Monsoon & Monsoon
[2011] FamCA 35
•2 February 2011
FAMILY COURT OF AUSTRALIA
| MONSOON & MONSOON AND ANOR | [2011] FamCA 35 |
| FAMILY LAW – PROPERTY – Where proceedings listed for final hearing – where husband failed to fulfil disclosure obligations and comply with trial directions – where prompt realisation of some assets and payment of some liabilities required – partial property settlement orders made and matter adjourned for further hearing |
| Family Law Act 1975 (Cth) |
| APPLICANT: | Ms Monsoon |
| RESPONDENT: | Mr Monsoon |
| SECOND RESPONDENT: | G Pty Ltd |
| FILE NUMBER: | (P)NCC | 3160 | of | 2008 |
| DATE DELIVERED: | 2 February 2011 |
| PLACE DELIVERED: | Newcastle |
| PLACE HEARD: | Newcastle |
| JUDGMENT OF: | The Hon. Justice Ryan |
| HEARING DATE: | 29 November 2010 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Davies |
| SOLICITOR FOR THE APPLICANT: | Turner Freeman Lawyers |
| RESPONDENT: | In person |
| SECOND RESPONDENT: | No appearance |
Proposed orders (pending disposal of the proceedings)
Ms Monsoon (“the wife”) and Mr Monsoon (“the husband”) shall do all acts and things and sign all such documents as reasonably required to cooperate with Westpac Bank in the prompt sale of the properties situate at and known as C property, being the whole of the land in folio identifier ….
That on settlement of the sale of the property the net proceeds be paid as follows:
(a)In payment of real estate commission and legal costs of sale;
(b)In discharge of the mortgage secured on the property;
(c)In discharge of the Westpac Bank Traders Bill of Sale secured on the property;
(d)In payment of outstanding council and water rates;
(e)Two thousand ($2,000.00) to the husband;
(f)Fifty per cent to the wife plus an amount equivalent to:
(i)Fifty per cent of the amount by which the Westpac Bank mortgage secured against the home increased from the date of the parties’ separation until the date of settlement;
(ii)Fifty per cent of the amount paid for council rates and water rates on settlement;
(iii)If the property sells for less than $340,000, fifty per cent of the difference between $340,000 and the selling price;
(g)To the husband the balance.
The parties shall forthwith join in the sale of W property in relation to which the wife is appointed trustee for sale and is authorised to do all acts and things, and sign all such documents as are necessary to sell W property at the best price reasonably obtainable by the trustee.
That on settlement of the sale of W property the net sale proceeds be paid as follows:
(a)In payment of real estate agents commission and legal costs of sale;
(b)In payment of rate of adjustments;
(c)Any shortfall to a third party creditor referred to in the orders for the sale of C property;
(d)Any shortfall due to the wife from the sale proceeds of C property plus $1,000;
(e)$11,000 to the Commonwealth Bank Mastercard in the parties joint names;
(f)$5,000 to the Coles Group Credit Card in the husband’s name;
(g)Fifty per cent to the wife; and
(h)Balance to the husband.
Excluding the payment due to the husband pursuant to order 2(e) above, any funds due to him directly from the sale proceeds of C property and W property shall be paid to the solicitors for the wife to be held on trust for him in a controlled monies account pending further order.
No later than 24 February 2011 the husband shall;
(a) file and serve an affidavit which identifies:
(i)the manner in which all funds withdrawn by the trustee of the G Superannuation Fund post separation have been disbursed;
(ii)details of all accounts into which funds withdrawn by the trustee from G Superannuation Fund by him have been paid;
(iii)copies of bank records from G Superannuation Fund which verify par (ii) above;
(iv)establishes G Pty Ltd is solvent;
(b)serve upon the wife a complete set of financial accounts for G Pty Limited current as at 30 June 2010; and
(c)obtain at his expense a valuation of the husband and wife’s shareholding in G Pty Limited current as at 30 June 2010.
A sealed copy of these orders shall be served upon G Pty Limited forthwith.
IT IS NOTED that publication of this judgment under the pseudonym Monsoon and Monsoon is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT NEWCASTLE |
FILE NUMBER: (P)NCC3160 of 2008
| MS MONSOON |
Applicant
And
| MR MONSOON |
Respondent
And
| G PTY LIMITED |
Respondent
REASONS FOR JUDGMENT
These are property settlement proceedings. After approximately 40 years of married life during which each of the parties has made a vast array of contributions, it is agreed their contributions are equal and that there should be no s 75(2) adjustment. The parties agree certain assets should be distributed in specie. Ultimately, the pivotal issues for the hearing concern the treatment of post separation liabilities incurred by the husband and a family owned business. There are also issues about withdrawals made by the husband from a self managed superannuation fund. Shortly prior to the hearing Westpac Bank commenced proceedings to take possession of the former matrimonial home where the husband has resided since separation and in relation to which he has failed to pay a small mortgage. Because of the difficulty which the wife anticipates will be involved in obtaining vacant possession, she is content judgment is entered against the parties and the bank has control of the inevitable sale of this property.
