Phillip John Wilkin, to whom for the sake of convenience I shall refer as "the husband", and Leigh Therese Wilkin, to whom for the sake of convenience I shall refer as "the wife", were married in 2003 and separated in 2013. Their four children, whose ages range from 15 to nine, continue to reside with the wife in their former matrimonial home in Orange. There are proceedings on foot between them, which originated in the Local Court at Orange and were subsequently transferred to the Federal Circuit Court and ultimately the Family Court of Australia, where they are pending in the Parramatta registry numbered DUC420 of 2014, and for which Foster J of that Court is the docket judge.
In those proceedings, the substantial assets of the parties which will comprise the pool of matrimonial property available for division under (CTH) Family Law Act 1975, s 79, comprise a home at Orange worth about $735,000 but subject to a mortgage to the ANZ Bank of about $650,000 leaving an equity of only $85,000, and their shareholding in the present plaintiff company Tykade Mechanical Pty Limited, of which the wife is the sole director and the majority and controlling shareholder, holding 10 A class, 10 B class and 10 F class shares. The husband holds one share and others, who seem to be three of the four children and one other family member, hold the remaining shares.
Tykade itself holds 25.33 per cent of the shares in another company, the present defendant PJL Group Pty Limited, which company was until recently and may still be also indebted to Tykade on loan account. Tykade also holds some shares in another company, FSI, and is owed a loan of about $25,000 by FSI. Tykade may also have a shareholding in a third other company, Pirtek Dubbo. The significance of this is that the shareholdings of the parties in Tykade - because of its relationship with those other companies and because, on any view, it seems that the shareholding in PJL at least is a substantial and valuable one - is likely to be the overwhelming component of the property available for division in the matrimonial proceedings.
PJL was originally a partnership operating a business conducted by the husband and two associates, Mr Spagnolo and Mr Buckland. It was incorporated in mid-2011 with shareholdings of 33.33 per cent each to Tykade, Bruxner Pacific Pty Limited (a company associated with Mr Spagnolo), and Lugandi Investments Pty Limited (a company associated with Mr Buckland). Subsequently, additional shares in PJL were issued to some employees, and to a vendor of a business to the company by way of consideration for the acquisition of that business, with the result that the interests of Tykade, Lugandi and Bruxner were each reduced to their present level of slightly in excess of 25 per cent each.
When the business of the PJL partnership was transferred to the company, loan accounts were created in PJL for each of the transferor entities, initially in the order of $3.8 million each, reflecting a value of the business on transfer in the order of $9.4 million. Those loan accounts were reduced - to something in the ordinary order of $1.35 million each - by a transaction which is said on behalf of PJL to have "corrected" the incorrect inclusion of the value of goodwill in the original allocation. I need not reach any conclusion on that topic on this application, although it is curious why, if the goodwill had a value, it would not have been appropriate to bring it to account.
In the Family Court proceedings a single expert - a forensic accountant, Mr Pickup - has been engaged to value the interests of the parties to the matrimonial proceedings in Tykade. It is self-evident that that necessarily involves, as a step to the valuation of their interests in Tykade, the valuation of Tykade's interests in PJL - and, for that matter, the other companies in which Tykade has an interest. That valuation process has been a protracted one and is not yet complete, although a draft valuation was prepared some considerable time ago.
Subpoenas have been issued out of the Family Court for production of documents relevant to the valuation process and an application, including one on behalf of PJL to set aside those subpoenas, was unsuccessful. Documents have been produced pursuant to those subpoenas to the Family Court of Australia and are presumably held in that Court's exhibits office.
On 12 December 2017, in the matrimonial proceedings, the Family Court (Foster J) made directions for trial and appointed a compliance check for 26 April 2018, the intent of which is that, if the directions for trial have been complied with, the matter will then be allocated a four day hearing, of which there are reasonable prospects before the end of this year. However, due to issues which have arisen as to what instructions are to be given to Mr Pickup, it is dubious that the matter will be ready at the compliance check to take a date for hearing, and thus dubious that it will be heard before 2019.
