McDermott and McDermott and Anor
[2015] FamCA 574
•22 July 2015
FAMILY COURT OF AUSTRALIA
| MCDERMOTT & MCDERMOTT AND ANOR | [2015] FamCA 574 |
| FAMILY LAW – PROPERTY – LIQUIDATOR/ RECEIVER - where application by liquidator/receiver for declarations – where issue as to source of funds diverted to husband’s bank accounts – where appropriate to make declarations sought. |
FAMILY LAW – PROPERTY - INTERIM PROPERTY – where application by husband for interim property distribution in specie – where relevant property subject of receivership – where significant outstanding issues as to the available pool of assets for distribution – where consideration of relevant principles – where interim property application dismissed.
| Corporations Act 2001 (Cth) ss 420, 440D, 477, 479(3) Family Law Act 1975 (Cth) ss 79, 80(1)(k) Supreme Court Act 1970 (NSW) s 67 |
| Harris & Harris (1993) FLC 92-378 |
| APPLICANT: | Mr McDermott |
| RESPONDENT: | Ms McDermott |
| INTERVENOR: | Mr M |
| FILE NUMBER: | SYC | 70 | of | 2014 |
| DATE DELIVERED: | 22 July 2015 |
| PLACE DELIVERED: | Parramatta |
| PLACE HEARD: | Parramatta |
| JUDGMENT OF: | Foster J |
| HEARING DATE: | 9 and 10 June 2015 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Rosic |
| SOLICITOR FOR THE APPLICANT: | Hancock Alldis Roskov |
| COUNSEL FOR THE RESPONDENT: | Mr Lethbridge SCMs Eldershaw |
| SOLICITOR FOR THE RESPONDENT: | Campbell Paton & Taylor |
| SOLICITOR FOR THE INTERVENOR: | Colin Biggers & Paisley |
Orders
That the Court declares that any funds deposited into the Australia and New Zealand Bank Limited account number … – … and BSB number … in the name of the Second Respondent from 9 May 2014 are properly the property of the Company, the Partnership and Z on a proportionate split of 72.5 per cent to the Partnership and 27 per cent to the Company and 0.5 per cent to Z and that such property vests in Mr M in his capacity as receiver and manager of the Partnership and liquidator of the Company and Z.
That the husband’s application in a case be dismissed.
That costs of and incidental to the applications before the Court be reserved.
IT IS NOTED that publication of this judgment by this Court under the pseudonym McDermott & McDermott & Anor 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 PARRAMATTA |
FILE NUMBER: SYC 70 of 2014
| Mr McDermott |
Applicant
And
| Ms McDermott |
Respondent
And
Mr M
Intervener
REASONS FOR JUDGMENT
The present matter for determination is yet another application in the long-running property saga between the husband and wife.
The background to the matter was considered in the context of previous proceedings between the husband and wife in reasons for Judgment delivered on 14 April 2014 (McDermott & McDermott [2014] FamCA 245) and on 5 August 2014 (McDermott & McDermott & Ors [2014] FamCA 615).
On the 21 July 2014 Mr M of M Advisory was appointed as receiver and manager of the income and property of the parties’ partnership “B Partnership” (“the Partnership”).
With the parties’ consent on 13 August 2014 Mr M of M Advisory was appointed as liquidator of the parties’ company B Pty Ltd (“the Company”) following the making of a winding up order as to that company.
With the parties’ consent on the 18 December 2014 Mr M of M Accounting was appointed as liquidator of the husband’s company Z Pty Ltd (“Z”).
It has been necessary for the liquidator to make an application as to property of the various entities that are the subject of liquidation and or receivership. On 18 December 2014 orders were made by consent as to the disposition of sale proceeds of two vehicles including a Japanese motor vehicle. On 18 February 2015 an order was made facilitating the repossession of that Japanese motor vehicle and its delivery up to the liquidator.
In anticipation of the liquidator’s final report being available in a timely manner trial directions were made on 17 March 2015 fixing the matter for trial for 8 days commencing 9 June 2015. Thereafter, on 7 May 2015, it being apparent that the liquidator’s report would not be available in time for the trial which made the identification of the parties’ ultimate asset pool problematic, the trial dates were vacated.
The Present Applications:
The Liquidator’s Application
On 7 May 2015 the liquidator, Mr M, filed an Application in a Case supported by affidavit in relation to an issue arising from his role as a liquidator and receiver in these proceedings.
