Kendling and Kendling and Ors (No. 2)
[2008] FamCA 296
•29 April 2008
FAMILY COURT OF AUSTRALIA
| KENDLING & KENDLING AND ORS (NO. 2) | [2008] FamCA 296 |
| FAMILY LAW – PRACTICE AND PROCEDURE - Abuse of Process - Stay of proceedings FAMILY LAW – PROPERTY - Value of property - Expert evidence FAMILY LAW – COMPANIES - Receivership and/or liquidation and/or winding up FAMILY LAW – INJUNCTIONS - Mareva |
| Family Law Act 1975 (Cth) Federal Court of Australia Act 1976 (Cth) Evidence Act 1995 (Cth) |
| National Australia Bank v Bond Brewing Holdings [1991] 1 VR 386 National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 169 CLR 271 Ballabil Holdings Pty Ltd v Hospital Products Ltd (1985) 1 NSWLR 155 Beach Petroleum NL v Johnson (1992) 9 ACSR 404 Cadura Investments Pty Ltd v Rototek Pty Ltd [2004] WASC 150 Duffy v Super Centre Development Corporation Limited [1967] 1 NSWR 382 Jackson v Sterling Industries (1987) 71 ALR 457 Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 Waugh and Waugh (2000) FLC 93-052 Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 National Australia Bank Ltd v Bond Brewing Holdings Ltd [1990] 1 VR 386 Cadura Investments Ltd v Rototek Pty Ltd & Ors [2004] WASC 150 Australian Securities and Investments Commission v Burke [2000] NSWSC 694 Brown and Brown (unreported, 17 November 2004) Tate and Tate (2000) FLC 93-047 J and J [2000] FamCA 729 Lenijamar Pty Ld and Ors v AGC (Advances) Ltd (1990) 98 ALR 200 Fisher and another v Rural Adjustment & Finance Corporation of Western Australia (1995) 57 FCR 1 Sheikholeslami v Brungs[2006] FCA 933. Jianshe Southern Pty Ltd v Turnbull Cooktown Pty Ltd (No. 2) [2007] FCA 903 A v Z (2006) 198 FLR 152 Malpass and Mayson (2000) 27 Fam LR 288 Fahmi v Fahmi (1995) FLC 92-637 Environment Protection Authority v Caltex Refining Co Pty Ltd (1993) 178 CLR 477 McMahon v Gould (1982) 7 ACLR 202 Jefferson Ltd v Bhetcha, [1979] 1 WLR 898 Western Australia v Bond Corporation Holdings Ltd (No. 2) (1992) 37 FCR 150 Halabi v Westpac Banking Corporation [1989] 17 NSWLR 26 Yuill v Spedley Securities Ltd (in liq) (1992) 8 ACSR 272 Baker v Commissioner of Federal Police (2000) 104 FCR 359 New South Wales Crime Commission v Kelly, [2003] NSWCA 245 Niven v SS [2006] NSWCA 338 Goreng Goreng v Jennaway [2007] FCA 2083 Ferrall v Blyton (2000) 27 Fam LR 178 Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 |
| APPLICANT: | Mrs Kendling | |
| RESPONDENT: | Mr Kendling | |
| SECOND RESPONDENT | T Pty Ltd | |
| THIRD RESPONDENT | Jeremy Kendling | |
| FOURTH RESPONDENT | Penelope Kendling | |
| FIFTH RESPONDENT | L Pty Ltd | |
| SIXTH RESPONDENT | A Pty Ltd | |
| SEVENTH RESPONDENT | Mr Z | |
| EIGHTH RESPONDENT | B Ltd | |
| NINTH RESPONDENT | I Pty Ltd | |
| TENTH RESPONDENT | Mr PS | |
| FILE NUMBER: | SYF | 2903 | of | 2003 |
| DATE DELIVERED: | 29 April 2008 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | O'Ryan J |
| HEARING DATE: | 13 February, 31 March, 1, 4, 18, 21 & 24 April 2008 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT WIFE: | Mr Richardson of Senior Counsel |
| SOLICITOR FOR THE APPLICANT: | Michael Conley Solicitors |
| COUNSEL FOR THE RESPONDENT HUSBAND AND 8TH RESPONDENT: | Mr Baran |
| SOLICITOR FOR THE HUSBAND AND 8TH RESPONDENT: | Dorrough Smart Solicitors |
| COUNSEL FOR THE 2ND – 5TH RESPONDENTS: | Mr Cashem of Senior Counsel |
| SOLICITOR FOR THE 2ND – 5TH RESPONDENTS: | Broun Abrahams Burreket |
| COUNSEL FOR THE 6TH, 9TH AND 10TH RESPONDENTS: | Ms Petrie |
| SOLICITOR FOR THE 6TH, 9TH AND 10TH RESPONDENTS: | Edwards Legal Service |
Orders
The application of T Pty Ltd, Penelope Kendling, Jeremy Kendling and L Pty Ltd in relation to the filing of evidence in chief by the Wife and other matters be dismissed.
The costs of the Wife of the application by T Pty Ltd pursuant to r 11.03(1) of the Family Law Rules to rely upon the application filed on 20 February 2008 are reserved.
Order 2 of the Orders made on 27 September 2007 be varied to the extent necessary to permit T Pty Ltd to do all acts and things and sign all documents necessary to refinance the existing loan from the National Australia Bank Limited and in particular:
3.1grant to the National Australia Bank, a first mortgage over the real estate contained within folio identifier … (being the E1 location) but excluding the proposed subdivided lot on which is situate the service business;
3.2 substitute the mortgage in favour of B Ltd over the real estate contained within folio identifier … (being the E1 location) with the real estate contained within folio identifiers … and …, …, … and … and … (the R location), …, …, …, … and … (the [F] location) and a second ranking mortgage over … (being the E1 location);
IF AND ONLY IF contemporaneously with the grant of the mortgage pursuant to Order 3.1:
3.3the National Australia Bank provides to T Pty Ltd in registrable form documents necessary to discharge all existing mortgages in favour of the National Australia Bank secured on all real estate owned by T Pty Ltd; and
3.4 the amount secured by the mortgage referred to in Order 3.1 secures no greater liability than the amount secured by the mortgages being discharged pursuant to Order 3.3; and
3.5the mortgage in favour of B Ltd referred to in Order 3.2:
3.5.1 secures the amount of $45,326,264; and
3.5.2 is guaranteed and indemnified by Penelope Kendling and Jeremy Kendling the directors of T Pty Ltd for $46,326,264.
AND
3.6B Ltd is also granted a registered first mortgage debenture over T Pty Ltd.
AND
3.7All costs and expenses including stamp duty and registration fees of giving effect to these orders are paid by T Pty Ltd.
AND
3.8The Husband and or B Ltd provide to the Wife’s solicitors a verified copy of all documentation both of the National Australia Bank and B Ltd and T Pty Ltd that comes into existence to give effect to this order.
Until further order B Ltd be and is hereby restrained from paying to, or conferring upon, T Pty Ltd and or Penelope Kendling and or Jeremy Kendling any money, pecuniary benefit, or any other financial advantage of any kind whatsoever directly or indirectly.
By 4:00 pm on 13 May 2008 the Husband and B Ltd are to serve on the Wife’s solicitors written verification of the acceptance or rejection by the National Australia Bank of the terms and conditions in Order 3 hereof in so far as they relate to the proposed refinancing as at 31 April 2008 of the amount of $12 million.
The application by the Wife for the repayment by T Pty Ltd to B Ltd of all debt be adjourned.
In the event that the Husband and B Ltd fail to comply with order 5 hereof or in the event that the National Australia Bank will not accept the above terms and conditions in Order 3 hereof in so far as they relate to the proposed refinancing as at 31 April 2008 of the amount of $12 million then by 4:00 pm on 10 June 2008 T Pty Ltd repay to B Ltd all of the debt owed by T Pty Ltd to B Ltd being the amount of approximately $45 million.
Upon receipt by B Ltd of the amount referred to in Order 7 hereof B Ltd forthwith deposit the amount to the credit of an interest bearing controlled moneys account in the joint names of the Husband and the Wife and B Ltd.
Until further order each of the Husband and the Wife and B Ltd be and are hereby restrained from making any withdrawals from the account referred to in Order 8 hereof and are further restrained from encumbering by mortgage or charge or otherwise any interest in the money held in the account.
The application by the Wife for the appointment of a receiver and manager to all of the property, undertaking and business of B Ltd be adjourned.
Liberty be granted to restore the applications referred to in orders 6 and 10 hereof.
I note the undertaking as to damages by the Wife.
By way of variation of Order 15 of the orders made on 7 April 2008:
13.1the Wife be entitled to treat the sum of money paid by B Ltd in the sum of $54,000 as a payment or part payment by B Ltd by way of discharge or partial discharge (as applicable upon taxation or agreement) of its liability to pay the costs of the Wife referred to in Order 13 of the orders of 7 April 2008;
13.2the Wife is accordingly no longer required to hold that money in a controlled monies account by her solicitors on behalf of the Husband, B Ltd or the Wife, but is instead entitled to disburse those funds in payment of any past, present or future legal costs or disbursements in relation to these present proceedings, subject to the Wife accounting to B Ltd with respect to all such payments;
13.3the alteration of the treatment of the said $54,000 is not taken to be a full discharge of either of the liabilities of B Ltd or the Husband to pay the Wife’s costs as referred to in order 13 (or otherwise) but only discharges so much of the liability of B Ltd as corresponds with the receipt by the Wife of the $54,000;
13.4in the event that upon taxation or other agreement the Wife is entitled to receive by way of payment of the costs referred to in order 13 (or otherwise) a sum of money less than $54,000, then the Wife is to pay to B Ltd the difference between the sum of $54,000 and the sum owing to her pursuant to order 13 by B Ltd
IT IS NOTED that publication of this judgment under the pseudonym Kendling & Kendling & Ors is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYF 2903 of 2003
| Mrs Kendling |
Applicant
And
| T Pty Ltd |
Second Respondent
And
| Jeremy Kendling |
Third Respondent
And
| Penelope Kendling |
Fourth Respondent
And
| L Pty Ltd |
Fifth Respondent
And
| A Pty Ltd |
Sixth Respondent
And
| Mr Z |
Seventh Respondent
And
| B Ltd |
Eighth Respondent
And
| I Pty Ltd |
Ninth Respondent
And
| Mr PS |
Tenth Respondent
REASONS FOR JUDGMENT
INTRODUCTION
Before me for hearing are a number of applications which I will hereafter identify. First, pursuant to Pt 11.1 r 11.03 of the Family Law Rules B Ltd and the Husband are seeking relief from orders. Second, pursuant to Pt 11.1 r 11.03 of the Rules T Pty Ltd is seeking relief from orders. In these proceedings the Wife is seeking relief pursuant to Pt 11.1 r 11.02 of the Rules. Third, the Wife is seeking that T Pty Ltd repay to B Ltd the amount of $45 million lent by B Ltd to T Pty Ltd including $35 million lent in August 2007. Fourth, the Wife is seeking that a receiver be appointed to B Ltd. Fifth, T Pty Ltd is seeking to vary mareva orders I previously made so as to refinance (as opposed to a variation in security under an existing loan) a loan for $12 million from the National Australia Bank that falls due on 30 April 2008. Sixth, the Wife is seeking further injunctions against B Ltd and T Pty Ltd.
As so often happens in this case the amount of material I had is voluminous and I heard submissions over a number of days. I also had the benefit of a number of written submissions. A difficulty with this litigation is that because so much happens, and given the problems in getting it ready for an ultimate trial, it is necessary to understand what is happening.
The hearing of the above applications proceeded in a truncated way in that there was no cross-examination of any party or witness. There are a number of significant issues raised that I am unable to determine at this time and that presumably will be dealt with at a hearing in August 2008 of applications for final orders.
BACKGROUND
I refer to what I said in previous judgments including of 11 October 2006, 21 May 2007, 30 August 2007, 17 October 2007 and 25 January 2007.
There are pending proceedings for settlement of property that are fixed for hearing for six weeks commencing on 11 August 2008. The proceedings were commenced by application filed on 28 November 2005 and thus it will have taken approximately three years for the matter to come to trial.
There are a number of issues, which will be dealt with at the hearing of the applications for final orders, and I presume that one issue will be about the sale by B Ltd of B Facility and among other things why the Wife and those advising her were not given adequate prior notice of completion of the sale and the disbursement of the proceeds of sale. The B Facility was located on what is described as the S property. The Wife contends that she and her advisers were deceived by the Husband and others because it was known by the Husband and others that she would have sought that the net proceeds of sale be secured and, among other things, that this can be inferred from the relief I granted on 4 September 2007 in relation to the amount of $35 million. The Wife contends that since completion of the sale the deceptive conduct of the Husband and others has resulted in another level of litigation in circumstances where prior to completion of the sale I had identified issues about disclosure and the importance of maintaining a status quo in relation to the assets of the parties pending the final hearing. Cohen J also made injunctive orders on 29 June and 4 July 2007.
I will hereafter set out what has happened although some of what I say appears in the judgments of 17 October 2007 and 25 January 2007.
On behalf of the Wife it was submitted that much of the history of non-compliance by the Husband and B Ltd with previous orders, relating to the same area of disclosure of financial and accounting issues, and also on the part of T Pty Ltd appears in affidavits of Mr V sworn on 1 March 2007 and 27 March 2007. Since the proceedings commenced in late 2005 Mr V has sworn 12 affidavits on behalf of the Wife.
On 9 May 2007 T Pty Ltd exchanged contracts to purchase F property for a price of $2.5 million. Penelope Kendling said that the Company paid a deposit of $500,000 by payments of $100,000 on 9 May 2007, $200,000 on 29 May 2007 and $200,000 on 20 August 2007. She gave no evidence explaining why a deposit of 20 per cent was paid over a period of three months. She contends that stamp duty of $122,990 was paid on 14 December 2007. She gave no evidence as to the source of the amounts to pay the deposit and stamp duty
On 4 July 2007 Cohen J made orders restraining the Husband from, relevantly, encumbering his interest or part thereof in B Ltd. The Husband has now been found guilty of contempt because of his breach of the order.
