Thurston and Loomis and Ors

[2016] FamCA 318

FAMILY COURT OF AUSTRALIA

THURSTON & LOOMIS & ORS [2016] FamCA 318

FAMILY LAW – PROPERTY – Asset pool - Superannuation – Interim - Where there has been substantial non-compliance with relevant legislation and regulations – Where the parties have improperly withdrawn funds from the superannuation account – Where withdrawals treated as loans – Where there is expert evidence the loans should be repaid with interest calculated at the appropriate rate.

Family Law Act 1975 (Cth) s 90SM (5), (6) & (7)
Superannuation Industry (Supervision) Act 1993 (Cth)
Superannuation Industry (Supervision) Regulations 1994 (Cth)

Georginas v Kostrati (1988) 49 SASR 371
Malpass and Mayson (2000) FLC 93-061
T and T (1984) FLC 91-588

APPLICANT: Ms Thurston

FIRST RESPONDENT: Mr Loomis  

SECOND RESPONDENT: L Ltd

THIRD RESPONDENT: C Pty Ltd

FILE NUMBER: BRC 1010 of 2012

DATE DELIVERED: 9 May 2016

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Forrest J

HEARING DATES: 7, 8, 9 & 10 December 2015

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Baston

THE FIRST RESPONDENT: In Person

THE SECOND RESPONDENT: Mr Loomis

THE THIRD RESPONDENT: Mr Loomis

Orders

IT IS ORDERED UNTIL FURTHER ORDER

1. That Mr Loomis and Ms Thurston as directors of R Super Pty Ltd as trustee of the R Superannuation Fund forthwith do all things and sign all documents necessary to appoint Mr BG of E Accountants to finalise the said Superannuation Fund’s financial statements, that include statements of financial position, operating statements, balance sheets, profit and loss statements and members’ statements, and also tax returns  for the financial years ending 30 June 2013, 30 June 2014, 30 June 2015 and 30 June 2016 and to determine and direct them as to all steps necessary to be taken to address the said trustee’s non-compliance with statutory and regulatory requirements in an endeavour to make the said R Superannuation Fund a complying fund according to law.

2. That, in particular, in discharging the role conferred upon him by these orders, Mr BG shall treat the following transactions involving the R Superannuation Fund as loans to the members of the fund owing by them to the fund from the date of the advance of the funds from the said superannuation fund, to be repaid by them with interest calculated by Mr BG at the rate appropriately fixed or approved by the Australian Tax Office for such advances:

   (i)All funds withdrawn from the accounts of the superannuation fund and used in connection with the development and sale of real property that was registered in the name of Ms Thurston situated at Suburb GG in the State of Queensland;

   (ii)The Australian dollar equivalent of GBP130,000 as at 13 January 2011, the date such amount that was property of the superannuation fund was deposited into a personal account of Mr Loomis;

   (iii)Any other amounts separate and distinct to and not part of the previous two amounts, identified by Mr BG as having been withdrawn from accounts of the superannuation fund by either Mr Loomis or Ms Thurston since 1 July 2012 and not already repaid to the superannuation fund.

3. That Mr BG shall be entitled to seek the provision of information from either Mr Loomis and/or Ms Thurston that might assist him in carrying out the tasks required of him pursuant to these orders, but he shall, subject to further order of this Court to the contrary, be solely responsible for the final decisions to be taken in the undertaking of these tasks.

4. That Mr BG shall, once he has determined the steps necessary to be taken pursuant to these orders, subject to further order of this Court to the contrary, give written direction to Mr RO to withdraw sufficient funds from ANZ account styled Mr RO as trustee for Mr Loomis and Ms Thurston BSB … Account Number … and to deposit those funds into ANZ account styled Mr RO as trustee for the Trustee of the Loomis-Thurston Superannuation Fund BSB … Account number …, so as to address the issues of non-compliance and to cause any and all of those loans to members of the fund that he has identified, to be repaid along with the appropriate amount of interest (having regard to the relevant balance, at the time, of the second of those named accounts, and the fact that a large amount of money owed to the superannuation fund by Mr Loomis and Ms Thurston was repaid by deposit initially to the trust account of ML Lawyers at some point in 2014 or 2015 on the sale of real property by one or both of Ms Thurston and Mr Loomis).

