Australian divorce and family law by a Brisbane family lawyer. I have been an accredited family law specialist for over 20 years. All about property settlement, spousal maintenance, children, child support and domestic violence.
I am delighted to announce the launch of Page Provan, family and fertility lawyers. I am in partnership with Bruce Provan. Our focus remains on achieving quality outcomes for our clients.
For over 13 years I was a partner at Harrington Family Lawyers, first with Julie Harrington and then also with Bruce Provan. In late November, Julie Harrington announced that she was retiring from the practice, effective immediately.
Bruce and I decided in light of Julie’s retirement from the practice that it was appropriate that to reflect the new ownership that it be called Page Provan. I am excited to continue to provide services to my clients and hopefully will do so for many years to come. Our office address of level 12, 239 George Street, Brisbane, has not changed, nor our phone number: +61 7 3221 9544. My email has changed to firstname.lastname@example.org.
Stephen Page, Harrington Family Lawyers, Brisbane email@example.com 61(7) 3221 9544
Recently I caught up with an old client. Many years ago we had acted on his divorce. He and his wife had sorted out what they were going to do about their property settlement and, more importantly, how they were going to look after their kids.
My old client is an insightful professional whom I always considered to be wise and a direct speaker.
He told me:
“The number one lesson I learnt was this. When you are looking at splitting up – give your marriage your best go ever. You want to make sure that you have done everything possible to have your marriage work because if it ends then at least you don’t feel guilty about it ending and you can say: “At least I tried”.”
He said that since his marriage breakup, he had saved a couple of marriages by encouraging his friends to give it another go.
The second thing my old client learnt was that things change. “Kids grow up”. Arrangements have to be flexible to make sure that the kids are provided for.
The third thing he learnt was that: “We have to be consistent with our kids”. Sometimes his kids would be playing up and he would ask them whether they did so at mum’s place. He said: “Sometimes, in a moment of honesty, they would look down and say that they weren’t allowed to do that at mum’s place”. He would reply: “The same rules apply here as at mum’s place. If you’re not allowed to play up at mum’s place like this, then you’re not allowed to play up like that here”.
The fourth thing that he learnt was to value the other parent. He said that he had criticised the mother of his children to his children, which he realised after a short period was a mistake. One day when his kids ran from their mum’s home into the car, all excited to see him, he said: “Go out. Give your mum a hug. Tell her you love her. She would be hurt that you left without saying goodbye.”
The last thing that he learnt was that going through divorce is costly. “I’ve never worked any harder than I have on any other occasion”, he said. He said that it was important to get good legal advice and that: “You have to be realistic”. He was making the point about being realistic not in about cutting a deal with your former spouse but also making sure that reality reigned when you got on with your life after it was all over.
Stephen Page, Harrington Family Lawyers, Brisbane firstname.lastname@example.org 61(7) 3221 9544
Today I received one of those rare events, a call from an Australian colleague who was overseas thanking me for my work which helped determine a court case.
It turns out that the parents had separated, and the mother was concerned that the father might abduct the children overseas. The automatic reaction was that the children were protected because they were on the Airport Watchlist. The Watchlist, which is operated by the Australian Federal Police and the Department of Foreign Affairs and Trade, is a check at the airport (or sea ports) so that if someone is named on the Watchlist, they won't be allowed to leave Australia. It is assumed that the Watchlist is perfect.
My colleague looked high and low but unable to show any case that threw doubt on the Watchlist.
Until she came across a blogpost I had written on this blog. This was because many years ago a Mr Saad had been prevented from taking the child overseas and requiring him to surrender his passport. His solution? To go to the Jordanian Embassy and persuade them to issue a new passport with the child endorsed on his passport. The result? He was able to take the child to Jordan.
Not surprisingly, things did not go well for Mr Saad later when he returned to Australia.
I have long been of the view that when there is a real risk of international child abduction, prevention is better than cure. This means taking a series of steps to minimise the chances of the child being abducted. Use of the Watchlist is one of those steps. Another is taking great care with the drafting of court orders, for example. Reliance on just one step- such as the Watchlist- can be particularly risky.
