Zanetti & Zanetti (No 2)

[2023] FedCFamC1F 868

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 1)

Zanetti & Zanetti (No 2) [2023] FedCFamC1F 868

File number:

SYC 6314 of 2021

Judgment of:

REES J

Date of judgment:

12 October 2023

Catchwords:

FAMILY LAW – INTERIM – Property – Receivership – Where the Respondent is the sole director and majority shareholder of the companies – Where the Second Respondent holds shares in one of the companies – Where the Applicant seeks orders for the appointment of a receiver – Where the Respondent seeks orders for the sale of real property to retire debt – Where the Applicant seeks orders to be released from her undertaking as to damages – Where the Respondent has breached orders by further encumbering the companies – Where the Second Respondent was in aid of the breach – Where there are significant funds owing to the mortgagee – Where there are several defaults on the mortgages – Where the mortgagee did not wish to be joined to the proceedings – Where the mortgagee reserved their rights of enforcement action – Orders for the appointment of a receiver to take control of the companies – Orders for the sale of the property – Orders for the Applicant to be appointed trustee for the sale of the property – Orders for the Applicant to be released from her undertaking  

Legislation:

Corporations Act 2001 (Cth) ss 420

Family Law Act 1975 (Cth) ss 80(1),

Federal Circuit Court and Family Court of Australia (Family Law) Rules 2021 rule 7.11, rule 12.06  

Cases cited:

ASIC v Burke [2000] NSWSC 694

Blueseas Investments Pty Ltd v Mitchel and Another [1999] FamCA 745

Richstar Enterprises Pty Ltd and Others; Australian Securities and Investments Commission v Carey (No 3) and Others [2006] FCA 433

The University of Western Australia v Gray (No 6) [2006] FCA 1825

Division:

Division 1 First Instance

Number of paragraphs:

95

Date of hearing:

16 August 2023, 14 September 2023, 27 September 2023, 9 October 2023;

Place:

Sydney

Counsel for the Applicant:

Mr Hollow

Solicitor for the Applicant:

York Law Family Law Specialists

Counsel for the First Respondent:

Mr Schonell 16 August 2023 & 14 September 2023; Ms Van Oosterom 27 September 2023; Mr Brickwood 9 October 2023;

Solicitor for the First Respondent:

Marando Solicitors

Counsel for the Second Respondent:

Mr Batey 16 August 2023; Mr Barnett 14 & 27 September 2023 & 9 October 2023;

Solicitor for the Second Respondent:

Horton Rhodes Legal

ORDERS

SYC 6314 of 2021

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)

BETWEEN:

MS ZANETTI

Applicant

AND:

MR ZANETTI

First Respondent

MS F ZANETTI

Second Respondent

ORDER MADE BY:	REES J
DATE OF ORDER:	12 OCTOBER 2023

THE COURT ORDERS:

1.That in these orders the terms below have the following meaning:

(a)"Companies" means:

(i)G1 Pty Ltd;

(ii)G2 Pty Ltd;

(iii)H Pty Ltd;

(iv)G3 Pty Ltd;

(v)J Pty Ltd;

(vi)K1 Pty Ltd;

(vii)K2 Pty Ltd;

(viii)K3 Pty Ltd;

(ix)L Pty Ltd;

(x)G4 Pty Ltd;

(xi)G5 Pty Ltd;

(xii)G6 Pty Ltd;

(xiii)G7 Pty Ltd;

(xiv)G8 Pty Ltd;

(xv)G9 Pty Ltd;

(xvi)G10 Pty Ltd;

(xvii)M Pty Ltd;

(xviii)N Pty Ltd;

(xix)P Pty Ltd;

(xx)Q Pty Ltd; and,

(xxi)R Pty Ltd

(b)"Trust" means the Zanetti Family Trust, the trustee of which is H Pty Ltd.

2.That the Companies each be joined nunc pro tunc as Respondents to the Wife's Application in a Proceeding dated 4 May 2023.

3.That H Pty Ltd as trustee of the Trust be joined nunc pro tunc as a Respondent to the Wife's Application in a Proceeding dated 4 May 2023.

4.That, until further order, without prejudice to the rights of any prior mortgagee or security holder, Mr S of T Group ("the Receiver") be appointed without security as Receiver and Manager:

(a)of the income and property of the Companies, pending the determination of the proceedings; and

(b)of the property, assets and undertaking of the Trust (Receiver).

5.That pursuant to section 420 of the Corporations Act 2001, the Receiver shall conduct and manage the business of the Companies and the Trust.

6.That in exercising any of his duties under these orders, the Receiver shall have all the powers pursuant to section 420 of the Corporations Act 2001 as if he had been appointed under that Act and the Trust was a corporation.