By letter dated 5 July 2007 written by the Husband’s previous solicitors to the Husband reference was made to a conference which the solicitors had on 5 July 2007 with the Husband and Mr F of C Partners. This letter was first put in evidence on 31 March 2008 (Exhibit C). The solicitors confirmed a number of matters including that the Husband instructed the solicitors to provide full information to Mr F in relation to the Husband’s financial affairs generally and the family law proceedings and that the Husband indicated that he proposed to retain C Partners to act as his accountant in the future. The solicitors noted that C Partners had previously acted for the proposed purchaser of 10 per cent of the Husband’s shareholding in B Ltd. In the letter the solicitors stated that Mr F confirmed that he was prepared to accept appointment as the Husband’s accountant and would undertake a review of the Husband’s financial affairs generally and specifically in relation to the family law property proceedings. The letter also disclosed that instructions were given to Mr F to undertake various tasks and also provide advice in relation to some matters.
On 16 August 2007 Members Equity Bank wrote to T Pty Ltd and advised that it was not prepared to accept the property described as the Q location as suitable security. There is also a credit risk report of the Bank in which it was said that the “[Q property] was deemed unacceptable security”.
There was put in evidence (Exhibit H) a copy of a letter dated 29 August 2007 written by John Wendon, Solicitor who at that time was the solicitor for B Ltd to the solicitors for the Wife enclosing a copy of minutes of meetings of directors of B Ltd between 1 June 2003 and August 2007.
The Husband exhibited to his affidavit of 13 September 2007 a copy of a minute of a meeting of directors of B Ltd which he contends took place on 27 August 2007. He contends that the minutes were prepared on 28 August 2007, that he signed them on 29 August 2007 and he left them for Mr AH to sign on 30 August 2007. The minute records that B Ltd was in a position to settle the sale of B Facility “anytime they are ready”. Further that the directors resolved to lend $35 million to T Pty Ltd. I am not going to repeat all of what is set out in the minute however it was recorded that:
They (the directors of [T] Pty Ltd) are prepared to enter into a $35 million first mortgage with [B] Ltd to pay out ME (Members’ Equity) for $30 million owed by [T Pty Ltd] and includes “the 4.530259” owed by [T Pty Ltd] to [B] Ltd as per attachment against all titles:
$
[Q property] valued at 36 million
[GM property] valued at 10 million
[D Business] valued at 14 million
Total 60 million
A loan for “five years interest only at 7 per cent payable quarterly
The minute of the meeting of directors of B Ltd held on 27 August 2007 records that Members Equity Bank required that a $15 million bank guarantee be given as replacement security for the S property before the title deeds to the S property would be given up, in order to secure a $30 million loan from Members Equity Bank to T Pty Ltd. The reason why the Bank only required $15 million is that it already held first mortgages over other property of T Pty Ltd.
On behalf of the Wife it is submitted that B Ltd could have invested $15 million with, say, National Australia Bank to be used as a security for a bank guarantee in favour of Members Equity Bank on behalf of T Pty Ltd on the basis that T Pty Ltd would rapidly take over that liability. It was offered by Members’ Equity Bank but rejected by B Ltd. Any costs would have been met by T Pty Ltd not B Ltd. It is submitted that the justification in the minutes for what occurred is that the bank guarantee would cost $225,000 a year. It is submitted that this is a spurious justification and should be seen, prima facie, as such. The $225,000 is a cost that must have been borne by T Pty Ltd since the guarantee was for its benefit. No evidence has been given explaining why this did not happen.
The relevant Loan Agreement between B Ltd and T Pty Ltd is dated 31 August 2007. The loan was stated to be for a period of fifteen years, not five years as the Wife was advised on 5 September 2007. However it is accepted that the period of 15 years was an error. The interest rate is seven per cent. The interest is payable quarterly in arrears (emphasis added). The security is a registered first mortgage over 25 titles being property described as the E1 location, the G location, Q (East) location and Q (West) location.
T Pty Ltd ceased to operate the P business on 31 August 2007 notwithstanding that it had been sold on 4 May 2007 to PL Group. PL Group was also the purchaser of B Facility.
The Husband, B Ltd and T Pty Ltd contend that the explanation for why B Ltd lent $35 million to T Pty Ltd in August 2007 is as follows. In about 2003 T Pty Ltd borrowed about $30 million from Members Equity Bank and by way of guarantee B Ltd gave to Members Equity Bank as security for that loan a first mortgage over the S property being B Facility. In 2007 B Ltd sold B Facility which included the S property and B Ltd needed Members Equity Bank to give up its security over the property so as to permit settlement of the sale. T Pty Ltd offered to Members Equity Bank additional real estate to secure its debts to Members Equity Bank but the Bank sought further security from B Ltd and B Ltd would not provide it. Members Equity Bank would not release, it is alleged, the title deeds to the S property owned by B Ltd until replacement security was provided in respect of the loan granted by Members Equity Bank to T Pty Ltd of approximately $30 million. T Pty Ltd then borrowed $30,081,322 from B Ltd. This amount came from the proceeds of sale of B Facility. T Pty Ltd provided mortgages in favour of B Ltd securing the debt. T Pty Ltd contemporaneously to that advance applied the borrowed funds to repay all of its debt to Members Equity Bank thereby discharging all of the registered mortgages in favour of the Bank including the mortgage secured on the B Facility. T Pty Ltd also owed the sum of $13 million to the National Australia Bank. The loan was made on 26 April 2006 and was principally used to purchase real estate in R. The National Australia Bank held registered mortgages on title to The E, The Q (East) and R locations. T Pty Ltd borrowed $1 million from B Ltd and repaid that sum to National Australia Bank. The loan is now $12 million and expires on 30 April 2008. T Pty Ltd contends that it does not have funds to pay out the existing loan. T Pty Ltd had intended to refinance the existing loan as part of a larger loan to proceed with the development of the R location. T Pty Ltd contemporaneously to the advance by B Ltd applied the borrowed funds to the partial repayment of the National Australia Bank debt thereby obtaining from National Australia Bank priority in favour of B Ltd up to $30 million. The advances and the existing debt of T Pty Ltd to B Ltd were consolidated and the subject of a written loan agreement. In summary, the debt T Pty Ltd owed to Members Equity Bank is now owed to B Ltd and part of the debt that T Pty Ltd owed to National Australia Bank is now owed to B Ltd. It is proposed that both debts and the existing debt of T Pty Ltd to B Ltd are to be secured by registered mortgages.
T Pty Ltd owns a number of items of real estate The properties identified as Q (East) location are:
· QE1
· QE2
· QE3
· QE4
· QE5
· QE6
· QE7
The properties identified as Q (West) location are:
· QW1
· QW2
· QW3
· QW4
· QW5
· QW6
· QW7
· QW8
· QW9
As seen the R location comprises the properties:
· RA
· RB
· RC
· RD
The E location is the properties at E to E1. The GM location is a property at G.
I had some difficulty understanding the identity of the properties that comprise the F location. In her affidavit sworn on 19 February 2008 Penelope Kendling said that T Pty Ltd owns F1, F2 and F3. She also said it owns F4. Then in affidavit sworn on 27 March 2008 Penelope Kendling said that T Pty Ltd owns F1, F2, F3, F5 and F4.
On 4 April 2008 on behalf of T Pty Ltd four affidavits of valuation of real estate were filed. The first affidavit was sworn on 25 March 2008 by Mr BR who valued F5 property at $1.2 million. This was identified by Penelope Kendling as F5 property. On 26 March 2008 three affidavits were sworn by Mr PU who valued F3 property at $330,000, F2 property at $450,000 and F1 property at $330,000. The last property at F is located at F4 and it was purchased in February 2008 for $2.5 million.
By letter dated 19 March 2008, Mr Burreket the solicitor for T Pty Ltd, Jeremy Kendling, Penelope Kendling and L Pty Ltd wrote to Mr G who is a chartered accountant and a partner of P Accountants, giving Mr G instructions to prepare a valuation of T Pty Ltd. In the letter Mr Burreket said that there are three businesses operating from the E location which I have identified above. Mr Burreket said that in relation to the G location, T Pty Ltd has developed it into 19 residential units. Mr Burreket said the development has been completed and the residential units were offered for sale for a period of six months although the strata plan had not as yet been approved. He said no sales were made. He said the residential units have now been leased out and withdrawn from sale and that T Pty Ltd anticipates holding the units for another twelve months before it will reoffer them for sale. He said that the Company anticipates there will need to be some refurbishment of the units to put them in the best possible position for sale. In relation to the Q (East) and Q (West) locations, Mr Burreket said that a hotel, caravan park, residential units and homes are located on the Q (East) and Q (West) locations. T Pty Ltd permits L Pty Ltd to operate the residential facilities at those locations. T Pty Ltd variously through L Pty Ltd and directly itself rents out the residential units and homes on a short and long term basis. As to the F location Mr Burreket said that in October 2004 I Pty Ltd acquired three parcels of real estate comprising the F location and that all of the funds to pay the price and costs paid by F Pty Ltd were by way of advance from T Pty Ltd. Mr Burreket said that T Pty Ltd borrowed the money from its equity to advance it to I Pty Ltd. He said that ultimately of the three dwellings that were acquired, only two could be rented out and there was therefore a shortfall in the expected rental income. He said that this meant that T Pty Ltd was paying more interest in respect of the loan from Members Equity Bank than it was receiving in rent. Mr Burreket said that on 20 June 2007 T Pty Ltd settled a contract to purchase a property at F from I Pty Ltd for $1,388,000 being an amount approximately equal to the total loan made to I Pty Ltd and by that purchase the loan to I Pty Ltd was discharged but no money changed hands. I will refer later to what Mr Burreket said about the R location.
On 3 September 2007 an email was received from the solicitor for Jeremy Kendlgin, Penelope Kendling and L Pty Ltd giving notice of intentions to seek the following directions:
1.That the third to fifth respondents be at liberty to issue a request for answers to specific questions within 21 days.
2.That the wife’s verified answers thereto are to be filed and served 21 days thereafter.
3.That the wife file and serve Updated and Verified Points of Claim in which she shall set out all material facts and circumstances giving rise to each order sought against the third, fourth or fifth respondents in these proceedings. Where the said Points of Claim relate to a document a copy of the document is to be annexed to the Verified Points of Claim. Where relief is sought based upon provisions of the Family Law Act (other than ss 74, 79, 117) of the Act then the Points of Claim are to be accompanied by a short statement which sets out
(a) The section of the Family Law Act upon which each prayer is based;
(b) The accrued or other jurisdiction upon which the claim to relief is based.
4.That the husband and wife file and serve her affidavit together with the affidavit of any lay witness by…………
5.That the third to fifth respondents file their affidavits together with the affidavit of any third party by……………
6.Grant leave to the third and fourth respondents to file more than one affidavit in the proceedings provided however that they shall only file one affidavit in the various capacities in which they are parties in these proceedings.
7.Order any party who contends that any issue arises pursuant to The Constitution to file and serve the requisite s 78 B Notices within 14 days after the filing of the affidavits of all third parties in the proceedings.
8.Direct that should any issue under The Constitution be said to arise then that matter be determined at the conclusion of the substantive hearing.
9.The wife shall submit to each other party, in draft form, a trial plan following compliance with directions 1-7.
10.In the event of any dispute concerning the trial plan liberty to restore the matter on 48 hours notice.
11.The parties are to exchange, in writing, any objections to the affidavits of any other party 2 weeks prior to the hearing.
12.The legal representatives for the parties are to confer no less than 7 days prior to the hearing and at that conference are to settle a list setting out all objections taken by or on behalf of a party to any affidavit together with any agreement reached concerning the disputed evidence.
13.No less than 21 days prior to the date fixed for hearing the husband and wife are to file a case outline document together with a detailed outline of submissions.
14.No less than 14 days prior to the date fixed for hearing all third parties are to file and serve a case outline document together with a detailed outline of submissions.
15.Liberty to apply on 7 days notice.
On 12 September 2007 Penelope Kendling swore an affidavit and she said that in the ordinary course of business, T Pty Ltd may need to borrow funds to meet the interest commitments in respect of a loan from the National Australia Bank and B Ltd. It will be seen shortly that the National Australia Bank is seeking a first mortgage security on the E location properties. There are three businesses operating from the E location, being the ML Facility, whose day to day operation is conducted by T(A) Pty Ltd and the D Business whose day to day operation is conducted by T(G) Pty Ltd and also a service business whose operation is conducted by W Pty Ltd. In other words the National Australia Bank is seeking first mortgage security over the properties for a loan of $12 million that B Ltd accepted be part of the security for its advance of $35 million. They are income producing assets.
The Husband, B Ltd and T Pty Ltd are proposing that the security of B Ltd include the four properties identified as the R location. Penelope Kendling gave evidence that the R location was purchased by T Pty Ltd in September 2006 with the specific purpose of redevelopment of the land into housing. This was after proceedings were commenced. The Company lodged with the local council a development application for development approval of the subdivision and construction of 53 residential homes on the property however on 12 September 2007 the development application was refused by the local council. The Company has since appealed to the Land and Environment Court and I was informed that Judgment has been reserved.
On 14 September 2007 an affidavit was sworn by Mr V. Mr V was of the opinion that the Husband and Penelope Kendling had not demonstrated that T Pty Ltd was in a position to meet the interest cost on a loan of $35.5 million from B Ltd. Further that it had not been demonstrated how T Pty Ltd could repay that borrowing after five years. Mr V attached to his affidavit a copy of the 30 June 2006 financial accounts of T Pty Ltd and was of the opinion that it was not clear how the obligations could be met if the financial accounts incorporated the results of the businesses and facilities. He said that the Company incurred a loss in 2006 of around $3 million. It derived a profit of around $9 million in the year ended 30 June 2005 but this was only because of a charge of $11.5 million to B Ltd, the legitimacy of which is an issue. Since 30 June 2006 T Pty Ltd has acquired the R property at a cost of $11.35 million and provided funding to I Pty Ltd of $1.4 million to acquire properties at F plus pay stamp duty. T Pty Ltd also sold the P business for $11.5 million and spent further monies on the development of a property described as the GM site.
Mr V also said that Penelope Kendling had produced no profit projections or cash flow forecasts or any other financial analysis which demonstrated an ability to meet interest costs or repay the loan. Mr V also commented that in his opinion the Husband gave no evidence about any analysis undertaken on behalf of B Ltd to assess the ability of T Pty Ltd to repay the debt in five years and the interest due. The Husband simply stated in an affidavit of 13 September 2007 that he ceased to be a director of T Pty Ltd in 2003 but he was aware that it is a profitable company. Mr V said that in his view a reasonable person in the position of a director of B Ltd considering making an advance of $35.5 million to another company would not be satisfied as to the borrowers ability to repay the debt after five years and the interest in the meantime, based only on the information provided in the affidavits of the Husband and Penelope Kendling of September 2007.
On 14 September 2007 the Husband sought an adjournment which was not opposed by the Wife on the grounds that he had recently changed solicitors.