Meanwhile, on 14 November 2017 Tykade - no doubt at the instance of the wife who, according to the evidence before me, has, if not been starved of funds, at least been left in an awkward financial position - issued and served a creditor's statutory demand on PJL for so much of its loan account as was clearly not in dispute. PJL had previously contended that the loan was not payable on its behalf, but the minutes of the meeting which created the loan accounts seem to establish that it is. On 29 November 2017, PJL and Tykade entered into a deed of settlement in respect of that demand, pursuant to which Tykade has on 14 December 2017 been paid a sum of $807,430, some of which has been paid to the wife and some of which has been paid to the husband by way of partial property settlement, but the bulk of which has been deposited into a trust account pending the outcome of the Family Court proceedings.
Before that payment was made, on 5 December 2017 PJL announced a non-renounceable rights offer issue of shares at a price of $6.33 per share. On behalf of Tykade, the wife expressed concern that this was an undervalue of the shares, and that if Tykade did not accept it, its interests would be diluted, but that if it were permitted to offset the loan account to the extent of the price payable that would mitigate any prejudice. That suggestion was accepted, and so Tykade accepted that rights offer issue, paid for it by deduction from its loan account, and the proportionate shareholdings in PJL did not change, as all the shareholders accepted the non-renounceable offer.
As I have said, Tykade was paid the balance of the amount referred to in the deed of settlement on 14 December 2017. On 17 December 2017 - and it is worth observing that both of the demands to which I am about to refer happen to have been made on the same day - Lugandi and Bruxner each demanded repayment of their loan accounts in excess of $800,000 from PJL. They had previously entered into arrangements with PJL to be repaid their respective loan accounts at the rate of $10,000 per month - an arrangement which also appears to have been made in respect of Tykade, because Tykade had also, at least until some time during the separation or some time after the separation, been receiving $10,000 per month. The letters of demand from Lugandi and Bruxner each referred to their recognition now that the loan was repayable on demand, as had been contended by Tykade. PJL says that it is unable to pay these demands and that it needs to raise more funds in order to satisfy them, and that it is in breach of its banking covenants with its bank.
Ostensibly to address that situation, on 21 December 2017 PJL announced a second non-renounceable rights issue, again at a price of $6.33 per share, for 267,196 shares. If Tykade does not accept that offer, that would reduce Tykade's interest in the company from 25.33 per cent to 18.22 per cent. That, of course, has particular significance because, with the shareholding in excess of 25 per cent, Tykade can block a special resolution, but with a shareholding of less than 25 per cent it cannot. Alternatively if Tykade were to accept the offer, then that would, so as to maintain the level of its shareholding, involve a payment of $425,000, which would consume a very great bulk of the amount currently deposited in the trust account of $554,000 or thereabouts.
Once again Tykade expresses concern that $6.33 per share is in any event a considerable undervalue. That price has apparently been derived by PJL from an unaccepted offer previously made to one of the shareholders for a minority interest in the company. As is reasonably notorious, unaccepted offers are no evidence of value and, at least so far as the evidence goes at this stage, the contention that $6.33 is an undervalue is a reasonably arguable one.
When confronted four days before Christmas Day with the second non-renounceable rights offer, the wife found that the docket judge in the Family Court was on leave, and that access to the Family Court in vacation for the purposes of injunctive relief was not nearly so convenient as to this Court. Accordingly, on account of the greater convenience of approaching this Court in vacation, the wife caused Tykade, by originating process filed 3 January 2018, to commence an oppression suit in this Court, and in particular to obtain injunctive relief to restrain the proposed share issue. In its originating process Tykade specifically sought by way of interlocutory relief, not only the interlocutory injunction to which I have referred, but also an order said to be pursuant to the (NSW) Jurisdiction of Courts (Cross-Vesting) Act 1987, s 5, that the proceedings be transferred to the Family Court to be heard with the family law proceedings. As will become apparent, s 5 is not the appropriate font of the jurisdiction or power, but the intent was clear enough.