7.That the Receiver is to provide to the Court and to each of the Wife and Husband an interim report at the expiration of 28 days from the date of these orders as to the financial circumstances of the Companies and the Trust and the report is to include:

(a)Such information and material as the Receiver thinks appropriate to present the true and accurate financial position of the Companies and the Trust;

(b)any recommendation that in the opinion of the Receiver is appropriate as to the ongoing conduct of the business or its liquidation or winding up;

(c)a statement of account for all receipts and disbursements in relation to the receivership.

8.That the Receiver have liberty to apply on short notice for further directions to approve his remuneration or to be paid his reasonable sum not exceeding the maximum default amount as prescribed in the Insolvency Practice Schedule (Corporations) 60-15.

9.That the Husband do all necessary things and sign all necessary documents so as to cooperate with the Receiver and shall provide such documents, financial records, bank statements/books, tax records and any other financial document as required by the Receiver within 24 hours of a request by the Receiver and provide any other information sought by the Receiver which relates to the income, property or liabilities the Companies and the Trust.

10.That the Receiver have liberty to apply to the Court on short notice for further directions.

11.That, in relation to her application for the appointment of a receiver, the Wife is not required to give an undertaking as to damages.

12.That the Wife is appointed trustee for sale of the property at U Street, Suburb E ("U Street") and the husband shall do all acts required to give effect to that appointment.

13.That, upon the completion of the sale of U Street, the wife shall apply the proceeds of sale in the following manner and priority:

(a)In payment of the costs of sale including but not limited to agent's commission and costs and the costs of the solicitor instructed in the conveyance.

(b)In payment to V Bank as mortgagee of such sum as is required to be paid pursuant to the mortgage.

(c)In payment of the balance remaining, if any, to the solicitor instructed on the conveyance, to be held in a controlled monies account in the name of K3 Pty Limited, pending further order of the court.

14.That the operation of Orders 12 and 13 is stayed until 4pm on 19 October 2023.

15.That all parties have liberty to apply in relation to Orders 12 and 13 by arrangement with the associate to the Honourable Justice Rees.

16.That the Husband's application for an order that the wife withdraw her caveat over U Street, is dismissed.

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 a pseudonym Zanetti & Zanetti has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

REASONS FOR JUDGMENT

REES J:

1. Ms Zanetti ("the wife") and Mr Zanetti ("the husband") are engaged in proceedings relating, relevantly here, to their property. The husband's mother, Ms F Zanetti ("the second respondent") is a party to those proceedings.

2. By an application filed 4 May 2023, the wife now seeks the appointment of a receiver to corporate entities currently controlled by the husband. In her application, the wife also sought orders restraining the husband, in his personal capacity or in his capacity as a director, from dealing with properties at Suburb E which are owned by K3 Pty Limited ("the Suburb E properties") and orders appointing the wife as trustee for sale of the Suburb E properties and certain ancillary orders. However, before me, she did not press those applications.

3. The wife has proffered an undertaking as to damages in relation to the application to appoint a receiver but asks that she not be required to give the undertaking.

4. The wife's applications are opposed by the husband and by the second respondent.

5. The husband, by his response filed 14 June 2023, seeks orders to permit the sale of a property at U Street, Suburb E ("U Street") which is owned by K3 Pty Limited, a company of which the husband is the sole director and shareholder. On 9 October 2023, the husband tendered an amended Minute of Orders in which, in addition to the orders sought by his response, he also sought an order that the wife remove the caveat she has lodged over U Street.

6. That application is opposed by the wife.

7. This matter was listed before me for hearing on 16 August 2023. After the completion of submissions on behalf of the wife, the parties asked for the matter to be adjourned on the basis that they had reached an agreement in principle to resolve the substantive issues. On that basis, the matter was adjourned to 14 September 2023.

8. The matter was not settled and the hearing resumed before me on that day.

9. On 14 September 2023, I directed that V Bank, a secured creditor of both the husband and each of the relevant companies, be served with the wife's application and the documents which had been filed up to that date. V Bank is the first mortgagee of U Street.

10. By letter dated 19 February 2021, but which is agreed to have been sent in September 2023, solicitors on behalf of V Bank advised the court that,

    …[V Bank] neither opposes nor consents to the proposed Orders set out in the Application filed on 4 May 2023, and [V Bank] presently does not intend to be joined as a party or to appear at the hearing of the Application.

    In the meantime, nothing contained in this letter should be construed by anyone as a waiver by [V Bank] of its rights under the Securities and existing defaults, including without limitation, its right to take enforcement action in relation to the Securities at any time should [V Bank] deem it in its best interests to do so. Those rights are expressly reserved by [V Bank].