5. That Mr RO, solicitor, shall, subject to further order of this Court, follow the directions of Mr BG in respect of the withdrawal and/or transfer and/or payment of funds from either or both of the accounts referred to in the previous paragraph, including in respect to payment to the Australian Tax Office of any amount of tax, penalties, or interest on unpaid tax or penalties assessed to be owed by the R Superannuation fund, and including as to the reasonable professional fees payable to E Accountants for Mr BG’s services in undertaking the tasks effectively assigned to him by these orders and in preparing, and causing to be audited as required by law (and paragraph 6 hereof), the documents referred to in paragraph 1 of these orders.

6. That Mr BG shall also cause the documents prepared pursuant to paragraph 1 of these orders to be audited as required by law and by this order the parties authorise Mr BG to retain any auditors he considers appropriate to undertake the auditing task and to provide the audit reports, including any section of E Accountants who are entitled at law to audit financial statements of a self-managed superannuation fund otherwise prepared by another section of that firm.

7. That when Mr BG and the auditors consider the matters of past non-compliance by the Trustee of the said superannuation fund  have been addressed to a point where the best possible outcome for the members of the fund and the directors of the trustee of the fund might nevertheless be able to be achieved, the matters of non-compliance, the steps taken to remedy them, the financial statements and the auditors’ reports along with any representations Mr BG considers professionally appropriate to make on behalf of the trustee and any other information required by law to be reported, shall be reported to and fully drawn to the attention of the Australian Tax Office by Mr BG with a call by him, at the request of this Court, for the Australian Tax Office to consider the matter and address all the issues raised as it considers necessary according to law. 

8. That when Mr BG is satisfied that all business between the R Superannuation Fund and the Australian Tax Office arising from these orders is concluded he shall file in these proceedings and bring to the attention of the parties,  Justice Forrest and Mr RO, solicitor, a final report of his dealings in the matter pursuant to these orders to which he attaches all relevant documents including, in particular, the financial statements and member statements of the fund for the year ended 30 June 2016.

9. That when Mr RO receives that report referred to in paragraph 8 hereof, he shall cause the parties and Justice Forrest to be notified in writing of the then current balances of the two accounts referred to in paragraph 4 hereof, and provide the Court and the parties with copies of all monthly statements received by him from the ANZ Bank in respect of those two accounts since the end of November 2015.

10. That each of Mr BG and Mr RO has liberty to apply directly to the Court for any further direction or orders either considers necessary in order to properly discharge the duties assigned pursuant to these orders, on the giving of 2 days’ notice to the parties and to the other.

11. The delivery of the final judgement in this matter is stayed until the completion of all of the matters required to be completed by these orders.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Thurston & Loomis and Ors 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 BRISBANE

FILE NUMBER: BRC1010/2012

Ms Thurston

Applicant

And

Mr Loomis

First Respondent

And

L Ltd

Second Respondent

And

C Pty Ltd

Third Respondent

REASONS FOR JUDGMENT

1. I concluded the trial in these fiercely contested substantive property adjustment proceedings in December 2015.

2. It became absolutely clear to me during the course of the trial, particularly after hearing evidence and considering a report from an independent jointly instructed accountant, Mr BG, that there were substantial issues of non-compliance with legislative and regulatory requirements by Mr Loomis and Ms Thurston in their roles as directors of the corporate trustee of their self-managed superannuation fund.

3. The evidence established that the last financial statements for the R Superannuation Fund were prepared as at 30 June 2012. Those statements, the expert’s evidence and the evidence of the parties establish that Mr Loomis and Ms Thurston withdraw most of the funds from their self-managed superannuation fund over the last period of their relationship using some of that money to pay for development of real property registered in the name of Ms Thurston and using the rest for a mix of personal purposes not related to proper conduct of the superannuation fund.

