Maggio & Turner

[2021] FamCA 466

FAMILY COURT OF AUSTRALIA

Maggio & Turner [2021] FamCA 466   

File number(s):

MLC 6025 of 2020

Judgment of:

HARTNETT J

Date of judgment:

1 July 2021

Catchwords:

FAMILY LAW – PROPERTY – Interim Application – application for property distribution before final orders – application in a case by husband to wind up Trust and sell shareholding interest held by the parties – husband wishes to obtain finance to purchase home prior to final property proceedings – offer to purchase shareholding interest by existing shareholder at lower value – single expert valuation of shareholding interests – whether circumstances exist to grant interim orders – application in a case dismissed – no order as to costs.

Legislation:

Family Law Act 1975 (Cth) ss 79, 80(1)(h)

Family Law Rules 2004 (Cth) r 4.01

Cases cited:

Strahan & Strahan (Interim Property Orders) 2011 FLC 93-466

Number of paragraphs:

45

Date of last submission/s:

17 May 2021

Date of hearing:

17 May 2021

Place:

Melbourne

Counsel for the Applicant:

Ms Vohra S.C.

Solicitor for the Applicant:

Davison Family Lawyers

Counsel for the Respondent:

Mr Sweeney

Solicitor for the Respondent:

Lander and Rogers

ORDERS

MLC 6025 of 2020
BETWEEN:	MS TURNER Applicant
AND:	MR MAGGIO Respondent

ORDER MADE BY:	HARTNETT J
DATE OF ORDER:	1 JULY 2021

THE COURT ORDERS THAT:

1.The application in a case filed by the husband on 15 March 2021 is dismissed.

2.There be no order as to costs. 

Note:   The form of the order is subject to the entry in the Court’s records.

Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).

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

REASONS FOR JUDGMENT

HARTNETT J:

BACKGROUND

1. The husband works as a director at B Pty Ltd. His income receipt in respect of this employment is approximately $150,000 gross per annum.

2. The wife works as a manager for D Company.  Her income receipt in respect of this employment is approximately $120,000 gross per annum. 

3. The husband commenced working as a manager for B Pty Ltd in 1998. The parties commenced their cohabitation in late 2000 and married in 2003. They separated on 28 January 2019 after a cohabitation period of approximately 18 years. 

4. During the parties’ marriage, their three children were born. X was born in 2003. He is now 17 years of age and completing Year 12 at C School.  The parties’ daughter Y was born in 2007. She is now aged 14 years of age and in Year 9 at C School. The parties’ daughter Z was born in 2009.  She is now aged 11 years and in Grade 6 at C School. The children reside in a shared care arrangement in each of their parents’ households, and each of their parents contribute approximately one half to their schooling expenses, which in total sum, is approximately $100,000 each year. 

5. When the children reside with their mother, they reside in the former matrimonial home, which is known as and situated at F Street, Suburb G (the “F Street property”). When the children reside with their father, they reside in rental accommodation in Suburb H. The parties have paid the children’s school fees and expenses from dividends received by the Maggio Family Trust, and the Maggio Trading Trust (these trusts being described hereafter), which dividends are divided equally between the parties. The dividends for the financial year ended 30 June 2020 were approximately $1.3 million. 

6. In 2002, the parties set up a company, J Proprietary Limited, of which the husband and wife are directors and equal shareholders. That company became the trustee company of the Maggio Family Trust, established by the parties in 2002 for the purposes of purchasing shares in B Pty Ltd. The Maggio Family Trust acquired a 13.46 % shareholding in B Pty Ltd, funded through an ANZ bank loan, of which $110,920 remains outstanding. In acquiring such shareholding, the parties signed a “Participation Agreement”, as have all the shareholders of B Pty Ltd, which governs the terms and conditions upon which the parties own the shares.