My blog referred to the Saad case- and citing the Saad matter was instructive in changing the outcome of the case- because the issue of risk of taking the child to an Islamic country in the Middle East was properly considered, with orders in place to prevent the child leaving.
My colleague said that there was a general assumption that if the child were being removed to a Hague Convention country, it was thought therefore that there was minimal risk. Australia is a party to a number of conventions signed at The Hague in the Netherlands, commonly called Hague Conventions. The 1980 Hague Convention concerns international child abduction. Regrettably, just because a country has signed up to the 1980 Hague Convention does not mean that there is a guarantee that the child will come back. Some countries are very good at compliance, others not so.
The phone call was humbling. I had never expected to have had that impact. I said: "You have made my day." My colleague's response: "You have changed the mother's life, for the better."
Stephen Page, Harrington Family Lawyers, Brisbane email@example.com 61(7) 3221 9544
Aside from the usual processes of trying to get clear instructions from a client, and the need to proof a client (a skill which is unfortunately so often lacking), as lawyers our job is to think analytically and hopefully to think several steps ahead. Negotiating or litigation concerning children is to think as though you are playing a game of chess and therefore always think several moves ahead, with the exception of course that as lawyers in parenting matters, whether acting for a party or as the Independent Children’s Lawyer, the outcome of negotiations in litigation is much more significant than that from a board game. We have a duty to the child, as well as our clients.
Any mistakes we make, it is likely that the child will wear those. These may have a lifelong impact. Nothing is more sobering when having practised family law for a long time as I have done to reflect back and wonder what impact the litigation I engaged in has had on children, knowing that these children have now grown up and likely had education, jobs, relationships and children of their own.
My teacher in grade 2C, Mrs Bray, made a note on my report card along the lines of “Stephen is always looking out the window daydreaming”. I cannot emphasise enough that to reflect about a matter, particularly involving children is essential. Too often solicitors act as spear chuckers for their clients without reflecting about what ought to be in the material, what they are writing in correspondence, what positions they are taking in negotiations and what outcomes they are urging upon a court or a mediator.
We are not our clients’ runners. Whilst we are the advocates for our clients, and owe a duty to our clients, we also owe a duty to the Court, to the law and to the children who are impacted by our actions.
A reminder about rule 17.1 of the Australian Solicitors Conduct Rules:
“A solicitor representing a client in a matter that is before the court must not act as the mere mouthpiece of the client or of the instructing solicitor (if any) and must exercise the forensic judgments called for during the case independently, after the appropriate consideration of the client’s and the instructing solicitor’s instructions where applicable.”
Or to use the words of Mr Robert Grant: “It is better to represent the interests of your client rather than their anger.”
At the first attendance on every client in a parenting matter, I ask to see a photo or photos of the children. These days it is pretty easy – everyone has a photo on their mobile phone. The reason that we do family law is because we want to help people. These people and especially their children are not numbers. Too often I have seen affidavit material that refers to “the child” instead of their son “Fred”.
I encourage you, if you have the time available, to do volunteer work at a community legal centre advising about family law and to do duty lawyer work in family law or domestic violence. Aside from the feel good factor and know that you are helping others, doing volunteer work at a community legal centre in family law means you have to sharpen your skills. Typically you will be given a sheet setting out the client’s problem. You have to be able to identify that problem precisely (even when the person filling out the intake sheet has misidentified it) and give practical succinct advice to deal with the problem – all in 20 minutes.
If you are a duty lawyer you will soon experience both the gratitude of judges or magistrates for your assistance and in turn experience all the challenges of advocacy:
· Getting instructions quickly;
· Analysing those instructions;
· Giving succinct practical advice;
· Putting propositions to the Court;
· Finding out what it’s like when you are underprepared in dealing with the judge;
· Learning quickly how to properly advocate before a judge so you can get to the nub of the issue in the short time that you have before them.