The husband has no plans to bring the Westpac Bank mortgage arrears up to date, defend the application commenced by the mortgagee bank, or to vacate the former matrimonial home. Although he is in regular contact with the mortgagee bank he has been unable to persuade them to adopt another course. There are also significant council rates arrears, the landline to the former matrimonial home have been disconnected, the parties’ self managed superannuation fund depleted and since separation, significant arrears in PAYG and GST amounts due by the company to the Australian Taxation Office (“ATO”) have accrued.
When the parties separated in July 2007 their financial affairs were in order, in the sense they were able to meet personal and company expenses. It is noteworthy that not long before the parties separated the company stopped paying rent on premises the parties owned and raised significant funds to pay accrued GST and PAYG to the ATO. The point being, although the parties continued to receive Director’s fees and wages, as the valuer subsequently revealed, there were signs the company was faltering.
When the hearing finished the evidence was insufficient to enable the Court to make necessary findings which would support final property settlement orders. There were valuation difficulties and particular problems in relation to the position of the family company. One option was to order the sale of all assets, discharge all liabilities and appoint a Receiver to the company. This would have been harsh, particularly in circumstances where the husband was keen to have the business remain in the family. There were, however, pressing matters, which required the realisation of some assets and payment of some liabilities. Thus I discussed with the parties that the Court make partial property settlement orders and adjourn the matter for further hearing. That is, grant them one final opportunity to rectify evidentiary difficulties as well as provide the husband a further chance to produce evidence in relation to post separation liabilities, the distribution at his direction of funds withdrawn from a self managed superannuation fund and bring the company financial accounts up to date.
Putting to one side s 79A of the Family Law Act 1975 (Cth) (“the Act”) and appeals, it is well settled there can be only one exercise of s 79 power. However, this power may be exercised by a succession of orders until the s 79 power is exhausted. The power is exhausted when there remains no property with respect to which orders by way of alteration of interests in property could be or have been made. In other words it is only the final order, which deals on a final basis with all of the parties’ known property, which exhausts the s 79 power.
In determining what orders promote a just and equitable outcome, the Court need only undertake a brief analysis of relevant s 79 and s 75(2) factors. Because of concessions made by the husband and wife in relation to the evaluation of contribution and s 75(2) factors, subject to preserving to the adjourned final hearing the capacity to make any necessary adjustments, I accept at this stage the approach taken by them.
Short history
Mr Monsoon (“the husband”) was born in 1950.
Ms Monsoon (“the wife”) was born in 1953.
The parties married in 1971.
The first of their five children, K was born in 1971. D was born in 1978, M in 1983 and twins H and N in 1989. All children are over 18.
In 1974 the parties and the wife’s brother, Mr L, incorporated G Pty Limited (“the company”). It was originally set up as a small business which operated from the garage of a property owned by the wife’s parents.
In 1982 the parties purchased Mr L’s interest in G Pty Limited for $350.
In 1984 the parties purchased from the wife’s parents property at C (“the former matrimonial home”).
In 1992 the parties purchased E property in their joint names.
In 1999 G Pty Limited purchased W property.
On 27 July 2007 the parties separated. The husband remained in the former matrimonial home and in control of the business. The wife moved to her sister’s home.
In July 2007, without the wife’s knowledge, the parties’ adult son K was appointed a Director of G Pty Ltd. K and a number of the parties’ other children were and continue to be employed by G Pty Ltd.
On 4 September 2007 the husband and K, on behalf of G Pty Ltd, authorised commercial hire purchase finance with Westpac Bank in the amount of $192,500. This related to the acquisition of business equipment.
In mid March 2008 the husband commenced weekly payments of $350 to the wife.
In November 2008 the weekly payments to the wife increased to $500.
On 1 December 2008 the wife commenced these proceedings.
In March 2009 the wife’s father passed away. The wife is a beneficiary in her father’s estate.
In August 2009 the husband as trustee withdrew the first of a series of sums from the G Superannuation Fund. The trustee of the parties’ superannuation fund is G Pty Limited.
In November 2009 the husband ceased payments to the wife.
On 8 November 2009 the wife moved into her father’s home.
In January 2010 the parties’ son K resigned as Director of G Pty Ltd.
In March 2010 the wife’s brother Mr L filed a claim against their father’s estate.
By agreement, in March 2010, $6,000 was paid from G Superannuation Fund to the wife.
By agreement $60,000 was withdrawn from G Superannuation Fund and paid to the wife in May 2010.
On 29 September 2010 the husband’s solicitors ceased to act.