Penelope Kendling swore an affidavit on 18 September 2007 in which she gave evidence about the trading results of T Pty Ltd for the year ended 30 June 2006 which was a loss of $649,359 and why she contended that the “situation now differs” and identified additional income from the G location and the facility at the Q (West) location.
Mr V swore a further affidavit on 18 September 2007. In this affidavit, Mr V said that in her affidavit of 12 September 2006 Penelope Kendling said that the indebtedness of T Pty Ltd to B Ltd was around $4.5 million however the accounts of T Pty Ltd for 30 June 2006 disclosed an amount of $11.6 million. He said that thus there had been an apparent reduction of some $7.2 million since 30 June 2006. He had thought that part of the reduction may have come about by payment of the total proceeds of sale of the P business to B Ltd or for its benefit however based on a statement which the Husband made in an affidavit of 19 April 2007, and the terms of the settlement of the sale of B Facility pursuant to which B Ltd paid out its indebtedness to Members Equity Bank of about $10 million, he inferred that B Ltd only received $4.5 million of the proceeds of sale of the P Business. Mr V said that the question then arose as to how the loan account between B Ltd and T Pty Ltd had been reduced by $7.2 million and how the share of T Pty Ltd of the proceeds of sale of the P Business had been applied. He raised other issues which I need not address in these reasons. He persisted with the opinion expressed in his affidavit of 14 September 2007 namely that in his opinion the Husband and Penelope Kendling had not demonstrated that T Pty Ltd was in a position to meet the interest costs of a loan of $35.5 million nor how it could repay that borrowing after five years.
On 27 September 2007 I made the following orders:
1.Until further order [T] Pty Ltd is restrained from selling, transferring or disposing of any and all real property which it owns or has a beneficial interest in.
2.Until further order [T] Pty Ltd is restrained from further encumbering by mortgage or charge or otherwise any and all real property which it owns or has any beneficial interest in.
3.Liberty be granted to [T] Pty Ltd and the Wife to apply in relation to Orders 1 and 2 hereof.
4.Until further order [T] Pty Ltd is restrained from making any loans or advances to or for the benefit of any person or persons or any other entity.
5.Until further order [T] Pty Ltd provide to the Husband and to the Wife within the first week of each calendar month a cash flow statement providing particulars of all cash receipts and cash payments received and made by the company during the previous calendar month and the first such statement to be provided by 4.00 pm on 12 October 2007 and such statement to be verified by each of the directors of [T] Pty Ltd.
6.Until further order [B] Ltd is restrained from selling, transferring or disposing of any and all real property which it owns or has any beneficial interest in.
7.Until further order [B] Ltd is restrained from further encumbering by mortgage or charge or otherwise any and all real property which it owns or has any beneficial interest in except for the purpose of obtaining an overdraft/line of credit up to a level not exceeding $3,300,000 to meet the general requirements of the company identified in the affidavit of the Husband sworn on 13 September 2007.
8.Liberty be granted to [B] Ltd and the Wife to apply in relation to Orders 6 and 7 hereof.
9.Until further order [B] Ltd is restrained from making any loans or advances to or for the benefit of any person or persons or any other entity.
10.Until further order [B] Ltd provide to the Husband and to the Wife within the first week of each calendar month a cash flow statement providing particulars of all cash receipts and cash payments received and made by the company during the previous calendar month and the first such statement to be provided by 4.00 pm on 12 October 2007 and such statement to be verified by each of the directors of [B] Ltd.
11.Until further order the Husband is restrained from selling, transferring or disposing of any and all real property which he owns or has any beneficial interest in.
12.Until further order the Husband is restrained from further encumbering by mortgage or charge or otherwise any and all real property which he owns or has any beneficial interest in.
13.It be NOTED that [B] Ltd will forthwith register the mortgage granted by [T] Pty Ltd to [B] Ltd executed on 31 August 2007.
14.It be NOTED that [T] Pty Ltd may apply and seek a discharge or modification of Orders I and 2 hereof so as to commence construction of 53 [residential houses] on what is described as the [R] location and the renovation of two substantial residences also in [R].
15.It be NOTED that [B] Ltd may apply and seek a discharge or modification of Orders 6 and 7 hereof so as to commence construction of a 58 home unit development at [G2].
16.Orders 1, 2, 4, 6, 7, 9, 11 and 12 are made on the basis of an undertaking as to damages by the Wife such undertaking to be filed and served by 4.00 pm on 2 October 2007.
17.Order 1 made on 4 December 2007 be discharged.
18.Orders 1, 2, 3, 4, 5 and 6 made on 6 September 2007 be discharged.
By this time the sale of B Facility and the loan transaction between B Ltd and T Pty Ltd had been completed.
The Husband and B Ltd have now been found guilty of contempt for breaches of the above orders.
There is attached to an affidavit of Penelope Kendling sworn on 22 April 2008 what is contended to be a tax invoice dated 15 October 2007 of T Pty Ltd to B Ltd for $1.704 million. The invoice is said to be for certification of compliance work for 2007 of B Facility. I will come back to this invoice but as a result of what I was told on 24 April 2008 I understand that the Wife and those advising her first became aware of the invoice when the affidavit of Penelope Kendling sworn on 22 April 2008 was served. The Wife contends that this is another example of failure to disclose.
On 17 October 2007 I made the following orders:
1.By 4.00 pm on 7 December 2007 the Husband file and serve an affidavit setting out his evidence in chief in relation to the financial proceedings.
2.By 4.00 pm on 7 December 2007 the Wife file and serve an affidavit setting out her evidence in chief in relation to the financial proceedings.
3.By 4.00 pm on 7 December 2007 the Husband file and serve an affidavit(s) setting out the evidence in chief of each lay witness he proposes to rely upon at the hearing.
4.By 4.00 pm on 7 December 2007 the Wife file and serve an affidavit(s) setting out the evidence in chief of each lay witness she proposes to rely upon at the hearing.
5.By 4.00 pm on 7 December 2007 the Husband file and serve all affidavits setting out the evidence upon which he proposes to rely in respect to the value of:
5.1 The Husband’s shareholding in [B] Ltd;
5.2 The Wife’s shareholding in [W] Pty Ltd;
5.3 [T] Pty Ltd;
5.4 [L] Pty Ltd;
5.5 [I] Pty Ltd;
5.6 “[RI]” , [MX];
5.7 [G property];
5.8 [the Netherlands Property];
5.9 [T5 Property];
5.10 [T6 Property];
5.11 [T4 Property];
5.12 [Apartment in Germany];
5.13 Artwork and objects d’art situated at “[RI]”, [MX] and at [G Property];
5.14 Artwork and objects d’art situated at [the Netherlands Property]; and
5.15 Motor vehicles owned by the Wife.
6.The Husband do all acts and things necessary to enable a valuer nominated by the Wife to have access to:
6.1 [G Property];
6.2 Artwork, objects d’art and furniture situated at [G Property];
6.3 [T4 Property];
6.4 [T5 Property];
6.5 [Apartment in Germany].
upon being given seven days notice requesting such access and make available to such valuer any financial or other information reasonably necessary for the valuation within seven days of a request being made.
7.By 4.00 pm on 7 December 2007 [B] Ltd file and serve any evidence of value of the company that the company may seek to rely on at the final hearing and [B] Ltd is not entitled to rely upon any other evidence of value of the company in these proceedings without leave of the Court.
8.[B] Ltd grant access to all real estate owned by the company to any valuer appointed by the Wife on seven days notice and make available to such valuer any financial or other information reasonably necessary for the valuation within seven days of a request being made.
9.By 4.00 pm on 7 December 2007 [T] Pty Ltd file and serve any evidence of value of the company that the company may seek to rely on at the final hearing and [T] Pty Ltd is not entitled to rely upon any other evidence of value of the company in these proceedings without leave of the Court.
10.[T] Pty Ltd grant access to all real estate owned by the company to any valuer appointed by the Wife on seven days notice and make available to such valuer any financial or other information reasonably necessary for the valuation within seven days of a request being made.
11.[Penelope Kendling] grant access to the property situated at [T6] being properly described as folio identifier […] to any valuer appointed by the Wife on seven days notice and make available to such valuer any financial or other information reasonably necessary for the valuation within seven days of a request being made.
12.[I]Pty Ltd grant access to all real estate owned by the company to any valuer appointed by the Wife on seven days notice and make available to such valuer any financial or other information reasonably necessary for the valuation within seven days of a request being made.
13.That the Wife grant access to a valuer appointed by [B] Ltd to value the painting known as […] at a time to be agreed between the valuer and the Wife.
14.The relevant parties execute all documents and writings and do all acts and things and pay all moneys necessary to cause the financial accounts and income tax returns to be finalised for the financial year ended 30 June 2007 for the following entities:
14.1 [B] Ltd.
14.2 [T] Pty Ltd.
14.3 [T(A)] Pty Ltd.
14.4 [T(G)] Pty Ltd.
14.5 [L] Pty. Ltd.
14.6 [I] Pty. Ltd.
14.7 [W] Pty Ltd.
It is noted that there may be an issue in relation to [I] Pty Ltd.
15.By 4.00 pm on 30 November 2007 copies of the finalised financial accounts and tax returns referred to in Order 14 hereof be provided to the solicitors for the Wife.
16.In the circumstances of this case the parties are not required to attend a Conciliation Conference.
17.All parties to the proceedings provide a list of documents in accordance with rule 13.20 of the Family Law Rules within 21 days from receipt of a written notice requesting such a list.
18.Within 21 days of the date of this Order [T] Pty Ltd and the Husband do all acts and things and pay all moneys necessary to cause [Mr M] to provide to the solicitors for the Wife a statement annexing and verifying copies of the financial statements and tax returns compiled, prepared and/or audited by [Mr M] for each of the financial years ended 30 June 2000 to 30 June 2006 for:
18.1. [T] Pty Ltd.
18.2 [T(A)] Pty Ltd.
18.3 [T(G)] Pty Ltd.
18.4 [T1]Pty Ltd.
18.5 [T2] Pty Ltd.
18.6 [T4] Pty Ltd.
18.7 Any other company with a name including the words “[T]”.
19.Within 21 days of the date of this Order [B] Ltd and the Husband do all acts and things and pay all moneys necessary to cause [Mr M] to provide to the solicitors for the Wife a statement annexing and verifying a copy of the financial statements and tax returns compiled, prepared and/or audited by [Mr M] for the financial year ended 30 June 2006 for [B] Ltd.
20.It be NOTED that Orders 18 and 19 are made notwithstanding that as at the date of these Orders [Mr M] may no longer be the accountant or auditor for the companies identified in those Orders.
21.Within 21 days of the date of this Order [B] Ltd and the Husband cause to be provided to the solicitors for the Wife a verified complete and detailed explanation as to the reasons for the losses incurred by [B] Ltd for the financial years ended 30 June 2005 and 30 June 2006.
22.Within 21 days of the date of this Order [B] Ltd and the Husband cause to be provided to the solicitors for the Wife a copy of the work in progress ledger account of [B] Ltd since 30 June 2003 and a verified complete and detailed answer to the following together with copies of supporting documents:
22.1 What did the work in progress at 30 June 2004 shown in the audited financial statements of $18,225,000 comprise? A detailed schedule is to be provided indicating the amounts relating to each property/development on which monies were expended and identifying whether the relevant developments were on sites owned by [B] Ltd or owned by other persons and if so who.
22.2 What was the status of each of the projects referred to in 22.1 hereof as at 30 June 2005? If the relevant costs were billed to a third party and no income is recorded details and explanation as to why no income is recorded is to be provided. If the costs were capitalised as part of the carrying value of a fixed asset details are to be provided. If the relevant costs were not billed to a third party or capitalised as part of the carrying value of a fixed asset an explanation is to be provided as to why the relevant amounts are not included in closing work in progress at 30 June 2005? If any amount was transferred to the account of [T] Pty Ltd and no income is recorded then a detailed explanation is to be provided as to why no income was recorded.
22.3 What did the work in progress at 30 June 2005 of $8,654,000 comprise? A detailed schedule is to be provided indicating the amounts relating to each property/development on which monies were expended and identifying whether the relevant developments were on sites owned by [B] Ltd or owned by other persons and if so who?
22.4 Why was the closing work in progress at 30 June 2005 of some $8,600,000 written off in full in the 2006 trading account?
22.5 What comprised the $5,700,000 of other costs in 2006 written off in the trading account?
22.6 What was the status as at 30 June 2006 of:
22.6.1each of the projects referred to comprising work in progress at 30 June 2004 of $18,225,000;
22.6.2each of the projects referred to comprising work in progress at 30 June 2005 of $8,560,000;
1. If the relevant costs were billed to a third party and no income is recorded there is to be provided details and explanation why no income is recorded. If the relevant costs were capitalised as part of the carrying value of a fixed asset details are to be provided. If the relevant costs were not billed to a third party or capitalised as part of the carrying value of a fixed asset why are the relevant amounts not included in closing work in progress at 30 June 2006? If any amount was transferred to the account of [T] Pty Ltd and no income is recorded then a detailed explanation was to why no income was recorded is to be provided.
22.7 What did the work in progress at 30 June 2006 of $4,685,000 or whatever figure appears in the final 2006 audited accounts comprise? A detailed schedule is to be provided indicating the amounts relating to each property/development on which monies had been expended and identifying whether the relevant developments were on sites owned by [B] Ltd or owned by other persons and if so who?
22.8 Were the financiers to [B] Ltd, including Members Equity Ltd and Westpac Bank provided with a copy of the 2005 financial statements in the same form and showing the same trading results and net asset position as that shown in the financial statements provided to the Australian Securities and Investments Commission? If not, a copy of the financial statements provided to financiers is to be provided and an explanation as to how the differences came about.
23.Within 21 days of the date of this Order [T] Pty Ltd and [Jeremy Kendling] and [Penelope Kendling] provide to the Wife’s solicitors a verified complete and detailed statement setting out:
23.1 The nature of the activities of [T] Pty Ltd, [T(A)] Pty Ltd and [T(G)] Pty Ltd including details of the real estate held by each company (including title reference) and other material assets held by each company, the businesses conducted by each company and the shareholders of each company.
23.2 Whether or not there exists or has ever existed, companies now known as, or formerly known as, [T1] Pty Ltd, [T2] Pty Ltd, [T4] Pty Ltd or any other company with a name including the words “[T]”, and if so, details of any real estate held by each company (including title reference) and other material assets held by each company, the businesses conducted by each company and the shareholders of each company.