2. Have a case plan
I can’t emphasise enough the need to have a strategy based on a case plan. Reflect and think through as to the state of the evidence. What ultimately is your client seeking? Does the evidence support those propositions? Test your client as part of the proofing process. Does your client come up to proof? Give your client realistic advice.
Above all, think and reflect about where you want this case to end up. You are not painting by numbers.
It is essential in preparing the case plan in my view from the very beginning of any parenting matter to produce a timeline, or as we lawyers call it a chronology. You need to revise this document on the way through and it should capture everything. It should have three columns:
· Event or Allegation;
In the last column you set out where the source of the information is – such as from correspondence or from a particular paragraph of a particular affidavit, for example. It might be from subpoenaed material. It might be from bank documents, for example. When you put a chronology together carefully, it is extraordinary at times the mosaic that appears before your eyes.
In a trial a couple of weeks ago in which I and an associate prepared a lengthy chronology summarising 7 lever arch folders of court documents, Senior Counsel told me that it was a blessing to receive, making his job particularly with cross-examination, considerable easier - and could I teach other solicitors to do the same, as it is so rarely done.
As an example of what could be in a chronology:
Child Fred Aloysius Lucius Smith born (4)
2 Aff M 3/7/17, 3 Aff F 4/8/17, 2 Aff F 9/4/18
Father present at birth
29 Aff M 3/7/17, 41 Aff F 4/8/17
Mother registers the birth but father unknown
44 Aff F 4/8/17, subpoena docs from BDM
Child’s passport obtained by mother, but without father’s consent
45, “A” Aff F 4/8/17
Mother signs stat dec that father is unknown
Stat dec 21/7/14 BDM subpoenaed docs
Father registered on the birth register
Email from BDM 3/9/17
Similarly a well prepared chronology will also reveal, hopefully, to you the gaps in the evidence for your client’s case.
If we are fortunate enough to have a client who has unlimited funds and wants to spend that on litigation, we could possibly make that litigation as complex as possible. Aside from any issue of overcharging and making the lives of all concerned miserable (especially that of the children), you should at all times consider what you do proportionately. The KISS principle has much going for it.
Remember Judge Harman’s triangle of dispute resolution:
· Most cases (about 70%) are resolved without any third party intervention (for example, no action taken, self-help, direct discussions)
· Then in a series of smaller groups (each of which requires more and more resources), we see:
o Resolved with third party intervention (e.g. lawyer negotiation, mediation)
o Proceedings commenced, but resolved without hearing)
o And the smallest group, in the past 1-3% of cases, currently I understand about 5%- proceedings heard and determined by a court.
4. Learn to negotiate
It is fundamental to the practice of being a solicitor or barrister to being able to negotiate. Whether you settle a matter without going anywhere near a court, or attend mediation or even have a trial- at all stages sooner or latter you will be negotiating on behalf of a client.
Don’t make ambit claims. Put forward reasonable positions. Particularly in parenting disputes, generate other options. What other ways can work for this family and child? Engage in brainstorming if necessary. I suggest in writing letters or emails when you are putting forward offers to set out succinctly why your client is putting an offer as well as what the offer is. That way even if the other side doesn’t agree with the specifics of the offer, you have left the door open, increasing the chances of negotiating a deal.
Last week I was surprised at the last minute while negotiating at court by the other side putting an offer on one issue. No explanation was given as to what was sought. We didn’t have time to ask why. Once we were in court, an explanation was given as to the drafting What looked on paper to be highly objectionable was in fact- when recast- quite a reasonable proposal.
While emails are extremely useful, as a means of negotiating, they are not particularly good. A letter, after all, is a monologue. To have a dialogue is very difficult with an email. Much better to pick up the phone. Before you do, find out about your opponent, so you have some idea of who you are speaking with. Look at the QLS website, and Google their firm website at the least. Ask colleagues about them.
If you know nothing about negotiation, get taught! Do a course.
And remember this rule about negotiation (and of being a practising lawyer): reputation is everything. Your reputation, once you are known, comes before you- for good or bad. A bad reputation can take a long time to shake off.