In October 2010 Westpac Banking Corporation informed the parties it was considering legal action in relation to mortgage arrears. The husband, without telling the wife, stopped paying instalments for the mortgage secured on the former matrimonial home, in September 2009.
To appease their banker, the parties listed another property owned by the company at W for sale at public auction in October 2010. Unfortunately, there were no bids. The property is now listed for sale at $490,000. This is $95,000 more than the parties agreed the property was worth in September 2009. As there is no evidence of improvements in the intervening period, there would seem to be some force to the wife’s contention this higher sale price is unrealistic. According to the husband, the lack of buyers interested in the property has caused some consternation to the business’ banker. The wife proposed she is appointed trustee for sale of this property, which as I understood it, the husband does not oppose.
In late October 2010 the wife obtained casual employment as a house-keeper.
In mid November 2010 the parties were served with Statements of Claim issued by Westpac in relation to the non-payment of the mortgage. Neither party proposes to make good the arrears and it is inevitable the property will be sold. As the property is also security for a trader’s bill of sale, which has a debit balance of approximately $280,000, it is anticipated this loan will be paid out from the sale proceeds of C property. The effect of this is unless the property sells for its previously agreed value of $340,000 there may be a deficit after settlement.
The hearing
Prior to filing a Notice of Ceasing to Act, the husband’s lawyers applied for the appointment of a case guardian to represent him. His solicitor deposed to difficulties experienced by her receiving instructions and his repeated failure to give her documents in his possession which she needed. Somewhat antiquated medical evidence was provided which showed if the husband was abusing alcohol, then anti-depressant medication, prescribed for him, would be ineffective. The evidence relied upon was insufficient and the application failed. During later appearances the Court was informed negotiations between the parties were continuing and agreement was anticipated. In the end, agreement remained elusive and the matter was called on for hearing. The case guardian application was not renewed.
Unfortunately the majority of directions made for the hearing were not complied with. Relevantly, a current valuation of G Pty Limited was not undertaken and the husband did not file a trial affidavit.
In the week prior to the hearing my Associate contacted both parties to chase an up to date joint balance sheet and other trial documents. Because of the husband’s failure to cooperate, the wife’s lawyers prepared these documents without his input.
When the hearing commenced the husband failed to appear. Earlier in the morning the parties’ daughter-in-law, Y, sent an SMS message to the wife informing her the husband would not attend the hearing. No explanation was given for his non-attendance. The wife’s application essentially proposed she transfers her interests in the parties’ assets to the husband and he pays her $500,000 and indemnifies her in relation to joint liabilities. In circumstances where it was clear the parties were in default of various joint liabilities, the mortgagee was about to take possession of one property, the G Pty Limited valuation was old and potentially flawed, plus there was evidence the SIS regulations may have been breached by the trustee, I intimated to counsel for the wife it appeared the only way the Court could determine the asset pool and comply with s 81 finality was to order the sale of the parties’ assets, wind up G Pty Limited and, after payment of liabilities, divide the net assets between the parties.
Counsel for the wife conceded the difficulties referred to and indicated the wife was keen to be released from any continuing liabilities due via her interest in G Pty Limited and as mortgagee. Thus, the wife sought G Pty Ltd be wound up and real property be disposed of. The difficulty with this approach was the husband had no notice orders other than those sought in the wife’s further amended application might be sought. When the orders sought in her further amended application and the husband’s response were compared it was apparent he agreed the business and real estate would be transferred to him. On these documents, the primary issue was what adjusting amount, if any, he should pay the wife. Although something of a simplification, the husband’s approach is G Pty Ltd should continue to operate for the benefit of the parties’ children and, whatever the parties need to do to achieve this outcome should be done. If needs be, this includes the wife foregoing her interest in matrimonial assets.
Because of the evidentiary and procedural fairness issues, I decided to contact the husband by telephone. This was arranged through Y. As the husband rarely leaves the house and his home telephone is disconnected, equipped with her mobile telephone, Y left the G Pty Ltd business premises and went to the former matrimonial home. The husband then linked in by telephone. He made plain his opposition to G Pty Limited being wound up.
I was troubled at what appeared to be the husband’s lack of appreciation of the gravity of the situation and his capacity. He informed me he continued to take anti-depressant medication, which had been prescribed for him as recently as six weeks ago. He said he rarely left the house and the business was operated by the parties’ adult children. I explored with the husband his understanding of the court’s processes and my role. His responses satisfied me he had an adequate appreciation of the Court’s function, his obligations, range of outcomes and relevant considerations. Although I was initially concerned the husband’s voice sounded thick and his speech slurred, as the day wore on it became tolerably clear this was not a sign he had taken heavy doses of medication, or was affected by alcohol. It seemed to be nothing more than initial nerves which resolved as he settled into the hearing.