23.3 An explanation as to how it can be that the income and expenses and assets relating to the business known as the [D Business] are shown both in the audited 2004 and 2005 financial statements of [T(G)] Pty Ltd and in the audited 2004 and 2005 financial statements of [T] Pty Ltd.
23.4 An explanation as to how it can be that the income and expenses and assets relating to the business known as the [ML] Facility are shown both in the audited 2004 and 2005 financial statements of [T(A) Pty Ltd] and in the audited 2004 and 2005 financial statements of [T] Pty Ltd.
23.5 An explanation as to whether [T] Pty Ltd ever conducted the businesses known as the [D Business] or the [ML] Facility and, if so, when it ceased to operate those businesses and whether it received any consideration for the transfer of the businesses to any other party.
23.6 An explanation as to when the [D Business] commenced to be operated by [T(G)] Pty Ltd and who holds the relevant licenses relating to this facility.
23.7 An explanation as to when the [ML] Facility commenced to be operated by [T(A)] Pty Ltd and who holds the relevant licenses relating to this facility.
24.Within 21 days of the date of this Order the Husband provide to the Wife’s solicitors a verified complete and detailed statement setting out what is known by the Husband as to each of the following entities including the nature of their business activities, details of any shares held by the Husband in each company or loans by the Husband to each company, the nature of dealings of each company with [B] Ltd since 30 June 2000 and details of the nature and value of assets held by each company. If the entities no longer trade then details as to the former business activities of the companies. If any company was previously known by the name shown details of the current name:
24.1 [B Services] Pty Ltd;
24.2 [B No 2] Pty Ltd;
[…]
24.5 [L] Pty Ltd
[…]
24.12 [T No 2] Pty Ltd;
24.13 [ML Facility] Pty Ltd;
[…]
24.16 [I] Pty Ltd;
[…]
24.25 [A] Pty Ltd;
24.26 Any other company with which [B] Ltd now deals, or has dealt since 30 June 2000 where, to the Husband’s knowledge, [Jeremy Kendling], [Penelope Kendling], [Mr M], or [Ms W], [Ms R] or any employee of [B] Ltd is now, or was during the relevant time, a director or shareholder or employee.
25.Within seven days of the date of this Order the Husband execute the irrevocable authority annexed hereto and marked with the letter “A” addressed to ABN Amro and forward the said authority to the solicitor for the Wife.
26.Within seven days of the date of this Order the Husband provide to the solicitors for the Wife copies of all bank statements for account Westpac […] together with all documents evidencing the source of funds utilised by the Husband to satisfy the Court orders dated 25 May 2007.
27.Within 14 days of the date of this Order the Husband execute all documents and writings and do all acts and things necessary to provide to the solicitors for the Wife:
27.1 Copies of all income tax returns filed, at any time, for or on behalf of:
27.1.1[David Kendling];
27.1.2[Marc Kendling];
27.1.3any trust of which [David Kendling] or [Marc Kendling] is a beneficiary.
27.2 Verified details of all items of property to which [David Kendling] or [Marc Kendling] is presently entitled or held by any trustee of a trust of which [David Kendling] or [Mark Kendling] is a beneficiary or object;
27.3 To the extent to which the information is not disclosed pursuant to the requests in Orders 27.1 and 27.2:
27.3.1a full accounting of monies received and disbursed by, or on behalf of (including by any trustee for) [David Kendling] or [Marc Kendling], in relation to the purchase or sale of any real property, shares or any other asset, or income derived from any asset, or expenditure incurred in relation to the acquisition of, or derivation of income from, any such asset.
27.3.2details of all items of property held by [David Kendling] or [Marc Kendling]or to which those persons are presently or contingently entitled, including property held by any trustee of a trust of which either of them is a beneficiary or object.
27.3.3details of the source of funds used to acquire the items of property referred to in Order 27.3.2 hereof including but not limited to the properties situated at [T5] being properly identified as […] and [T4] being more properly described as […].
27.3.4details of the quantum of and nature of any indebtedness of [David Kendling] or [Marc Kendling] or of any trustee of any trust for the benefit of [David Kendling] or [Marc Kendling] in respect of which the trustee is entitled to claim an indemnity against trust assets, including copies of any loan agreements.
27.3.5 copies of any lease agreements relating to any real property held by or on behalf of [David Kendling] or [Marc Kendling].
27.3.6any documents evidencing the source of funding for, and the acquisition of, any real estate or other property held by or on behalf of [David Kendling] or [Marc Kendling] including loan agreements and correspondence with solicitors relating to settlement of the purchase.
28.Within 14 days of the date of Order [B] Ltd provide to the Wife’s solicitor all such documents as set out in Schedule 1 hereto as may exist and in the event the documents do not exist then [B] Ltd to clearly identify those documents that they say do not exist.
29.Within seven days from the date of this Order [B] Ltd execute the irrevocable authority annexed hereto and marked with the letter “B” addressed to ABN Amro and forward the said authority to the solicitor for the Wife.
30.Within seven days of the date of this Order [B] Ltd provide to the Wife’s solicitors copies of all Minutes of Directors Meetings for the period from 1 September 1995 to date.
31.Within 21 days of the date of this Order the Husband provide to the Wife’s solicitors a verified complete and detailed statement setting out:
31.1 The nature of the activities of [T] Pty Ltd, [T(E)] Pty Ltd and [T(G)] Pty Ltd including details of the real estate held by each company (by title reference), the businesses conducted by each company and the shareholders of each company.
31.2 Whether or not there exists or has ever existed, to his knowledge, companies now known as, or formerly known as, [T (1)] Pty Ltd. [T(2)] Pty Ltd, [T(4)] Pty Ltd or any other company with a name including the words “[T]”, and if so, details of the real estate held by each such company (by title reference), the businesses conducted by each such company and the shareholders of each such company.
32.Within 14 days from the date of this Order [T] Pty Ltd provide to the Wife’s solicitor all such documents as set out in Schedule 2 hereto as may exist and in the event the documents do not exist then [B] Ltd to clearly identify those documents.
33.Within seven days of the date of this Order [T] Pty Ltd provide to the Wife’s solicitors copies of all Minutes of Directors Meetings for the period from 6 September 1995 to date.
34.[A] Pty Ltd grant access to the property situated [in the Netherlands] to any valuer appointed by the Wife on 14 days notice and make available to such valuer any financial or other information reasonably necessary for the valuation within seven days of a request being made.
35.Within 14 days of the date of this Order [A] Pty Ltd provide to the Wife’s solicitor a list of all items referred to as ‘movable property at the [Netherlands] property’ and identify any disposition of the said items, the consideration paid and the date of disposal and thereafter on 14 days notice [A Pty Ltd] to provide access to the Wife’s valuer to such movable property for the purpose of valuing the said items.
36.Within seven days of the date of Order [A] Pty Ltd provide to the Wife’s solicitor information and documentation as sought in the letter from the Wife’s solicitor to the Sixth Respondent’s solicitor dated 6 October 2006.
37.Within 21 days of the date of this Order each party who has filed a notice objecting to jurisdiction provide to all parties a brief but concise summary of the of basis of such objection.
38.By 4.00 pm on 16 November 2007 each of [Jeremy Kendling] and [Penelope Kendling] file a financial statement in accordance with rule 13.05 of the Family Law Rules.
39.Subject to the Husband and each of the Second to Tenth Respondents inclusive complying with these directions the Wife to file and serve by 4.00 pm on 15 February 2008 all affidavits setting out the evidence upon which she proposes to rely on in respect to the value of the following:
39.1 The Husband’s shareholding in [B] Ltd;
39.2 The Wife’s shareholding in [W] Pty Ltd;
39.3 [T] Pty Ltd;
39.4 [L] Pty Ltd;
39.5 [I] Pty Ltd;
39.6 “[RI]” , [MX];
39.7 [G Property];
39.8 [the Netherlands Property];
39.9 [T5 Property];
39.10 [T6 Property];
39.11 [T4 Property];
39.12 [the Apartment in Germany];
39.13 Artwork and objects d’art situated at “[RI Property]”, and at [G Property];
39.14 Artwork and objects d’art situated at [the Netherlands property]; and
39.15 Motor vehicles owned by the Wife.
40.All parties are granted at their cost photocopying access to the documents produced by Members Equity Ltd in compliance with subpoenas issued in these proceedings.
41.The Husband, [B] Ltd, [T] Pty Ltd and [Mr M] provide to [Mr V] on seven days notice (and on multiple occasions if requested) access to the audit working papers (including access to any working papers prepared in electronic form) for [B] Ltd, [T] Pty Ltd, [T(E)] Pty Ltd and [T(G)] Pty Ltd in respect of the audits conducted by [M and Co] for the years ended 30 June 2003 to 30 June 2006 inclusive and that [Mr M] provide to [Mr V] any explanations sought about the audit.
42.The Husband, [B] Ltd, [T] Pty Ltd and [Mr M] provide to [Mr V] copies of any documents contained in the audit files referred to in Order 41 of which a copy is sought by [Mr V].
43.The Sixth Respondent and the Tenth Respondent file and serve within seven days an application for security for costs together with any affidavits in support of the application.
44.Any party who contends that any issue arises pursuant to the Constitution file and serve the requisite s 78B Notices within 14 days after the filing of the affidavits of all third parties in the proceedings.
45.Any issue under the Constitution said to arise be determined during the substantive hearing in accordance with a trial plan to be agreed between the various parties.
46.It be NOTED that orders are yet to be made for the filing of affidavits of evidence in chief by each of the Second to Tenth Respondents.
The orders of 17 October 2007 were made on the basis that the applications for final orders were fixed for hearing for six weeks commencing on 12 May 2008. The Husband should not have had any difficulty complying with the orders because on 4 September 2007 the matter came before me and he sought an order that he and the Wife file and serve all affidavit material in respect of the valuation of assets and liabilities within 28 days.
In a judgement delivered on 17 October 2007 I said:
181.As to [T] Pty Ltd there are various allegations and counter allegations about its current financial position. Senior counsel for the Wife provided an analysis that he contends demonstrates that [T] Pty Ltd is insolvent. On behalf of [T] Pty Ltd submissions were made to demonstrate that it is solvent. [Penelope Kendling] gave evidence that [T] Pty Ltd is solvent.
182.[Penelope Kendling] contends that [T] Pty Ltd has real estate including a […] business at [E1] of a gross value of $66,226,000 being the real estate which I have earlier identified. [Penelope Kendling] contends that [T] Pty Ltd has the following liabilities:
$
· National Australia Bank overdraft account 203,000
· National Australia Bank loan 12,000,000
· Mortgage to [B] Ltd 35,611,581
Total $47,814,581
183[Penelope Kendling] contends that [T] Pty Ltd derives income from the following sources:
· [T(A)] Pty Ltd
· [T(G)] Pty Ltd
· Rental of 19 units at the [G] site
· [L] Pty Ltd
· Rental of units in homes at [Q] (East) and [Q] (West)
· Rental of three properties at [F]
· Rental from a motel at [R]
· Rental from two residential properties at [R]
· Food supply contract with [PL Group] for [P Business]
184.The audited profit and loss statement of [T] Pty Ltd for the financial year ended 30 June 2006 revealed a total income of $15,478,057 and a net loss of ($649,359). [Penelope Kendling] however contends that the situation has dramatically changed and that there is now:
· Additional income of $330,000 per annum from the 18 units at [G].
· Additional income of $97,572 per annum from the restaurant and rental space at [Q] (West).
· The rental income from units at [QE2] and [QE3] which has significantly increased since [T] Pty Ltd took over management of the units from [a real estate agency].
185.As well, [Penelope Kendling] contends that the expenses of [T] Pty Ltd have decreased and she gave examples of some of the previous expenditure.
186In the result [Penelope Kendling] contends that [T] Pty Ltd has significant net assets and that its income significantly exceeds its expenses.
187.As well, [Penelope Kendling] contends that [T] Pty Ltd was able to pay as and when they fell due all repayments required in respect of the loans from Members’ Equity Ltd. Further, that [T] Pty Ltd was able to meet all its obligations to National Australia Bank in respect of the indebtedness of the company which is now reduced by $1,000,000 to $12,000,000.
188.However notwithstanding the above it is not clear to me why [Penelope Kendling] also contends that [T] Pty Ltd may need to borrow funds to meet the interest commitments in respect of the current loans from [B] Ltd and the National Australia Bank.
189.As senior counsel for the Wife submitted, there is no reason why [T] Pty Ltd could not have refinanced all its loan requirements from a source other than [B] Ltd given the evidence of [Penelope Kendling] about solvency of [T] Pty Ltd and its capacity to meet its commitments which has significantly improved, according to her evidence. In fact the result of what has happened is that [B] Ltd, according to the Husband, is now going to have to borrow funds to meet the costs of its construction development at [G2]. The Wife has made very clear over a long period of time her concerns about the financial circumstances of the parties and her contentions that the Husband has failed to make a full and frank disclosure. If what the Husband and [Penelope Kendling] contend is correct then the loan was not for the benefit of [B] Ltd and in fact may have been to it’s disadvantage. On one view of the current evidence the requirements of Members Equity Ltd could have been easily met.
190.It is not possible for me to reach any concluded view about the financial circumstances of [T] Pty Ltd or [B] Ltd. However until that issue can be resolved I am of the opinion that the balance of convenience favours making the orders sought by the Wife.
191.In the future when the point is reached where [T] Pty Ltd can demonstrate that it has a immediate need for the sale of assets or the further encumbrance of assets then assuming the proceedings in this Court are still current it can make an application to vary the injunctions I propose to make. At this stage, I can see no reason why, given the evidence of [Penelope Kendling], [T] Pty Ltd cannot meet its ordinary business commitments.
192.I am also going to require that until further order [T] Pty Ltd provide to the Husband and the Wife on a monthly basis a cash flow statement. This will enable the Wife and those advising her to better understand the financial position of [T] Pty Ltd. Further, it will enable [T] Pty Ltd to better explain its financial position if and when it seeks to discharge or modify the injunctions I propose to make.
193.Subject to the examination of the parties and others I also accept the submissions on behalf of the Wife that the remedy to any prejudice to [B] Ltd and or [T] Pty Ltd lies in [B] Ltd obtaining full repayment of the loan. According to the evidence of [Penelope Kendling] there is no reason why [T] Pty Ltd could not obtain finance from another source.
194.As to the injunctions sought in relation to the Husband leaving Australia I am not satisfied that given the injunctions I propose to make there is still a real risk of defeat of the Wife’s claimed interest. The effect of the injunctions will ensure that the equity in all ascertained assets is maintained until the final hearing and in those circumstances I do not accept that if the Husband were free to leave Australia this may pose a real risk of the Wife’s claimed interest being defeated.