Example: how not to negotiate
My client saw me about a parenting matter for the first time, brandishing a letter from her ex’s solicitors. The letter then listed 5 pages of conditions of an offer. On and on it went, including on about page 3 a requirement for the children to attend a particular child psychiatrist for the purposes of psychotherapy. The children had never been for psychotherapy. On the last page came the clincher. It was along the lines of – accept our client’s offer or our client will institute proceedings and obtain an indemnity costs order against my client!
There was next to no chance that a parent, faced with 5 pages of conditions, including a condition that the children attend a particular child psychiatrist, would agree to the offer. Not surprisingly, my client rejected the offer.
The matter ran all the way to trial. My client was wholly successful, and obtained a substantial costs order against her former partner.
5. Be courteous
It is much easier to catch flies with honey, they say, than with vinegar.
It is very easy when clients tell you about horrific things that have occurred to be extremely angry when dealing with the other side. To do so is a mistake. Whilst it is necessary to be assertive for your client, you have professional responsibilities. If in doubt don’t send that email straightaway or make that angry phone call but think about it overnight. Alternatively talk to colleagues to make sure that anything you draft along those lines is checked. Don’t engage in a slanging match with the other side in correspondence. It is easy to do but really avoidable.
If possible, think about other ways that you may be able to tackle the issue without inflaming the dispute. Or other ways to get the evidence without turning into a wild goose chase.
6. Think laterally
Whilst the focus today is about the Family Law Act, remember that there is other legislation that might be on point and that you may need to read and know well. If you are in the Federal Circuit Court, read the Federal Circuit Court Rules. If you are in the Family Court, read the Family Law Rules. These may sound basic and obvious, but you would be surprised how often practitioners don’t do them.
Other legislation that might pop up in your case could be the:
· Adoption Act 2009 (Qld)
· Child Protection Act 1999 (Qld)
· Child Support (Assessment) Act 1989 (Cth)
· Domestic and Family Violence Protection Act 2012 (Qld)
· Status of Children Act 1978 (Qld)
· Surrogacy Act 2010 (Qld)
· Trans-Tasman (Proceedings)Act 2010 (Cth).
Be aware that this legislation exists. You may need to use it.
7. ADR and section 60I
You may have a client who is keen to get into court straightaway. Alternatively, you may have a client who wishes to settle but is fearful that the other side is angling to get into court. When considering whether ADR should occur, is it appropriate? Do you have a matter that falls within one of the exceptions to section 60I:
· Allegations of abuse or family violence;
· The party is unlikely to attend because for example they are overseas;
· The matter might be deemed by the mediator to be too complex under regulation 25 of the Family Law (Family Dispute Resolution Practitioners) Regulations 2008(Cth).
· Is the matter truly urgent?
A purist would say that if there has been family violence there should not be ADR. Unfortunately, family violence is pervasive. When acting for a victim of family violence, often the process of ADR – if properly handled – is much more respectful to a client who is the victim of family violence than an interim hearing, followed by a family report and then a final hearing. With some clients who are the victims of family violence, ADR will never be an option. You have to make an assessment in each case. If in doubt, call a colleague or a counsellor who is familiar with the dynamics of domestic violence and ADR, and ask. The point of asking will usually give you the clue. If you are in doubt about your client’s ability to attend ADR due to domestic violence issues and therefore you have to phone a friend- will normally tell you of itself that in all probability you’re your client should not attend ADR. Err on the side of caution and safety at all times.
However, clients rarely like the prospect that they are going to court, if they had the ability to settle a matter first.
The items under Regulation 25(2) of the Family Law (Family Dispute Resolution Practitioners) Regulations 2008 (Cth) are a good checklist:
· A history of family violence, if any, among the parties;
· The likely safety of the parties;
· The equality of bargaining power among the parties;
· The risk that a child may suffer abuse;
· The emotional, psychological and physical health of the parties;
· Any other matter that the family dispute resolution practitioner considers relevant to the proposed family dispute resolution.