7. In 2004, the parties established a further trust, namely, the Maggio Trading Trust, to purchase further shares in B Pty Ltd. J Proprietary Limited is also the trustee of the Maggio Trading Trust. The Maggio Trading Trust purchased at that time a 6.14 percentage shareholding in B Pty Ltd. It is the husband’s interim application that this Trust be wound up. The wife seeks dismissal of such interim application.

8. In 2008, the parties established K Proprietary Limited as a “bucket company” to manage distributions received from the Maggio Family Trust and the Maggio Trading Trust. That company has not been used by the parties for this purpose since approximately 2010. As at the end of the financial year 30 June 2020, K Proprietary Limited had retained profits of $441,429. It also had a taxation liability of approximately $107,000. The husband also seeks in his interim application that this company be wound up. The wife seeks dismissal of such interim application.

9. In 2017, the parties, as directors of J Proprietary Limited, acting for the Maggio Family Trust and the Maggio Trading Trust, signed an “Amended participation agreement” setting out the amended terms and conditions for their ownership of shares in B Pty Ltd. Clause 12 of the Amended participation agreement requires any assignment or transfer of B Pty Ltd shares to obtain Special Board Approval, which is the approval of at least 85 % of all directors of B Pty Ltd.

10. The most recent transfer of shares within B Pty Ltd for a retiring shareholder occurred on 31 October 2019. This was some nine months after the parties’ separation. Mr L, the uncle of the Applicant husband, transferred some part of the shareholding held by him for a value of $140,000 per percentage share. 

11. On 11 May 2020, the parties jointly instructed single expert Mr M of N Proprietary Limited to value their interests in B Pty Ltd. 

12. In the following month and on 10 June 2020, the wife filed an initiating application. On 12 November 2020 the wife filed an amended initiating application seeking, as final property orders, inter alia, to retain the F Street property, with the husband to pay to discharge the mortgage secured against that property, and with the husband to additionally make a further payment to her representing 65% of the total non-superannuation net assets.

13. On 16 July 2020, the valuation report of the parties B Pty Ltd shares was released by Mr M. In that valuation report, he valued the parties’ shareholding at $280,612 per percentage share.

14. On 2 September 2020, the husband filed his response to initiating application, wherein he sought final property orders, inter alia, that the wife retain the B Pty Ltd shares in the Maggio Trading Trust, that is, the 6.14% shareholding and that she retain the Maggio Trading Trust together with 3.66% of the B Pty Ltd shares in the Maggio Family Trust. That proposal would see the wife holding a total shareholding of 9.8%. The husband otherwise sought that he retain the Maggio Family Trust together with its remaining shareholding of 9.8%.  The husband agreed that the F Street property be transferred to the wife, but sought, that she discharge and refinance the existing mortgage and that 50% of the equity in the property be paid to the husband.

15. On 27 October 2020 however, the husband received an offer to purchase the 6.14% interest held by the parties, through the Maggio Trading Trust, in B Pty Ltd. The offer was received from Mr P, an existing shareholder in B Pty Ltd, who holds a 20.17% shareholding in B Pty Ltd. Mr P is one of the original founders of B Pty Ltd along with a Mr L and a Mr Q.  The value at which Mr P proposed to purchase the 6.14% shareholding interest was at a value of $150,000 per percentage point to the interest, being a total of $921,000 for the 6.14% interest. 

16. The correspondence to the husband in which such offer was set out, referred to the then: “midst of the current pandemic”[1] and stated that at that time, “the Victorian economy is only being kept afloat through JobKeeper and other government subsidies.”[2] Mr P expressed the view that: “it would be foolish to believe that the situation will not worsen even further over the next 12 to 24 months.”[3]

    [1] Affidavit of Mr Maggio filed 12 May 2021 at annexure “A”.

    [2] Ibid.

    [3] Ibid.

17. The wife has indicated her rejection of such offer.[4]  The husband would have accepted such offer made by Mr P.

    [4] Ibid at annexure “C”.