In relation to the authorities addressed to ABN Amro referred to in the orders of 17 October 2007 the relevant orders were not complied with. For several months thereafter the Wife’s solicitors sought the signed authorities
On 18 October 2007 an application was filed on behalf of T Pty Ltd seeking a variation of Order 2 made on 27 September 2007 so as to permit the Company to grant to the National Australia Bank a mortgage over certain property. The application related to the refusal of the Bank to provide the promised first ranking priority to B Ltd despite the previous indications to the contrary.
On 23 October 2007 I adjourned all matters to 19 November 2007.
On 31 October 2007 an application was filed on behalf of the Wife seeking costs of certain applications.
On 6 November 2007 an application was filed on behalf of the Wife. The Wife sought orders in relation to the cash flow summaries from B Ltd and T Pty Ltd. The Wife also sought that the entire loan agreement between B Ltd and T Pty Ltd dated 31 August 2007 be set aside. Further that the monies borrowed by T Pty Ltd from B Ltd be repaid within 28 days and in the alternative that within seven days B Ltd exercise its option pursuant to clause 10 of the loan agreement to require immediate repayment by T Pty Ltd of the whole of the loan together with all interest payable. This application was amended on 31 March 2008 and in particular order 4 of the application of 6 November 2007. The Wife now seeks an order that the monies borrowed by T Pty Ltd from B Ltd in accordance with the loan agreement be repaid within 28 days together with a further sum of money referred to in paragraph nine of the affidavit of Penelope Kendling sworn on 27 March 2008 being a total of $45,326,265 together with all interest due on the said total sum.
On 6 November 2007 a further affidavit was sworn by Mr V. Mr V gave evidence that he understood that the National Australia Bank was seeking the provision of second ranking security over the Q (West) property in addition to security already held over the Q (East) property and the P and D business properties and the R property before the Bank would allow B Ltd to have priority up to the amount of $30 million in relation to the mortgages it holds over the real estate of T Pty Ltd, that is, that the National Australia Bank would rank first over the R property and second over the other properties. Mr V also said that it is not clear how the B Ltd loan is a total of $35.6 million rather than $43 million taking into account the loan balance between the two companies at 30 June 2006. Mr V said that if the National Australia Bank had granted a second mortgage over the Q (West) property then in the event that the other security available to the National Australia Bank is insufficient to meet the claims of the Bank, it would have recourse to that property in priority to the claims of unsecured creditors who would include B Ltd to the extent that the debt due to B Ltd exceeds $30 million.
Thus Mr V made the point in relation to the National Australia Bank mortgage to T Pty Ltd that the Bank agreed to take only a second mortgage over certain properties provided that the amount secured under the first mortgage in favour of B Ltd ranked in priority only to the extent of $30 million. He contended that if the National Australia Bank loan was re-organised on that basis, this appeared to be inconsistent with the position taken by the Husband that the full loan by B Ltd of $35 million to T Pty Ltd be secured by first mortgage against income producing property owned by T Pty Ltd. Mr V also noted that several of the properties over which security was granted by T Pty Ltd were vacant and produced no income. He contended that having regard to what he had said in a previous affidavit it seems likely that the net income produced by the properties was considerably less than the interest incurred on the borrowing secured by the properties. Mr V identified two breaches of what the Wife and her advisers understood to be the terms of the loan of $30 million by B Ltd to T Pty Ltd.
By letter dated 13 November 2007 Penelope Kendling wrote to the National Australia Bank in relation to the priority of B Ltd and granting to the Bank a mortgage over the Q (West) location.
On 14 November 2007 Penelope Kendling swore an affidavit in support of the application of T Pty Ltd seeking a variation of Order 2 of 27 September 2007 and also orders I made in relation to a periodic cash flow summary. Penelope Kendling contends that on 14 November 2007 the National Australia Bank executed a postponement of mortgage and deed of priority which granted to B Ltd priority with respect of the registered mortgages of B Ltd on the title of the E1 and Q (East) properties. Mr V had dealt with this issue in his affidavit of 6 November 2007. Penelope Kendling said that the National Australia Bank still desired a mortgage in its favour on the title to the Q (West) property but it indicated that it would be content, at least for the time being, with a mortgage with second ranking priority to the existing mortgage of B Ltd. She said that in order to provide National Australia Bank with a second ranking mortgage on the Q (West) property, T Pty Ltd would need to obtain a variation of the orders I made on 20 September 2007. On behalf of T Pty Ltd it is contended that on 14 November 2007 the National Australia Bank gave priority to B Ltd provided that T Pty Ltd pressed its application to vary the security for the Bank loan.
On 16 November 2007 an application in a case was filed on behalf of the Husband in which he sought a variation of a number of the orders made on 17 October 2007. In support of the application the Husband swore an affidavit on 16 November 2007 and he stated that he made this affidavit both on his behalf personally and also on behalf of B Ltd. He then gave reasons why he contends he was unable to comply with the orders of 17 October 2007 and he referred to an affidavit of Mr F who as seen is a partner of C Accountants and with whom the Husband consulted in early July 2007. Consideration of the affidavit satisfied me that the Husband gave no adequate reasons why he was unable to comply with the orders I made on 17 October 2007.
On 16 November 2007 an affidavit was sworn by Ms Dorrough on behalf of the Husband and also B Ltd. She contends that her clients could not comply with the orders made on 17 and 23 October 2007.
On 16 November 2007 an affidavit was sworn by Mr S who is a partner of C Partners. Mr S said that he recently received instructions from the Husband to act as his accountant in all his personal matters and also to take over acting in all financial matters relating to B Ltd. Mr S said that he briefly reviewed work carried out by M & Co and assessed that much of that work required to be redone as the work was incorrect and did not reflect the accurate financial situation of the Husband and B Ltd. Given the letter of 5 July 2007 that I have referred to above there may be an issue about what work was done by C Partners between early July 2007 and November 2007.
On 19 November 2007 I made the following orders:
1.Until further order, [T] Pty Limited is hereby restrained from instituting any proceeding in any court in any way arising in respect of any mortgage to or indebtedness to the National Australia Bank Limited and / or [B] Limited without first obtaining leave of the Family Court of Australia.
2.Each of [T] Pty Limited and the National Australia Bank Limited have liberty to apply pursuant to the foregoing order, or to apply to vary or discharge the foregoing order on short notice by arrangement with the Associate to Justice O’Ryan.
3.The Wife have leave to serve a copy of these orders upon the National Australia Bank Limited.
4.I NOTE the undertaking as to damages given by the Wife.
5.In relation to the above orders the further hearing of that proceeding take place on a date to be arranged between the parties’ legal representatives and my Associate.
6.In respect of the other issues raised in the course of discussion that the further hearing in relation to such matters also be adjourned to a date to be arranged with my Associate.
7.It be NOTED that the Wife proposes to make an application for further interim costs and in the event that such application is filed then the return date of the application is to be arranged with my Associate.
The above orders were made because the orders of 27 September 2007 were made on the basis that B Ltd would have first mortgage security for the amount of $35 million in accordance with the loan agreement between B Ltd and T Pty Ltd. However by this time it was contended by the Wife that T Pty Ltd had breached the loan agreement because it could only provide first mortgage priority up to $30 million. This is clear from the evidence of Mr V and the application filed by T Pty Ltd on 18 October 2007. As well, by this time the Wife had filed an application (6 November 2007) seeking to set aside the entire loan agreement between B Ltd and T Pty Ltd dated 31 August 2007 and that the monies borrowed by T Pty Ltd from B Ltd be repaid within 28 days.
On 30 November 2007 an application was filed by the Wife in which she sought that the Husband pay an amount of $1,484,650 to assist the Wife to defray her costs. The Wife accepted that Orders 9, 11 and 12 made on 27 September 2007 may have to be modified to enable the Husband to borrow funds from B Ltd to satisfy any order I made. On 30 November 2007 an affidavit was sworn by the Wife. On 13 December 2007 a response was filed on behalf of the Husband in which he sought that the application by the Wife of 30 November 2007 be dismissed.
The Husband swore an affidavit on 13 December 2007. He contends that he could not pay the amount sought by the Wife because he did not have access to the amount she sought even if an order was made. He said that he has “no access at this time to this amount of money”. This was consistent with the position he adopted prior to the disclosure of the sale of B Facility but inconsistent with the position he adopted after the sale was disclosed and before the loan to T Pty Ltd was made in August 2007. He went on to state that orders of this court prevent him from dealing with his shares in B Ltd as and how he chooses and he is restricted in the operation of the business.
The Husband contends that he was able to obtain $1.1 million dollars to meet his obligation pursuant to the orders of 25 May 2007 by borrowing this amount from Penelope Kendling and he annexed to his affidavit a copy of a loan agreement with Penelope Kendling which incorporated the monies which he paid to the Wife. There was put into evidence (Exhibit I) a copy of the loan agreement between Penelope Kendling as lender and the Husband as borrower with respect to a loan of $1.55 million made in July 2007. The security for the loan purported to be a first mortgage over 40 per cent of the Husband’s shareholding of B Ltd. The Husband attached to his affidavit of 13 December 2007 a copy of the loan agreement between himself and Penelope Kendling with respect to the advance in which there was an amendment to the security to provide for the first mortgage to be over 10 per cent over the Husband’s shareholding in B Ltd. I also observe that at one point the Husband had proposed selling 10 per cent of his shareholding and there may be an issue as to the identity of the prospective purchaser.
As I have said in an earlier judgement the Wife complains that she and her advisers had difficulties in ascertaining from the Husband how he obtained the funds to meet his obligations under the orders of 25 May 2007.
On 13 December 2007 an application was filed on behalf of the Husband in which he sought orders in relation to a mortgage to Westpac Bank on the title of “[R1]” at MX.
On 13 December 2007 I commenced to hear six applications including the application for costs. The hearing continued on 14 December 2007.
Ms Dorrough swore a further affidavit on 14 December 2007 and she gave evidence explaining that there was the death of a close family relative on 25 November 2007 and as well a need to nurse her mother who is aged 82 years and as a result she had been unable to undertake various tasks which she should have attended to in relation to this matter.
On 14 December 2007 an affidavit was sworn by Mr S. He said that having viewed the work carried out by M and Co he remained of the opinion that much of the work required being reviewed as it appeared that some of the work was incorrect and did not reflect the accurate financial position of the Husband and B Ltd. Mr S said that he remained of the opinion that the 2004/2005 taxation returns of the Husband and of B Ltd are incorrect and would have to be reviewed and amended. Mr S was instructed by the Husband to attend to the preparation and completion of the financial statements and taxation returns for the Husband and B Ltd for the 2005/2006 and 2006/2007 years. As at 4 April 2008 the income tax returns had not been completed.
On 14 December 2007 an affidavit was sworn by the Husband and he conceded that he was in default of Orders 1, 3, 5, 7, 14, 15, 19, 21, 22, 24, 25, 26 and 27 of the orders of 17 October 2007. He explained that there are a number of orders he could not comply with or were not applicable. For example in relation to Order 27.1.3 he contended that the order “…[i]s not applicable” as there are no trusts of which the children [David Kendling] and [Marc Kendling] “…[i]s a beneficiary”. In earlier judgments I had referred to issues in relation to the financial circumstances of the two children and evidence given by Mr Z.
On 14 December 2007 I made the following orders:
1.Within 7 days [T] Pty Ltd provide to the Wife and to the Husband a cash flow summary providing particulars of all cash receipts and cash payments received and made by the company specifying:-
1. 1.1 the identity of the payer in the case of each payment made to the company in the relevant month, and the purpose of the payment;
1.2 the identity of any payee from the company included in the cash flow in the relevant month, and the purpose for the payment;
1.3 the opening cash balance, the closing cash balance, a statement of cash movement, both for the opening and closing for the month, and for the opening and closing of each day.
and thereafter on a monthly basis such cashflow statement to be provided within the first week of each calendar month.
2.Within 7 days [B] Limited provide to the Wife and to the Husband a cash flow summary providing particulars of all cash receipts and cash payments received and made by the company specifying:-
2. 2.1 the identity of the payer in the case of each payment made to the company in the relevant month, and the purpose of the payment;
2.2 the identity of any payee from the company included in the cash flow in the relevant month, and the purpose for the payment;
3. 2.3 the opening cash balance, the closing cash balance, a statement of cash movement, both for the opening and closing of each day,
4. and thereafter on a monthly basis such cashflow statement to be provided within the first week of each calendar month.
3.In relation to orders 1 and 2 that such statements be verified by each of the directors of [T] Pty Limited so far as it effects that company and [B] Limited so far as it affects that company and that such statements identified in orders 1 and 2 hereof also be provided for the months of September, October, November and December 2007.
4.In relation to the application in a case filed on behalf of the Wife with respect to the refinancing of the facility from [B] Ltd to [T] Pty Ltd, I give leave to obtain a date for hearing before me at the earliest possible opportunity on or after the 21 January 2008 by arrangement with my associate.
5.[T Pty Ltd] file and serve by 4 pm on Thursday 31 January 2008 an amended application together with any affidavit material in support and that the hearing of that application also be listed by arrangement with my associate at the same time as the hearing of the application in the preceding order.
7.The application filed on behalf of 6th, 9th and 10th Respondents on 13 December 2007 be adjourned to 9.30 am on Wednesday the 19 December 2007.
8.In the event that Mr Edwards has legal instructions from the 9th Respondent, a notice of address for service be filed and served by 4pm on 18 December 2007.
9.The proposed application on behalf of the 4th Respondent to vacate the trial dates allocated to the hearing of the applications for final orders be listed before me at 9.30 am on 22 January 2008, and all affidavits in support of that application are to be filed and served by no later than 4 pm on Monday 14 January 2008.
10.The application of the Husband and also on behalf of [T] Pty Ltd and the 3rd, 4th, and 5th Respondents seeking a variation of the directions made on 17 October 2007 stand adjourned to 9.30 am on Wednesday 19 December 2007.
11.By 5 pm today the Husband file and serve all affidavits on which he would seek to rely in support of the orders sought for a variation of the directions made on the 17 October 2007 with respect to the filing of evidence. Such affidavits to include an explanation for non-compliance with any orders and directions that I have made on or subsequent to the 17 October 2007 and also to provide an explanation for the delay with respect to the execution of the authority and also with respect to the date of a loan agreement between [the Husband] and [Penelope Kendling] forming annexure B of the affidavit sworn by [the Husband] on 13 December 2007. Such affidavits to include an affidavit of the Husband and an affidavit of his solicitor Ms Dorrough.