You may have a client who is poor and therefore has to wait for a Family Relationships Centre or a conference through Legal Aid Queensland. Your job as far as you can (depending on your funding) is to try and push that matter as quickly as you can (unless of course it may be to your client’s advantage to be as slow as possible!). Unless you are in a regional or remote area, you may find that the length of queue at each Family Relationships Centre or branch of Relationships Australia is different. Get your client to ring around. If the delay in one centre is two months and somewhere else is four months, go to the place that’s two months. I know it sounds basic, but too often people forget to do so.
Too often clients or practitioners don’t think of making enquiries, and when they make enquiries it’s on the web. The telephone at times can be a remarkable device for getting information!
Is it to your client’s advantage to go through a Family Relationships Centre? If your client wants to get into court quickly, it is often preferable to have a private mediator. These can be expensive. Who is going to pay? How is agreement going to be reached on who is engaged? If necessary come up with a list of three and present it to the other side. Put a proposal about payment, for example, half each or your client pays for the cost. Your client may be reluctant to pay the cost, but it might be a lot cheaper to them to settle it at mediation rather than to spend tens of thousands of dollars in litigation.
In your opening letter to the other side, put an offer. That offer should say in there somewhere that part of the reason that your client is putting forward the offer is because your client wants to avoid the delay, stress, including impact on the children of going to trial at a cost estimated by our client to be up to $100,000. Work out what the figure is likely to be. Don’t say that it is your estimate and that you have advised your client. You don’t want to be waiving privilege, but you do want your client to say through you as to what the cost is to the other side. Of course only 5% of matters go to trial, but it is important to focus on costs from the beginning.
Rest assured that those who talk to each other after the litigation is over compare notes about how much their lawyer has charged them. Clients will always be able to tell you how much they have spent with you even if you’re not entirely sure how much they have paid. By putting a dollar figure in that first letter, it is extraordinary how often that helps resolve a matter. Invariably the party on the other side sees that figure, even if they don’t absorb anything else.
8. Focus on safety
It is imperative that if you are practising in family law that you know about domestic violence. Regrettably, domestic violence is pervasive in family law. My first family law cases- back in 1985- had domestic violence at their core. Regrettably I am still getting cases in 2018 that have domestic violence as a feature. According to the Bryce Taskforce report, Not Now, Not Ever, domestic violence rates have gone up, not down.
It is good to ensure that your client undertake a risk assessment about family violence- and then does a safety plan. You may need to consider your safety too. Just because you act for a party does not make you immune. It may make you a target. Familydoors.com contains good, albeit cumbersome, screening tools.
It is essential to focus on safety for your client, your client’s children, and you. A safe client is better than a dead one.
9. Off to Court
You act for the applicant and it is the type of matter that ordinarily would be dealt with in the Family Court or the Federal Circuit Court. If you had an international child abduction matter of course, unless you are the respondent you won’t be going there but likely taking the matter elsewhere through International Social Services in Sydney.
It’s your client’s choice as to which court the matter is filed. Of course if you choose the Family Court and the matter should be in the Federal Circuit Court (or vice versa) the matter will likely be transferred later.
Ordinarily you would pick the Family Court for more complex matters such as:
· You expect the matter will take greater than 4 days at trial;
In March I presented for Legawise at its annual family law conference in Brisbane. My topic was the vexed one of lifting the corporate veil- and therefore seeing behind the corporate structure. Here is my paper:
Legalwise Family Law Conference
8th Annual Family Law Forum Session: Family Law Update
According to Matthew, reinterpreted by Oscar Wilde, King Herod imprisoned John the Baptist. To entertain guests on Herod’s birthday, Salome danced the Dance of the Seven Veils. After one was teasingly removed, and then another and another – until with no doubt the excitement of all concerned, she was asked what her prize was for this extraordinary dance. The price was John the Baptist’s head on a platter – which was then cut and provided.
Thankfully, our legal system does not operate in such a brutal manner, but often when we seek to find the truth about companies, we engage in the Dance of the Seven Veils, often involving smoke and mirrors and often the truth still eludes us.