It is beyond dispute the husband failed to give full and frank disclosure as required. In addition, there were real difficulties in relation to valuation evidence. I contemplated adjourning the hearing of the Court’s own motion so that these, and the procedural fairness issue to which I have earlier made reference, could be addressed. At one point during the hearing, the husband also sought an adjournment. Ultimately, I was not satisfied an adjournment would achieve anything other than delay and increased costs. As a review of the file would disclose, there was serial non-compliance with directions. I was very concerned that unless there was resolution to the property settlement proceedings, if the current situation were allowed to continue, very little would remain. This was not an issue about taking steps which might potentially defeat the legitimate claim of unsecured creditors, but rather bringing some order to the parties’ financial situation and preserving for them their remaining net assets. Before the hearing was completed, both parties, notwithstanding the evidentiary difficulties and other matters discussed, invited the Court to finalise their property settlement.
The husband and wife previously agreed G Pty Limited should be joined as a party. This occurred and on a number of occasions the husband’s former solicitors informed the Court they also represented the company. Before the company was joined, the parties attended a case management hearing before the Docket Registrar. Each of the husband and wife was represented by counsel and with the Registrar’s oversight, completed a balance sheet. That is, a statement of the assets, liabilities and financial resources together with the values attributed to these.
Agreement was reached in relation to the value of the number of assets. The agreed balance sheet is set out below:
| Ownership | Description | Wife’s value | Husband’s value | ||
| 1 | Joint | [C property] (FMH) | 340,000 | 340,000 | |
| 2 | Joint | [E property (business premises) | 440,000 | 440,000 | |
| 3 | 5/8 Joint +3/8 Children share-holding | [G] Pty Limited (including liabilities, land located at [W] with agreed value of $400,000 + plant and equipment and goodwill with agreed value of $402,000 [inclusive of 3 motor vehicles with agreed values of $12,000 for 1999 Landcruiser, $15,000 for 2002 Landcruiser and $18,000 for 2004 Ford Courier] + 7 head of cattle with an unknown value) | 802,000 | 802,000 | |
| 4 | Joint | Debt owed by [G] Pty Limited for rent arrears on [E property] | 10,000 | 10,000 | |
| 5 | Wife | Household contents | 5,000 | 5,000 | |
| 6 | Wife | Savings | 520 | 520 | |
| 7 | Husband | Household contents | 5,000 | 5,000 | |
| 8 | Husband | Savings | 127 | 127 | |
| 9 | Husband | Yamaha YZ450 trail bike | 7,000 | 7,000 | |
| Total | $1,609,647 | $1,609,647 | |||
| ADDBACKS | |||||
| 10 | 0 | 0 | |||
| Total | $ 0 | $ 0 | |||
| LIABILITIES | |||||
| 11 | Joint | Westpac Bank mortgage over FMH | (35,760) | (35,760) | |
| 12 | Joint | Coles Group credit card | (5,200) | (5,200) | |
| 13 | Joint | Commonwealth Bank credit card | (11,000) | (11,000) | |
| 14 | 2nd Respondent | Tax liability not accrued (or disclosed) at time of valuation | (60,000) | (60,000) | |
| 15 | Husband | Tax liability | NK | (6,073) | |
| 16 | Husband | Yamaha Motor finance | (12,000) | (12,000) | |
| Total | $-123,960 | $-130,033 | |||
| SUPERANNUATION | |||||
| Member | Name of Fund | Type of Interest | Wife’s value | Husband’s value | |
| 17 | Wife | [G] Superannuation Fund | SMSF accumulation | 41,696 | 41,696 |
| 18 | Husband | [G] Superannuation Fund | SMSF accumulation | 140,883 | 140,883 |
| Total | $182,579 | $182,579 | |||
| Owner-ship | Description | Wife’s value | Husband’s value | |
| 19 | Joint | Personal guarantees offered for business financing | NK | 357,000 |
| 20 | Wife | Inheritance from paternal grandfather (FPA claim period of 18 months from date of death expires September 2010 – the bulk of the estate is real property at [S]) | 100,000 | 116,000 |
| 21 | Wife | Payments from Second Respondent under direction from Husband as a result of agreement between Husband and Wife | 0 | 29,650 |
| 22 | Wife | Long Service Leave entitlements owed by [G Pty Ltd] | NK | 11,341 |
| 23 | Husband | Long Service Leave entitlements owed by [G Pty Ltd] | NK | 27,925 |
| Total | $100,000 | $541,916 |
In relation to a number of items the Registrar noted assertions and steps which needed to be taken before the matter could proceed. These are set out below:
1.Time for compliance with orders made 14 July 2009 is extended such that no later than 29 September 2009:
a.The applicant must file and serve those documents described at orders 3(c) and (d) made 14 July 2009.
b.The applicant must file a waiver of court fees on the basis of financial hardship.
c.The respondent must file and serve the document described at order 7 made 14 July 2009.
