Millet and Millet

[2018] FamCA 1047

FAMILY COURT OF AUSTRALIA

MILLET & MILLET [2018] FamCA 1047

FAMILY LAW – PROPERTY – Interim – Where the parties have outstanding taxation liabilities – Whether the proceeds of sale of a property are to be paid into an account – Where the wife seeks to retain a property that the husband now seeks to sell.

APPLICANT: Mr Millet

RESPONDENT: Ms Millet

FILE NUMBER: ADC 1788 of 2018

DATE DELIVERED: 11 December 2018

PLACE DELIVERED: Adelaide

PLACE HEARD: Adelaide

JUDGMENT OF: Berman J

HEARING DATE: 23 November 2018

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr McGinn

SOLICITOR FOR THE APPLICANT: Clelands Lawyers

COUNSEL FOR THE RESPONDENT: Ms Clark

SOLICITOR FOR THE RESPONDENT: Howe Jenkin

Orders

1. That the parties do all things necessary and sign all documents as may be required, in particular documents forwarded to the wife by the husband’s solicitor under cover of letter dated 22 June 2018 to enable a bank account to be opened in the name of B Pty Ltd Pty Ltd.

2. That the net proceeds of sale of the property at C Street, Suburb D be deposited into the B Pty Ltd Pty Ltd bank account.

3. That the parties be restrained and an injunction is granted restraining each of them from withdrawing, pledging, transferring, assigning or in any way dealing with the net proceeds of the sale of the Suburb D property pending further order or as may be agreed between the parties in writing.

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

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

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 r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT ADELAIDE

FILE NUMBER: ADC 1788 of 2018

Mr Millet

Applicant

And

Ms Millet

Respondent

REASONS FOR JUDGMENT

INTRODUCTION

1. By Initiating Application filed 9 May 2018, Mr Millet (“the husband”) seeks an equal division of the superannuation and non-superannuation assets of the parties, but in particular that he retain the following:-

   (1)The property at E Street, Suburb F;

   (2)The Mr Millet Trust;

   (3)The Millet Property Trust;

   (4)The Millet Investment Trust;

   (5)The P Trust;

   (6)The G Unit Trust;

   (7)H Country J Pty Ltd;

   (8)K Limited;

   (9)H Asia Pty Ltd;

   (10)H International Pty Ltd;

   (11)H International Trust;

   (12)B Pty Ltd;

   (13)L Pty Ltd; and

   (14)M Pty Ltd.

2. The husband concedes that the wife should retain the property at N Street, Suburb O together with furniture and effects and the wife’s personal belongings.

3. By Response filed 15 June 2018, Ms Millet (“the wife”) seeks a division of the non-superannuation assets of the parties as to 70/30 percent in her favour and relevant to the current application, she seeks that the husband cause L Pty Ltd as trustee of the P Trust to transfer to the wife its interest in property situate at Q Street, Suburb R (“the Suburb R property”).

4. The wife agrees to resign as a director of various companies and to transfer and assign to the husband any interest she may have as a beneficiary or otherwise in various trusts.

BACKGROUND

1. The parties commenced cohabitation in 1994, were married in 1994 and separated in January 2015.

2. There are two children of the marriage X born in 2004 and Y born in 2007 (“the children”). The children live primarily with the wife and spend regular time with the husband.

3. The parties commenced cohabitation in August 1994. The husband was the registered proprietor of a property at Suburb S. It was purchased for $143,000 in June 1993 and although not agreed, the husband contends that there was a home loan secured against the property in the sum of $80,000. The husband also held a quantity of jewellery the value of which is not agreed.

4. The wife did not have any assets or liabilities at the commencement of cohabitation.

5. Over the ensuing years various properties were bought and sold.

6. In May 2016 a decision was made that the business would move one of its components to Country J. A business located on the outskirts of City T was purchased and a majority share was acquired. The remaining shares were purchased in May 2017. The overseas enterprise constitutes 70 percent of the production. Staff are employed in both City T and in Adelaide.

7. The husband is a tradesman and considers that he has significant experience in large manufacturing.

8. The parties agree that the husband managed the manufacturing side of the business which included design, sales and marketing, purchasing raw materials and the training and management of employees, whereas the wife’s role included financial oversight, account management and IT including website development and stock control.

9. The husband states that as a result of an increase in competition the market has significantly tightened resulting in a reduction of market share.

THE SUBURB D PREMISES

1. The husband purchased an investment property at C Street, Suburb D (“the Suburb D premises”). It has been leased since purchase.

2. The husband decided that the Suburb D property needed to be sold in order to rationalise the assets of the business and to reduce liabilities. The Suburb D property was sold and settlement occurred on 10 October 2018. The net proceeds of sale were $490,100.12. The wife alleges that the husband transferred $192,000 into the cheque account of Millet Pty Ltd to offset div 7A loans.[1] There remains the net proceeds of $298,100.12. By reference to proposed orders 8 and 9 of the Reply filed 21 September 2018, the husband seeks that the wife sign documents to cause a bank account to be opened in the name of B Pty Ltd Pty Ltd and that the net proceeds of the Suburb D property be placed in that account pending further order or subsequent agreement.

   [1] Loans pursuant to div 7A of the Income Tax Assessment Act 1936 (Cth).

THE SUBURB R PROPERTY

1. L Pty Ltd as Trustee for the P Trust is the registered proprietor of a property at Q Street, Suburb R (“the Suburb R property”).

2. The husband is the sole director of L and holds two A Class Shares. The wife holds one B Class Share.

3. It seems uncontroversial that the Suburb R property was used as a family beach house and from time to time has been placed on the short-term rental market.