2. Is your client a director of the company?
I am going to assume for the sake of this presentation that you act for the wife and that the entity is controlled by the husband. Most of the time there are clear advantages in your client remaining a director of the company. As a director, she has certain obligations both under the common law and under the corporation law as to the management of the company, and has certain rights, for example the right of access to the books of the company.
Difficulties come when the other party, typically the husband dances the Dance of the Seven Veils and does not reveal the true state of the company’s affairs. Your client may have to seek certain remedies but also may, in an appropriate case, decide to resign as a director. If the company is in a parlous state, the last thing that your client wants to do is to be a director of a company that trades whilst insolvent, as there is both civil and criminal liability.
Very often a party may assert that the company is in such a state, when of course it is not, or the party has either hidden or diverted funds to other accounts or entities under his control.
If your client is a director and decides to remain as a director, at least for now, then some critical steps that need to be considered are:
(i) How the assets of the company are held? For example, how is the money held in any bank account of the company overly preserved?
(ii) Is there any questionable trading being undertaken by the company? Sometimes when parties break up, their entities not surprisingly hit a rough patch – because the focus of the parties on business is less than it ever was before. Of course this might be a mere statistical blimp which doesn’t impact much in the long term on either cash flow or the value of the business or in fact it may not be related to the breakup but some longer term trend with the company – such as its overall management, its failure to innovate, the effect of competition, etc. In your client’s search for the truth, a problem is that the other party may well assert that your client has been too vigorous in seeking to control the company and in fact your client is killing the goose that laid the golden eggs by causing ructions within the company and not enabling the company to trade in an ordinary manner.
(iii) Who are the other directors of the company? It’s an obvious point – but ordinarily the directors manage the company on behalf of the shareholders. If there are two shareholders, for example husband and wife and each has one $1 share of the same class, but there are three directors namely husband, wife and the adult son, then the balance of power ordinarily will be whoever has the adult son on side.
(iv) Who owns the shares at which numbers and what classes? Clients of mine have been surprised at times that although it would appear they own most of the shares, the constitution of the company means that the company is in effect controlled by their former partner.
(v) Therefore, get a copy of the constitution and read it thoroughly. Sometimes this can be an extraordinarily difficult task in itself in having to pry it out of the hands of the other party or the company’s accountant who is on side with the other party. If the company’s accountant plays a mutual role between the parties, that makes life considerably easier in trying to have some transparency.
(vi) Is there a shareholders agreement? If so, get a copy and read it. It might determine who controls the company.
(vii) Are there any directors or shareholders’ loan accounts? While these are less common, due to the effect of Division 7A of the Income Tax Assessment Act, nevertheless they need to be factored in as to what possible impact there may be upon your client.
(viii) Is the company a going concern, or is it more a shell (which might carry forward tax losses) or trustee of a family trust? Each of these might have a different strategy and outcomes. If it has carried forward tax losses, there might be real benefit holding on to control of the entity. If it is a trustee of a family trust, then the obvious applies – get a copy of the trust deed and read it carefully. Similarly, if the company is the trustee for a self-managed super fund, then extreme care must be taken as to what is the property of the fund, whether there has been compliance with SIS Act and what urgent action might need to be taken if there hasn’t been compliance. A copy of the trust deed needs to be obtained as well of course a copy of the accounts.
Generally, unless a company is insolvent, it is better to remain as a director so that your client has some control over the company and access to the books of the company.
The Full Court in Ferraro and Ferraro (1993) FLC 92-335 at p.79, 567 noted the wife’s personal liability as a director of various family companies:
“As it has been held that directors cannot absolve themselves from liability for insolvent trading by an assertion that they were merely a nominal director and took no part in the company’s affairs, this development in the law is particularly relevant to a wife who is only nominally a director of a company which conducts a family business.”