4. Mr BG’s evidence, which I accept, was that these transactions breached superannuation regulatory requirements. His evidence was that the withdrawals should be treated as loans to members of the fund as a prelude to taking remedial steps so as to reduce the impact of the regulatory consequences of the non-compliance, as far as is possible. Whilst I accept that treating the withdrawals as loans to members does not in itself remedy the non-compliance because they are related party loans and breach the “in house asset” rules of the Superannuation Industry (Supervision) Act 1993 (Cth) and the Superannuation Industry (Supervision) Regulations 1994 (Cth), Mr BG gave evidence that if the loans are repaid with interest calculated at the appropriate rate, having regard to guidance set by the Australian Tax Office (“the ATO”), that the issues of non-compliance may be dealt with in a less punitive fashion by the ATO than they might if the non-compliance is otherwise not addressed.

5. Mr BG also gave evidence that the R Superannuation Fund may still have a liability to the ATO for unpaid GST in respect to the sale of a commercial property that was an asset of the fund that needs to be addressed.

6. The evidence before the Court is that a large amount of cash is now invested and held on trust in an interest bearing account for the parties’ self-managed superannuation fund by Mr RO, who is the former solicitor for Mr Loomis. There is also a large amount of cash held on trust in another interest bearing account by Mr RO for the parties themselves. These cash funds come from the sale of real property the parties acquired during their relationship.

7. I am satisfied that there are enough funds in those two accounts to justify making orders on an interim basis before I finalise my judgment in these proceedings, appointing Mr BG as an independent expert to guide Mr Loomis and Ms Thurston through the remedial steps to be taken in respect of these substantial non-compliance issues. I am satisfied that orders should be made that cause the loans from the superannuation fund to the members to be repaid to the fund with interest and that also cause the financial statements for the fund for the financial years 2013, 2014, 2015 and 2016 to be prepared and then independently audited as required by law.

8. I am also satisfied, on the evidence, that reporting to the ATO of the non-compliance and the remedial steps taken to endeavour to correct that non-compliance must occur. In fact, Mr BG’s evidence was that the auditors would have to report the non-compliance to the ATO in any event.

9. The orders I intend to make will require all of this to happen, including the reporting to the ATO. There is ample authority for the proposition that this Court can, and, in appropriate cases, should ensure that breaches of Commonwealth laws, particularly revenue laws, are brought to the attention of the executive branch of government.[1] I intend to make interim orders that require Mr BG to draw the matters to the attention of the ATO and to call upon the ATO to consider the matter and to address the issues raised as it considers necessary according to law. In my judgment this is an appropriate case for such action.

   [1]T and T (1984) FLC 91-588, Georginas v Kostrati (1988) 49 SASR 371, Malpass and Mayson (2000) FLC 93-061.

10. I am quite satisfied in this case, that it is only after these necessary remedial steps are taken and the matter has been reported to the ATO and all ATO office requirements concluded, that this Court can proceed to finalise property adjustment orders that are just and equitable. I am satisfied that the power to make such interim orders and to adjourn the delivery of my final judgment in this matter is available to the Court pursuant to s 90SM(5), (6) and (7) of the Family Law Act 1975 (Cth) (Mr Loomis and Ms Thurston having been parties to a de facto relationship and not actually married).

11. I am satisfied that Mr BG is a suitably qualified expert to be responsible for overseeing the steps that must now be taken to regularise these non-compliance matters and to put matters into a state where this Court can proceed to make final property adjustment orders that are just and equitable.

12. I have drawn some orders that I consider proper to make to give effect to this intention. Before I make the orders though, I will give the parties and Mr BG and Mr RO a copy of the orders I propose to make and invite submissions from them in respect of those proposed orders. Particularly in so far as Mr BG is concerned, I consider that appropriate.

13. Having sent a draft of the proposed orders to the parties, Mr RO and Mr BG, I listed the matter to allow further submissions.

14. Mr BG informed the Court that he did not consider any changes to the draft of the proposed orders were necessary or required. Mr Baston made no submissions on behalf of Ms Thurston. Mr RO did not appear and make any submissions as trustee of the funds.

15. Mr Loomis did appear and made it clear that he opposed the making of the orders in the form provided in the draft as a matter of principle. I informed him that I had determined that the orders are necessary and that I intended to make them.

16. I made the orders set out at the commencement of these written reasons.

I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Forrest delivered on 9 May 2016.

Associate:

Date:  9 May 2016