    CONSIDERATION

18. The husband, as is evident from his application in a case of 15 March 2021, is now desirous to cause all of the assets of the Maggio Trading Trust to be sold, including but not limited to, the sale of the shareholding in B Pty Ltd in accordance with the terms as set out in the Amended participation agreement between B Pty Ltd and others, including J Proprietary Limited Nominees Proprietary Limited as trustee for the Trust. 

19. The value of Mr P’s offer to the parties’ is 54% of the value attributed to the Maggio Trading Trust interest held in B Pty Ltd as determined by the single expert Mr M. No evidence is before me as to how Mr P reached his discounted valuation. There is, before me, no adversarial valuation. Neither party has put to the single expert, any specific questions in respect of his valuation report received by the parties in July 2020.

20. Mr M gave consideration to the sale of the partial shareholding of Mr L, (see paragraph 10 above) as set out at 5.5 in his single expert valuation report. Mr M said, relevantly, as follows:

    5.5 We note that the most recent sale of an interest in B Pty Ltd was by the S Business Trust on 31 October 2019. All Directors agreed to the sale, noting that 85% agreement is required for such a sale to proceed. However, no formal valuation was carried out. 

21. There appears no disagreement between the parties that the sale of the shareholding as sought by the husband, will deprive the parties of between $415,000 and $420,000 a year, as set out in the draft financial year ending 2020 Maggio Trading Trust taxation return and financial statement for the year ended 30 June 2020. 

22. The husband’s argument for selling the shareholding interest as proposed by him is to allow him to obtain finance to purchase a home in the sum of approximately $2 million. The wife continues to occupy the former matrimonial home, owned jointly by the parties, and has done so since the parties’ separation in January 2019. The husband continues to occupy rental accommodation nearby at a cost in excess of $700 each week, and he accommodates the children when they reside with him in that rental accommodation. He describes the rental property as a townhouse and wishes to obtain better accommodation to house himself and the children. He notes that in excess of two years have passed since the parties separated. The husband does not however, set out in his evidence before me, any urgent need to sell the interest held by the parties in the Maggio Trading Trust in B Pty Ltd, in particular, given the significance of that interest in the context of the entire asset pool as held by the parties. That interest also provides the parties with a significant income stream, from which to meet their living and other expenses. The sale, as proposed by the husband, will decrease that income stream for each of the parties in a significant way, in particular and relevantly, by comparison with any interest the husband may pay in borrowing costs for the purchase of a new home. The wife has indicated her preference that the husband access any additional monies needed by him by further loan taken out by the parties jointly, and paid by them equally, providing equity in the former matrimonial home as security for the advance of that loan, up to $500,000. The husband has the necessary income stream from the parties’ shareholding interest to purchase a home as proposed by him, being a home in his sole name with a mortgage encumbrance in his sole name, and meet repayments of principal and interest by application of that significant income stream. That was for him, in the last financial year, approximately $650,000. 

23. The parties’ 19.6% interest in B Pty Ltd is held as described in the preceding paragraphs, through the Maggio Family Trust as to 13.46% of B Pty Ltd and the Maggio Trading Trust as to 6.14 % of B Pty Ltd. 

24. Those interests are held, pursuant to the Amended participation agreement which was entered into in October 2017. 

25. The single expert, Mr M, attributed a value of $5,500,000 to the parties’ entire interest in B Pty Ltd, amounting to $280,612 per each percentage point. Mr M used the capitalisation of earnings method to value B Pty Ltd overall and divided that by the parties’ shareholding in B Pty Ltd of 19.6%. He then attributed a minority discount to the shares owned by the parties of 15%. He stated, as set out in paragraph 5.10 of his valuation report, relevantly, the following: 

    5.10 A minority interest discount makes more sense when valuing illiquid interests of asset holding companies, because there is market evidence that investment assets can trade at modest discounts to the underlying net asset values. For operating entities generating a flow of profit distributions, the case is harder to argue. It is a subjective decision, but in the circumstances outlined above it would be reasonable to apply a discount of no more than 15%.

