Munayallan & Scott (No 6)
[2022] FedCFamC1F 345
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Munayallan & Scott (No 6) [2022] FedCFamC1F 345
File number(s): SYC 92 of 2012 Judgment of: HENDERSON J Date of judgment: 12 April 2022 Catchwords: FAMILY LAW – INTERVENTION – Third party – Application in a Proceeding sought by the liquidator of a company deemed to be the alter-ago of the husband, to vary previous orders made restraining the company or such other entity of which the husband has control or an interest in from depleting and withdrawing any sums or moneys in the respective account to allow the liquidator to enter into a deed of settlement and cost agreement with the wife and a third party pursuant to s 477(2B) of the Corporations Act 2001 (Cth) – Application granted.
FAMILY LAW – PRACTICE AND PROCEDURE – Application sought for a non-publication order pursuant to s 102PE of the Family Law Act 1975 (Cth) for the deed of settlement and cost agreement entered into between the wife, liquidator and a third party – Application granted.
Legislation: Corporations Act 2001 (Cth) ss 58AA, 477, 477(2B)
Family Law Act 1975 (Cth) ss 102P, 102PE, 102PF(1)(a)
Federal Circuit and Family Court of Australia Act 2021 (Cth) ss 8, 28.
Cases cited: Cirillo & Cirillo (No 4) [2022] FedCFamC1F 208
In the matter of 7 Steel Distribution Pty Limited (in liquidation) (receivers and managers appointed) [2013] NSWSC 669
Pascoe; in the matter of Matrix Group Ltd (in liq) [2011] FCA 1117
Stewart in the matter of Newtronic Pty Ltd [2007] FCA 1375
Division: Division 1 First Instance Number of paragraphs: 54 Date of hearing: 12 April 2022 Place: Sydney Solicitor Advocate for the Applicant: Nicholas Chase Berry Solicitor for the Applicant: ERA Legal Counsel for the First Respondent: Litigant in person Counsel for the Second Respondent: Litigant in person Counsel for the Third Respondent: Litigant in person ORDERS
SYC 92 of 2012 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR AB AS LIQUIDATOR OF I PTY LTD
Applicant
AND: MS MUNAYALLAN
First Respondent
MR SCOTT
Second Respondent
MR PHONG
Third Respondent
ORDER MADE BY:
HENDERSON J
DATE OF ORDER:
12 APRIL 2022
THE COURT ORDERS THAT:
1.Pursuant to section 477 of the Corporations Act 2001 (Cth) (“Corporations Act”), the liquidator of I Pty Ltd (in liquidation), Mr AB (“Liquidator”), be approved to enter into:
(a)the deed of settlement and release dated 21 March 2022, annexed to the affidavit of Mr AB affirmed 7 April 2022 and filed with the Application in a Proceeding filed 8 April 2022 (“Settlement Deed”);
(b)the retainer between ERA Legal, I Pty Ltd and the Liquidator, for the provision of legal services, dated on or about 22 March 2022, annexed to the affidavit of Mr AB affirmed 7 April 2022 and filed with the Application in a Proceeding filed 8 April 2022 (“Costs Agreement”).
2.Order 14 made by Henderson J on 29 September 2021 be varied by:
(a)adding the words “subject to order 14A below” to the beginning of the order; and
(b)adding new order 14A to state “order that, for the purpose of fulfilling his duties to I Pty Ltd and as receiver of the JJ Trust, the Liquidator is entitled to sell or otherwise realise any property and/or assets in the name of or for which I Pty Ltd has an interest in, including the real property located at F Street, Suburb MM NSW, whether or not it owns that asset or interest beneficially or not”.
3.Order 18 of the orders made by Henderson J on 29 September 2021 be varied by:
(a)adding “subject to order 18A below” to the beginning of the order; and
(b)adding new order 18A to state:
“(a) Order that, for the purpose of fulfilling his duties to I Pty Ltd and as receiver of the JJ Trust, the Liquidator pay the net proceeds of sale (that is, after paying any amount properly owing to any person holding security over the property or asset, bank fees and costs, all amounts properly payable with respect to agent fees, commission and expenses with respect to the sale, adjustments required to be made on completion of the sale, and reasonable legal fees with respect to the sale) in to the liquidation account of I Pty Ltd maintained by the Liquidator or into court.
(b)In the event that there are surplus assets in the winding up of I Pty Ltd, including after all costs, expenses and creditors have been paid, the Liquidator must give the Applicant at least 3 months written notice before those funds are paid or otherwise distributed to the member(s) [i.e. shareholders] of I Pty Ltd.
