities are the most significant assets divisible between the parties according to the statement of assets which is Exhibit C3. Mr Heath KC tendered a copy of the BB Family Agreement dated 30 September 2020 in support of his contention that the wife derives considerable wealth from her family (Exhibit H1). However, Mr Heath KC could not point to any part of the tendered document by way of quantification of the wealth or otherwise and referred back to the reliance by his client on a description of Mr BB as having a personal wealth of over 1 billion dollars according to a media report. Ultimately, Mr Heath KC conceded that the husband had made no direct or indirect contribution to the wealth of the wife’s family and that the significance of her entitlement to family wealth would be confined to s75(2) factors, at least for today’s purposes.
The primary asset of B Pty Ltd is its loan under the Facility Agreement and shares in E Pty Ltd. Senior counsel for the husband submitted that a current value of $119 million can be imputed to E Pty Ltd. There is no formal valuation, independent valuation or assessment. At paragraph 119 of the husband’s consolidated affidavit sworn on 8 March 2024, the husband deposed that:
[119] I believe that, absent the risks arising from the recent conduct of [B Pty Ltd], $119,000,000 was a realistic and realisable value of [E Pty Ltd] value of shares and/or businesses. This belief is based on my understanding of the [E Group] and its business; and it is also based on the fact that the Convertible Notes attribute the same value to businesses.
[120] I estimate that a value of $119,000,000 would mean the [Finamore E Pty Ltd Entities] 56.69% interest, would see the amount owing to the [B Trust] pursuant to the Facility Agreement fully recovered and the [Finamore E Pty Ltd Entities] realising proceeds in excess of $40,000,000 from the sale of its equity.
A value of $119 million is also referred to at paragraphs [6.3] and [6.4] of the Convertible Note Deed Poll of [mid] 2023 which provides that the price per ordinary share will be equal to $119 million divided by the ordinary number of shares on issue.
Notably in the first Deed Poll (early 2021) the realistic and realisable value attributable to E Pty Ltd for the purpose of conversion into shares was $89 million. In the second Deed Poll (late 2021) the realistic and realisable value attributable to E Pty Ltd for the purpose of conversion into shares was $110 million. In the third Deed Poll (mid-2023) the realistic and realisable value attributable to E Pty Ltd for the purpose of conversion into shares was $119 million. I asked Mr Heath KC what factors informed the three “values” over a period of slightly more than two years. Mr Heath responded:
Point 1, they’re all rather large numbers, which tends to establish the proposition that the [E Pty Ltd] shares are worth protecting and preserving, in particular those that form part of the matrimonial asset pool. That’s point 1. Point 2 is we took you to the graphs and your Honour said – maybe it was a throwaway line, maybe your Honour didn’t intend to say it, maybe I misunderstood the meaning – “Someone looking at these graphs in this management presentation like upward graphs.” And I think I said to your Honour this is based on actual trends save for the forecasts. Your Honour will see when your Honour turns back to those graphs and your Honour looks at EBITDAR and revenue, there have been upwards trends. And that’s entirely consistent with and helps to explain the rise in the figures from 89 to 110 to 119.
It’s not part of this court’s job or any court’s job when faced with an application for an interlocutory injunction to sit down and conduct a mini trial on a final basis in respect of the value of shares. That will happen in due course, assuming that the shares are still in play. If there’s a liquidation, the shares won’t be in play.
Senior counsel for the husband relied heavily on an Information Memorandum (Exhibit H4) to explain the current state of E Pty Ltd and its sound commercial potential. Without objection by any other party, senior counsel for the husband tendered most pages of the Presentation of E Pty Ltd prepared by JJ Company. He purported to do so as a “business record”. However, Exhibit H4 is not a record made in the course of, or for the purpose of, the business of E Pty Ltd as contemplated by s. 69 of the Evidence Act 1995 (Cth). It is a document prepared by JJ Company for the purpose of attracting and informing potential purchasers of E Pty Ltd or investors in E Pty Ltd. It is a draft or incomplete in part, including the wording of the disclaimer. One disclaimer includes:
No representation, warranty or undertaking, express or implied, is made (or will be made in any agreement) as to the accuracy, currency, reliability or completeness of any information contained in these materials (or any supplement to it or any further information supplied by or on behalf of [E Pty Ltd] or the directors or officers of [E Pty Ltd], the respective shareholders or unitholders thereof or any other party involved in the preparation of or referred to in these materials). Interested parties must conduct their own investigations and analysis of the data and information set out in these materials and rely on such investigations and analysis in their assessment of these materials. No representation, warranty
Exhibit H4 includes a “Roadmap” which has a note “[Mr Finamore] to review” which I take to indicate that the page needs to be reviewed by the husband, Mr Finamore. Mr Heath KC could not explain what was meant by the flag “Omitted to investors pre-qualified” which appears on six pages of the document. However, it having been tendered without objection, it is a document to which I attach some weight on the issue of JJ Company having received instructions to act for E Pty Ltd in November 2023.
I am not satisfied that the husband will necessarily be entitled to B Pty Ltd, inclusive of its various interests in E Pty Ltd, on a final alteration of property interests. Similarly, I am not satisfied that the effect of the interim property settlement is reversible at a final hearing.
I will not accede to the husband’s application for an interim or partial property settlement. It is not just and equitable that there be a partial property settlement as proposed by the husband.