26. This resulted in his rounded-up valuation of $5.5 million from a valuation of $5,431,160. 

27. The husband argued that the single expert failed to properly consider the Amended participation agreement’s limitation on sale rights, which in turn justified the parties’ interest as to the 6.14% shareholding being immediately sold with a significant discount to its value as ascribed by the single expert valuer. It is clear in the single expert valuation that Mr M did consider what steps needed to be undertaken in order to sell the parties’ interest in B Pty Ltd. 

28. The wife accepted the valuation of Mr M, although her Counsel noted in submissions, her proposal that there be an updated valuation undertaken by Mr M after the financial year ending 30 June 2021.

29. The husband’s evidence was that he could not afford to keep the B Pty Ltd shares held by the Maggio Trading Trust. That part of B Pty Ltd as held by the Maggio Trading Trust is valued at $1,722,959 by Mr M. Further, the husband deposed that he did not wish to keep this shareholding. In his response filed 2 September 2020, the husband proposed transferring such shareholding to the wife. The wife equally does not wish to retain the shares, and instead seeks a cash payment as a part of her entitlement in the property proceeding.

30. The husband submitted that in circumstances where neither party seeks to retain the shares in the Maggio Trading Trust that the shareholding should be sold.

31. The only present offer to purchase the parties’ shareholding in the Maggio Trading Trust is the earlier referred to $150,000 per percentage point, made by Mr P in October 2020. The wife claimed in respect of this offer that the husband was seeking to undersell a substantial asset of the parties. The husband disagreed. It was his evidence that he sought a sale of the shareholding and retention of the funds by way of part property settlement to enable him to now purchase a residential property close to the children’s school, and large enough to accommodate the children and himself. He claimed to have no security by which a bank would lend him funds.  He of course does have the equity in the former matrimonial home, being real property of which both he and the wife are joint proprietors, and in relation to which, there is some not insignificant equity. Further, the wife does not oppose further borrowings against the home.

32. There is no conclusive evidence before me at this time to indicate that the husband is attempting to deliberately undersell a substantial asset of the parties’. It is in his interests, as well as that of the wife, to maximise the sale price. He continues to work in B Pty Ltd. He has not sought to reduce the wife’s income from the dividends received by each of the parties, wherein the allocation of such payments remain equal as between the parties. 

33. The sale of the B Pty Ltd shares in the Maggio Trading Trust will mean a decrease of the dividends available to each of the parties. The wife’s estimate of that decrease is $415,786 per annum. 

34. The major point of dispute in the property litigation is the value of the B Pty Ltd shares. Ascribing Mr M’s valuation of $5.5 million for the B Pty Ltd shares, the overall asset pool of the parties is $6.673 million. The Maggio Trading Trust shares on that valuation are worth $1.418 million, not accounting for capital gains tax. If a price of $150,000 per percentage share was applied, the shares in the Maggio Trading Trust are worth approximately $921,000 less capital gains tax. 

35. The husband’s evidence was that the sale of the shares as sought by him:

    …will crystallise their value and eliminate the issue between the parties as to their worth. The realised value remains in the asset pool as it is characterised as a part property payment and is to be used to buy real estate, which may appreciate between now and any final resolution of this matter.[5] 

    [5] Husband’s Case Outline for Hearing – 17 May 2021 filed 13 May 2021 at paragraph 14.

36. The husband also sought the winding-up of K Proprietary Limited, which will produce a capital gains tax estimated to be $107,000 which will be required to be paid by the parties at that time.  

37. The principles concerning the making of a part property order are as set out in Strahan & Strahan (Interim Property Orders) 2011 FLC 93-466 (“Strahan”). The Court, has clear power to make an interim order in property proceedings, after identifying circumstances that make it appropriate to give consideration to exercising its power to make such interim order.

