Ledarn and Ledarn (No 2)
[2015] FamCA 895
•23 October 2015
FAMILY COURT OF AUSTRALIA
| LEDARN & LEDARN (NO 2) | [2015] FamCA 895 |
| FAMILY LAW – ENFORCEMENT – Subsequent to final orders for property settlement, wife failed to comply and husband sought enforcement orders which included “cascading” orders which if all were implemented, may result in the major business corporate entity being liquidated – Enforcement of orders (and the alteration of extant enforcement provisions) are discretionary – In the exercise of that discretion, the Court declined to make the orders. |
| Corporations Act 2001 (Cth) Family Law Act 1975 (Cth) |
| Catombal Investments Pty Ltd [2012] NSWSC 75 Ramsay (No 2) (1983) 8 Fam LR 1005 |
| APPLICANT: | Mr Ledarn |
| RESPONDENT: | Ms Ledarn |
| FILE NUMBER: | MLC | 6423 | of | 2010 |
| DATE DELIVERED: | 23 October 2015 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Cronin J |
| HEARING DATE: | 29 September, 7, 8 October 2015 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Mawson Qc With Mr O'Shannessy |
| SOLICITOR FOR THE APPLICANT: | Aughtersons |
| COUNSEL FOR THE RESPONDENT: | Mr Fildes |
| SOLICITOR FOR THE RESPONDENT: | Aughtersons |
Orders
That save as to issues of costs, the husband’s application for enforcement filed on 15 July 2015 is dismissed.
That save as to issues of costs, the response by the wife (filed 29 July 2015) to the husband’s application is dismissed.
Should any order for costs by either party be sought, it be done so by written submission filed and served no later than 4 pm on 6 November 2015 and any reply thereto be filed and served by no later than 4 pm on 20 November 2015 and the determination of any such applications be made in chambers.
It is certified that it was appropriate for the parties to be represented by counsel including senior counsel and two counsel.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Ledarn & Ledarn (No 2) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC 6423 of 2010
| Mr Ledarn |
Applicant
And
| Ms Ledarn |
Respondent
REASONS FOR JUDGMENT
Mr Ledarn seeks to enforce complex property orders made almost a year ago.
Ms Ledarn sought orders that the husband’s application be dismissed but then sought an order under s 79A of the Family Law Act 1975 (Cth) (“the Act”) that a number of orders made on 17 October 2014 (the orders the husband seeks to enforce) to be set aside or varied. She then set out a long set of proposed orders. When the matters were litigated on 8 October 2015, the s 79A application was not argued and I consider it abandoned.
In respect of the October 2014 orders, the wife concedes she has not complied but asks that the Court’s discretion be exercised in her favour on the basis that to do what the husband wants is what her counsel described as “draconian”. She says the husband will get his entitlements.
When these respective applications were initially before the Court on 29 September 2015, Mr Geddes QC was not available to appear for the wife and she was represented by her solicitor Mr Fildes. Out of that hearing came some consent orders. Those consent arrangements have some impact on whether the remaining disputed orders sought by the husband should be made.
The complex dispute is compounded by the complexity of the business and wealth arrangements of the parties.
In the husband’s application filed in July, he sought 26 orders several of which had sub-set orders and which when distilled to a simple form could be said to be enforcement orders on a “cascading” scale so that as an asset was sold, part of the wife’s obligation was satisfied and the husband then moved on to the next asset in a sequential way.
In addition to those orders, the husband also sought:
[24] That the wife be restrained from further encumbering any item of real estate in the (L) Group…without the consent in writing of the husband, save for the purposes of refinance to effect global settlement as ordered.
It will be seen that the focus was on the wife.
In the September 2015 hearing, that relatively modest morphed into a raft of consent orders restraining the wife and the second respondent (which is the main business corporate entity) from “disposing of, further encumbering or selling (properties)”. This was not just a tidying up of the targets of the injunction but ensuring that the wife honoured her obligations to the husband without being able to get around them by using the corporate entity to do so.