11. The hearing resumed on 9 October 2023.

    THE APPLICATION TO APPOINT A RECEIVER

12. I propose to set out in full the orders sought by the wife, as amended by leave:

    In these orders the terms below have the following meaning:

    a.        “Companies” means:

    i.        [G1 Pty Ltd];

    ii.        [G2 Pty Ltd];

    iii.       [H Pty Ltd];

    iv.       [G3 Pty Ltd];

    v.        [J Pty Ltd];

    vi.       [K1 Pty Ltd];

    vii.      [K2 Pty Ltd];

    viii.     [K3 Pty Ltd];

    ix.       [L Pty Ltd];

    x.        [G4 Pty Ltd];

    xi.       [G5 Pty Ltd];

    xii.      [G6 Pty Ltd];

    xiii.     [G7 Pty Ltd];

    xiv.     [G8 Pty Ltd];

    xv.      [G9 Pty Ltd];

    xvi.     [G10 Pty Ltd];

    xvii.     [M Pty Ltd];

    xviii.    [N Pty Ltd];

    xix.     [P Pty Ltd];

    xx.      [Q Pty Ltd]; and,

    xxi.     [R Pty Ltd]

    b.“Trust” means the [Zanetti Family Trust], the trustee of which is [H Pty Ltd].

    Procedural orders

    1.        To the extent that leave is required,

    a.the Applicant Wife is granted leave to amend her Application in a Proceeding dated 15 May 2023 to seek the following orders.

    b.the Applicant Wife is granted leave to rely upon her Affidavit filed 8 August 2023.

    c.the Applicant Wife is granted leave to rely upon an affidavit from [Mr S] (Receiver) filed 14 August 2023

    2.That the Companies each be joined nunc pro tunc as Respondents to the Applicant Wife’s Application in a Proceeding dated [4 May 2023].

    3.That [H Pty Ltd] as trustee of the Trust be joined nunc pro tunc as a Respondent to the Applicant Wife’s Application in a Proceeding dated [4 May 2023].

    Appointment of Receiver and Manager

    (That upon the Wife by her Counsel providing an undertaking as to damages, order that):

    4.Until further order, without prejudice to the rights of any prior mortgagee or security holder, [Mr S] of [T Group] be appointed without security as Receiver and Manager:

    a.of the income and property of the Companies, pending the determination of the proceedings; and

    b.        of the property, assets and undertaking of the Trust (Receiver).

    5.Pursuant to section 420 of the Corporations Act 2001 the Receiver shall conduct and manage the business of the Companies and the Trust.

    6.In exercising any of his duties under these orders, the Receiver shall have all the powers pursuant to section 420 of the Corporations Act 2001 as if he had been appointed under that Act and the Trust was a corporation.

    Report of Receiver to Court and to parties

    7.The Receiver is to provide to the Court and to each of the Applicant Wife and Respondent Husband an interim report at the expiration of 28 days from the date of these orders as to the financial circumstances of the Companies and the Trust and the report is to include:

    a.Such information and material as the Receiver thinks appropriate to present the true and accurate financial position of the Companies and the Trust;

    b.any recommendation that in the opinion of the Receiver is appropriate as to the ongoing conduct of the business or its liquidation or winding up;

    c.a statement of account for all receipts and disbursements relation to the receivership.

    Costs of Receiver

    8.That the Receiver have liberty to apply on short notice for further directions to approve his remuneration or to be paid his reasonable sum not exceeding the maximum default amount as prescribed in the Insolvency Practice Schedule (Corporations) 60-15.

    Other orders

    9.The Respondent Husband do all necessary things and sign all necessary documents so as to cooperate with the Receiver and shall provide such documents, financial records, bank statements/books, tax records and any other financial document as required by the Receiver within 24 hours of a request by the Receiver and provide any other information sought by the Receiver which relates to the income, property or liabilities the Companies and the Trust.

    10.That the Receiver has liberty to apply to the Court on short notice for further directions.

    Further return date

    11.The Wife’s Application in a Case is adjourned to a date to be allocated by this Honourable Court.

    Costs

    12.That the Husband pay the Wife’s costs of and incidental to this Application on an indemnity basis.

13. Counsel for the husband conceded that, if an order were to be made for the appointment of a receiver, then the form of orders sought by the wife is appropriate.

14. The wife relied upon an affidavit sworn by her on 3 May 2023, an affidavit sworn by her on 8 August 2023, an affidavit of Mr S (the proposed receiver) sworn 14 August 2023 and selected paragraphs of an affidavit sworn by the husband on 13 June 2023. The wife also provided a tender bundle to which there was no objection.

15. The husband relied on affidavits sworn by him on 13 June 2023 and 11 August 2023. He also provided a tender bundle.

16. It is an agreed fact that the companies and their assets are encumbered by security to V Bank for a significant loan, initially $11,000,000 and now a greater sum. As at 5 September 2023, the amount owed to V Bank was $11,278,363.

17. Counsel for the wife conceded that the appointment of a receiver is a drastic step and not to be lightly undertaken but he submitted that the facts of this case require no lesser remedy.