(c) A claim by a party to the surplus referred to order 18A(b) must be made within 3 months from the date notice was given in accordance with order 18A(b), otherwise the Liquidator is free to deal with those assets.
(d) In the event an application has been filed within 3 months from the date Notice was given in accordance with order 18A(b), then the Liquidator must not deal with or distribute any surpluses to members or anyone else until the determination of the application or order of the Court.
(e) The Liquidator to provide the Applicant with copies of all reports to creditors as they are issued throughout the external administration.”
4.Pursuant to section 102PE of the Family Law Act 1975 (Cth) (“the Act”), on the ground that the order is necessary to prevent prejudice to the proper administration of justice, the publication or disclosure of the Settlement Deed and Costs Agreement are prohibited until further order.
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 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Munayallan & Scott is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
EX TEMPORE JUDGMENT
Henderson J:
This is an application by the liquidator receiver of I Pty Ltd in liquidation, (“I Pty Ltd”), filed 8 April 2022, which company was also joined in Family Court proceedings between the husband and wife Mr Scott and Ms Munayallan by order on 29 September 2022.
The application seeks effectively:
(1)A variation of injunctive orders I made on 29 September 2021, and adding different orders;
(2)That the liquidator Mr AB – if I have pronounced his name correctly – be granted leave pursuant to section 477(2)(b) of the Corporations Act to sign a deed of settlement between himself, Mr Phong and the wife in the proceedings; and that
(3)That agreement, together with the costs document attached to the agreement, remain confidential and there be a prohibition on its publication, and pursuant to section 102PE of the Family Law Act1975 (Cth)(“the Act”), I grant this prohibition order in relation to those documents.
There is three effective applications contained in that Application in a Case. The application was supported by an affidavit of the liquidator Mr AB, with supporting annexures. There was quite a number of annexures and some of the most relevant ones for me, apart from various orders of Supreme Court judges, are as follows.
On 27 January 2022, Black J of the Supreme Court made an order appointing Mr AB as the liquidator of this company. Mr AB filed affidavits in the Supreme Court on 3 February 2022 and 11 February 2022.
I Pty Ltd was previously the trustee company for the JJ Trust, which trust owns property at Suburb MM.
Upon liquidation, I Pty Ltd was disqualified from being the trustee of the JJ Trust pursuant to the trust deed, which created JJ Trust in the first place.
There have been long-running disputes in the Supreme Court, which are set out at paragraphs 31 through to 38 of Mr AB’s affidavit. I need not refer to all of those. They are contained in a judgment of mine that I will refer to and has been referred to in these proceedings.
There have been long-running disputes in the Family Court as well as the Supreme Court.
In respect of the JJ Trust, Mr K Scott, the husband’s brother, is the unit trust holder.
In the Supreme Court proceedings, various findings were made and, as Mr AB refers to at paragraph 32 of his affidavit, it is a material fact in current proceedings which are before Sackar J and continuing Friday week and no doubt continuing further, whether Mr Scott is or was at all material before Mr AB’s appointment, the controlling mind of I Pty Ltd. Sackar J will have to decide that question in the current proceedings.
Paragraph 33 of Mr AB’s affidavit:
The possibility that [Mr Scott] could have been or was the controlling mind before my appointment may mean he could be disposed to act unilaterally in relation to [I Pty Ltd] assets and the [I Pty Ltd] trust assets as a result of my appointment. My concern is that he could remove trust assets out of the trust and beyond [I Pty Ltd] reach with respect to its indemnity by changing trustee without notice to me. He may be able to do so by exerting influence or control over his brother [Mr K Scott], who is the sole unit holder. My concern arises from evidence of [Mr Scott’s] prior conduct that has been reported in judgments in the Supreme Court and the Family Court of Australia.
Paragraph 35:
I am concerned by [Mr Scott’s] previous conduct, that is, the subject of findings made by Pembroke J in [Phong v P Pty Ltd], that [Mr Scott’s] transfer of the [Suburb E] property to [P Pty Ltd] was found to be a fraudulent conveyance of the property. There remains a dispute as to the authenticity of documents relating to moneys alleged to have been loaned by [I Pty Ltd] to [Mr Scott] for the initial purposes of the [Suburb E] property. This too is part of the factual matrix before Sackar J and also before the Family Court.
Similar findings concerning [Mr Scott’s] conduct, namely, altering documents, were made by Henderson J in Family Court proceedings ….. that concerned [Mr Scott] and his former wife [Ms Munayallan]. As best I have been able to ascertain, there have been a number of published reasons, and they number five at minimum, since 2019, but certainly substantially more in the Family Court proceedings.