12.In relation to the proposed affidavit of Mr [S] and Mr [K], such affidavits be filed and served by 10 am on Monday 18 December 2007.
It will be observed that I made orders on 27 September 2007 in relation to cash flow summaries to be provided by T Pty Ltd and B Ltd and the reasons for doing so included a concern to ensure that there was complete disclosure having regard, among other things, to the Wife’s complaints about the settlement of the sale of B Facility and the loan to T Pty Ltd and the Wife’s contentions in relation to the commerciality of the advance and the adequacy of the security. As well, there was a long history of complaints by the Wife about the failure by the Husband and others to provide relevant information and documents and a number of the affidavits of Mr V deal with such issues. Because of difficulties in relation to the cash flow summaries provided subsequent to 27 September 2007 I made further orders about such summaries on 14 December 2007.
However, the Wife contends that there was a failure to comply with Orders 2 and 3 made on 14 December 2007. The Wife contends that B Ltd by its’ own admission was in breach of these orders requiring it to provide monthly cash flow statements verified by each of the directors of B Ltd specifying the particular matters referred to in Order 2. The nature of the breaches was set out in Annexure “A” at pages 1 – 2 to a minute of orders I received on 13 February 2008. On behalf of the Wife it is submitted that they were extensive and far reaching. In addition, the orders required all of B Ltd directors to verify the statements, not just the Husband. These orders were made following the failure by B Ltd to comply with earlier orders made on 27 September 2007 (Order 10). The Wife contends that in substance this is another breach of orders which have been previously made and not complied with. These further complaints by the Wife were made prior to a number of matters that were disclosed after 13 February 2008.
On 14 December 2007 T Pty Ltd paid stamp duty of $122,990 on the contact for the purchase of property at F (above described as the F4 property). This was disclosed in an affidavit of Penelope Kendling of 22 April 2008. It was not disclosed in the cash flow summary of T Pty Ltd that was provided to the Wife in consequence of the orders I made.
On 16 December 2007 a further affidavit was sworn by Ms Dorrough on behalf of the Husband and B Ltd.
On 17 December 2007 a further affidavit was sworn by Mr S. He said that he found anomalies of detail in the accounts supplied; that they appear to provide an inaccurate view of the state of affairs of B Ltd and T Pty Ltd; that the financial documents require inclusions to the end of September 2007 of B Ltd to reflect an accurate financial view of the Company; that on his current reading of the files, documents, accounts and balance sheets, among other things, the period required to be reviewed covers the financial years ended 30 June 2004 to 30 June 2007 inclusive and that other journals and adjustments are required to complete the financial statements and accounts to enable income tax returns to be completed. In his affidavit of 14 December 2007 Mr S had identified the years ended 20 June 2006 and 30 June 2007. In any event, this evidence and the earlier evidence of Mr S added a further and perhaps significant dimension to this case. Consideration of what I said in earlier judgments demonstrates that for a considerable period of time the Wife raised issues about the disclosed financial position of the Husband and B Ltd and T Pty Ltd. As well, Mr V had sworn a number of affidavits dealing with these issues. As seen, on 4 September 2007 the Husband sought an order that within 28 days both the Husband and the Wife file and serve all affidavit material in respect of the valuation of assets and liabilities owned by them. I assume that at this time the Husband was confident that if what he sought had come to pass then all of the evidence of valuation would have been filed by the end of October 2007. Presumably something happened that resulted in the significant events that subsequently occurred as briefly identified by Mr S and this may be considered at the hearing in August 2008.
On 17 December 2007 an application was filed by T Pty Ltd seeking a variation of the orders of 17 October 2007.
On 17 December 2007 an affidavit was sworn by Penelope Kendling and she said that T Pty Ltd had complied with, albeit out of time, Orders 10, 33 and 37 of 17 October 2007 and she had complied with, albeit out of time, Order 11. Penelope Kendling said that T Pty Ltd had not complied with Orders 9, 15, 17, 18, 23, 35, and 41 of the orders of 17 October 2007 and further that she and her brother Jeremy Kendling had not complied with Orders 17, 23, and 38.
In her affidavit of 17 December 2007 Penelope Kendling said that she is concerned about the accuracy of the 2005 and 2006 accounts for T Pty Ltd and she gave reasons why she had these concerns. She referred to a conference that took place pursuant to orders I made, which was attended by Mr Burreket, the solicitor for Jeremy Kendling, Penelope Kendling, T Pty Ltd and L Pty Ltd and Jo Lynch who was the solicitor for the Husband, and Annelise Lang Pederson who was the solicitor for the Wife and Mr M who was the auditor of B Ltd and T Pty Ltd and Mr V on behalf of the Wife. Penelope Kendling said that at the meeting Mr M was asked by Mr V to provide answers to a range of queries in relation to the accounts prepared by him concerning the T companies and that Mr M repeatedly said that he would “have to look at that and will get back to you with an answer” and that she understands that no such answers have ever been provided. Penelope Kendling said that she has read numerous affidavits of Mr V and in these affidavits Mr V raised a range of queries in relation to the accounts produced for T Pty Ltd and other entities. She contends that she had telephone conversations with Mr M and referred him to some if not all of the affidavits of Mr V and asked him for an explanation and that she did not receive any satisfactory response from Mr M “to those matters”. She contends that as a consequence of the affidavits of Mr V, the failure of Mr M to provide an answer to the queries raised in conference with Mr V, and the failure of Mr M to provide her with answers, she no longer had confidence in Mr M and that she did not therefore know if the 2005 and 2006 accounts of T Pty Ltd were correct. I had previously made orders requiring Mr M to do certain things and the Husband and those advising him to provide information and documents to Mr V. I also note that in a letter of instructions dated 19 March 2008 from Mr Burreket to the valuer Mr G, Mr Burreket said that the “aborted single expert, […]” also raised a number of concerns in relation to the accounts of B Ltd and T Pty Ltd and enclosed copies of five affidavits that had been sworn by Mr V.
What then happened was that I was told that it was proposed by the Husband, B Ltd and T Pty Ltd to have prepared amended financial accounts and tax returns. In the result a whole new dimension was added to the proceedings. The important issues of disclosure of financial circumstances and the extent and value of assets had been identified in early 2006 and most, if not all, of the affidavits of Mr V are directed to these issues.
Over the opposition of the Wife I granted the indulgence sought by the Husband, B Ltd and T Pty Ltd notwithstanding the breaches of orders including the orders made on 17 October 2007. On 19 December 2007 I made the following orders:
1.Orders 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 14, 15, 17, 18, 19, 21, 22, 23, 24, 26, 27, 28, 30, 31, 33, 34, 35, 36, 38, 39, 41 and 42 made on 17 October 2007 be discharged
2.By 4.00 pm on 15 February 2008 the Husband file and serve an affidavit setting out his evidence in chief in relation to the financial proceedings.
3.By 4.00 pm on 15 February 2008 the Husband file and serve an affidavit(s) setting out the evidence in chief of each lay witness he proposes to rely upon at the hearing.
4.The Husband file and serve all affidavits setting out the evidence in chief upon which he proposes to rely with respect to the value of:
4.1 The Wife’s shareholding in [W] Pty Ltd by 4.00 pm on 15 February 2008;
4.2 [L] Pty Ltd by 4.00 pm on 15 February 2008;
4.3 [I] Pty Ltd by 4.00 pm on 15 February 2008;
4.4 “[RI]” , [MX] by 4.00 pm on 21 December 2007;
4.5 [G Property] by 4.00 pm on 21 December 2007;
4.6 [Netherlands property] by 4.00 pm on 21 December 2007;
4.7 [T5 property] by 4.00 pm on 21 December 2007;
4.8 [T6 property] by 4.00 pm on 21 December 2007;
4.9 [T4 property] by 4.00 pm on 21 December 2007;
4.10 [Apartment in Germany] by 4.00 pm on 21 December 2007;
4.11 Artwork and objects d’art situated at “[RI]”, [MX] and at [G Property] by 4.00 pm on 21 December 2007;
4.12 Artwork and objects d’art situated at [the Netherlands property] by 4.00 pm on 21 December 2007; and
4.13 Motor vehicles owned by the Wife by 4.00 pm on 21 December 2007.
5.It be noted that it is accepted that Order 5 hereof may in some instances first be complied with by the service by the due date of the valuation report on the basis that an affidavit verifying the report will be filed and served subsequent to the due date.
6.By 4.00 pm on 28 March 2008 the Husband file and serve all affidavits setting out the evidence in chief upon which he proposes to rely with respect to the value of:
6.1 The Husband’s shareholding in [B] Ltd;
6.3 [T] Pty Ltd.
7.The Husband do all acts and things necessary to enable a valuer nominated by the Wife to have access to:
7.1 [The G Property];
7.2 Artwork, objects d’art and furniture situated at [the G property];
7.3 [T4 property];
7.4 [T5 property];
7.5 [Apartment in Germany].
upon being given seven days notice requesting such access and make available to such valuer any financial or other information reasonably necessary for the valuation within seven days of a request being made.
8.By 4.00 pm on 28 March 2008 [B] Ltd file and serve any evidence in chief of the value of the Company that the Company may seek to rely on at the final hearing and [B] Ltd is not entitled to rely upon any other evidence of value of the Company in these proceedings without leave of the Court.
9.[B] Ltd grant access to all real estate owned by the Company to any valuer appointed by the Wife on seven days notice and make available to such valuer any financial or other information reasonably necessary for the valuation within seven days of a request being made.
10.By 4.00 pm on 28 March 2008 [T] Pty Ltd file and serve any evidence in chief of the value of the Company that the Company may seek to rely on at the final hearing and [T] Pty Ltd is not entitled to rely upon any other evidence of value of the Company in these proceedings without leave of the Court.
11.[T] Pty Ltd make available to a valuer appointed by the Wife any financial or other information reasonably necessary for a valuation within seven days of a request being made.
12.The Husband and or [B] Ltd and or [T] Pty Ltd file and serve by 4.00 pm on 7 March 2008 an affidavit sworn by [Mr S], Accountant setting out the evidence in chief of [Mr S] in relation to the following:
12.1 what work does he contend as identified in pa 20 of his affidavit of 14 December 2007 was “incorrect” in relation the Husband and [B] Ltd and the basis of this opinion.
12.2 what amendments did he make and if so why to the income tax returns and financial statements of the Husband, [B] Ltd and or [T] Pty Ltd for the financial years ended 30 June 2005 and 30 June 2006 as foreshadowed in pa 21 of his affidavit of 14 December 2007.
12.3 What amendments were then required to the accounting and statutory records of [B] Ltd and or [T] Pty Ltd.
12.4 the precise terms and source of his instructions as to errors or irregularities in the records of each of the Husband; [B] Ltd and or [T] Pty Ltd.
13.By 4.00 pm on 14 March 2008 the Husband file and serve an affidavit in which he sets out any further evidence in chief on which he would seek to rely in consequence of the amendments made to the income tax returns, financial statement and accounting and statutory records of the Husband, [B] Ltd and/or [T] Pty Ltd as identified in order 12 hereof.
14.[Penelope Kendling] grant access to the property situated at [T6] being properly described as folio identifier […] to any valuer appointed by the Wife on seven days notice and make available to such valuer any financial or other information reasonably necessary for the valuation within seven days of a request being made.
15.The relevant parties execute all documents and writings and do all acts and things and pay all moneys necessary to cause the financial accounts and income tax returns to be finalised for the financial year ended 30 June 2007 for the following entities:
15.1 [B] Ltd.
15.2 [T] Pty Ltd.
15.3 [T(E)] Pty Ltd.
15.4 [T(G)] Pty Ltd.
15.5 [L] Pty. Ltd.
15.6 [I] Pty. Ltd.
15.7 [W] Pty Ltd.
by 4.00 pm on 28 February 2008. It be noted that there may be an issue in relation to [I] Pty Ltd.
16.By 4.00 pm on 29 February 2008 copies of the finalised financial accounts and tax returns referred to in Order 15 hereof be provided to the solicitors for the Wife.
17.All parties (with the exception of the Wife) to the proceedings provide a list of documents in accordance with rule 13.20 of the Family Law Rules by 4.00 pm on 15 February 2008.
18.By 4.00 pm on 21 December 2007 [T] Pty Ltd and or the Husband do all acts and things and pay all moneys necessary to cause to be provided to the solicitors for the Wife a statement annexing and verifying copies of the financial statements and tax returns compiled, prepared and/or audited by [Mr M] for each of the financial years ended 30 June 2000 to 30 June 2006 for:
18.1. [T] Pty Ltd.
18.2 [T(E)] Pty Ltd.
18.3 [T(G)] Pty Ltd.
18.4 [T(1)] Pty Ltd.
18.5 [T(2)] Pty Ltd.
18.6 [T(4)] Pty Ltd.
18.7 Any other company with a name including the words “[T]”.
19.By 4.00 pm on 21 December 2007 [B] Ltd and the Husband do all acts and things and pay all moneys necessary to cause to be provided to the solicitors for the Wife a statement annexing and verifying a copy of the financial statements and tax returns compiled, prepared and/or audited by [Mr} for the financial year ended 30 June 2005 and 30 June 2006 for [B] Ltd.
20.By 4.00 pm on 15 February 2008 [B] Ltd and the Husband cause to be provided to the solicitors for the Wife a verified complete and detailed explanation as to the reasons for the losses incurred by [B] Ltd for the financial years ended 30 June 2005 and 30 June 2006.
21.By 4.00 pm on 15 February 2008 [B] Ltd and the Husband cause to be provided to the solicitors for the Wife a copy of the work in progress ledger account of [B] Ltd since 30 June 2003 and a verified complete and detailed answer to the following together with copies of supporting documents:
21.1 What did the work in progress at 30 June 2004 shown in the audited financial statements of $18,225,000 comprise? A detailed schedule is to be provided indicating the amounts relating to each property/development on which monies were expended and identifying whether the relevant developments were on sites owned by [B] Ltd or owned by other persons and if so who.
21.2 What was the status of each of the projects referred to in 21.1 hereof as at 30 June 2005? If the relevant costs were billed to a third party and no income is recorded details and explanation as to why no income is recorded is to be provided. If the costs were capitalised as part of the carrying value of a fixed asset details are to be provided. If the relevant costs were not billed to a third party or capitalised as part of the carrying value of a fixed asset an explanation is to be provided as to why the relevant amounts are not included in closing work in progress at 30 June 2005? If any amount was transferred to the account of [T] Pty Ltd and no income is recorded then a detailed explanation is to be provided as to why no income was recorded.