    THE LAW

18. Counsel for each party took me to a number of authorities dealing with the circumstances in which an order appointing a receiver to enquire into and report upon the position of a company ought to be made.

19. Counsel for the wife referred to the statements of French J, as his Honour then was, in The University of Western Australia v Gray (No 6) [2006] FCA 1825 that the basis upon which a court may appoint a receiver is as wide as "when circumstances render it just and convenient". Further, his Honour stated at [71],

    The power of the Court to appoint a receiver is statutory. It has its origins, however, as an equitable remedy. An order in the nature of an equitable remedy can be made under s 23 of the Act. The class of circumstances in which such power may be exercised is not closed. Nor are the purposes for which a receiver may be appointed and the powers and conditions attaching to such an appointment. There may be many circumstances of considerable diversity which would warrant such an order and it is important that the discretion not be unnecessarily confined by any particular line of cases to which it has been applied.

20. And,

    … the general ground upon which a court appoints a receiver is ultimately in every case the protection or preservation of property for the benefit of persons who have an interest in it.

21. There is no dispute that the power to make an order of the kind proposed by the wife lies in section 80(1) of the Family Law Act 1975 (Cth) ("the Act") which provides, relevantly,

    (1)The court, in exercising its powers under this Part, may do any or all of the following:

    …

    (e)       appoint or remove trustees;

    (f)order that payments be made direct to a party to the marriage, to a trustee to be appointed or into court or to a public authority for the benefit of a party to the marriage;

    (h)make a permanent order, an order pending the disposal of proceedings or an order for a fixed term or for a life or during joint lives or until further order;

    (i)        impose terms and conditions;

    …

    (k)make any other order (whether or not of the same nature as those mentioned in the preceding paragraphs of this section), which it thinks it is necessary to make to do justice;

22. In so far as the provisions of s80(1)(k) could be seen to mandate a different test from those expounded in the Federal Court authorities to which I was referred by counsel, I am bound in this determination by the provisions of the Act.

23. I must therefore be satisfied that it is necessary to make the orders sought by the wife in order to do justice.

24. That consideration occurs in the context that, with the exception of shares in G2 Pty Limited and shares in W Pty Limited, the shares in the companies are owned by the husband. As counsel for the husband said in address,

    It’s no doubt in this case that the husband is the mind and controller – controlling mind of these entities. He is the person at the helm, and he is the person who is running the day-to-day operations.

25. On 24 March 2023, orders were made which, relevantly, required the husband to give "view only" access to the bank accounts of the companies to the wife's adversarial expert, Ms Y and restrained the husband from dealing with the property of the companies, other than in the ordinary course of business, without 42 days' notice in writing to the wife.

26. Relevantly, those orders provided,

    22.That pending further Order, on the wife’s undertaking as to damages and save for the purpose of complying with Orders 14, 15 and 18A herein, the husband both personally and in his capacity as director, officeholder, trustee and/or appointer of each of the [Zanetti] entities be and hereby is restrained from causing or permitting:

    22.1any alteration to the appointor(s), trustee(s), beneficiaries and/or terms of any of the Trusts that form part of the [Zanetti] entities and from exercising in any way any power of appointment in respect of the trustees of any of the Trusts;

    22.2any alteration to the officeholders, shareholders and/or share capital of any of the [Zanetti] entities, including but not limited to by issuing further shares, registering any shares already issued but not yet registered, altering the right attaching to any shares issued in relation to any of the [Zanetti] entities;

    22.3any dealing in respect of his interests and entitlements in each of the [Zanetti] entities including but not limited to by way of transfer, encumbrance, assignment, charge or otherwise;

    22.4any dealing in respect of the interests of the husband and the [Zanetti] entities in all real property and motor vehicles, including by way of transfer, encumbrance (including drawing upon any existing encumbrance or facility secured by reference thereto), assignment charge or otherwise;

    22.5the payment of any dividends and the making of any distributions by and from the [Zanetti] entities; and,

    22.6any of the [Zanetti] entities to be wound up or to be placed into administration;

    without having provided the wife with not less than 42 days prior notice in writing of his intention to do so, which notice shall include all information and documents available and relevant to such proposed action.

    23.That pending further Order and on the wife’s undertaking as to damages, the husband otherwise be both personally and in his capacity as director, officeholder, trustee and/or appointor of each of the [Zanetti] entities be and hereby is restrained from causing or permitting any dealing in respect of the interests of (including the assets owned by and entitlements of) each of the husband and the [Zanetti] entities, whether by way of sale, transfer, encumbrance or otherwise save in the ordinary course of business, or on the provision of not less than 28 days prior notice in writing to the Wife of his intention to do so, which notice shall include all information and documents available and relevant to such transactions, which for the avoidance of doubt does not include any dealings with real property or motor vehicles.