Mr AB says, prophetically :
If I am not appointed as receiver of the assets of [I Pty Ltd] Trust, I will be unable to deal with the [Suburb MM] property due to [I Pty Ltd] automatic disqualification as the trustee. I won’t be able to take possession and secure the property. I am concerned if steps are not taken immediately to take possession and secure the [Suburb MM] property, [Mr Scott] or others may attempt to deal with the property, including appointing through his brother, as the sole beneficiary, a new trustee, trying to transfer the [Suburb MM] property out of the name of [I Pty Ltd], and that is the basis I seek the urgent interlocutory restraints.
Mr AB’s concerns were justified. On 11 February 2022, an urgent application was filed by Mr AB, seeking ex parte orders that the Registrar-General be restrained from registering a transfer of the Suburb MM property from I Pty Ltd to CC Pty Ltd, (“CC Pty Ltd”), a company owned and controlled by Mr M, an associate of Mr Scott’s and an alternate director of I Pty Ltd.
The Registrar-General was restrained from so doing by Black J on 11 February 2022 until 21 February 2022 and documents were ordered to be provided to Mr AB, who was doing his best to uncomplicate this complicated series of transactions.
On 21 February 2022, after receiving documents, the ex tempore order was extended indefinitely given the very thing that concerned by Mr AB in his initial affidavit of depleting the value of I Pty Ltd Development was attempted by transferring ownership of the real estate from I Pty Ltd to CC Pty Ltd.
Currently, the assets of I Pty Ltd, which Mr AB has a duty to preserve and protect for the shareholders of that company, is:
(1)the property at Suburb MM;
(2)a substantial share portfolio and I am not sure the value of that. However, there is a number of shares held with OO Bank; and
(3)money in trust in the Supreme Court, resulting from the sale of the wife and husband’s matrimonial home at Suburb E, where all this began.
The order the husband breached in the Federal Circuit Court was an order of 25 June 2015, wherein Judge Kemp restrained him from selling, transferring or encumbering the Suburb E property. In contravention of that order, the husband transferred the property to P Pty Ltd for $2,040,000.
Then, Judge Kemp, on 29 October 2015, restrained that company from further dealing with the property. It is the transfer to P Pty Ltd that Pembroke J in the Supreme Court proceedings determined was a sham and which was also a breach of the Federal Circuit Court orders. Upon that sham transaction being set aside, Mr Scott’s original sale to Mr Phong, who is here today, exchanged on 29 October 2014, to sell the property was ordered to be specifically performed. Hence this is the source of the money currently in the Supreme Court fund and from which the Supreme Court has now ordered Mr Phong’s substantial costs in this long-running dispute be paid.
On 29 September 2021, I made a raft of injunctive orders, restraints and orders joining various entities, parties and people, as I too was concerned that the conduct of Mr Scott, via Mr M and others, they having removed $1.3 million from one of his company accounts in June 2021, had the potential to deprive the wife of her share of the assets, the subject of Family Law proceedings.
Those orders were as follows and as are relevant for these proceedings.
I joined I Pty Ltd, DD Pty Ltd, CC Pty Ltd and Ms Scott to the proceedings, see Order 3 of orders made 29 September 2021.
I then, at Order 18, froze all bank accounts held by DD Pty Ltd, I Pty Ltd, CC Pty Ltd. Restrained the husband, Mr Scott, or such other entity of which he has control or an interest in from depleting and withdrawing any sums or moneys in the respective accounts, subject to any order of the Court. I froze Ms Scott’s account up to $1.3 million. She was free to deal with the rest of her property.
I restrained, at Order 14, all parties, the husband and all parties joined, by injunction from the sale, transfer or other dealings with the unit at Suburb MM, or further encumbering the Suburb MM property.
The wife was to file an undertaking as to damages.
I gave all parties leave to restore the matter to the list as with injunctive orders, there must always be a power for parties to return to the Court to have them discharge if they are operating unfairly. The only person who came before me after those orders were made was Mr Scott and now the liquidator of I Pty Ltd. I have seen nothing from Mr M or any other so-called director or shareholder of those various named companies.
The litigation in the Supreme Court must be finalised in order to crystallise the asset pool for division between Mr Scott and his former wife. The Supreme Court litigation now concerns Mr Phong, who has a cost order to enforce, I Pty Ltd, JJ Trust, perhaps, CC Pty Ltd and Mr M but not Mr Scott, who has declared loud and long he is not a director or shareholder of any of the group of companies or entities I have referred to.
In my judgment, at paragraph 43, I referred to a number of companies as follows.