The Application in a Case relevantly sought the following orders:
a)A declaration that any funds deposited into the Australia and New Zealand Bank Limited account number … and BSB number … in the name of the second respondent from 9 May 2014 are properly the property of the Company, the Partnership and [Z] on a proportionate split of 72.5 per cent to the partnership and 27 per cent to the company and 0.5 per cent to [Z]. Such property vests in [Mr M] in his capacity as receiver and manager of the Partnership and liquidator of the Company and [Z].
b)The applicant be entitled to his costs of this application.
The husband sought an order that such funds in the said account vest in the liquidator as at the date of order in the current application. A consequence of such an order would render the liquidator’s application nugatory.
A liquidator may make application to the court for directions under s 479(3) of the Corporations Act 2001 (Cth) (“Corporations Act”). A liquidator may also bring or defend any legal proceeding in the name and on behalf of the company under s 477 of the Corporations Act.
A receiver under s 420 of the Corporations Act the has power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the objectives for which the receiver was appointed. Such powers by inference attach to a receiver of a partnership appointed under the general provisions of s 80(1)(k) the Family Law Act 1975 (Cth) or under s 67 of the Supreme Court Act 1970 (NSW).
On 9 May 2014 ex parte orders on application by the wife were made restraining the husband and the manager of the ANZ Bank I Town Queensland from transferring monies or making payments from ANZ accounts held in the name of the husband being ANZ account …52 (“the ANZ account”) and in the names of the husband and Mr R being ANZ account …43 to any person or entity other than to the National Australia Bank account held in the name of the Company being account ...20.
A copy of the order made on 9 May 2014 was promptly served on the manager ANZ Bank, I Town Queensland.
The wife’s application was adjourned to 12 May 2014 on which date the husband was represented by counsel. Directions were made for the husband to file material in response to the wife’s application and for the application to be listed for hearing on 28 May 2014.
Notwithstanding the orders made on 9 May 2014 the husband transferred $286,846.49 from ANZ account …52 in the period from 9 May 2014 to 15 August 2014. None of these transfers were paid to the Company account as ordered. It is the husband’s previous sworn evidence that those funds were those of the Company and the Partnership.
As at 9 May 2014 there was a balance in the ANZ account of $21,029.
The source of funds deposited to the ANZ account during the period 16 December 2013 to 28 May 2014 (there being no deposits between 9May 2014 and 28 May 2014) were subsequently identified by the liquidator as belonging to the Company as to 65 per cent and the Partnership as to 35 per cent.
Between 28 May 2014 and 21 July 2014 the Partnership under the direction of the husband hired assets to various third parties using a combination of Partnership and Company assets. Payments were invoiced to the third parties and those invoices directed payment to the ANZ account.
The source of funds deposited to the ANZ account between 9 May 2014 and 15 August 2014 were subsequently identified by the liquidator as belonging to the Partnership as to 72.5 per cent, the Company as to 27 per cent and Z as 0.5 per cent.
The source of further deposits totalling $39,815 made to the ANZ account between 9 May 2014 and 15 August 2014 is unknown. Further the husband on 14 August 2014 in breach of the injunctive order withdrew $50,000 from the ANZ account and deposited those funds to a Suncorp Bank account in his name. The husband asserts he has repaid those funds but the liquidator has been unable to reconcile the funds.
On 18 September 2014 the liquidator caused his solicitors to write to the ANZ Bank demanding payment of $383,457.22 to the liquidator within 14 days. By email on 17 December 2014 the ANZ Bank denied liability for the repayment. On 31 March 2015 the liquidator caused his solicitors to inform the ANZ Bank of proposed proceedings in the District Court of NSW to recover funds.
On 4 December 2014 the liquidator caused his solicitors to write to the husband’s solicitors demanding payment of $286,846.49 from the husband.
The husband says that he was not aware of the injunctive order until sometime after 19 May 2014, notwithstanding he was represented by counsel on 12 May 2014. Sometime after 28 May 2014 the husband procured the “reactivation” of the ANZ account asserting that he misunderstood the orders. His assertions in this regard were avoidant and ingenuous at best.
The husband provides his assertions in summary as to the purpose of various withdrawals from the ANZ account. He was not entitled to withdraw the funds. He does not take issue with the liquidator’s assertion as to the source of funds deposited to the ANZ account.
The husband has paid legal fees to date of about $175,000 and owes in unpaid fees about $50,000. The inference is that such fees have been paid from the funds diverted by him.
Ultimately the husband neither consented nor objected to the orders sought by the liquidator.