1. On 30 March 2023, the husband's solicitors wrote to the wife's solicitors stating, inter alia, that the husband proposed to sell U Street, owned by K3 Pty Limited and pay the proceeds of the sale to V Bank. The letter stated,

   We are instructed that the repayments to [V Bank] on the current loan amount of $11,022,494.00 has (sic) increased substantially due to interest rate increases. We are further instructed that the current monthly loan repayments are $70,926.12 and [K3 Pty Ltd] cannot continue to maintain the payments.

2. The wife's solicitors wrote advising that the wife did not consent to the sale and sought confirmation that the property had been withdrawn, giving notice that absent that confirmation, an application would be brought to restrain the sale.

3. On 19 April 2023, the husband's solicitors wrote to the wife's solicitors confirming that the husband intended to proceed with the sale and also that, the loan repayments required to be paid by K3 Pty Limited to V Bank had increased from $24,781 to $60,134 and stating,

   We are further instructed that [K3 Pty Ltd] is unable to afford to continue meeting the responsibility of these repayments and is required to urgently reduce the repayments required by reducing the loan amount.

4. Also with that letter, the husband's solicitors forwarded a document entitled "Business Viability Advice Report" (the report") dated 18 April 2023 and prepared on the husband's instructions, "with regards to the precarious position of the [Zanetti] Entities".

5. The letter stated,

   We are instructed by our client and his financial advisers that without urgent injection of cash capital into the [Zanetti] entities our client is at risk of trading insolvent in the near future…

   Please be advised that if your client continues in her objection to the sale of the property … our client will rely on this correspondence and the undertaking as to damages in relation to any loss suffered by our client.

6. The Executive Summary of the report states,

   The purpose of this report is to evaluate the current situation of [G1 Pty Ltd] and relate entities, the [G Group], which has been experiencing a significant slowdown in business operations. The report provides an overview of the challenges faced by the company… Based on the analysis, the report recommends implementing measures to scale down operations and implement a partial sale in order to adapt to the changing business environment and ensure the group’s viability to continue to operate as a going concern by implementing a sustainable business model.

7. Later, the report states,

   If the business doesn’t turn around and does not improve financially, as a last and final resort the owners must seriously consider to close the business and wind up its affairs and that may be the appropriate legal process to distribute the company’s assets and settle its debts.

8. The report states,

   Scaling down will allow the companies to pay the ATO liabilities as currently they are all on payment arrangements. A condition of the payment arrangements is that all future tax debts will be paid in full once incurred.

9. Documents tendered by the wife from the Australian Taxation Office ("ATO") indicate that, at 25 August 2023, all but one of the companies has been in arrears of payments of tax since at least November 2022 and the amount owed to the ATO was then $546,127.

10. The report appends a document titled "Appendix Liquidation" which lists assets of $24,067,025 and liabilities of $27,169,453, a net debit of $3,102,428.

11. The wife also asserts, and I accept, that the husband has engaged in a course of behaviour where he has provided different versions of the financial statements of various companies for different purposes. Specifically, the financial statements provided to V Bank to secure the loan facility are different from the financial statements provided to the single expert valuer, Mr D.

12. In the year ended 2021, the version provided to V Bank showed the net profit of G1 Pty Limited as $734,641. The version provided to Mr D showed a loss of $765,359.

13. In the same year, the version provided to V Bank showed G1 Pty Limited having assets of $3,351,139. The version provided to Mr D showed assets of $1,851,139.

14. In his draft report dated 29 November 2022 Mr D stated,

    I have been provided with two different financial statements for [G1 Pty Ltd] for the year ended 30 June 2021. One financial statement has $1.0 million more income and $500,000 less costs than the other. Thus, I am required to consider both financial statements in my report…

15. By way of explanation, the husband deposed that the evidence in relation to the differing financial statements "has been created solely in an attempt to discredit me". He deposed,

    During the 2021 financial year, the accounts showed a huge loss. If these were presented to [V Bank] when I applied for the loan, then the loan would not have been approved. It was in no way done to gain a financial advantage over anyone.

16. It is, of course, obvious that the husband, by providing false financial statements, intended to gain an advantage from V Bank.

17. The husband's actions, as admitted, raise considerable questions about his fitness to act as a director.

18. Further difficulties arise in relation to the loan from V Bank.

19. A document dated 4 February 2022 sets out the conditions of the advance from V Bank, the facility limit being $11,186,000.

20. Under the heading "Conditions Subsequent" the document provides,

    The Bank will continue the Facility if it is satisfied of the following:

    …

    •The Borrowers/Mortgagors/ Guarantors have no past due or undisclosed Income Tax liability.

21. It appears from the documents tendered in the wife's case that various of the companies have past due tax liabilities.