38. Counsel for the wife submitted the husband had not produced any evidence of his potential borrowing capacity, or any evidence of any efforts made by him to engage in the property market. That omission is acknowledged by me.

39. I am of the view that the shareholding need not be sold until the valuation is fully tested at trial, and that a trial can occur in this matter in November or December of this year. The updated financial position of B Pty Ltd will be known at that time. Such trial listing does not present a significant delay to the husband’s wish to purchase residential property in which to reside. With such a listing there is no justification for a sale of assets at the present time on the basis of the husband’s desire to purchase property. Further, I am not satisfied that the husband needs to liquidate the parties’ shareholding interest with any urgency. This liquidation can occur once the matter has been determined at trial or resolved as between the parties by agreement on a final basis. An order allowing the shareholding interest to be sold would, as submitted by Counsel for the wife: “clearly cause irreversible prejudice to the wife’s ongoing financial position.” The proposed sale would significantly reduce the parties’ disposable income, a matter not disputed by them, pending their final property settlement. Permitting the interest to be sold at the undervalued offer made by Mr P (by reference to the single expert valuation report of Mr M) would have the effect of reducing the asset pool available for division at the present time by approximately 12%.

1. The proposed sale would deplete the voting rights attached to the parties’ remaining shareholding interest by rendering their total interest less than 15%.  Paragraph 5.8 of the single expert valuation stated, in this regard, as follows:

   5.8 Mr Maggio controls 19.6% of B Pty Ltd, with 13.46% of profits distributed to Maggio Family Trust and 6.14% to Maggio Trading Trust. This is not sufficient in itself to determine the business strategy without the support of other partners, but it is enough to block a Special Committee Approval resolution (which requires the support of 85%). Clause 4.7 of the Participation Agreement specifies that all decisions made in Committee meetings must be determined by such a resolution, hence Mr Maggio wields some power within the Committee. Mr L controls 22.9% and Mr P 20.17%, but there is no other dominant party among the partners.

2. The husband does not have to accept the offer made by Mr P in October 2020. He can nominate the selling price of his interest in B Pty Ltd. Clause 12.3(a) of the Amended participation agreement which states as follows: 

   Subject to clause 12.4, if any Participant (Offering Participant) wishes to transfer any of its Interests, the Offering Participant shall serve a notice (Transfer Notice) on all other Participants (Recipient) specifying the Interest the Offering Participant is offering for sale (Sale Interests) and the terms and conditions of that sale for the Sale Interests including the purchase price. 

3. The husband must first offer his shareholding to the Board or another shareholder before offering such interest for sale to a third party (clause 12.7 of the Amended participation agreement). He would likely do so at the value used by the single expert. Counsel for the wife submitted that “oppression action” would presumably follow if the other shareholders insisted on a purchase at a 54% discount to value. 

4. There is a need for caution at this interim stage and when a trial can be a matter of months away. There is before me, a single expert valuation that has been obtained by the parties as to their shareholding interest held in B Pty Ltd. It remains unchallenged by the husband. The husband is not required to sell the parties’ shareholding at all or certainly at the present time.  Updated financial statements of B Pty Ltd to 31 March 2021 have not been produced to the wife and may, in the submission of Counsel for the wife, further strengthen the argument that (a) the offer made by Mr P is totally inadequate or (b) the single expert valuation is corroborated. 

5. The reliable evidence of value of the shareholding that is before me at the present time is that as contained in the single expert’s valuation of 16 July 2020.

6. The above reasons also apply to the husband’s interim application to wind up the company K Proprietary Limited. There is no prejudice identified by the husband as to why K Proprietary Limited should be wound up on an interim basis and urgently. That matter can be dealt with in the totality of the financial matters as between the parties at trial and more fairly and appropriately so.

I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Hartnett.

Associate:  

Dated:       1 July 2021