The application was made returnable with an abridgement for time for service on 5 January 2018 when Black J, sitting as vacation judge, granted an interlocutory injunction by consent restraining PJL from issuing any new shares until 15 February 2018. That injunction has been extended consensually from time to time until today. The proceedings continued on pleadings and pleadings have been filed on each side. The proceedings in this Court invoke (CTH) Corporations Act 2001, s 232, the provision which provides for relief from oppression. The oppression suit is in relatively narrow scope and, unlike many, does not rely on a diverse range of alleged oppressive conduct over a protracted period of time. Essentially it attacks the reduction in Tykade's loan account to which I have referred and the second non-renounceable rights issue.
The wife has also subsequently filed, in the family law proceedings, an amended application by which, as I understand it, she seeks leave to join PJL as a respondent (Tykade having already been joined as a respondent by the husband), and to seek relief against PJL pursuant Family Law Act, s 106B, to set aside or restrain the proposed second rights issue.
As to the share issue, the questions in dispute would appear to be the motivation for the issue - namely, whether the company has a bona fide need for additional capital or whether it is in truth motivated by a scheme to minimise the benefits which the company can obtain in the matrimonial proceedings - and, whether the proposed issue is at a proper value or a significant undervalue. So, in essence, the issues are one of what I might call the motivation for the share offer and the valuation of the share offer.
Presently before the Court for hearing is Tykade's application, to which I have referred, for the transfer of this oppression suit to the Family Court of Australia. The relevant font of jurisdiction is not the Jurisdiction of Courts (Cross-Vesting) Act, but the particular provision made for the transfer of Corporations Act proceedings by Corporations Act, s 1337H, which provides that, in connection with a proceeding with respect to a civil matter arising under the corporations legislation - as a proceeding under s 232 and s 233 is - which is pending in a State or Territory Supreme Court - as this Court is - then, if it appears to the court in which the matter is pending that, having regard to the interests of justice, it is more appropriate for the relevant proceeding or an application in it to be determined by another court that has jurisdiction in the matters for determination in the relevant proceedings or application, then the transferor court may transfer the relevant proceedings or application to that other court.
Corporations Act, s 1337L states that, in deciding whether to transfer under s 1337H a proceeding or application, the Court must have regard to the principal place of business of any body corporate concerned, the place or places where the events that are the subject of proceedings or application took place, and the other courts that have jurisdiction to deal with the proceedings or application. So far as the first two of those matters are concerned, as between Sydney and Parramatta, where the business appears in the central west and the parties are in the central west of New South Wales, there is no material difference.
As to the other courts that have jurisdiction to deal with the proceedings it seems to me that, although theoretically the Federal Court of Australia would have jurisdiction to deal with the proceedings, the only court that I need have regard to as a matter of practicality is the Family Court of Australia.
By s 1337C(1), jurisdiction is conferred on the Family Court of Australia with respect to civil matters arising under the corporations legislation. Accordingly the Family Court is, for the purposes of s 1337H(2), "another court that has jurisdiction in the matters for determination in the relevant proceedings." It needs to be recognised that by reason of Corporations Act, s 1337C the Family Court of Australia is a corporations court. That jurisdiction was, as I understand the history, conferred on the Court not only - although probably primarily - with the intent that it be able to deal with corporations issues arising in family matters, but also as a means of diversifying in some respects the jurisdiction of that Court - although it has not, so far as I am aware, been invoked other than in matters in which there is also a family law aspect. That said, the Family Court is a corporations court and it is also seized of the Family Law Act, s 79 proceedings.
This Court is, of course, a corporations court, and this Court can also, pursuant to the (CTH) Jurisdiction of Courts (Cross-Vesting) Act 1987, s 4(1) - which confers on it jurisdiction inter alia in proceedings under the Family Law Act, exercise jurisdiction with respect to the family law proceedings, including the whole of the s 79 proceedings. In other words, both courts have all the requisite jurisdiction to deal with the whole of the matters in issue. However, it is not without significance that the Family Court of Australia has that jurisdiction by virtue of the Family Law Act and the Corporations Act, s 1337C, without reliance on any cross-vesting of jurisdiction; whereas this Court has that jurisdiction in respect of family law matters only by reliance on the cross-vesting of jurisdiction.