22. Further the document provides that, in the event that the borrower should ever seek to obtain additional funding by way of a second mortgage over its real property with another lender, then the borrower is firstly to obtain the consent of V Bank and,

    Failure of the Borrower to advise and/or consult the Bank prior to entering into a second or subsequent mortgage arrangement with any other financier will be deemed an event of default under the terms and conditions of the loan.

23. The second respondent annexed to her affidavit copies of mortgages granted to her over three properties in Suburb E, granted in September 2022. All of these properties are security for the V Bank advance. There is no evidence that V Bank gave permission for those properties to be further encumbered.

24. The document provides that, in the event of a default, V Bank is entitled to charge an increased rate of interest until the default is rectified.

25. No updating evidence was provided by the husband after 11 August 2023 although documents tendered by the wife showed that there had been a number of significant developments.

26. The internet banking history of the V Bank payments showed that all payments between 30 April 2023 and 31 August 2023, had been dishonoured.

27. A document entitled "Lending Cloud Watchlist Template" produced by V Bank, indicates that V Bank was considering issuing letters of demand on 30 September 2023. Whether or not this has happened is not known. The husband, who was in a position to give that evidence, has not done so.

28. Of much greater concern, counsel for the husband told the court, from the bar table, that the husband had borrowed $1,700,000 from the second respondent and produced a document entitled "Loan Agreement" signed by the husband and the second respondent evidencing the advance of $1,700,000 by the second respondent to the husband at an interest rate of 5 per cent upon the security of the husband's assets and a document evidencing a deposit of $1,700,000 into the account of G1 Pty Ltd with the Westpac Bank, account #...57, on 29 September 2023.

29. Whether V Bank gave permission for the properties to be further encumbered is not known. The husband proffered no evidence on that issue. If V Bank did not give consent, then there is a further event of default.

30. No notice had been given to the wife of the proposed transaction which is, on the part of the husband a prima facie breach of Orders 22.3 and 23 made on 24 March 2023 and, on the part of the second respondent, prima facie, an action to aid that breach.

31. No explanation was given for the failure on the part of the husband to give full disclosure on an ongoing basis.

32. The husband gave no evidence about the present whereabouts of the sum of $1,700,000 or whether the funds had been disbursed.

33. Counsel for the wife submitted that the appointment of a receiver is necessary for two reasons.

34. Firstly, the husband's shares in the companies are the most significant property of the husband and the wife. In the substantive proceedings between the husband and the wife, the value of the shares must be determined as a preliminary step.

35. Secondly, the actions of the husband have amply demonstrated that the making of restraining orders is not a sufficient remedy to prevent the husband from further dissipating assets.

36. Dealing with the first proposition, neither counsel for the husband nor counsel for the second respondent disputed the proposition that there could be no reliable valuation when the husband is the person who is responsible for providing the financial information to the single expert valuer.

37. Rather, both the husband and the second respond submitted that a less invasive course of action should be taken, that is, to appoint a single expert auditor or a forensic financial investigator rather than a receiver.

38. However, there was no application by either the husband or the second respondent for the appointment of such an expert. I reject the submission made on behalf of the husband that it is not necessary for the husband to make an application for such appointment.

39. Put simply, as I put to counsel for the husband, if the husband submits that the problem he has created should be addressed in a different way from that proposed by the wife, then it was incumbent upon him to make that application and to satisfy the provisions of the Rules for the appointment of a single expert. The relevant passage of transcript is reproduced below;

    HER HONOUR: … If your client thinks it should be addressed in a difficult way then it’s incumbent upon him to put on an application. 

    MR BRICKWOOD: I understand that, your Honour, but I would submit, and I maintain my view, that there is a hierarchy here of potential remedies which are more drastic than others. 

    HER HONOUR: Yes. 

    MR BRICKWOOD: And the      

    HER HONOUR: Indeed, there are      

    MR BRICKWOOD: And      

    HER HONOUR: and the one that is proposed is not the one that you say will address the problem, but you take no step to say what orders should be made to address the problem.

    MR BRICKWOOD: Quite, your Honour.  However, the issue that you have just framed in terms of how the court gets to that point at a final hearing to value this and put it – ascribe a value to the enterprise is a matter that can be, if your Honour – and your Honour has the power to make orders for the appointment of a single expert if your Honour is minded to take that option.  That doesn’t necessarily have to involve an application by any party.  I      

    HER HONOUR: Yes.  It does. 

40. No application was made.

41. There was, in any event, no evidence before the court pursuant to the provisions of Rule 7.11 of the Federal Circuit Court and Family Court of Australia (Family Law) Rules 2021 ("the Rules").

42. I am not presented with any viable alternative but to appoint a receiver to investigate and report on the financial position of the companies and I am satisfied that it is necessary for that to be done in order for the valuation of the shares to proceed.

43. I turn then to the second basis upon which it is submitted that the appointment of a receiver is necessary.

44. The fact that the husband has, prima facie, acted in breach of the orders made on 24 March 2023 is another significant reason to appoint a receiver.

