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A difference of $19mil – whether the company was a ‘mere puppet’ of the husband

The question before the Full Court of the Family Court in the recent decision of Atkins & Hunt & Ors was whether a company was a mere puppet of the husband – and therefore whether the full value of the company was available for division between the husband and wife or just the husband’s shareholding in the company.

In 2014 final Orders were made for property division between the parties but the wife successfully appealed those Orders – and the matter was remitted for retrial.

However, in 2015 the husband had converted some shares which he and T Pty Ltd, a company he controlled, held in N Pty Ltd, the company which owned his business, and then disposed of the majority of those converted shares to three of his adult children – thus giving up the voting rights in N Pty Ltd.

When the matter came back before the Court for the retrial in 2018, the wife argued that the disposition was made to defeat an anticipated order for property settlement in her favour. The wife further argued that N Pty Ltd was a mere puppet of the husband and that its corporate veil should be pierced – such that the full value of N Pty Ltd was available for division between the parties. The expert evidence was that the husband’s interest in N Pty Ltd if the disposition had not occurred, would have been $5,993,000. The expert evidence was that the full value of N Pty Ltd was $24,930,000.

The trial judge agreed with the wife that the husband had entered into the conversion and disposition to defeat an anticipated claim. However, the trial judge did not agree that N Pty Ltd was a mere puppet of the husband. Therefore the trial judge only included the value of $5,993,000 in the asset pool. In December 2019 final Orders were made which provided for the wife to receive 20% of the pool – which was cash of $964,683 plus retention of her other assets.

The wife appealed arguing inter alia that the trial judge had erred in failing to find that N Pty Ltd was the alter ego of the husband.

The Full Court noted that the wife’s arguments regarding N Pty Ltd were about the husband’s alleged control of N Pty Ltd; but as per Ascot Investments Pty Ltd v Harper (1981) something more than mere control is required. The Full Court concluded that there was some facts upon which a finding that N Pty Ltd was not a mere puppet of the husband could be based. And given that the standard required to override the discretion that a trial judge has in determining a family law property division – which is significant – the ground of appeal failed.  

Of some interest there was significant argument on appeal as to where the onus laid in relation to evidence of puppetry/control – the wife argued that it laid with the husband. The Court of Appeal found that there was no shift in the onus – it laid with the wife who was making the argument that the company was a mere puppet of the husband. Further the Court of Appeal was not persuaded that there was any error by the Trial Judge in failing to draw a Ferrcom inference (an inference drawn adverse to a party who fails to lead evidence-in-chief from a witness from whom it would ordinarily be expected to lead such evidence).

The appeal was dismissed – with the wife having to pay costs of $36,431 for the respondent plus she also had to pay assessed party/party costs of the 2nd to 7th respondents.

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