The injunctive relief had not been in place since the final orders were made in October 2014 and as I understand the husband’s argument, the wife had been recalcitrant in not sorting out his entitlements before involving herself in other sales and acquisitions of property. But having said that, both the wife and the corporate entity agreed to the injunctive relief pending the ultimate payment and transfer of property to the husband.
The September orders ran to several pages. In them, various provisions covered obligations with specific dates for compliance. It is unnecessary for me to set out the precise details of what the wife agreed to but it will suffice to say that the arrangements are complex and clearly thought out with an eye to detail so that the husband is protected. The specific date provisions refer to a number of different dates so I am entitled to infer that the husband was prepared to allow the wife some flexibility in her attempts to get her financial house in order. One such order to which I shall later return includes a payment of cash being made to the husband in August 2016.
Thus, what was left and disputed was what might be called a cascading set of default orders which effectively enforce outstanding obligations on a rolling basis as I have earlier described.
The proposed orders are not just simple sale provisions. That is, various sales of property under the wife’s control would occur, netting cash and freeing up encumbered properties for satisfaction of the husband’s entitlements. Sequentially, the husband proposes sales and if necessary, liquidation of the main corporate entity. To say this is complex is trite. The difficulty lies in trying to assess what would occur with and to such things as tax, business assets and possibly non-party interests.
In my view, the Court should not make the proposed orders because there are sufficient orders now in place (including provisions from the 2014 orders and the September 2015 orders) to protect the husband.
The concession made by the wife about not having complied with orders and her filing of the s 79A application, is also clouded by what she has done which, on its face, looks like recalcitrance towards obligations since October 2014.
I have mentioned the corporate entity named in the injunctive relief. Indeed, there are a variety of entities here as parties. The wife has the effective control of those entities but as will be seen below, the issue of those as legal persons has to be considered in respect of the final part of the enforcement. The wealth of the parties including the entities is many millions of dollars.
The husband said he has had enough of trying to conclude the financial relationship with the wife and wants to enjoy the fruits of his orders. His frustration is understandable but then, he has allowed some flexibility. In many ways, what he now seeks is control of the process so that if the wife does not show a positive attempt to clear up the entitlements, he can move against her.
The wife submitted that there were already default provisions in place and she maintained that she had previously and now again, offered ample security for the implementation of the extant orders.
Brief background
The parties were (and are) wealthy having made their money in the automotive industry. They litigated in 2013 over who would keep the business. The wife was the successful litigant but not without cost. The determination in 2013 was relatively simple because the parties requested an opportunity to draft orders which would maximize their respective benefits.
Despite all of that, and whilst their drafting negotiations went on, an appeal was filed against the substantive orders made in 2013. That appeal has remained dormant for almost two years.
In October 2014, having requested the opportunity to draft orders, those drafts became orders but it must be stressed, the parties through their lawyers, were responsible for the drafting.
A pending appeal
I am aware that in recent days, the parties (or one of them) opposed the appeal being disposed of. In the notation to an order made on 30 January 2015 to which I turn below, the parties agreed that they
intend to resolve all issues remaining in dispute as to the implementation of the November 2013 and 17 October 2014 orders in the proceedings listed 4 March 2015.
I intend that these reasons be sent to the Head of the Appeal Division. Enforcement of the consent orders made in October 2014 is really all that is left to litigate. I again acknowledge that the enforcement process is complicated for the reasons that follow.
What orders are now relevant?
Because of the nature of the enforcement application, that is, the husband seeking cascading orders, it is necessary to look at the relevant property alteration orders and what provision is already in place for the protection of the husband’s interests including how these parties have used the Court because of the complicated circumstances around the wife’s non-payment. It is not necessary for me to set out the 2014 orders in detail and what follows will suffice for the purposes of the determination here:
·Save where specifically otherwise provided, the parties had six months to do all things necessary to “implement” the orders;
·The husband had to immediately vacate the business premise;
·The husband had to transfer to the wife any interest in the Ledarn Family Settlement 2002;
·The husband had to transfer to the wife, horses and plant and equipment; and
·The husband was to retain a large home at Suburb C which was encumbered by mortgage but the wife had two years to discharge that mortgage.