Moreover, if the wife be granted leave to amend in the Family Court proceedings to rely in s 106B - a matter to which I shall have to return - then there would be on foot in the Family Court a proceeding seeking to restrain the proposed rights issue under s 106B, and in this Court a proceeding seeking to do so under Corporations Act, s 232, in respect of which there would be many common factors. It would be manifestly undesirable that a s 106B claim and a s 232 proceeding in respect of the same rights issue proceed separately in two different courts.
However, so far as the s 106B aspect of the claim is concerned, I doubt that this Court could exercise jurisdiction in respect of the s 106B claim alone, without exercising jurisdiction in the whole of the s 79 case. That is because an order under s 106B can only be made "in proceedings under this Act", being the Family Law Act 1975. In other words, s 106B is not a stand-alone cause of action; it has to be invoked, "in proceedings under" the Family Law Act. While it has been held that that extends to circumstances in which there have been proceedings under that Act in which final orders have been made and then a relevant transaction takes place, it cannot be exercised independently of the family law proceedings. Accordingly, the scope for this Court to deal with only the s 106B aspect of the family law claim in conjunction with the oppression suit is dubious.
As I have foreshadowed, it is necessary to say something more about the s 106B claim, because PJL argued that it would oppose leave being granted to join it as a respondent in the family law proceedings, on the basis that such a claim was entirely misconceived and could not succeed. If that were so, then the risk of a parallel s 106B action in the Family Court alongside the oppression suit in this Court would be less of a concern; but it seems to me that, though it is by no means straightforward, it is also by no means unarguable that s 106B is available in the circumstances alleged by the wife.
First of all, insofar as it is contended that an allotment of shares is not a "disposition", an allotment was held to be a disposition by Baker J in In the Marriage of Turnbull. [1] Moreover, in s 106B, "disposition" is now defined to include, amongst other things, the issue of shares; thus an allotment of shares is a disposition for the purposes of s 106B. That definition was introduced into the Family Law Act, it would seem, in response to views then in circulation that an allotment was a convenient way of defeating claims without attracting or without becoming amenable to s 106B. That proposition was always doubtful, but the amendment has concluded the argument that an allotment is not a disposition, at least in those simple terms.
So far as the circumstance that the disposition was not by the husband - in the sense that he was not the disponer - a couple of things may be said. First, in Official Trustee in Bankruptcy v Bassola (No 3), [2] reference was made to the terms "by or on behalf of" or "by direction" or "in the interest of" in then Family Law Act, s 85, the predecessor of s 106B. In the judgment of Murray J, those terms were explained as requiring that the husband, a party to the marriage, either be the disponer, or exercise at least some element of control or influence over the disposition. I am by no means satisfied that it is unarguable that a party to a marriage, who has sufficient informal authority or influence to cause a transaction that results in the transfer of value away from the parties to the marriage, does not thereby "direct" for the purposes of s 106B such a disposition.
Further, although the facts were by no means identical, nonetheless in Ferrall v Blyton, Attorney General of the Commonwealth Intervener, [3] in circumstances not entirely dissimilar to what the wife alleges to be the present circumstances - where the husband's accountant had put in place arrangements involving the allotment of shares to third parties that were supposed to be immune to s 106B, and an application was brought under that section to set them aside - the third party's contention that it should be summarily dismissed as unarguable was rejected by O'Ryan J, whose decision was upheld by the Full Court (constituted by Nicholson CJ and Lindenmayer and Kay JJ. The Full Court said, "It is, we think, obvious from his Honour's judgment that each of the issues is reasonably arguable". [4] The application for leave to appeal from the dismissal of the summary dismissal application therefore failed.
For those reasons, I am unconvinced that the application to join PJL in the family law proceedings as a respondent to the s 106B application will not succeed.
There is no application to transfer the s 79 proceedings from the Family Court to this Court. Subject to the completion of the valuation of PJL - which is a prerequisite both to the Family Court proceedings and to these proceedings - this Court could hear the oppression suit expeditiously, probably as soon as May this year. However, as it seems to me, there is no reason to think that the valuation of PJL is going to be available to this Court any sooner than it will be available to the Family Court; and once that valuation is complete, the matter will be ready for hearing in the Family Court.