2.No later than 15 September 2009:
a.The husband is to provide to the wife copies of documents proving the debt referred to in paragraph 35 of his affidavit filed 31 August 2009.
b.The husband is to allow the wife and/or her legal representative/s to inspect at the office of his legal representative all documents relevant to:
i.the current liabilities and non-current liabilities of [G] Pty Limited (“the business”) as disclosed in the Balance Sheet prepared as at 30 June 2008 and attached hereto and marked “Ex1” for the period commencing 1 July 2007 to-date; and
ii.the personal guarantees as between the husband and/or the wife and any creditor in relation to the business.
c.The wife is to allow the husband and/or his legal representative/s to inspect at the office of the husband’s legal representative all documents relevant to the dispute that the husband may give seven days’ notice of in writing but limited to the period commencing 1 July 2007 to-date.
d.Each party is to comply with Rule 19.04 of the Family Law Rules 2004 including the parties providing copies of documents (for example bank statements) to prove out of which account funds were withdrawn to pay for his/her legal costs.
3.The case is adjourned to a procedural hearing before the Docket Registrar on 12 October 2009 at 2:15pm at which event the Court will consider:
a.Whether the case is suitable for listing for final hearing (and this will only be possible IF full compliance with these orders has occurred AND ALL single expert witness reports have been completed and accepted by the parties).
b.Appointing any single expert witnesses that have not otherwise been agreed to.
c.Any other procedural orders including the listing of the case for undefended hearing should the applicant fail to comply with order 1 hereof.
4.Parties are excused from attending the next event if his/her legal representative is appearing on his/her behalf.
THE COURTS NOTES THAT:
5.The husband wishes to join the business as the second respondent and was informed by the Court today that he should file an amended Response actually naming that entity as the second respondent on the first page of the document and therein.
6.The parties were unable to settle a joint balance sheet prior to today’s event and the wife failed to comply with order 3(a) made 14 July 2009. During the course of today’s event a single balance sheet was settled and is now attached and marked “Ex2”.
7.Neither party complied with orders made 14 July 2009. The husband has now substantially complied with the filing of documents as ordered but not service of same upon the wife.
8.If agreement cannot be reached between now and the next court event the Court will consider the appointment of single expert witnesses to value the seven head of cattle belonging to the business, the value of the shares held by the husband and wife in the business and the value of the long service leave entitlements of the husband and wife.
For this hearing the wife prepared a further updated balance sheet the key details of which are set out below:
Assets
Description
(W) value
(H) value
1
Joint
[C property(former matrimonial home)
$340,000.00
$340,000.00
2
Joint
[E property] from where [G] Pty Ltd operates
$440,000.00
$440,000.00
3
Co.
[W property]
$400,000.00
$400,000.00
4
Joint
[G] Pty Ltd including plant, equipment, 3 motor vehicles but excluding land
$402,000.00
1999 Land Cruiser 2002 Land Cruiser 2004 Ford Courier
$402,000.00
1999 Land Cruiser 2002 Land Cruiser 2004 Ford Courier
6
W
Savings
$100.00
7
Joint
Debt owed by [G] Pty Ltd for rent arrears on [E property]
NK
E$10,000.00
8
H
Savings
NK
$2.93
9
H
Yamaha Trail Bike
NK
$7,000.00
Total
Add Backs
11
H
Paid legal fees
NK
$12,940.18
12
H
Husband’s withdrawal of funds from [G] Superannuation Fund
E$115,244.50
Total
E$128,184.68
Liabilities
16
Joint
Westpac Banking Corporation mortgage over former matrimonial property
NK
$36,920.76
17
Joint
Yamaha Finance – Personal Loan
NK
$12,000.00
18
Joint
Commonwealth Bank Master Card
NK
$16,524.00
19
Joint
Coles Myer Credit Card
NK
$5,586.70
20
Joint
Traders Bill of Sale
NK
E$280,000
21
Joint
Income Tax liability
NK
$14,606.25
22
H
[A Accountants]
NK
$825.00
23
W
[A Accountants]
$550.00
NK
24
Business Tax liability
NK
$78,688.53
25
H
Tax liability
NK
$6,073.00
26
Tax liability in name of Wife
$13,560.82
NK
29
Westpac Bank Hire Purchase Agreement for [business] equipment -
NK
E$146,263.02
30
Joint
[C] City Council rates
$5,124.56
$5,124.56
Total
Superannuation
32
H
[G] Pty Ltd – SMSF Accumulation Fund
$0
Nil
33
W
[G] Pty Ltd
$800.00
Nil
Total
Financial Resources
34
W
Long Service Leave
$11,341.13
35
H
Long Service Leave
$28,612.66
35
W
Half interest in late father’s estate, only valuable asset is [S property]
Unknown
Total
$11,341.13
A number of matters require discussion. The value attributed to E property is taken from a market appraisal the husband obtained in March 2009. This is the value attributed to the property if it was sold in its then current condition and subject to vacant possession.
