Property – Judge failed to distinguish between assets and liabilities of the parties and their company …

… Court not empowered to make order compelling parties to strip company of assets by distributing sale proceeds in proportions that did not match their shareholdings

In Pavlic [2023] FedCFamC1A 54 (4 May 2023), the Full Court (Austin, Williams & Howard JJ) heard a husband’s appeal from a decision of McClelland DCJ in a property case.

The parties owned numerous real properties and shares in a company that conducted a building business ([3]).

At first instance, final orders compelled a sale of the business and that the husband be solely responsible for the company’s tax debt, from which the husband appealed.  

After saying (at [7]) that “no clear distinctions were drawn between the corporation, the parties, and their respective assets and liabilities”, Austin & Williams JJ said further (from [28]):

“The orders require the parties to sell the corporation’s business and other assets, whereas the reasons for judgment discuss the need to sell the corporation itself, so the orders and reasons do not match … The orders then oblige the parties to divide between them any surplus proceeds realised on the sale of the corporation’s assets in respective shares of 57 and 43 per cent … The corporation will remain a separate viable entity because no order was made compelling the parties to liquidate it. …

[29] It follows … that the funds realised on the sale of corporate assets will remain the property of the corporation. The primary judge was not empowered to make an order either compelling or authorising the parties to strip the corporation of its assets by distributing its money between them, particularly in proportions which do not match their equal shareholdings. … [I]f the existing orders are implemented, the distribution of corporate funds to the parties in that way would likely trigger unanticipated personal tax liabilities under Pt III, Div 7A of the Income Tax Assessment Act 1936 (Cth), which nobody envisaged and which would likely upset the intended proportional division of net assets.”

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The appeal was allowed, the final orders set aside and the case remitted for rehearing. Costs were reserved.

Craig Nicol and Keleigh Robinson are co-editors of The Family Law Book. Both are accredited specialists in family law (Queensland and Victoria, respectively).