As the editors of CCH Family Law correctly state:
“If the decision is to participate in the company’s affairs, then the previous non-participating director should”
· establish the solvency of the company immediately. The director should have regard to the most recent financial accounts;
· ascertain the extent of security provided by the company and personal guarantees given by directors. The director will need to make a judgment as to whether they ought refuse extension of existing credit facilities against the need to preserve the underlying business;
· insist on dual signatories on company accounts;
· call for and attend regular meetings of the board of directors and ensure regular financial reports and information are provided at the meeting.”
If there were any doubt about the role of the wife as a director, that was done away with by Debelle Jin Group 4 Industries Pty Ltd v. Brosnan & Anor (1992) 10 ACLC 1, 437:
“While some may say it was not unreasonable for a wife who is a part-time employee of the company and who has employment elsewhere to rely on her husband who is engaged full-time in the business of the company, such a view cannot obtain if the wife is a director of the company. Once the wife takes on the office of the directors, she undertakes duties and obligations which require an act of interest to be displayed in the affairs of the company.”
3. Your client is not a director but a shareholder of the company
As a shareholder, your client is in a much weaker position than if she were a director. The most powerful position that a shareholder can be in, is to cause a spill of the board through an extraordinary general meeting. This should only be considered if there is a real chance of success and your client has first obtained a copy of the constitution, any shareholders’ agreement, etc. and then had discussions with anyone who might be a director or shareholder of the company and therefore can influence the outcome. Check the classes of shares and benefits. Check the numbers. If the chairman of the meeting is ordinarily the chair of the directors, that might be your client’s ex, resulting in a very short unsuccessful meeting. If the shareholding consists of one $1 each between husband and wife but your client is not a director, then your client has in effect no control at an extraordinary general meeting whatsoever. Often the chair of the meeting has the casting vote. It will depend in large part on the constitution of the company and again any shareholders agreement.
4. If your client is neither a director nor shareholder
In essence, your client has to look to relief in Court.
5. De facto or shadow directors
Sometimes you may come across where someone else in reality controls the company other than its directors. This might be someone who holds themselves out as a director i.e. a de facto director or someone who doesn’t – a shadow director.
Madgwick J in Deputy Commissioner of Taxation v. Austin  FCA 1034 said:
“Thus it seems to be a necessary condition of acting as a director, whether properly appointed or not, that one exercises what might be called the actual (and statutorily extended) top level of management functions. However, that is not necessarily a sufficient condition for such a conclusion, nor is it the same as saying that one must do things which only a director can do.
Directors are, of course, subject to the [Corporations] Law and the company’s articles, entitled to delegate their powers and functions to other officers or employees of a company; in the case of a large company, this would appear inevitable. But that is not to say that those others necessarily act in the capacity of a director (nor that a director who has delegated a substantial part of his or her authority ceases to act in that capacity). Whether a delegate or intermeddler is acting as a director will depend upon the nature of the functions or powers which are exercised and the extent of their exercise…
If, in the case of a small company, a person has, with full discretion, “acted as the company” in relation to matters of great importance to the company, and other than as an arms’ length expert engaged for a limited purpose, the conclusion that that person has acted in the capacity of a director may well be justified. The extent to which and the circumstances in which the person has so acted will nevertheless be of importance.
The variety of commercial and corporate life is such that it seems to me unprofitable to attempt a general statement as to what is meant by “acting as a director”. Whether a person does so act will often be a question of degree, and requires a consideration of the duties performed by that person in the context of the operations and circumstances of the particular company concerned. I have, for example, referred to the circumstances of the size of the company. In a large and diversified company, great discretion to deal with very important matter must be reposed in employees. In the case of a supermarket chain, as in Tesco, it would hardly occur to anyone to suggest that a managerial employee held to have “acted as the company” in breaking a consumer protection law at a particular store was acting as a director of the vast company concerned. As suggested above, in the case of a single person making decisions for a company, the business of which was confined to the operation of a corner store, a different view might be taken… Another relevant factor may be how the person who has claimed to have acted as the director was reasonably perceived by outsiders who deal with the company. This may aid a conclusion that the supposed director has held himself or herself out as such… An express claim to be a director may, in some cases, be carefully not made. That would not prevent a conclusion, nevertheless, that a person’s dealing with third parties point to his or her having acted as a director.”