The valuation of G Pty Limited prepared by Mr F, although dated August 2009, is the company’s value as at 30 June 2008. It is his opinion the business does not generate sufficient profit to have any goodwill. In his opinion the market value of the business is limited to the value of its net tangible assets. In forming his opinion the valuer had regard to the following:
·The preceding three years’ financial statements including trading account, profit and loss, balance sheet, depreciation schedule;
·Year to date trading and profit and loss accounts;
·Independent market appraisal of some plant and equipment;
·The husband’s and wife’s most recent income taxation returns;
·Valuation disclosure statement.
The valuer reported the business is located in a light industrial area. The premises were assessed as adequate for the operation of that style of business. It was noted the freehold premises are owned by the husband and wife and it was assumed that upon a sale a lease would be offered at a commercial market rent. The business was described as having traded since 1974 and:
Operates as a commercial and [light industrial business] […]. The business is promoted by direct marketing, newspaper advertising and Yellow Pages advertising. The [industry] is a highly competitive industry and [G Pty Ltd] has invested in machinery to maintain a competitive and keep up with changing technology.
In relation to trading details the valuer said:
The business has shown a decline in sales revenue for the two years to 30 June 2008 and shows a reported loss of $51,554 in the taxation returns for 2008 financial year. Gross profit margins appear to be at or near industry norms but industry expenses in 2008 have significantly affected the profitability in the business mainly in the area of higher purchase and leasing expenses and an increase in wages and motor vehicle expense. Discussion and information obtained from management accounts for the nine months to March 2009 indicate further revenue decline due to difficult economic trading conditions.
The valuer analysed the business’ trading and balance sheet for the preceding three years. In relation to value he said:
Using a capitalisation of earnings approach would arrive at a value of $270,000 including stock and all plant and equipment on an unencumbered basis. If a sale was transacted at this value there would be a significant shortfall in funds to pay out the debts of the business as shown in the balance sheet as at 30 June 2008. Considering the high value of equipment as shown in the balance sheet as at 30 June 2008 the methodology relied upon to arrive at a conclusion of value for the purposes of this report would therefore be based on an asset value approach. In determining this value, the value of assets as per the depreciation schedule has been adjusted to allow for those assets which are non business related. Using an asset value approach the conclusion of market value for the business of [G] Pty Limited as at 30 June 2008 is therefore $402,000 on the basis that all debts relating to plant and equipment are paid out and the business would be sold on an unencumbered basis. Again if a sale was transacted at this value there would still be some shortfall in funds available to pay out the debts of the business as at 30 June 2008.
The valuer did not obtain a valuation of the plant and equipment. Rather, he relied on the accounting depreciation schedule for the period 1 July 2007 to 30 June 2008 to ascribe values to these assets. The depreciation schedule involves a notional percentage reduction to assets and does not purport to represent the assets market value. B Company provided a market appraisal of the major machinery. This indicates the B Company equipment which was acquired in September 2007 for $175,000 is worth between $90,000 and $100,000. On the depreciation schedule this asset has a write down value of approximately $148,000. B Company equipment acquired in October 2002 for $163,000 is accounted for in the depreciation schedule at approximately $106,000. None of the B Company machinery valued by them was estimated to be worth anything like that. It follows although the methodology adopted by the valuer is appropriate, the ascribed values appear unlikely to reflect market value. In relation to the principle items of machinery, it is highly likely the accounting depreciation schedule values exceed by a not insignificant margin the amount which would be received on sale.
The market appraisal provided by B Company, for six pieces of plant and equipment there identified, is $176,000 reduced to $151,800 for a fire sale. The depreciation schedule values the same equipment at approximately $336,000. The valuer appropriately excluded property improvement identified in the depreciation schedule when determining the value of assets. This is because, those improvements are reflected in the market value of W property. Motor vehicles were also valued separately. However, it is appropriate to note that company vehicles have a combined write down value of $31,359. The total value of plant and equipment identified in the depreciation schedule is $370,641. This includes $335,876 for the B Company plant and machinery. If the figures attributed by B Company for plant and machinery are added to the non-B Company plant and equipment items referred to in the depreciation schedule, the value of the plant and equipment falls to approximately $211,000 plus motor vehicles. On the fire sale figure, the value falls to approximately $186,500 plus motor vehicles. The point which follows is even at an elevated value of $402,000, and excluding provision for the debt due to the ATO and the parties’ long service leave entitlements, the valuer concluded there would be a shortfall in funds available to pay the company’s debts. When the revised and, in my view, more reliable plant and equipment figures provided by B Company are taken into account, it is apparent the shortfall in funds is even greater. This shortfall increases when liabilities for long service leave and debts to the ATO are considered.