The hearing in the Family Court will no doubt be more extensive and more wide ranging than the oppression suit, and cover issues quite unrelated to PJL and thus potentially be more costly in time and money for PJL than a hearing of the oppression suit alone in this Court. But, unless leave to amend in the Family Court were refused, which on my best assessment it would not be, a hearing in this Court would leave unsolved the s 106B issue. That means that there would be common issues in both courts as to valuation (an issue which the Family Court will have to consider, regardless of whether this Court deals with oppression), and of the motivation of the share issue (because, even if a s 106B application did not succeed, it may well be relevant for the wife to show, in the Family Court proceedings, that a course of conduct had been deliberately embarked upon to reduce the value of the pool available for division).
The documents to facilitate the valuation of PJL have already been produced on subpoena to the Family Court. While I acknowledge that transferring the proceedings to the Family Court would probably involve greater expense for PJL, PJL is but one of the parties, and it seems to me that it will result in less expense for the wife and for Tykade than duplex proceedings and - given that there has at least been at one stage a hint that the husband might seek to intervene in the oppression suit - may well also involve less expense for him. PJL's interests in this respect are not entitled to more weight than those of the wife.
PJL has advanced an argument that there is very considerable advantage in the earlier hearing of the oppression suit in this Court, because of the hardship occasioned to it from its current financial circumstances and its need to raise funds. Again I need not make any final findings about this but, as it seems to me on the information presently available, PJL's circumstances are largely of its own making. That is because the calls for repayment of loans made by Lugandi and Bruxner are calls made by the majority of PJL, those two between them holding in excess of 50 per cent of the shareholding. It is a matter for them as to whether they want to persist with inflicting this perceived hardship on their company or not, but essentially the matter is within their own control.
[3]
Conclusion
So to summarise the position: the Family Court has jurisdiction, without reliance on any cross-vesting of jurisdiction, to hear the whole of all aspects of the disputes presently before both courts. This Court also has jurisdiction to hear the whole of the disputes but, in respect of the s 79 application, only pursuant to the cross-vesting legislation and, in any event, no party seeks to have the matrimonial proceedings transferred to this Court.
This Court may well not have jurisdiction to deal with the proposed s 106B application as a discrete part of the family law dispute. The s 106B application, though plainly not straightforward, is not unarguable and it seems unlikely that leave to amend to add it would be refused. In those circumstances, there would be a most unsatisfactory situation of the same transaction being attacked in parallel proceedings in two different courts in reliance on the same basic facts but under two different statutory provisions. The valuation issue is common to the matrimonial proceedings and the oppression suit, and it is obviously desirable that it only have to be dealt with once and in one. The motivation issue is also common to both proceedings, and likewise it is desirable that it be dealt with only in one place and only once.
While this Court could probably deal with the oppression suit more expeditiously than the Family Court could resolve the whole of the matters (including the matrimonial proceedings) between all parties, any hardship to PJL from delay in resolution of the oppression suit is largely of its - or its majority shareholders' - own making, and under their own control.
I am therefore satisfied that, having regard to the interests of justice, it is more appropriate that the oppression suit be heard in the Family Court of Australia, in conjunction with the matrimonial property proceedings.
The Court orders that:
1. Pursuant to Corporations Act, s 1337H(2) these proceedings be transferred to the Family Court of Australia, Parramatta Registry, with a view to being heard with proceedings DUC420 of 2014 in that Court.
2. The injunction granted on 5 January 2018, as previously extended, be extended until further order of the Family Court of Australia.
3. Costs of the proceedings in this Court, including of the transfer application, will be costs in the proceedings in the Family Court.
[4]
Endnotes
(1990) 102 FLR 443; (1990) 15 Fam LR 81.
(1986) 11 Fam LR 557.
[2000] FamCA 1442, 27 Fam LR 178.
[2000] FamCA 1442, 27 Fam LR 178 at [102].
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Decision last updated: 25 May 2018
Parties
Applicant/Plaintiff:
Ferrall
Respondent/Defendant:
Blyton, Attorney General of the Commonwealth Intervener