What can be seen from those orders is that the husband was to hand over to the wife the control of a business which had been within the family for many years but he was retaining a large home which would have to carry an encumbrance for up to two years. In respect of the mortgage, it was the wife’s responsibility to pay the mortgage so to some extent, the husband’s tenure in the home was at the whim of the wife if he wished to retain it.
To give security to the husband in respect of the home, the 2014 orders provided:
That pending the discharge of the (home) mortgage:
(a)The wife pay (the home) mortgage instalments as and when they fell due;
(b)The wife and (the company) are hereby restrained from further encumbering (another property held by the wife) save and except for the purposes of paying out or reducing the (home) mortgage; and
(c)That upon the wife providing the husband with a discharge of mortgage with respect to (the home) the husband was to provide a discharge of mortgage over (the other property) to the wife.
It will therefore be seen that the husband had security providing the wife complied with the injunctive order.
It was an obligation of the wife (again within six months) that she transfer to the husband various interests in some trusts including orchestrating the transfer of two real properties (Suburb IC and O Town) unencumbered.
Much more than six months went by and that order was not implemented albeit that the wife’s position now is that it can be done. The lack of finalisation seems to have been a bone of contention from the perspective of the husband.
A further obligation of the wife but in her capacity as a director of an entity, was to transfer to the husband without encumbrance, two real properties in Suburb YS and Suburb OH both of which were investment or rental properties and various adjustments were to be made between the parties from the various rents.
As I understand the husband’s concern, the six month period for implementation of the orders well and truly expired and the wife did not comply. The wife’s position was that refinancing was being implemented but the husband did not accept that the proposed refinancing would solve his dilemma. In part, an understandable lack of trust has arisen which has been exacerbated by other activities of the wife to which I turn below.
Another issue of concern was that in October 2014, the parties reached agreement that there was to be an “adjustment payment” in favour of the husband set at $267,500. That payment was to be received by the husband in 90 days. It was not paid and by January 2015, the parties were back in court but that hearing culminated in an agreement and orders.
The January 2015 orders
In December 2014, the husband filed an application seeking to enforce parts of the October 2014 orders. On 13 January 2015, at the request of the parties, their compromise was encapsulated in orders. That included consent orders sorting out their superannuation splitting arrangements that had other family members involved. Only days later, they were back.
On 23 January 2015, the husband filed an application seeking enforcement of the “adjustment payment” because the 90 days had elapsed without payment.
On 30 January 2015, the parties agreed to have the 23 January application (listed on 4 March 2015) heard “on the papers and submissions”.
I made orders on 18 March 2015 and gave reasons. Further applications followed in July leading to the current dispute.
A liberty to apply clause?
The final reference to the October 2014 orders should be to note that under paragraph 37, each reserved to themselves a general liberty to apply to the court in the event of default by either party pursuant to the orders. That order remains. It was unnecessary for that liberty to apply clause to be inserted because orders of the court are always enforceable.
The issue in this case is really whether or not there should be a cascading set of self-executing orders that would be implemented now.
The power to enforce orders
All parties agreed that this determination is a matter for the exercise of the Court’s discretion. As to the power, see for example Ramsay (No 2) (1983) 8 Fam LR 1005.
Section 105 of the Act deals with enforcement of its orders. The very wording of the provision introduces a discretion and in that context, the Court needs to exercise care to explain why very clear existing orders ought not be executed or in this case, why there should be a set of orders which have a cascading effect but which are of a self-executing nature.
The exercise of discretion requires the Court to take into account the peculiar facts arising subsequent to its final orders but ultimately, if a party seeks an indulgence such that an order ought not be executed, the onus falls to that party to show that it would be inequitable for the order to be carried out in its literal terms. That same onus applies in respect of the sort of self-executing orders now sought by the husband. Equity looms large.
What orders does the husband seek?
The husband sought orders inter alia that:
(a)The wife charge the various properties she received under the 2014 orders;
(b)A HX Town property be transferred to him on trust for sale and it be sold to part satisfy the wife’s obligations;
(c)The wife settle the obligations under the orders concerning the IC and O Town properties but the proceeds from the HX Town sale be applied to discharge the relevant mortgages encumbering IC and O Town;
(d)The adjustment sum referred to in the January and March orders be paid from the HX Town money; and
(e)There be orders as set out in the next paragraph of these reasons.