45. Austin J in ASIC v Burke [2000] NSWSC 694, stated at [8],

    ‘Without wishing to lay down any general rules, it appears to me that the extraordinary step of appointing a receiver may be justified, even though Mareva Orders are in place, in a case where there is real doubt about the existence and location of assets such as investments, and about the number and identity of claimants and the nature of their claims, and additionally the defendants are engaged in business activities which entail that any Mareva Orders must allow assets to be turned over in the course of business. Where these circumstances exist in combination, and especially where there are allegations of serious fraud involved, the Court may conclude …that the Mareva Orders are not enough to ensure that the assets are preserved and protected, and indeed identified and brought in for the benefit of investors.’

46. In Richstar Enterprises Pty Ltd and Others; Australian Securities and Investments Commission v Carey (No 3) and Others [2006] FCA 433, French J, (as he then was) stated at [28],

    The appointment of a receiver may offer a more flexible response to the exigencies of the case presented to the Court than the imposition or continuation of a freezing order albeit they are not mutually exclusive remedies. The receiver can be equipped with the powers necessary to enable him or her to identify and locate a relevant person’s assets and to prevent their dissipation or removal from the jurisdiction. The receiver can also ensure, without the necessity of specific applications to the Court to vary freezing orders, that bona fide dealings with assets which do not diminish the overall estate of the person under investigation and which allow that person to attend to their legitimate business affairs can be permitted. While ASIC has investigative powers which can be used to like effect, they do not necessarily give the capacity for short term responses and flexibility of action that a competent receiver armed with suitable powers may have.

47. In the present case, wide reaching orders have been made, restraining the husband from dealing with both his assets and the assets of the companies. I am satisfied that, prima facie, the husband has acted in complete disregard of those orders, as has the second respondent.

48. I accept that the appointment of a receiver is an event of default pursuant to the V Bank securities but, as was conceded in submissions, it is no more than the last of a number of such events upon which V Bank could have acted had it chosen to do so.

49. The appointment of a receiver is necessary to enable the shares in the companies to be valued and to protect the assets of the company and the husband from further depredation.

    SHOULD THE WIFE BE REQUIRED TO GIVE AN UNDERTAKING AS TO DAMAGES?

50. There is no dispute that the wife's only significant asset is a shared interest in a property estimated to be valued at $465,000. The costs notice filed on her behalf pursuant to Rule 12.06 disclose that she has incurred legal fees of $496,218 to date and it is anticipated that her legal fees with exceed $600,000.

51. There is also no dispute that the substantial assets of the marriage are in the possession and control of the husband both personally and through his being either the sole shareholder, or the majority shareholder and the sole director of the companies.

52. In Blueseas Investments Pty Ltd v Mitchel and Another [1999] FamCA 745, the Full Court held,

    52.We note that the learned authors of Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (Fourth Edition) at p. 603, in a note which refers to the above cited Australian cases, say;

    “It would be a pity if these cases were followed with any enthusiasm, as it would mean that the res publica could be held to ransom by paupers, whereas poverty is a practical misfortune not a legal privilege.”

    53.Against this however, there is a well known principle that poverty or straitened circumstances should not bar a litigant's access to justice -see in Re the Will of FB Gilbert (dec.) (1946) 46 SR (NSW) 318 at 323, cited in Adam P Brown Male Fashions Pty Ltd v Phillip Morris Inc (1981) 148 CLR 170 at 177.

    54.It should be noted that these principles in relation to undertakings as to damages are principles of equity derived from civil litigation. There is, we think, an additional highly relevant matter that distinguishes litigation under the Family Law Act from ordinary civil litigation: that is the fact that very often the wealth of the parties is controlled by one rather than both of them. This in turn means that it is not uncommon for one of the parties to have no means of meeting any liability that may be incurred pursuant to an undertaking as to damages.

    …

    57.No doubt in ordinary civil litigation the impecuniosity of a party is a matter that may be relevant to the issue of balance of convenience. For the reasons already stated however, we consider that family law cases must be looked at in a different light. In our view it would be unconscionable to accept a broad principle that the impecuniosity of a party in family law proceedings would be given such weight as to prevent an injunction being granted where all the other requirements for the grant of such an injunction are present. Indeed, it may even be doubtful whether the impecuniosity of one of the parties to family law proceedings would usually be a factor militating against a grant of interim or interlocutory injunctions if the other tests for the grant of the same were otherwise satisfied. This is not to say that such a factor would never be relevant but in the present circumstances at least, where the injunction may have the effect of preserving the only piece of property to which the wife might have recourse, it would be unreasonable in the extreme for her impecuniosity to operate to prevent an injunction being granted.

53. This is a situation where the wealth of the parties is controlled by one rather than both of them and where the wife has no present means of meeting any liability that may be incurred pursuant to an undertaking as to damages.