The liquidator is entitled to the relief sought. Orders will be made accordingly
The Husband’s Application
The husband’s Amended Application in a Case sought various orders but those relevant to the present determination are as follows:
a)That a crawler tractor (serial number …) be released to the husband within 7 days;
b)That the husband be permitted to enter upon the property at D Street for the purpose of collecting the tractor and thereafter he be permitted to sell the tractor for its fair market value and disperse the proceeds of sale as follows:
i)$200,000 to be paid as to $42,528.90 to the husband’s solicitors in payment of his outstanding legal costs and $150,000 to be held in the trust account of the husband’s solicitors for future legal costs with the balance to be paid to the husband;
ii)As to the balance to be held in a controlled monies account by the husband’s solicitors pending further order.
The husband says that he has incurred substantial legal costs to date in the proceedings and in part has met those costs with a borrowing from his parents $50,000. He anticipates that his future legal costs, not including legal costs in relation to apprehended domestic violence proceedings, will be about $170,000.
He asserts that he is unemployed in part as a consequence of orders made on 18 March 2014 restraining him from engaging in work of the type or nature that he had been engaged in, other than in the ordinary course of the matrimonial business. He says that he has had difficulty finding employment that will facilitate him having in effect a long weekend off each fortnight in order that he might visit his children.
He concedes that the role of the liquidator and receiver in these proceedings is ongoing but has an expectation that such external administration will complete shortly.
The wife, he says, has had the benefit of remaining in occupation of the primary matrimonial property, the benefit of the sale funds of an aircraft pursuant to previous orders and the use of the various assets and equipment remaining on the parties’ rural property and the income derived from activities thereon.
The wife has retained various items of plant and equipment that are the property of the Partnership with the consent of the receiver. It is the husband’s assertion that those items are of significant value. He further asserts that the subject tractor could be sold or utilised by him in earning an income. It is his further assertion that the tractor is sitting idle at the property.
The primary rural property of the parties has been valued by the single expert valuer at $1.35 million with a second property valued at $350,000. The properties had historically been used as collateral security by the National Australia Bank for the debts of the Partnership and or the parties’ company.
Consent orders have been made to facilitate the property participating in a project presently in place through the Commonwealth Government. The husband contends that significant other funds paid over a period will be available to the parties as a consequence of that project.
The wife opposes the orders sought by the husband.
She has remained living on the primary rural property since separation in December 2013. She has in her care the two children of the marriage, presently aged eight and six.
It appears to be common ground between the parties that at the commencement of their cohabitation in about 1986 there were no assets of any significance. Thereafter the accumulation of assets has occurred over what has been a lengthy cohabitation. Save for an inheritance received by the wife in late 2008 of about $100,000 there is little to distinguish between the parties’ contributions over the long cohabitation.
In the financial year ended 30 June 2013 the Company had gross income of about $6.9 million and a gross trading profit of about $4.5 million. In the financial statements for the Company the net assets of the Company were about $9.4 million.
In late 2013 the wife commenced to have financial concerns as to the Company. She became aware of various unpaid creditors. The parties separated in December 2013 with the husband leaving the rural property.
To protect her position the wife arranged that operation of the Company account required signatures of both she and her husband. In response the husband set up a second company through which he directed the Company and the Partnership revenue. That circumstance is referred to above.
In mid-December 2013 the wife asserts that the husband attended at the rural property and removed many items of plant and equipment from the property in her absence.
In the period from late 2013 to March 2014 the husband issued invoices directing payments for work undertaken by the Partnership or the parties’ company totalling about $740,000 to his personal ANZ account.
Thereafter the wife commenced to receive various default notices in relation to finance contracts entered into by the Company and she became aware that the Company overdraft was at its limit. She endeavoured to obtain access electronically to banking records only to find that the password had been changed by the husband.
Subsequently the wife became aware of a company tax liability of $257,903 due by 17 March 2014. The wife had not previously been aware of any accumulating taxation liability.
On 18 March 2014 orders were made by this Court requiring the husband to give certain financial disclosure and injuncting him from trading other than through the parties’ company. The husband was further ordered to provide details of work undertaken on his own behalf or by him through any other entity other than the Company in the period from 1 July 2013 to 18 March 2014. No such information was provided.
Otherwise the husband has failed to comply with various other obligations as to disclosure pursuant to orders made on 18 March 2014.
On 23 March 2014 the husband and another male attended at the rural property and without the consent of the wife removed from that property a bulldozer. Notwithstanding requests to do so the husband has failed to return that machinery to the property.
Thereafter the wife continued to receive various default notices in relation to financial contracts entered into by the Company and on 12 May 2014 received notification from the National Australia Bank that loan facilities were $290,000 in arrears.
Subsequently, on application to the Court by the wife a receiver has been appointed to the Partnership and orders for the winding up of the two companies referred to above have been made and a liquidator appointed.