Although the valuer noted wage expenses have increased, the wages received by the parties have not. In the two years prior to the parties’ separation the husband had a taxable income solely from the company of approximately $75,000. For the same period the wife’s taxable income from the same source was approximately $54,000. Although it is not possible to be precise, the husband’s evidence is until 2010, post separation he continued to receive payment from the company in the vicinity of $60,000 - $70,000 per annum. The wife received far less with any monies she received being spousal maintenance. As spousal maintenance is payable by the husband and not the company, it would appear post separation the business has not made any payments to the wife. Post separation the company had additional expenses associated with the hire purchase of the B Company machinery and wages to some of the parties’ children. As neither the husband nor the wife have been working in the business it comes as no surprise the wages bill increased.
Attached to the wife’s affidavit is a statement from the ATO of the company’s taxation position from separation until 14 May 2010. This statement shows as at 25 August 2007, the company was not indebted to the ATO. Since then GST and PAYG has accrued with the payments made by the company constantly lagging behind the amount due to the ATO. By 30 June 2008 the company owed the ATO approximately $65,000. In the following quarter the amount reduced to approximately $35,000. Although the payments did not keep up with the company’s liability, significant amounts were paid to the ATO. By September 2009, the arrears stood at approximately $72,000. There follows a pattern of dishonoured cheques with this being an ongoing problem until about March 2010. Again, although the company paid significant sums to the ATO in the intervening period, as at 14 May 2010 it owed the ATO approximately $79,000. The valuer was unaware of this liability thus, it follows that even on an asset backed methodology and using the inflated figures for plant and equipment to which I have referred, the shortfall in funds on a sale is greater than the valuer anticipated.
During this period, as I have already mentioned, the company (at the husband’s direction), as trustee for the parties’ self managed superannuation fund withdrew all but $800 of the fund’s assets. Provided these withdrawals were made after each of the parties reached retirement age and otherwise fulfilled requirements to access their superannuation, in one sense this is unremarkable. What is interesting, though, is how those funds were disposed of. The wife used her $66,000 for legal expenses and living costs. The husband says the balance has been used in the company, presumably as a loan advanced by him. No documents were produced by him to corroborate this evidence. The wife has a selection of bank records which show large and numerous small withdrawals by the husband from the superannuation fund. Although I did not immediately accept the submission made by counsel for the wife, the small size and frequency of withdrawals suggested many of these were withdrawn by the husband for personal expenses and having reviewed the bank records, I accept this is an appropriate inference.
Another difficulty with the valuation is the valuer valued the company but not the parties’ shareholding. Attached to the valuer’s report is an ASIC search which shows the wife holds one of three B class shares. The husband has the other two. There is one C class, D class, E class and five ordinary shares also issued. The wife owns the C class share. The husband owns the D class share and D owns the E class share. The husband, wife and three of the children each owns one of the ordinary shares. Although it is not entirely clear, the share holding structure suggests three of the parties adult children have a minority interest in the company. Although the company has been joined and the children are aware of the proceedings, none has sought orders. At a time when the husband and wife were both legally represented, they agreed their shareholding gave them a 5/8th interest in the company, with the remaining 3/8th’s owned by their three adult children. In relation to these three children, they each have a 1/8th interest in the company. I accept this is the situation. Thus, the husband and wife’s interest in the company is less than the company’s value.
The husband acknowledged the Commonwealth Bank MasterCard at separation of an outstanding liability of $11,000. The increase liability was due to expenditure by him and accrued interest. The Coles credit card had an outstanding liability at $5,000 at separation and the increase in liability reflects the husband’s failure to pay any instalments post separation.
According to the husband he has advanced approximately $115,000 from his superannuation interest to the company. Apparently this by way of a loan and, although as at 30 June 2008 the company was not indebted to either the husband or the wife, as I understood the husband’s evidence the current position is the company is indebted to him for the sum advanced from his superannuation. Absent any documentation from the husband to support this assertion, it is appropriate to approach this issue with considerable caution.
As would be apparent from the above discussion and the further updated balance sheet, the husband and wife intermingle their and the company assets and liabilities in a fairly confused way.
Before proceeding further it is appropriate to identify the husband and the wife’s assets, liabilities and financial resources separate to the company’s. For the purpose of this exercise the values of these items, unless stated differently, are as set out in the wife’s counsels updated balance sheet as amended at trial and set out earlier.
