Family businesses in the Family Court
Updated: Sep 14
In preparation for our upcoming Employment Law and Family Law webinar (read more about that here) our faithful law student Jordan West has brought this case to our attention. One of the questions we will be covering in our upcoming webinar revolves around family businesses, and what happens to employment law rights when family businesses are dragged into the Family Court.
In this matter we had a husband and wife who ran a business, and the business was partly run from the family home. So who should have exclusive possession of the property, and did the possession of the property also dictate who controlled the business?
The parties separated in December 2018 after being married for more than 28 years. They established a business in 1991 and worked in it together until separation. The parties had three adult children.
It is common ground that the assets of the parties may have a value of the order of $65 million. The parties are both directors and shareholders of the main family company but the wife has not been directly involved in the company since separation (due to the usual tussle and attempts by each party to shut the other out).
In March 2014 the husband was diagnosed with a tumour and he underwent surgery to remove it. The parties disagree about some of what happened with the business after the husband’s surgery. For six months the husband was not involved in the operation of the business. While it was apparently disputed by the husband, the Court noted that thereafter, the husband was not fully involved with the business, with his focus moving to property development. The husband did not return to work in the business as he was advised against it by doctors, however, he occasionally attended meetings with the biggest clients. The wife says that she managed the business from 2014 until the parties separated.
The court also stated that it was not possible to reconcile the evidence of the parties about whether and why the wife ceased to work in the business. Unfortunately there was conflicting evidence, including evidence that either party had participated in criminal behaviour such as bullying, intimidation, stalking and fraud. Each accuses the other of the misappropriation of company funds and of causing financial harm to the business. The companies employees, some of their large clients and the party's children had been dragged into the conflict. To the calloused family lawyer this might sound like just an ordinary family law matter, but it is worth noting that this was apparently quite an acrimonious situation.
The parties sought orders in respect of three main areas of dispute:
whether the wife or the husband should have exclusive occupation of the property which was the former matrimonial home;
whether the wife’s roles in the management of the family business should be changed or restricted; and
whether the husband should pay interim maintenance to the wife.
The claim for maintenance is interesting as one of the potential orders sought by the husband would provide for early distribution of funds in the sum of $3,500,000.00 pursuant to Section 79 of the Family Law Act, that is, if the wife moved out of the property. It would, however, appear to be evidence (on the face of it) of capacity to pay spousal maintenance.
The wife sought to be restored to a position in the day to day management of D Pty Ltd and of the associated companies and that her access to company records and accounts be restored. The husband sought that the wife be removed as a director of D Pty Ltd and that he have sole responsibility for running the business on the basis that he provide relevant information to the wife.
His Honour commented on the differences in the evidence, and due to it being an interim hearing there was no cross-examination. He had some interesting comments on parties giving opposing evidence (or at least they were interesting to me).
Of course there can be differences in testimony for reasons other than a deliberate attempt to mislead the Court. Memory is not an infallible or immutable device for storing and recovering facts. A person’s recollection can be distorted by the effluxion of time or the circumstances of the event in question or of recovering the memory. People see events from their own perspective and it is notoriously possible for two well-meaning witnesses to have an entirely inconsistent memory of an event that they attended together. Unfortunately, unless there is independent corroboration of one version of an event about which the witnesses disagree, the Court is effectively left without a way of resolving many factual disputes.
How to manage the business moving forward
His Honour also commented on the inability of the parties to faithfully look after the business, and so he found that an administrator should be appointed to the company for the following reasons -
Of the parties’ proposals, only the proposal of the husband is practicable. Even then, the parties have amply demonstrated that they do not trust each other and the allegations of serious wrong-doing persist. If the husband is likely to use his control of the business to the disadvantage of the wife then the better course would be to appoint an administrator. That will be expensive but will ensure that there is an independent manager who will not disadvantage one of the parties over the other and that there is a reliable record kept of the management of the business.
Removing a party from their home
His Honour commented that this should not be done lightly -
Notwithstanding that the parties are unlikely to ever live together again, it is an important step to remove someone from a residence they own. The justifications claimed by each of the parties in support of their application are largely contestable and on an interim basis, I am not in a position to make the findings of fact required to satisfactorily resolve most of those matters.
It was accepted however that the parties simply could not cohabit, particularly with the serious and potentially criminal accusations made in their evidence against each other, and so essentially on the balance of convenience His Honour found that "it is not clear that it would be just or convenient to remove the wife from the property and to give exclusive occupation to the husband." The Court did not accept the husband's arguments that the premises were necessary for the operation of the business, and an employee of the business gave evidence that the husband did not need access to the property despite business equipment being stored on site. Interestingly despite both parties seeking orders about who should pay outgoings on the property the Court refused to make any orders about that.
The Court essentially found that because the wife had $500,000 in savings in her bank account they had insufficient evidence that she was unable to support herself. It does not appear from reading the judgment that any evidence was put before the court regarding the need to pay legal costs for what would no doubt be a long, drawn-out and expensive battle, but in any event, the Court did not discuss this when making a finding.
Employment law rights
The case says nothing about employment law rights, though it would seem on the evidence that both parties worked in the business and that the wife at least was suddenly drawing no income from the business. Were employment law rights considered and, if they were, were they dealt with separately to these proceedings or were the parties simply focused on the asset dispute?
This matter was then the subject of a further published judgment, some six months later, around the payment of an interim distribution to both of them, and so it would appear that an administrator was not appointed and they were continuing to run the company themselves. It would also appear that at least one of them still was not drawing a wage, but again there is no mention of any employment law issues. Those proceedings are Aitken & Aitken  FamCA 421.
The question is not just whether to address employment law issues, but when do these employment law rights arise, and how would you deal with or otherwise extinguish them?
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