4. By reference to [10] of the Reply, the husband seeks that the Suburb R property be sold and the net proceeds of sale deposited into the B Pty Ltd account. The property has been recently valued in the amount of $1.25 million. Whilst there is no agreement with the valuation sum it is a property of substantial value.

5. The husband’s initial position is that he sought to retain control of the Suburb R property although he now seeks that it be sold. The wife resists the husband’s application for sale and seeks to retain the property as part of her final orders.

6. The wife has caused a caveat to be registered over the Suburb R property on 22 November 2018.

THE HUSBAND’S POSITION

1. The husband contends that the parties are the subject of onerous div 7A loan liabilities that need to be reduced. It is only by recourse to the provision of funds by the parties into the accounts of B Pty Ltd that the parties obligations to the Australian Taxation Office can be brought under control.

2. As at 21 September 2018 the husband sought that the net proceeds of the Suburb D property be used to reduce div 7A loan accounts in B Pty Ltd, but by reference to the husband’s Reply he now seeks the sale of the Suburb R property.

DIVISION 7A LOANS

1. The husband relies upon the Affidavit of Mr U filed 21 September 2018. Mr U is a chartered accountant and is responsible for maintaining the MYOB accounting system for Millet Pty Ltd. He has prepared and completed the financial statements for the various companies and trusts in the Millet Group.

2. By reference to Table 4 in his affidavit he summarises the div 7A loans in B Pty Ltd Pty Ltd as at 30 June 2017 in the sum of $1,654,839 with a further div 7A loan in respect of the Suburb D property of $143,179.

3. The amount to be repaid in 2018 is $375,864 with interest of $88,711 totalling $464,575.

4. Mr U recommends that the balance of the net proceeds of the Suburb D property be deposited to B Pty Ltd account in reduction of div 7A loans and that “to solve the problems arising from the Div 7A loans summarised in Table 4”, the Suburb R property should also be sold.

5. It appears that the wife accepts the extent of the div 7A loans but argues that the overall proceeds of the Suburb D property at $490,100 is sufficient to meet the 2018 div 7A obligations and given that the next tranche of funds needed is not due until 30 June 2019, it is premature to sell the Suburb R property. The parties are to engage in mediation and the wife seeks the opportunity to present evidence that may enable the div 7A loans to be better managed.

6. If proceedings are not resolved by early 2019 the need for the sale of the Suburb R property could be revisited without any prejudice caused.

7. The husband counters the wife’s opposition to the sale of the Suburb R property by reference to the substantial interest component that the business is required to pay in each financial year. As discussed, the interest that is likely to be incurred by B Pty Ltd in the 2019 financial year would not be dissimilar to that incurred in the 2017 financial year.

THE V VALUATION

1. By joint letter of instruction, Mr V of W Accountants was appointed to conduct a valuation of the Millet Group. Annexed to Mr V’s Affidavit of 21 September 2018 is his valuation report dated 23 June 2017. At [7.58] of the report he considers that the total value of the parties business interests is $5.284 million which includes a notional value of the Suburb R property including plant and equipment of $1,164,525 and div 7A loans from B Pty Ltd to the parties for the period 2012 to 2016 in the sum of $1,337,290 offset by loans from and to the parties totalling $972,079.

2. At [2.60] of the report Mr V considers the status of the Suburb R property noting that it was acquired by the P Trust post Capital Gains Tax (“CGT”) and assuming a sale at the Z Valuation as at 27 April 2017 of $1,150,000, the implied CGT payable would be $583,136.

3. Mr V has not brought to account the potential CGT given that at the time the parties did not express any intention to sell the Suburb R property in the near to medium term.

4. At [6] Mr V considers the status of the div 7A loans and generally his discussion accords with that of Mr U, noting that the valuation report considers the financial position of the Millet Group as at 30 June 2017.

CONCLUSION

1. The parties are possessed of significant assets and entitlement to superannuation.

2. The net position of assets and liabilities has not been agreed although the husband generally accepts that the wife should retain the former matrimonial home at N Street, Suburb O which is subject to a mortgage to the National Australia Bank (“NAB”) by way of collateral security for various loans of the Millet Group.  The husband seeks to retain his property at E Street, Suburb F which is also subject to a NAB mortgage of $1,160,252.

3. There was no argument on behalf of the husband that in terms of the overall pool of property available for division, even on the wife’s case it was unlikely that she would be able to retain the Suburb O and Suburb R properties freehold.

4. It was not the initial intention of the husband to sell Suburb R. By reference to his Initiating Application, he sought to retain the Suburb R property. He does not now pursue that order presumably in deference to the advice of Mr U that substantial funds would be required to discharge the outstanding div 7A loans and the only reasonable source would be the Suburb R property.

5. It seems reasonable that the wife cooperate with the creation of an account in the name of B Pty Ltd. The Suburb D property has been sold and the remaining proportion of the net proceeds of sale should be paid into that account. In doing so and acknowledging that on 29 June 2018 the husband transferred $192,000 from the Suburb D proceeds to address the div 7A issue and that there is a further sum of $298,100.12 available, this also should be placed in the newly created account and would represent a payment sufficient to satisfy the terms of the various div 7A loans for the 2018 financial year.

6. The parties should be given an opportunity to explore a settlement of the proceedings and if unsuccessful consideration could thereafter be given to the retention of the Suburb R property prior to the conclusion of the 2019 financial year.

7. I am also mindful of the potential CGT impost that may be triggered by the sale of the Suburb R property.

8. If the wife retains the Suburb R property then presumably the CGT would not necessarily be brought to account as a liability of the parties.

9. Accordingly, no compelling case has been made out for the sale of the Suburb R property at this time.

10. I make orders as appear at the commencement of these reasons.

I certify that the preceding forty four (44) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Berman delivered on 11 December 2018.

Associate:

Date: 11 December 2018