54. It is appropriate that she should not be required to give the undertaking.

55. Counsel for the wife also sought an order relieving the wife of the consequences of the undertaking as to damages which she gave on 24 March 2023. That application was made without notice to the husband or to the second respondent and I accept that it is appropriate that they be given a proper opportunity to consider their position and, if necessary, to put on evidence. Any application by the wife in relation to the undertaking given on 24 March 2023 can be made in the usual way.

    SALE OF U STREET, SUBURB E

56. The husband, by his response filed 14 June 2023, seeks orders or the sale of the property at U Street, Suburb E which is one of the properties over which V Bank holds security. The purpose of the sale is to reduce the amount owed to V Bank.

57. The wife opposes the sale at this time and, on her behalf, it is submitted that there should be no sale until the receiver has reported.

58. The husband proposes that the sale be upon the following terms:

    2.That the Husband shall be at liberty to list the property known as and situate [sic] at [U Street, Suburb E] (“the Property”) for sale within 14 days from the date of these orders and for the purpose of such sale: -

    2.1Within 3 days from the date of these Orders, the Wife shall provide the Husband with the names of three (3) Real estate Agents, together with proposed Agency Agreements, from which the husband shall select an Agent from the list provided within 3 days, who shall then be appointed as the Listing Agent to conduct the sale of the for the Property [sic];

    2.2Within 3 days from the date of these Orders, the Wife shall provide the Husband with the names of three (3) Solicitors/Conveyancers, together with proposed Fee Disclosures, from which the Husband shall select an Agent from the list provided within 3 days, who shall then be appointed as the Solicitor/Conveyancer to act on the sale of the for the Property [sic];

    2.3the Property shall be listed for sale in accordance with the method recommended by the Listing Agent and at a reserve price as recommended by the Listing Agent;

    2.4The Husband shall instruct the Listing Agent t provide notice to the Wife of all offers received in relation to the sale of the Property;

    2.5The Husband shall provide the Wife with not less than 48 hours prior written notice of any intention to accept an offer to purchase the Property; and

    2.6The Husband shall make the Property available for inspection at all times recommended by the Listing Agent and shall co-operate with eh Listing Agent to give effect to the sale.

    3.That upon the settlement of the sale of the Property, the Husband shall provide all necessary instructions to cause the proceeds of the sale to be paid as follows: -

    3.1All costs and expenses of the sale including but not limited to marketing costs, styling costs, repairs and maintenance costs, auctions expenses, legal costs and disbursements and agent’s commission;

    3.2All amounts required to pay all council rates, water rates, land tax and all other statutory liabilities in respect of the Property;

    3.3The amount required to discharge any encumbrance secured against the Property; and

    3.4The balance, if any, to be paid into Marando Solicitors Trust Account.

1. The second respondent does not oppose the orders sought.

2. Other than that the wife does not trust the husband to sell for the best available price, the basis of her objection to the sale is not immediately obvious.

3. However, in circumstances where the husband has, prima facie, breached the orders made on 24 March 2023 by borrowing $1,700,000, I cannot be satisfied that, notwithstanding any order I might make regulating the husband's behaviour, he will comply with that order.

4. I am satisfied that it is necessary for the property to be sold because V Bank will not wait indefinitely for its debt to be reduced to a manageable level. That much has been made clear from the documents tendered in the wife's case.

5. If the husband cannot be trusted to have the carriage of the sale, the two remaining alternatives are to appoint the wife as trustee for sale or to appoint a third party professional to be the trustee for sale.

6. Although there is no evidence before me of the likely cost of an independent trustee for sale, I accept that the costs would be significant. Before me, counsel for the second respondent submitted that I would not appoint a professional trustee because of the cost involved and because of the perception of a forced sale that would be created.

7. I am satisfied that it is necessary for U Street to be sold and for the proceeds to be applied to reduce the V Bank debt.

8. There is a dispute as to the value of U Street. For the purpose of these proceedings, the property has an agreed value of $5,000,000. However, various documents produced by V Bank refer to the property's being sold for $8,000,000 and to V Bank's requiring that $3,500,000 be applied to debt reduction.

9. Regardless of the selling price, the property is mortgaged to V Bank to secure a debt now in excess of $11,000,000 and ultimately V Bank will determine how much of the sale proceeds it requires. Any balance should be held by the solicitor instructed with the carriage of the sale, pending further order.

10. I propose to make orders appointing the wife as trustee for sale of U Street. However, because I did not clearly raise the prospect of such an order with counsel for the husband, I will suspend the operation of that order for a short period to allow the husband to be heard.

11. It follows, that the application of the husband that the wife withdraw the caveat on U Street will be dismissed.

I certify that the preceding ninety-five (95) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rees.

Associate:

Dated:       12 October 2023