An order compelling B Pty Ltd to delegate management functions to a registered liquidator
In paragraph 6A of the husband’s application he proposes, in the alternative, that:
6A. In the alternative to paragraph 5 or paragraph 6 and until further order, [B Pty Ltd] in its capacity as the Trustee of the [B Trust] be compelled pursuant to clause 15.4 of the [B Pty Ltd Trust Deed] to appoint one of the independent delegates nominated by the husband as delegate of:
a) all of the powers of discretion conferred on the Trustee under the [B Pty Ltd Trust Deed]; OR
b) all of [B Pty Ltd s] dealings with [E Pty Ltd] (“E Pty Ltd”); OR
c) all of [B Pty Ltd s] dealings in relation to the Facility Agreement entered into between [B Pty Ltd] as original lender and [E Pty Ltd] as the borrower on 24 August 2022 and acceded to by [J Organisation] as lender on 1 September 2022 (“Facility Agreement”).
Mr Heath KC indicated that it was only as a consequence of lack of time that the husband had not made an application to remove B Pty Ltd as trustee. There was the following discussion:
MR HEATH: (…) If we had time, we would go over to the Supreme Court of Victoria and we would run an application to remove [B Pty Ltd] as trustee, but we don’t-
HER HONOUR: You had time.
MR HEATH: We don’t have time.
HER HONOUR: You had time.
MR HEATH: We don’t have time now to do it.
HER HONOUR: But you had time in the beginning.
MR HEATH: But the time started to run when they said – after 16 February, when we said, “Would you agree to the deletion?” We got the answer back on 28 February and we’re in court now. We were in court on 5 March. 28 February
HER HONOUR: How long does it take you to walk across the street? Don’t tell me you couldn’t have got on over there.
MR HEATH: We wouldn’t have had a trial in time. It would not have had a trial in time. (…)
Mr Heath KC did not address the fact that an application to remove a trustee under the Trustee Act 1958 (Vic) can be made in this Court under accrued jurisdiction. Nor did Mr Heath KC address the ancillary power of the court under s 80(1)(e) to appoint or remove trustees when “exercising powers” under Part VIII of the FLA. As an ancillary power under s 80 FLA, the power to remove and appoint a trustee is an order that would only be made in support of an order under Part VIII which, in this case, would be an order for an interim or partial property settlement (which I have declined to make).
I would not take a step of removing a trustee on an interim basis without compelling evidence. At this hearing, the evidence in support of the husband’s case was not compelling. It was rich in rhetoric but light on substance.
Clause 15.4 of the B Pty Ltd trust deed provides as follows:
[15.4] Delegation of powers
The Trustee may delegate the exercise of all or any of the powers or discretions conferred on the Trustee under this deed by nominating a delegate in writing and may execute any powers of attorney or other instruments necessary to give effect to that purpose.
In his affidavit,[11] the Husband identifies two people one of whom is Mr NN of MM Financial Services as his proposed “independent delegates”. The other person declined to act on the basis of a conflict of interest.
[11] Affidavit of Mr Finamore sworn 8 March 2024 [147]-[149].
On 14 February 2024, the husband’s solicitors wrote to Mr NN of MM Financial Services in relation to a conflict search for a potential new instruction (Exhibit H11). In that letter, the husband’s solicitors ask whether Mr NN is willing to be appointed as the delegate of B Pty Ltd to act on B Pty Ltd’s behalf in relation to the management of the loan agreement or whether he is willing to be appointed as the new trustee of the family trust in place of B Pty Ltd. In his reply, dated 19 February 2024 (Exhibit H12), Mr NN confirmed his willingness to act as a delegate of the company. On the second day of this hearing, Ms Coleman for B Pty Ltd pointed out, correctly in my view, that Mr NN did not express clearly any consent to be appointed to replace B Pty Ltd as trustee of the family trust. Counsel for the husband stated that this was an immaterial oversight and required only a clarification. No clarification was forthcoming.
Counsel for B Pty Ltd spent significant time in her submissions addressing whether this Court has jurisdiction to make such an order. It is B Pty Ltd’s case that the husband did not identify the source of power to make the order sought and that, in fact, no such source of power exists. In his response, Mr Heath KC identified the source of power upon which he relied was s 114(3) “and under [the court’s] ancillary jurisdiction so as to prevent this situation sliding into a liquidation scenario or an administration scenario.” There was the following exchange:
HER HONOUR: What’s an ancillary jurisdiction?
MR HEATH: Well, let me take you to the submissions which you’ve already read, your Honour. And I will point out the position where we set it all out clearly in writing. Paragraph 41. Does your Honour have that? Can I ask invite your Honour to read that again, please. Your Honour has indicated that your Honour has read it already but perhaps we need to revisit it. That is the ancillary jurisdiction point, your Honour. And we give your Honour the reference to the Act. We give your Honour the reference to DJL v Central Authority, which is the principal High Court authority relating to this. It’s the only one we did include, but it seemed to be the one which was most apt.
Paragraph 41 of the husband’s Outline of Case does not identify the power to which “ancillary” jurisdiction could attach.
For instance, such power was considered by the Full Court of the Family Court (as it was then known) in Norton & Locke (2013) FLC 93-567. In that case, the respondent sought sole use and occupation of real property pending the final hearing of her de facto property claim but the appellant denied that the parties had lived in a de facto relationship. There the Full Court, comprising Byrant CJ, Murphy and Benjamin JJ held that the court has jurisdiction to make a Mareva injunction to preserve assets pending the determination of a jurisdictional issue, which in that case was whether the parties had been in a de facto relationship. Then there is jurisdiction only to the extent that orders are necessary to protect the court’s function as a court, to preserve property in respect of which danger has been established and only for so long as it takes to resolve the jurisdictional issue. That is not analogous to this case.
CONCLUSION
The husband has not made out a case for the relief he seeks in relation to Clause 7.2 and I dismiss his application in that regard.
I have made directions about applications for costs which are self-explanatory.
I certify that the preceding one hundred and forty-four (144) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Bennett. Associate:
Dated: 28 March 2024
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