(a)DD Pty Ltd;
(b)I Pty Ltd;
(c)CC Pty Ltd;
(d)P Pty Ltd;
(e)KK Pty Ltd;
(f)QQ Pty Ltd; and
(g)JJ Trust.
I found, at paragraph 147 of my judgment on 21 December 2021, that Mr Scott was the alter ego of this group of companies and that the formal public records of ASIC and the like did not reflect who was in control. However, in respect of this particular litigation, which is:
(1)the liquidator’s application to vary the injunctive orders I made;
(2)to grant leave to enter into a deed of settlement between the former wife and Mr Phong to settle their dispute in the Supreme Court; and
(3)a non-publication order.
Mr Scott has no standing whatsoever to make submissions, objections or file material. Nonetheless, he did attend court and I listened to what he had to say and he sought an adjournment of these proceedings. I refused that adjournment.
Given Mr Scott says he has no ownership of any asset or money of I Pty Ltd or in any other companies, in the money in the Supreme Court, or in any of the assets that Mr AB, as a liquidator, has an obligation to conserve, he really has no standing to make any objections. I listened to what he said given my findings and that perhaps, something might have fallen from his lips that assisted me, but it did not.
It is apparent that the Family Court was, pursuant to section 58AA of the Corporations Act (Cth)(“Corporations Act”), a Court able to grant a receiver leave to enter into a deed of settlement under section 477(2B) of the Corporations Act. Consequent upon the passing of the Federal Circuit and Family Court of Australia Act2021 (Cth), the original jurisdiction of the Family Court Australia, being sections 31 to 33, were abolished. However, the new Act provides, at section 8, that the Family Court continues in existence, and at section 28, that jurisdiction is conferred on Division 1, the old Family Court in matters not otherwise within its jurisdiction that are associated with matters in which Division 1 jurisdiction is invoked.
This matter was commenced in the Federal Circuit Court, transferred to the Family Court prior to the commencement of the new Act, and has been transferred from Division 1 to Division 2 and returned to Division 1 by order of the Chief Justice of both courts. Consistent with Aldridge J’s decision of Cirillo & Cirillo[1], I find I continue to have jurisdiction in this matter and also under section 477(2B) of the Corporations Act.
[1] Cirillo & Cirillo (No 4) [2022] FedCFamC1F 208
I will vary the injunctive orders as sought by the receiver, agreed to by Mr Phong and, in substance, agreed to by the wife, save for a few amendments, to which I will refer to later, that she was concerned about. Fundamentally, she agreed.
The concerns that the wife had were that there be a valuation, to which she and the receiver agreed, before the Suburb MM property was sold, that she be notified of moneys to be paid out by the liquidator, upon liquidation of I Pty Ltd’s assets and that any surplus funds be held in the Family Court.
As to notification, that is specifically provided for in the orders sought by the liquidator in relation to variation of the injunctive orders. They seek to notify her, and she must respond within a timeframe. Therefore, she is covered.
As to the agreed valuation, the wife has no legal interest in the property, the receiver is an officer of the Court and has an obligation to obtain a valuation prior to any sale, consult with a known and reputable agent and, if necessary, sell the property by way of auction the wife’s beneficial interest in this property which in the Family Court proceedings I had found was a part of the matrimonial pool, is now preserved and protected from further attempts to have the property transferred out of I Pty Ltd’s ownership and into some other entities name.
Further the orders provide that surplus funds may be retained by the liquidator or a Court and the wife’s position is protected.
There is a significant protection for the wife by lifting that injunction and allowing the receiver to become, effectively, the legal owner of all I Pty Ltd assets, subsequent to the liquidation.
The matter continues in the Supreme Court on Friday week and ongoing. These matters will be dealt with in that place. It is imperative that the receiver liquidate the assets of I Pty Ltd for the following good reasons as set out in the affidavit of Mr AB.
There has already been an attempt to transfer real estate from I Pty Ltd to CC Pty Ltd, thus depleting the assets for shareholders and, ultimately, the wife. There is a large number of shares, which is a volatile market, and the war waged by Russia against Ukraine has negatively impacted upon the share market. I accept these shares may have to be sold quickly and urgently or held onto or in some way dealt with. The receiver/liquidator needs full authority to be able to do that, again, to preserve and protect the assets of I Pty Ltd. Mr Phong is entitled to be paid his costs, which are to be paid from the money in the Supreme Court, a sum of approaching $2 million, thus reducing the liquid assets currently available to the wife to have her claim in the Family Court paid out.