On 13 August 2014 various items of plant and equipment were, with the consent of the receiver to the Partnership, to remain in the possession of the wife for the purposes of conducting the business on the rural property.
The wife has continued to operate the business on the rural property and has sold stock and agisted stock to derive income. That income has been used to meet the cost of running the property and the household and living expenses and legal fees of the wife. The husband pays no child support for the children of the marriage, it being his contention that he has no income.
There is no evidence as to the taxable income, if any, derived by the wife from the continuing operation of the property.
In the context of the interim application limited cross examination of the husband was permitted.
The husband gave evidence that he has access by way of the debit card to the Suncorp Bank account of X Pty Ltd, a company incorporated by his sister. As at the date of hearing the husband had had access to that account for some months.
When cross-examined in proceedings before the Court on 13 and 14 August 2014 the husband denied any knowledge of this company. Initially when asked as to what work was undertaken by the company the husband professed no knowledge. When pressed he suggested that the company was involved in work, not the same but similar to work undertaken by the parties’ company.
The husband was shown bank statements for the Suncorp account evidencing deposits from an entity “Y Pty Ltd” evidencing deposits from that entity to the Suncorp account of about $203,000. He professed no knowledge of the source of those deposits and no knowledge of other deposits of $93,533 and $55,000 on 30 October 2014, save to suggest it may have been for work undertaken.
Deposits totalling $75,000 were deposited to this Suncorp account in the period from late October 2014 until April 2015. The husband asserted no knowledge of the source of these deposits although acknowledged that X Pty Ltd hired out machinery on a similar basis as did the parties’ company.
There is significant suspicion as to the husband’s relationship with X Pty Ltd. There are significant unaccounted funds retained by the husband. There are items of plant and equipment not yet accounted for. The liquidation of both companies remains incomplete. The ultimate liability or otherwise of the parties arising therefrom is unknown. The ultimate personal liability of the parties arising from personal guarantees is unknown.
The principles as to applications for interim property provision are well settled, (Strahan & Strahan (2011) FLC 93-466; [2009] FamCAFC 166) and require a two-step process.
Firstly, there must be circumstances enlivening the power to make an interim order. The test is not limited to “compelling circumstances” but whether it would be “appropriate” to make an interim order, with the “overarching consideration” being the interests of justice.
In Strahan (supra), the Full Court said:
132. In relation to the first stage, in our view, when considering whether to exercise the power under s 79 and s 80(1)(h) of the Act to make an interim property order the “overarching consideration” is the interests of justice. It is not necessary to establish compelling circumstances. All that is required is that in the circumstances it is appropriate to exercise the power. In exercising the wide and unfettered discretion conferred by the power to make such an order, regard should be had to the fact that the usual order pursuant to s 79 is a once and for all order made after a final hearing.
Secondly, the Court is to have regard to relevant matters in s 79 of the Family Law Act 1975 (Cth).
It needs to be kept in mind that the final outcome of property settlement should not be compromised by an interim property order. Either the remaining property needs to be adequate to meet the legitimate expectations of both parties at the final hearing or the order that is contemplated needs to be capable of being reversed or adjusted if it is subsequently considered necessary to do so.
It is important to have regard to an overall caution. In Harris & Harris (1993) FLC 92-378, the Full Court said:
As a generality, the interests of the parties and the Court are better served by there being one final hearing of s 79 proceedings.
In Strahan (supra), the Full Court said at [132]:
… regard should be had to the fact that the usual order pursuant to s 79 is a once and for all order made after a final hearing.
There is no evidence adduced by the applicant husband as to the approximate property pool of the parties. Indeed the makeup of the property pool including liabilities of the parties awaits a final determination in the form of the liquidator’s report arising from the winding up of the two companies. It further awaits a report from the receiver of the parties’ partnership enterprise as to the final circumstances of that partnership.
The issues are further complicated by limitations on the Court’s power to deal with assets of companies in liquidation and by inference those of a partnership in receivership: See X Pty Ltd & Milstead and Anor [2015] FamCAFC 50 (30 March 2015)
Section 440D of the Corporations Act2001 (Cth) relevantly provides:
Stay of proceedings
(1) During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except:
(a) with the administrator’s written consent; or
(b) with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
...
There are such significant reservations as to disclosure historically by the husband and his financial dealings both before and after separation that the ultimate pool for adjustment purposes will not be known until after a protracted final hearing.
In such circumstances considering the matters set out above it is inappropriate to make an order for interim property provision in favour of the husband.
His application will accordingly be dismissed.
I certify that the preceding seventy-three (73) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Foster delivered on 22 July 2015.
Associate:
Date: 22 July 2015
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