Under the heading “Further default selfexecuting”, the husband sought that if the wife did not comply with the orders now sought, he or some other person nominated by the Court, be appointed as trustee for sale for and on behalf of both the wife and the company, to sell a variety of her properties and those of her entities. These properties included investment properties. The husband then sought that if, despite all of the orders made to date, his entitlement had still not been met, then the business premises be sold. Hence the cascading nature of the orders. He then sought that in the event that all of that did not complete the wife’s obligations, there be sales of the business including goodwill, stock, intellectual property and so forth.
As an alternative, but still giving him the elective power if the order was made, the husband sought an order pursuant to s 461(1) of the Corporations Act 2001 (Cth), that the relevant entity, G Pty Ltd, be wound up and a liquidator appointed. What remains unclear is at what point down the cascading set of orders, the obligations of the wife would be completed. It is also unclear what the taxation implications of all this would be and ultimately, what would be left for the wife and indeed, the corporate entities.
In respect of the final step of liquidation, the husband relied upon an affidavit to indicate that a liquidator had agreed to be appointed and set out his charges and experience.
Enforcement
Section 105 of the Act leaves the mechanics of the enforcement of its orders to the rules of the court.
Chapter 20 of the Family Law Rules 2004 sets out the process for enforcing obligations in financial cases. Rule 20.07 sets out the various orders that a court may make which include orders in aid of the enforcement of an obligation, staying the enforcement of an obligation and varying, suspending or discharging an enforcement order. The power therefore in the armoury of enforcement is extremely wide.
In my view, equity requires the contemplation of the impact of the enforcement. One such example is whether or not the enforcement of the order does or does not achieve what the Court originally intended. Draconian consequences might follow and not be just, having regard to the outcome that the Court contemplated when it made its orders under s 79 of the Act. Thus, the circumstances subsequent to the making of the orders can shed some light on the question of whether or not enforcement is now inequitable.
Standard and onus of proof
The standard of proof relating to all of these issues is the balance of probabilities. The person (in this case, the wife) seeking that the order not be enforced must establish the inequity. On the other hand, the person (in this case, the husband) seeking to put in place orders which could have the effect of creating an injustice has to establish that by reason of what has occurred subsequent to the orders, it is just and equitable to make the orders.
What has happened since 2014?
The final orders were pronounced by the Court on 17 October 2014 but the finer details were drawn by the parties and, as earlier indicated, were commercially complex. It was, and remains, a significant issue in this case that the wife wanted the various entities and the business that was the most significant asset of the parties. By virtue of the orders, she retained that. In terms of significant events since that time, whilst the husband maintained that the wife had been recalcitrant in respect of fulfilment of her obligations, the wife in turn maintained that there had been a downturn in the activities of the business but the refinancing of the structure would enable the payment of the money and the transfer of assets to the husband. In my view, the downturn is irrelevant in this case because in the trial, and specifically for the purposes of getting control of the business, the wife said that she would put it into the “pool” of assets at a value (to her) higher than that which had been agreed between the parties just before trial after lengthy discussions and calculations by experts. The wife’s entitlement to the retention of the business was not determined on that basis but rather that she had shown a greater capacity to conduct it as against the husband. She got what she bargained for.
The formal applications
I am therefore dealing with the husband’s application filed on 15 July 2015and the response filed on 29 July 2015 which included variations of the orders under s 79A of the Act.
I propose therefore only to deal with the enforcement question and otherwise dismiss the outstanding applications and responses.
It is also important to say that each party relied upon an affidavit or affidavits on which I will make findings where necessary.
The evidence
In her affidavit, the wife said that she (and separately, the husband) had an offshore superannuation account and because there were identical holdings they had not been included in the division of assets in 2013. The wife “exchanged” her superannuation entitlement for a real property in HX Town on a commercial transaction with someone unconnected with these proceedings. HX Town was then needed to enable her to discharge a second mortgage over another property to ensure her compliance with the October 2014 orders. Whilst the wife’s actions in shuffling around of assets (whilst making the husband very suspicious) did little to alter the equity of the parties, I accept, it was done to enable the second mortgage to be obtained to ensure compliance with the 2014 orders. I find it would not be appropriate for the Court to be critical and presume that she was ignoring the husband’s entitlements under the orders or indeed, thwarting them. I find this action does not justify the cascading orders.