Husband and Wife’s assets, liabilities and financial resources
Assets
·C property
·E property
·Yamaha motor bike
·Total value
Liabilities
·Husband ATO
·Wife ATO
·Council rates – FMH accrued post separation
·Yamaha Finance
·Westpac Bank - FMH $36,920.76
·CBA MasterCard
·Coles Credit Card
Financial Resources
·Long service leave husband
·Long service leave wife
·Wife’s interest in late father’s estate
·Superannuation $715.00
G Pty Limited
·W property – listed for sale at $490,000.00
·Motor vehicles $31,359.00
·Plant and equipment $210,765.00
Liabilities
·Westpac Traders Bill of Sale Approx $280,000.00
·ATO $78,688.53
·A Accountants NK- but modest
·
Trade Creditors and
other liabilities as per balance sheet rounded out $250,000.00
The rounded out liabilities taken from the balance sheet can only be a general guide. This is because of the husband’s failure to give full and frank disclosure and the wife’s inability to secure his cooperation with the order for an up to date valuation. Nonetheless the company would appear to be reliant upon non-current assets to remain solvent.
Unfortunately, through no fault of the wife’s, there is insufficient evidence to enable the Court to make necessary findings as part of final property settlement orders. The husband and wife agree to the sale of real estate owned by them. This will result in secured liabilities being paid and should result in a net sum from which other personal liabilities can be paid. Because the husband seeks to retain the company, the evidence at this stage indicates he would be required to pay an adjusting amount to the wife to do so. His failure to fulfil his obligations to give full and frank disclosure and disregard of his obligations to pay the mortgage, secured against the home in which he resides as well as in relation to other financial obligations, requires that other than providing him with a small sum so that he can rehouse himself after the former matrimonial home is sold, his share of the net sale proceeds remain in trust until the situation with the company is clarified.
Although the wife made out a fairly strong case for the company to be wound up, I decided the husband will be given another opportunity to provide current financial statements for the company, evidence of the distribution of his interests in the superannuation fund being paid to the company as well as a valuation of the parties’ interests in the company. Because of the husband’s recalcitrance in relation to his disclosure obligations and obtaining and up-to-date valuation, these matters shall be attended to without cost to the wife. Should the husband fail to comply with these orders and directions he must anticipate on the next occasion the matter is before the Court an order to wind up the company is highly likely to be made and other final orders which may be contrary to his interests will be made.
As earlier stated the former matrimonial home will be sold. To avoid additional costs and ensure a prompt sale the husband and wife will be required to cooperate with an orderly sale by the mortgagee. From the sale proceeds costs of sale and any secured creditors will have priority. The mortgagor requires payment in full of the Traders Bill of Sale which I agree must be paid. The husband agreed he has failed to maintain the former matrimonial home and if it failed to achieve a selling price of $340,000 (its previously agreed value) he would make good the shortfall. Also, he alone is responsible for arrears of council rates or other utilities. In a similar vein, the amount by which the Westpac mortgage has increased post-separation is solely the husband’s responsibility. In short, he has had occupation of the property as well as sufficient income to meet these modest liabilities. Provision is also made for the husband to receive $2000 to rehouse himself. As this gives him priority over the wife, so as to achieve an overall equal distribution she will receive an adjusting amount of $1,000.
It seems clear unless the property sells at $340,000 it is feasible there will be no surplus and possibly a shortfall. If the sale price achieved from the former matrimonial home is insufficient to meet the selling costs and secured liabilities, subject to such rights as the mortgagee has, the shortfall shall be provided for by the sale of W property. A similar approach is appropriate in relation to reimbursement by the husband to the wife for that component of the liability which will be paid at settlement but in relation to which the wife is not liable.
It was the wife’s contention she should be appointed trustee for sale of the property at W and the net funds received from the sale of the former matrimonial home, if any, paid to her. At this stage I am not persuaded she should receive the entire net proceeds from the sale of this property. Rather the approach which ensures the Court’s capacity to deliver a just and equitable outcome and which does not jeopardise the parties’ third party creditors is for the husband’s net entitlement to be paid into trust and held in a controlled monies account pending further order.
Further directions are made in relation to the husband’s obligation to give full and frank disclosure and valuation issues. At the hearing the husband said he could attend to these types of matters by late January 2011. I had hoped to publish these reasons before Christmas 2010 but was unable to. Thus the husband is given a few additional weeks to attend to these matters. He needs to appreciate the consequences of his failure to comply are likely to be serious for him as well as the company’s ability to continue to operate. For abundant caution copies of these orders are to be served upon the company at its registered office.
Set out at the start of these reasons are proposed orders. Before these orders are entered I will give the parties an opportunity to address me as to form so as to ensure there are no unintended consequences.
Accordingly, for these reasons I make the following orders.
I certify that the preceding seventy (70) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Ryan delivered on 2 February 2011.
Associate:
Date: 2 February 2011.
Key Legal Topics
Areas of Law
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Civil Procedure
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Administrative Law
Legal Concepts
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Judicial Review
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Jurisdiction
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Standing
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Procedural Fairness
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Natural Justice
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Abuse of Process
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