Mr V has sworn a number of affidavits dealing with the problems. In fact I infer that a number of the matters raised by Mr V are admitted by Penelope Kendling. It will be inquired into, but it may be that it was because of the matters raised by Mr V that after the applications for final orders were first fixed for hearing the extraordinary step was taken of preparing for some financial years reconstructed financial accounts and tax returns. The evidence of Mr S will be relevant.
The preparation of the reconstructed financial accounts and tax returns prima facie places an added burden and cost on the Wife which she and her advisers could not have foreshadowed.
The Wife complains that she was not given adequate prior notice of the proposed sale of B Facility which sale had a significant effect on the Husband’s contentions as to the value of relevant assets and the final orders he sought. These matters are set out in my judgment of 21 May 2007.
Mareva orders were then made by Cohen J on 4 July 2007 and because of a deliberate breach of the orders by the Husband, the Husband has been found guilty of contempt of court.
After the agreement for the sale of B Facility was entered into, the Wife and those advising her continued to seek relevant information and documents. Further, they sought information and documents in relation to when the sale would be completed, the amount of the net proceeds of sale and how the net proceeds of sale would be disbursed. This was important to the Wife, among other things, because there was a controversy as to the obligations to the redeemable preference shareholders of B Ltd and what the Husband had contended prior to the sale was the value of his ordinary shares. The Wife made very clear that she wanted to ensure that the net proceeds of sale were preserved. In fact it was represented to her that the net proceeds of sale of $35 million would be put into an account with the National Australia Bank to meet obligations to the redeemable preference shareholders.
Then without notice to the Wife and her advisers the sale was completed. I have identified in my judgments of 30 August 2007 and 17 October 2007 some of the issues relating to completion of the sale. I made orders on 4 September 2007 in relation to the net proceeds of sale. At that time counsel for B Ltd told me the sale had been completed but he had no instructions as to what had happened to the proceeds of sale.
I then made further orders on 6 September 2007 when it became known that without notice to the Wife or those advising her the net proceeds of sale had been disbursed contrary to what the Wife contends had been represented to her. From the net proceeds of sale of $35 million an amount of $31 million had been lent to T Pty Ltd.
In summary, in August 2007 without notice to the Wife or her advisors the sale of B Facility was completed. On completion of the sale a significant sum of money was received by B Ltd, being the company in which the Husband holds all of the ordinary shares and which shares, subject to the issues about T Pty Ltd, represent the most significant ascertained asset of the parties. The majority of the proceeds of sale were contemporaneously lent to T Pty Ltd. The completion of the sale and the disbursement of the net proceeds of sale were contrary to previous representations made to the Wife and in circumstances and on terms and conditions which the Wife complains of.
A I have already said, the receipt by B Ltd of the proceeds of sale of B Facility had a significant bearing on issues as to the value of the Husband’s shares and this is made clear in my judgment of 25 May 2007. The receipt of the proceeds of sale also had a significant bearing on issues as to the Husband’s ability to satisfy an order in favour of the Wife. This again is made clear in my judgment of 25 May 2007 in which, among other things, I set out the history of the orders sought and the contentions as to the value of the net ascertained property interests of the parties.
I then made orders on 27 September 2007 and because of a deliberate breach by the Husband and B Ltd of these orders both the Husband and B Ltd have been found guilty of contempt of court.
I made the orders of 27 September 2007 on the basis of the evidence of the concluded loan agreement between B Ltd and T Pty Ltd and the Wife contends that there were breaches of that agreement. However it is only the Wife who contends that there have been breaches and her contentions do not appear to be supported by the directors of B Ltd.
On behalf of the Wife it is submitted that there can be no doubt that had the Wife been told the truth about what was proposed in relation to the disbursement of the net proceeds of sale of B Facility she would have successfully obtained an injunction restraining it from the loan to T Pty Ltd. I do not express any view about the outcome of such an application however I accept that if the Wife had been given sufficient notice she would have sought relief as to what should happen to the net proceeds of sale pending the final hearing. It is submitted that the only reason that she did not do so is because she was deceived and that is a powerful reason for undoing now, especially having regard to the circumstances, what would have been restrained then, but for the orchestrated deception about the intended treatment of the proceeds of sale. There are a number of matters in respect of which the contentions of deceit-orchestrated deception may be relevant and they will be dealt with at the final hearing.
I accept that prima facie as a less desirable and uncommercial alternative, B Ltd could have invested $15 million with, say, National Australia Bank to be used as a security for a bank guarantee in favour of Members Equity Bank on behalf of T Pty Ltd on the basis that T Pty Ltd would rapidly take over that liability. It was offered by Members’ Equity Bank but rejected by B Ltd. Any costs would presumably have been met by T Pty Ltd and not B Ltd. It is submitted on behalf of the Wife that the justification in the minutes for what occurred namely that the bank guarantee would cost $225,000 a year is a spurious justification and should be seen, prima facie, as such. The $225,000 is a cost that would have been borne by T Pty Ltd since the guarantee was for its benefit. No evidence has been given explaining why this did not happen.
Prima facie I accept that a lender in the position of B Ltd acting arms length, commercially and bona fide, would in the circumstances have required T Pty Ltd to provide the bank guarantee itself that Members Equity Bank sought. If necessary, T Pty Ltd might have had to sell some or all of its assets to pay off the debt, but this should have been the problem of T Pty Ltd and not B Ltd. No evidence has been given explaining why this did not happen.
I accept that prima facie even if there was some urgency to lend money to T Pty Ltd to enable the Company to repay its debt to Members Equity Bank and thus release the property of B Ltd that formed part of the security, and was being sold, the loan could have been for a short term only. There is no evidence explaining why the loan was for five years. In any event according to the agreement for sale B Ltd had until 30 October 2007 to settle the sale of B Facility and presumably that would have given T Pty Ltd time to try to obtain finance, or alternatively to sell such of its assets as it needed to sell to pay off its loan.
I accept that as to the creditworthiness of T Pty Ltd in an arms length context the attitude taken by Members Equity Bank is relevant. The Bank was unwilling to hold its position with T Pty Ltd, being a loan to T Pty Ltd of $30 million, without replacement security on the sale of the S property. This is despite the property of T Pty Ltd now being worth $66 million less $12 million owed to National Australia Bank according to Penelope Kendling. In fact it may be worth $75.91 million.
On behalf of the Wife it is submitted, and prima facie I accept that if as B Ltd, the National Australia Bank, the Husband and others claim, T Pty Ltd has assets which comfortably exceed its liabilities, then the arms length, commercial answer, is for T Pty Ltd either to obtain funding from a bank or other financial institution to take over the loan from B Ltd or to sell off some of these assets to discharge that liability.
I also accept that prima facie there are what are described as internal contradictions in the approach of B Ltd and the Husband. If T Pty Ltd was a good investment, better than a bank, then why should T Pty Ltd not have discharged its own liability on settlement of the sale by B Ltd of B Facility.
Because none of the above took place a series of questions arise which include the following. Why did B Ltd step in and act as a bank for T Pty Ltd? Why does B Ltd continue to seek to act as a bank for T Pty Ltd? Why is B Ltd funding the investments of T Pty Ltd? One possible inference is that prima facie the Husband may have decided to use T Pty Ltd as the vehicle for investment.
The Wife contends that prima facie, and in due course at the trial it will be submitted that the final conclusion that should be reached, is that the payment by B Ltd to Members Equity Bank of $30 million and the payment of $1 million to the National Australia Bank from the net proceeds of sale of B Facility was a blatant impoverishment of the assets of B Ltd which is owned and controlled by the Husband to the benefit of T Pty Ltd which is purportedly not owned or controlled by the Husband. I accept that this is an issue to be addressed in due course at the trial.
The Wife contends that the blatant impoverishment issue is particularly so in light of the history of uncommercial loans, unexplained dealings between T Pty Ltd and B Ltd (and others), including loans simply disappearing from balance sheets, very substantial work in progress write offs and inter-company charges from T Pty Ltd with no explanation or supporting documents and a number of other uncommercial transactions including sales of land by B Ltd to T Pty Ltd at an under value. Much of this has been comprehensively canvassed at a prima facie level in earlier judgments. As well the evidence of Mr V is relevant. I also assume that some of these issues will be addressed in the further evidence of Mr S.
The Wife contends that all of this occurs in a context in which there has been repeated deception, non-disclosure and concealment, on the part of B Ltd, T Pty Ltd, the Husband, and associated parties. It is submitted that one example of the lengths to which the Husband, B Ltd, and others are prepared to go in perpetuating such deception appears in the complete reversal of the position taken with respect to the proceeds of sale of B Facility. It is submitted that it had been the consistent refrain of the Husband, B Ltd and others, that the net proceeds of that sale (approximately $35 million) could not be available as a resource to the Husband to fund the Wife in her litigation, and was not a resource available to the Husband and Wife. In short this was said to be because it had to be invested and held to meet payments due to redeem the preference shares as and when they fall due.
It is submitted on behalf of the Wife that when settlement occurred this money was immediately paid away by bank cheque to Members’ Equity Bank to reduce by no less than $30 million, that is totally, the loan owing by T Pty Ltd to Members’ Equity Bank. It is submitted that while I would make no credibility findings at this stage, prima facie, I should find that it is seriously arguable that the purported position taken by B Ltd, and the Husband, about its supposed solemn obligation to redeemable preference shares was spurious. It had the effect of removing any grounds for concern that the money might be paid out in a wholly uncommercial transaction, to benefit T Pty Ltd, and impoverish B Ltd, since the Husband and B Ltd were purportedly saying they had ongoing obligations to redeemable preference share holders (notwithstanding the indemnity from the purchaser, PL Group) to retain that money.
It is submitted on behalf of the Wife that conversely T Pty Ltd in these circumstances takes the benefit of what it must know to be a wholly uncommercial loan made for the improper purpose of impoverishing B Ltd and hence in turn ultimately the matrimonial pool. It is submitted that there is a serious question to be tried as to whether this is a breach of the duties of the Husband as a director of B Ltd. There is likewise a serious question to be tried that T Pty Ltd is the knowing recipient of funds obtained through a breach of director’s duties for an improper purpose and as such, liable to repay them to B Ltd. I accept that these are important issues.
The loan transaction between B Ltd and T Pty Ltd was to the advantage of T Pty Ltd and prima facie to the disadvantage of the Husband and B Ltd. For example the Husband contends that in consequence of the transactions which occurred in August 2007, he has no money and without repeating the history, because of certain things that he did, he has been found guilty of contempt. So also B Ltd has been found guilty of contempt. These are very serious matters and should not be treated lightly. It is submitted, and prima facie I accept, that if what the Husband claims is true, it must be because of the loan of $31 million by B Ltd to T Pty Ltd which B Ltd, and the Husband, were representing that B Ltd proposed to deposit with the National Australia Bank to pay redeemable preference shareholders.
Notwithstanding the above, the Husband continues to contend that he cannot pay any money to the Wife, notwithstanding that he still maintains a position, in consequence of the amendments which he made during 2007 to his application for final orders that the outcome proposed by him in the property proceedings will be that he will have to pay a significant sum of money to and for the benefit of the Wife. This is in circumstances where on a number of occasions I have asked counsel for the Husband if it is proposed to amend the final orders sought by the Husband given his contentions and in particular his asserted inability to pay any money. If this position persists as at August 2008 then as the Wife has foreshadowed, subject to any order I may at this time make in relation to the repayment of all debt and or the appointment of a receiver of B Ltd, there will be an application under s 106B of the Family Law Act to set aside the loan transaction.
There are then concerns about the ability of T Pty Ltd to meet such a significant commitment. It will be recalled that in September 2007 Penelope Kendling said that in the ordinary course of business, T Pty Ltd may need to borrow funds to meet the interest commitments in respect of a loan from the National Australia Bank and B Ltd. It is now contended that T Pty Ltd can meet all of the interest commitments but there is no evidence of this from a source such as Mr G or Mr S or an independent assessment.
Mr V had given evidence that it had not been demonstrated that T Pty Ltd was in a position to meet the interest cost on a loan of $35.5 million from B Ltd. Further that it had not been demonstrated how T Pty Ltd could repay that borrowing after five years. Mr V said, and I accept, that Penelope Kendling had produced no profit projections or cash flow forecasts or any other financial analysis which demonstrated an ability to meet interest costs or repay the loan. The Husband gave no evidence about any analysis undertaken on behalf of B Ltd to assess the ability of T Pty Ltd to repay the debt in five years and the interest. Mr V was of the opinion, and I agree, that a reasonable person in the position of a director of B Ltd considering making an advance of $35.5 million to another company would not be satisfied as to the borrowers ability to repay the debt after five years and the interest in the meantime, based only on the information provided in the affidavits of the Husband and Penelope Kendling.
There is no evidence of any detailed offers and acceptances. I am simply told that the Husband and B Ltd support what T Pty Ltd seeks. I have no evidence from the other directors of B Ltd.
There are then the breaches of the loan agreement. It emerged that what the Wife and the Court were told about the financial position of T Pty Ltd, and in particular the terms on which National Australia Bank would provide priority to B Ltd, was wrong. B Ltd only had priority to the extent of $30 million and not $35 million. Further, it is submitted on behalf of the Wife that the National Australia Bank took the position, quite contrary to what I was told that it also required a mortgage over the Q (West) location. I had been told that this could remain unencumbered.
Mr V said, and I accept, that if the first mortgage in favour of B Ltd ranked in priority only to the extent of $30 million this appeared to be inconsistent with the position taken by the Husband that the full loan by B Ltd of $35 million to T Pty Ltd be secured by first mortgage against income producing property owned by T Pty Ltd.
On behalf of the Wife it is submitted that there has been almost total non-compliance by the Husband, B Ltd, and to a lesser extent but still substantially, T Pty Ltd, with the orders which I put in place in order to protect the position of the Wife and allow her to detect any material adverse development in the financial position of the relevant entities. That is to say, the relief which I moulded to meet the findings in my judgment of 17 October 2007 was based on the assumption that the Husband, B Ltd and T Pty Ltd would comply with my orders directed to protecting the position of the Wife. That assumption has not been borne out by the facts. It is submitted that instead, the Husband, B Ltd and T Pty Ltd are in breach of these orders. I have already discussed the three scenarios submitted on behalf of the Wife as to the effect of what happened. However an issue I am now asked to deal with is whether I should vary the orders I made so as to support a different security proposal.