Another complaint of the husband was that the wife purchased a property for their daughter at Suburb WD. The wife conceded that this was a gift but it was executed after the trial in 2013 and, it would seem, prior to the orders on 17 October 2014. She endeavoured to justify this disposal of assets on the basis that it was done at a time when the business was “doing well”. Perhaps unwise in hindsight but it is not of such profound importance that I could find that it was an arrogant move or one of defiance to defeat the husband obtaining his entitlements. The combination of that purchase and the acquisition of the HX Town property do not impact on my discretion. So what is relevant?
The other allegations of the husband
In a very comprehensive table, the husband set out a raft of property acquisitions he asserted had been made by the wife. He asked the Court to infer that these had the effect of tying up assets so that he would be thwarted. This was a basis for the “cascading” orders. The dilemma is that I have limited understanding of what effect each step would have on the overall financial position of the wife. It would concern me if the wife was left with significantly less than the Court intended in 2013 in circumstances where the outcome was due to matters beyond her control.
At face value, the acquisitions referred to might enable an inference to be drawn that the wife was thumbing her nose at both the Court and the husband. The wife however gave comprehensive answers explaining each vehicle and property purchase. Notwithstanding the parties were given the opportunity in terms of court time to do so, neither party required the other for cross-examination. The only conclusion I can draw is that the explanations were accepted by the husband.
Some of the vehicles about which the husband complained had been sold, others were acquired for engineering purposes whilst others again, were “replacement” vehicles used for family purposes. In my view, the wife has adequately explained why those matters took priority over satisfying the husband’s entitlements under the 2014 orders.
Bearing in mind the width of the extant orders, I do not find that the wife’s actions were in defiance of orders or thumbing her nose at the husband.
The supposed final orders were so complex, inter-twined and presumably carried corporate tax consequences, it was going to take time to unwind. For example, the husband’s home was encumbered as part of the financial structure and he took the home but gave the wife time to remove the mortgage. Another example concerns the “adjustment payment”. Notwithstanding what appears to be two defaults, the husband agreed to a delay. The orders now extant make provision for the wife to fulfil obligations in August 2016.
Some of the activities which the husband complained about and which look remarkably sinister can also be characterized as business transactions. The wife’s argument was that it has taken her time to do all this restructuring. Unfortunately, the husband thinks otherwise.
I am satisfied that some of the activities were either directly or indirectly associated with the business that she was entitled to keep. I take into account that the determination to allow her to keep the business was made in 2013 and immediately thereafter, she took on that responsibility.
In respect of some of the other properties that the wife had acquired, senior counsel for the husband acknowledged that the wife had encumbered them to the extent of 90 per cent. Thus, there was little equity involved but he submitted that the encumbering was not the issue so much as the fact that the wife had taken on the responsibility of servicing the debt. In the scheme of things, and on the balance of probabilities, I accept that whilst that may have been unwise, it may well be inequitable to now put in place orders of a cascading nature when there is, at best, a further anticipated breach. I accept the wife’s counsel’s submission that if another breach occurs, the husband still has remedies.
The wife’s position
The wife’s general justification for seeking the indulgence or opposing the cascading orders and indeed, a factor justifying the exercise of discretion in her favour was that “62 per cent of the asset distribution” to which the husband was entitled had in fact been settled upon him. She pointed to the fact that a further “18 per cent” could have been settled but the husband had not taken receipt of the properties. As an indication of how she saw that the husband was not prejudiced, she observed that the husband was still receiving $144,000 per annum under the orders during the executory nature of them. She pointed to other benefits that had been built into the order and there was no suggestion put to the Court of her non-compliance. She pointed to which she was responsible the payments on that mortgage of $9442 per month.