The liquidation now of what is available by an objective independent third party, who not only has professional obligations to his association but as an officer of the Court bound by very strict obligations in that regard, is clearly in her interest. I am satisfied the receiver is acutely aware of the enormous costs incurred by the Phongs and the wife in meeting the multitude of applications brought by Mr Scott, I Pty Ltd, Ms Scott, Mr K Scott and others in this long running saga. That he is determined to minimise costs and delay in this matter and efficaciously carry out his obligations to the shareholders of I Pty Ltd and, vicariously, the wife.
I have reviewed the deed of agreement between the wife and Mr Phong, which Mr AB seeks leave and I grant him to enter into, dated March 2022.
The deed is, as I read it, the best evidence of Mr AB’s determination to minimise costs for all parties and maximise outcomes for shareholders, including the wife, ultimately. Quoting from Gordon J in Stewart in the matter of Newtronic Pty Ltd[2].
The Court does not simply review the liquidator’s proposal, paying due regard to his commercial judgment. But also, knowledge of all the circumstances of the liquidation, satisfying itself there is no error of law or ground for suspecting bad faith, impropriety and weighing up whether there are any good reason to intervene, in terms of the expeditious and beneficial administration of the winding up [26(4)].
[2] [2007] FCA 1375
Similarly, in In the matter of 7 Steel Distribution Pty Limited (in liquidation) (receivers and managers appointed) [3], Black J, who has been involved in this matter, says as follows:
The Court is not concerned in granting approval under section 477(2B) of the Corporations Act (Cth) with matters of commercial judgment but is concerned to be satisfied that the entry into the agreement is a proper exercise of power, not ill advised or improper on the part of the liquidator [17].
[3] [2013] NSWSC 669
And the decision of Pascoe; in the matter of Matrix Group Ltd (in liq) [4] was referred to by Black J, where Jacobson J noted:
…the question for the Court in such applications was whether the liquidator’s judgment had been infected by a lack of good faith or an error of law principle and whether there was a real or substantial ground for doubting the prudence of the liquidator’s conduct in seeking to enter into the funding arrangement...[17]
(citations omitted).
The Deed satisfies these requirements.
[4] [2011] FCA 1117 at [14]
Returning to Mr AB’s evidence and his knowledge of the conduct of Mr Scott and the procedural histories in both courts, he says at paragraph 35:
There is a risk in litigation. And settlement between the [Phongs] – between [Mr Phong] and the wife and the receiver on this crossclaim issue gives certainty to the resolution of the crossclaim.
As submitted the potential costs incurred by I Pty Ltd and Mr AB further investigating the cross claim could amount to $100,000. Mr Scott complained $60,000 had already been spent. Having regard to the voluminous court work that has been undertaken, that seems quite cheap. There are no costs at this stage of public examinations. Any appeal or an application by Mr Phong or the wife in relation to this cost issue, which they both agree should be settled, is very important. This is particularly so in circumstances where the proceedings and those related to it have been long running, the subject of numerous applications and appeals, including Mr Scott approaching the High Court.
In the absence of settlement of the former wife’s claims, there is a scope for the wife to file an application to transfer the Supreme Court proceedings to Division 1 of the Federal Circuit and Family Court of Australia which would further increase costs of the liquidator and I Pty Ltd. Whatever transpires, costs must be paid from money that is available and this will mean the depletion of the existing resources.
The Phongs are entitled to their costs from the fund that is in existence, approaching $2 million and this settlement provides for a discount of those costs for all the above. It is proper I make the order sought when there has been a proper approach taken to compromise a claim. Mr AB is clearly concerned about the enormous costs that have already been incurred and this is the most efficacious way to resolve that issue and give certainty to at least one part of this long-standing litigation.
Thus I grant the necessary approval under section 477(2B) of the Corporations Act for Mr AB to enter into the deed which the wife and the Pham’s consented to.
There are sound reasons in the interests of justice and for the proper administration of court proceedings why this deed and the cost agreements, which forms part of the deed, be supressed from publication.
First, this is a private deed between the wife, Mr Phong and the receiver and needs no public scrutiny. It is not a public document. It is inter partes. Mr Scott is not a party to the deed and asserts no interest in I Pty Ltd, JJ Trust, CC Pty Ltd or the money in the Supreme Court and he has no good reason to view this material and if he did this may be fruitful of further litigation by him, given the number of applications he has filed in both courts to date.
I find that I should make a suppression order under section 102P of the Act, having regard to the ground of such, under 102PF(1)(a) being as “necessary to prevent prejudice to the proper administration of justice”. This deed ends litigation for Mr Phong, who has also had to litigate in the Family Court, he having nothing to do with the parties’ relationship, in order to protect his interests.
I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Henderson. Associate:
Dated: 12 April 2022
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