It has now been revealed that the debt of T Pty Ltd to B Ltd has increased significantly from the amount that the Husband, B Ltd and T Pty Ltd were previously asserting. The amount which it is now accepted has to be secured in favour of B Ltd is approximately $45 million not $35 million being an increase of $10 million. The term of the loan is for five years. The interest rate is still seven per cent payable quarterly in arrears. The security identified in the submissions on behalf of T Pty Ltd, and I assume reflected in the most recent version of the Deed of Variation of Loan Agreement, is a registered first mortgage over the properties being the F location, the G location, the Q (East) location, the Q (West) location, the R location and a registered second mortgage over the E location. It is contended that the value of the properties is $63.91 million to secure a debt for $45 million. The National Australia Bank would have a first mortgage for the loan of $12 million over a property of a value of $19.85 million. However the Bank would also have a registered first mortgage debenture over T Pty Ltd. I also now know that B Ltd has an option to purchase one of the F properties.
I have no evidence explaining why the Husband and B Ltd have now advanced an amount of $45 million at an interest rate which is to the advantage of T Pty Ltd and prima facie less than that which T Pty Ltd would have to pay if it sourced finance from an unrelated source. For example, in February 2008 the interest which T Pty Ltd paid on the commercial bill for $12 million was 10.240 per cent.
As well, because B Ltd has lent significant amounts to T Pty Ltd, according to the previous evidence of the Husband, B Ltd is inhibited in relation to its own investment activities. Further, in my view, B Ltd may have less income than what it could receive if the funds were invested elsewhere.
As to the ability of T Pty Ltd to meet interest costs or repay the loan I was simply told that the Wife has the benefit of the cash flow summaries. I have already referred to the orders I have made from time to time in relation to the cash flow summaries and the complaints by the Wife about them. The Wife’s complaints were made prior to what was revealed on 18 April 2008. The reliability of the cash flow summaries will be the subject of further enquiry given what I was told on 18 April 2008.
T Pty Ltd recently paid an amount to B Ltd which I was informed was for interest up to October 2008. I assumed that it was for interest on the amount of $45 million and that notwithstanding the terms of the loan agreement it was a payment in advance and not in arrears and was for a period greater than a quarter. However on 18 April 2008 I was told that an unspecified portion of the amount paid is for interest in arrears. I also note that it was submitted that on 31 March 2008 or 1 April 2008 I was told by senior counsel that the payment included an amount for arrears. However it was not explained why the interest was paid up to October 2008. It may be that it is in anticipation of some of the issues that will be dealt with at the hearing in August 2008. There remains no evidence explaining how the amount of interest paid is calculated. I will shortly deal with the evidence which suggests that in any event in order to pay this interest to B Ltd, T Pty Ltd may have had to rely on money it received from B Ltd.
What however is important is that in relation to the increased debt there are no profit projections or cash flow forecasts or any other financial analysis which demonstrates an ability to meet interest costs or repay the loan. There is no evidence of any detailed enquiry and analysis undertaken by B Ltd to assess the ability of T Pty Ltd to repay the increased debt and the interest. I accept that such a detailed enquiry and analysis would be expected in relation to the loan of $35 million. This expectation is even more so with the debt of $45 million, given among other things, the proposed terms and conditions of the National Australia Bank loan. I am of the view that a reasonable person in the position of a director of B Ltd considering making an advance of $45 million to another company would be concerned as to the borrowers’ ability to repay the debt after five years and the interest in the meantime. I also take into account the reasons why Mr G adopted a net assets method of valuation of T Pty Ltd.
When considering the ability to undertake such a detailed enquiry and analysis I take into account that subsequent to 30 June 2007 relevant financial accounts and tax returns of B Ltd and T Pty Ltd have been reconstructed. Further as at 4 April 2008 there were no reconstructed financial accounts and tax returns of T Pty Ltd for any period after 30 June 2007. As well, as at 4 April 2008 there were no amended tax returns. I understand that the amended tax returns have now been completed and verified copies provided to the Wife. However I accept that given the history, the Wife and those advising her will need some time to consider the reconstructed financial accounts and tax returns and this has been made more difficult by the inadequacy of the evidence of Mr S.
There are then issues about the security proposed. Mr V had previously noted that several of the properties over which security was granted by T Pty Ltd were vacant and produced no income. He said that it seemed likely that the net income produced by the properties was considerably less than the interest incurred on the borrowing secured by the properties.
According to Mr Burreket in his letter of 19 March 2008 to Mr G, the 19 residential units at the G location could not be sold and have now been leased for another twelve months and the Company anticipates there will need to be some refurbishment of the units to put them in the best possible position for sale. In relation to the Q (East) and Q (West) locations, L Pty Ltd operates a hospitality business and T Pty Ltd variously through L Pty Ltd and directly itself rents out residential units and homes on a short and long term basis. As seen, in August 2007 Members Equity Bank was not prepared to accept the Q (West) location as suitable security. As to the F location Mr Burreket said that of the three dwellings that were acquired, only two could be rented out and there was a shortfall in the expected rental income which meant that T Pty Ltd was paying more interest in respect of the loan from Members Equity Bank than it was receiving in rent. The letter of Mr Burreket was written after the option agreement of 9 February 2008. As to the R location Mr Burreket said that the income from the activities is far from sufficient to meet the holding costs of the site. Mr Burreket said that there are three businesses operating from the E location and it may be it is only the activities at this location that are profitable. I have concerns about the security.
It is then necessary to consider what was disclosed after I reserved judgment on 4 April 2008.
On 18 April 200I there was put in evidence the option agreement of 9 February 2008 and cash flow summaries. It was then revealed that in February 2008 B Ltd paid $500,000 to T Pty Ltd as an option fee in relation to F4 property. During the hearing before me in December 2007 of the second application by the Wife for funds to defray her costs of the proceedings, the Husband contended that he was unable to pay any money to the Wife. I have already said that prima facie, this asserted incapacity of the Husband is because of the loan made by B Ltd to T Pty Ltd in August 2007. The assertion of the Husband was persisted with notwithstanding that the Wife had made clear she accepted that certain of the orders made on 27 September 2007 may have to be modified to enable the Husband to borrow funds from B Ltd to satisfy any order I made. Prima facie, the Husband could have borrowed all of the money from B Ltd or at least $500,000 to satisfy an order. However, the Husband did not seek to modify the orders. B Ltd then paid $500,000 to T Pty Ltd.
Prior to 18 April 2001 there was evidence that on 9 or 11 February 2008 B Ltd paid in excess of $1.5 million to the Husband which the Husband then paid to Penelope Kendling and which was then used by T Pty Ltd to complete the purchase of the F property. As a result B Ltd was in breach of an order and has been found guilty of contempt. So also the Husband was in breach of an order and has been found guilty of contempt. The evidence I received after 4 April 2008 made clearer what happened and why. B Ltd also paid the option fee of $500,000 which together with the amount of approximately $1.5 million made up the amount required to enable T Pty Ltd to complete the purchase of the F property.
In summary, notwithstanding all of the above concerns about the loan of $45 million in February 2008 B Ltd directly and indirectly provided approximately $2 million to T Pty Ltd so that T Pty Ltd could complete the purchase of an investment property which is not currently income producing. All of this happened without notice to the Wife. The Wife contends it is another example of deceit.
Prima facie it is difficult to identify what the explanation may be for what happened. The Husband in his affidavit of 22 April 2008 gave some evidence explaining why B Ltd entered into the option agreement but I accept that there will be an issue about his explanation given, among other things, the circumstances of B Ltd.
Then as a result of the orders I made on 18 April 2008 affidavits were sworn by the Husband and Penelope Kendling and it was revealed that between 6 February 2008 and 28 March 2008 without prior notice to the Wife or those advising her there was a further $2.044 million paid by B Ltd to T Pty Ltd.
The evidence discloses that on 19 March 2008 B Ltd paid $770,000 to T Pty Ltd which was used by T Pty Ltd to complete the purchase of another property that is part of the F location. There is an issue about the explanation given for why B Ltd had to pay this amount to T Pty Ltd. However what is not controversial is that T Pty Ltd used this money to complete the purchase of one of its investments.
Then there is the evidence in relation to the payment on 28 March 2008 by T Pty Ltd to B Ltd of $750,087.66 for interest. As I have already said on the evidence currently available the inference that I draw is that the amount of $934,000 paid by B Ltd to T Pty Ltd was used by T Pty Ltd to make the payment of $750,087.66 to B Ltd.
The above transactions do not entirely explain what T Pty Ltd did with all of $2.044 million but I accept that given what may have happened to the majority of the amount, the disbursement of the balance will have to be explained by T Pty Ltd.
I made clear in earlier judgments that there is a significant issue in relation to the relevance of T Pty Ltd to the financial circumstances of the Husband. The Husband and T Pty Ltd contend that T Pty Ltd is irrelevant. If for example the contentions of the Wife were admitted then there would be no issue about the repayment of the debt of $45 million or the refinancing of the National Australia Bank loan. However the contentions of the Wife are denied and the issues have yet to be resolved. If the contentions of the Husband, T Pty Ltd and others are accepted then there remain issues in relation to the debt and whether it should be repaid.
I am not prepared at this stage to appoint a receiver and manager of the assets of B Ltd as sought by the Wife. It is clear from the authorities I have referred to that this is a remedy of last resort. There are serious allegations raised in this case, however I am not presently persuaded that given the mareva orders and other orders that I may make in consequence of the revision of the loan agreement between B Ltd and T Pty Ltd they would not be enough to ensure that the ascertained assets are preserved and protected. However I make clear that if any further issues arise in relation to the conduct of the business of B Ltd then there may be no alternative but to appoint a receiver and manager. I hasten to add, as I have raised on an earlier occasion, there may be concerns about the interests of the holders of the redeemable preference shares.
I am satisfied, in all the circumstances, that there are serious questions to be tried in relation to a number of relevant matters including the relationship of the Husband and T Pty Ltd; how the assets of T Pty Ltd should be treated in the property settlement proceedings between the Husband and the Wife; why the advance was made by B Ltd to T Pty Ltd and whether it should be repaid, among other things, because of the present contentions of the Husband about his inability to pay money and why B Ltd has continued without notice to pay significant amounts to T Pty Ltd.
I am satisfied that there is a danger that the debt T Pty Ltd owes to B Ltd could be dealt with so as to frustrate the court process. I am satisfied that there is a danger that the assets of B Ltd could be dealt with so as to frustrate the court process. I am satisfied that it is necessary that orders be made to ensure that the ascertained assets are preserved pending the final hearing. Given that I am not prepared at this stage to order the appointment of a receiver and manager, in my view it can only be dealt with by ensuring that the security for the amount of $45 million is not in any way vulnerable nor experience the difficulties that in fact occurred after August-September 2007. There will still be an issue about the payment of $4.05 million or at least $3 million of the amount.
I propose that the revised terms of the loan by B Ltd to T Pty Ltd be subject to the following conditions. The first mortgage in favour of B Ltd secure the amount of $45 million; be guaranteed and indemnified by Penelope Kendling and Jeremy Kendling as the directors of T Pty Ltd for $45 million and that B Ltd is also granted a registered first mortgage debenture over T Pty Ltd. Further that all costs and expenses including stamp duty and registration fees of giving effect to the orders are paid by T Pty Ltd.
The additional terms reflect what would be expected if the advance of $45 million had been negotiated consistent with commercial reality. The terms are consistent with what the National Australia Bank expected for its’ advance of $12 million. The National Australia Bank will not have a registered first mortgage debenture over T Pty Ltd in priority to B Ltd.
I am also going to order that B Ltd be restrained from paying to or conferring upon T Pty Ltd and or Penelope Kendling and or Jeremy Kendling any money, pecuniary benefit, or any other financial advantage of any kind whatsoever directly or indirectly without the written consent of the Wife. Given what has transpired it is necessary to ensure that no further amounts are paid by B Ltd to T Pty Ltd and the directors unless the Wife agrees.
The next issue that arises is what should happen in the event that the National Australia Bank or any other lender will not agree to the above terms and conditions.
In the submissions on behalf of the Husband and B Ltd a number of submissions were made as to why at this stage I should not as a matter of discretion order the repayment of the debt of $45 million and without repeating the submissions what is submitted is important. However the significant difficulty with this case is my concern as to how the assets can be preserved pending the final hearing. Among other things, orders already made to preserve the assets have been breached and significant transactions have been undertaken without notice. I have come to the conclusion that if the orders I propose to make as outlined above to protect the assets of B Ltd cannot be achieved then the only alternative is that the debt of $45 million be repaid.
If the National Australia Bank will not accept the proposed terms and conditions then the debt of $45 million will have to be repaid. If that happens then T Pty Ltd will be able to negotiate finance with a lender without any concerns about the interests of B Ltd. I will require that the debt be repaid by 10 June 2008.
Notwithstanding the submissions made on behalf of the Husband and B Ltd I still have some difficulty presently understanding why the Husband and B Ltd complain. The only interests that are relevant to the issue of hardship are those of the Wife and T Pty Ltd. So far as T Pty Ltd is concerned it has had the benefit of a commercially advantageous facility and it is simply being required to do what it would probably have to do with another financier. Notwithstanding the proposed term of the loan, namely five years, if the Husband persists with his contention that he has no money then T Pty Ltd would have to deal with the application for relief under s 106B of the Family Law Act and thus if the Wife were to succeed be in a position to refinance all of its secured debt. I am satisfied that the balance of convenience favours the Wife..
In my judgment of 17 October 2007 I said that “the remedy to any prejudice to B Ltd and/or T Pty Ltd lies in B Ltd obtaining full repayment of the loan” and that “according to the evidence of [Penelope Kendling] there is no reason why [T] Pty Ltd could not obtain finance from another source”. I remain of that view.
I note that the Wife offers the usual undertaking as to damages: National Australia Bank Ltd v Bond Brewing Holdings Ltd (supra). I remain of the view that the Wife is able to provide such an undertaking given the final property settlement order the Husband proposes.
I am not going to dismiss the applications of the Wife but adjourn them for hearing with the hearing of the applications for final orders in August 2008. I will grant leave to restore the applications if anything further occurs between now and August 2008 that warrants reconsideration of my decision not to make such orders prior to the final hearing.
I note that the order sought by the Wife on 21 April 2008 in relation to the payment of $54,000 for costs is consented to.
I certify that the preceding three hundred and eighty one (381) paragraphs are a true copy of the reasons for judgment of the Honourable Justice O’Ryan
Associate:
Date: 29 April 2008
Key Legal Topics
Areas of Law
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Family Law
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Civil Procedure
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Equity & Trusts
Legal Concepts
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Costs
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Injunction
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Remedies
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Procedural Fairness
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Jurisdiction
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