The wife’s refinancing agreement
Mr Mawson QC for the husband justifiably complained about the absence of information concerning the refinancing arrangements that the wife had undertaken. In part, the exposed agreement with the financier confirmed the wife’s evidence about her need to borrow against the HX Town property to discharge the mortgage over the DN Street property. Mr Mawson complained that the Court had been given a different explanation only days before by Mr Fildes about what the refinancing was for. I accept that it is a significant condition of the financing agreement that the wife is not permitted to charge any of the secured property. If an order was made of the type sought by the husband which would entitle him to lodge a caveat based on the charge, the financier would presumably baulk before the financing was put in place or potentially pursue the wife for a breach of the financing agreement if it occurred afterwards.
Despite the complex nature of what the wife was undertaking, I am satisfied that the only prejudice to the husband is that he is unable to immediately enjoy the full fruits (as distinct from 68 per cent or any other figure) to which he is entitled. However, he continues to receive benefits on his unpaid fruits and the enforcement remedies are still available.
I therefore accept that the sort of orders pursued by the husband in relation to making the wife give security of the nature of a charge or alternatively putting in place a default provision which if activated would have the domino effect and most probably put the various entities into the hands of a liquidator. In my view, that would be inequitable if there was otherwise sufficient equity in the properties over which the wife has control.
Is there sufficient equity to protect the husband?
In his submission, Mr Mawson QC maintained that the Court could not have confidence that there was sufficient equity such that if the wife did default, the husband would be able to recover. The only evidence that I have about that comes from an accountant acting for the wife who (perhaps inappropriately on an evidentiary basis), argued that he had made inquiries of a variety of agents seeking “market appraisals” of the various properties and that factoring in the various mortgages, there was still equity. Mr Mawson submitted that the Court could not rely upon those assertions of value because they were simply market appraisals.
The relevant agents had provided estimates and it was not suggested to me by the husband that these agents were not reputable. His argument was that they were not valuers. That goes without saying but each of the agents set out that their opinions were based on known comparable sales and market trends.
In the case of agent BG, he said that a market valuation depended upon evidence including comparable sales, market variables and the various features of the property. He said he had taken all of those matters into account and came up with the figure that he did.
Mr DB of CJ Agents was a little less confident indicating that price movements can occur very quickly and he thought it was important to consult again if there was to be a significant time delay before any sale.
Whilst I accept that all of these matters would be unreliable for the purposes of working out exact values of what the parties own, they give me a sufficient guide to enable me to be satisfied that there is sufficient equity bearing in mind the orders now in place.
Other actions of the wife
The picture is clouded because of what the wife appears to have done without the knowledge of the husband but clearly under his nose. It was Mr Mawson’s submission that these activities by the wife had frustrated enforcement. For example, in July 2015, she disposed of a piece of real estate at U Town to her accountant to pay the accountant’s debt and to provide some money for business purposes. It was submitted that $500,000 could have gone to the husband to satisfy the orders. She sold a property at RR Town for $3.5 million but by virtue of a round-robin of properties, no cash was generated. Indeed, as Mr Mawson submitted, the wife will have to borrow to complete the necessary round-robin. That does not however appear to me to thwart the husband because there little alteration in the equity position. In addition, like the superannuation situation, there are other contracted persons involved. I remain uncertain as to whether they might thwart any orders of the Court by insisting upon compliance by the wife absent some application under s 106B of the Act.
The husband complained bitterly about these activities. He had found out about them by the usual searching processes. However, as I observed earlier, based on the accountant’s evidence, the purchase of real estate and motor cars seems to do little to the net equity position of the wife and I am not satisfied that the husband is prejudiced to the extent that a cascading set of orders would be equitable. I consider the husband is justified in being upset with the wife as much for being ignored about her activities as he is about not getting the fruits of his judgment.
Mr Geddes QC for the wife pointed to the injunctions about mortgages as protection for the husband. Against that, Mr Mawson QC pointed to the fact that the wife was not candid in her discovery and the husband had to find out things that she was doing. Throughout all of this period, it would seem that the periodic payment entitlements of the husband were otherwise being met.
The Corporations Law issue
There is no argument that this Court has power to make an order under s 461 of the Corporations Act 2001 (Cth). Rule 25.02 of the Family Law Rules 2004, points to the application of the Corporations Rules if that Act is used.
Section 461 sets out the general grounds on which a company may be wound up by a court. The husband did not specify which particular ground he intended to rely upon in seeking virtually the last of the cascading orders and in my view, even if the order is not to be implemented now because of the cascading nature of the proposal, the Court must be able to understand how its power is being used. The only basis upon which I can see that s 461(1)(k) could be applied is if the Court is of opinion that it is just and equitable to wind up the entity. Presupposing that is what the husband would rely upon, Chapter 5 of the Corporations Regulations 2001 would apply. I am not convinced I have sufficient evidence to find that it would be just and equitable to make the order.
If the husband was to rely upon that provision he could not do so as a shareholder as he is no longer in that position. It is often used by family members who are shareholders in corporate entities where, as a result of the breakdown in their respective relationships, an impasse occurs relating to the effective governance of the corporate entity. That is not the case here.
Brereton J in Catombal Investments Pty Ltd [2012] NSWSC 75 opined that the decided cases about the use of this provision were recognised as falling into a number of classes including misconduct by the directors, the deadlock or disagreement in the management of the company’s affairs or the lack of confidence, fairness and public interest and commercial morality. Whilst his Honour thought that the words “just and equitable” were general words and I respectfully agree, the focus must be on the relationship between the applicant seeking the winding up order and the company or shareholdings. This is not a case in which there is a deadlock between the directors and shareholders because the husband is no longer holding that responsibility or that benefit.
As a precursor to winding up, if the cascading order was made for the shares to be transferred to the husband on a trust for sale, the court would have to consider its basis and whether there was sufficient evidence to justify making such an order. The transfer of the shares would not be absolute but rather in a trust capacity. I remain uncertain as to what would happen if the shares were transferred to the husband on a trust for sale only to partially satisfy the obligation of the wife. What would happen to the money over (if any)? The Court would need to know how the trust would operate bearing in mind that many people such as creditors might be affected by the orders. For example, would the husband be at liberty to sell the shares on a public basis and if so how? If the excess money went into the entity’s bank account, how would the distributions to the shareholder(s) be made? Would they be by way of dividend and what would the taxation consequences be?
As for a winding up of the entity, despite the reference by the wife to a downturn, I am not persuaded that on the evidence before me, G Pty Ltd is insolvent or trading improperly such as to justify the appointment of an administrator or a liquidator. In other words, I am unsure as to the justification for the winding up of the company.
If the basis of the husband’s application is a reliance on s 461(1)(k), on the evidence before me at this stage, I could not be satisfied that it would be just and equitable to make an order that would have the possible effect of enabling the winding up of G Pty Ltd and any other entity controlled by the wife.
Conclusion
The exercise of discretion is a balancing one. Here, the husband appears to me to be protected. He has already agreed to give the wife an extension of time for payment. The concept of cascading orders seems to me to be oppressive. The refusal of the court to exercise its discretion to immediately enforce its orders or indeed, to make orders of a cascading nature, does not preclude the husband from bringing further enforcement proceedings if the wife fails to comply with her obligations under the extant orders. Thus, in my view, it would not be just to make the orders sought by the husband having regard to the evidence presented of events subsequent to the October 2014 orders.
Accordingly, I decline to make those orders.
The final issue relating to paragraph 4 of the final orders
There was a further and relatively minor dispute between the parties. The distinction lies between paragraph 4(b) and 4(c) of the earlier orders. The orders provided for each of the parties to do certain things but one was dependent upon the other. The husband said that he could not do what he was obliged to do albeit that he had tried and the wife therefore said she was not in a position to do what she was obliged to do.
Senior counsel for the husband proffered a very sensible solution but it seems to me on the evidence, I would not be in a position to make a finding that one or other of the parties was at fault. In those circumstances, I am not prepared to make orders for enforcement of those provisions of the orders.
Costs
The parties also indicated that there may be applications for costs arising out of all of these proceedings. Accordingly, I have an agreement with counsel that it will be done by written submission and the determination made in chambers. The orders will provide for the deadlines.
I certify that the preceding Eighty Five (85) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 23 October 2015.
Associate:
Date: 23 October 2015