6. Fiduciary obligations
Just a reminder. A director has a fiduciary duty to the company: Hospital Products Ltd v. United States Surgical Corporation  HCA 684; (1984) 156 CLR 41. A director does not owe a fiduciary obligation to a shareholder: Percival v. Wright  2 Ch 421. There may be special circumstances in which a director may owe an obligation to a shareholder to account for an advantage obtained, for example Canehire Pty Ltd v. Themis Holdings Pty Ltd  QCA 296; Murdoch v. Lake  QCA 216.
In Glavanics v. Brunninghausen (1996) 14 ACLC 345, Bryson J noted that a director owes the following fiduciary obligations to the company:
· To act in good faith and prefer the interests of the company;
· To avoid advancing a conflict of duty and interest;
· A duty not to misuse a company’s property, information and opportunities and account for any benefits obtained;
· A duty of care and diligence.
Breach of the duty may found an action for negligence of the suit of the company: Daniels v Anderson (1995) 13 ACLC 614.
There are also statutory obligations:
· To act in good faith and for a proper purpose: section 181 of the Corporations Act 2001;
· To exercise the degree of care and diligence that a reasonable person in a like position in the corporation would exercise in the corporation’s circumstances: section 180(1). This is subject to the business judgment rule in section 180(2).
· Not to improperly use their position to gain an advantage for themselves or someone else or cause detriment to the corporation: section 182.
· Not to improperly use information to gain an advantage for themselves or someone else or cause detriment to the corporation: section 183.
· To disclose material personal interests: section 191.
7. Obligations under constitution of course
In addition to any other obligations under law you should always check what obligations a director has under the company’s constitution.
8. Transfer of shares
It is not uncommon to find provisions in the constitution of a company giving directors the discretion to decline to register any transfer without reason. An example of such a case was Ascot Investments Pty Ltd v. Harper (1981) FLC 91-000. Gibbs J at p.76, 058 stated:
“…the directors are bound to exercise their discretion bona fide in what they considered to be in the interests of the company, and not for any collateral purpose, but subject to that qualification their discretion is absolute and uncontrolled…”
And furthermore that the onus of proving that the directors did not act in good faith in refusing registration lies on those who challenge the decision.
9. Rights of pre-emption
Sometimes constitutions have a right of pre-emption about the ownership of any shares. It is absolutely essential if there is an issue about a particular company to check the company’s constitution. The constitution and any share agreement may impact the value of the shares.
I have always found in dealing with complex property settlements involving a number of entities that it is useful to draw a diagram or genogram of the structure of the various entities, whether they be companies, trusts or partnerships. You may need to undertake a company search and then pore through all the documents that are provided including:
· the ASIC search;
· the constitution;
· any financial statements including income tax returns;
· any substantial documents as to security such as loan agreements and leases, personal guarantees;
· do a name search in each of the parties;
· doing name searches with the Titles Office in the name of each of the parties and/or the entity;
· undertaking a search of the web. It is amazing how much information is put on the web that guides you. This would include ordinarily a search of the company’s website (if it has one), that of LinkedIn of each of the directors and/or the company and that of Facebook if available of each of the directors.
Out of an abundance of caution, searches should be taken of a personal property securities register. Search and make sure you check the records carefully. Remember that not all interests that might be secured are registered. I don’t intend today to go through the requirements of the PPSA but be aware of its existence and search if needed.
12. Large and small private companies
A large private company is defined in section 45A(3) of the Corporations Act 2001as a proprietary company that satisfies at least two of the following:
(a) Consolidated gross operating revenue for the financial year is $25,000,000;
(b) Consolidated gross assets at the end of the financial year of the company (and its controlled entities) is $12,500,000 or more;
(c) The company and the entities it controls have at least 50 employees at the end of the financial year.
Large companies are required to:
· have audited financial statements prepared;
· prepare financial statements in accordance with all Australian accounting standards;
· lodge a full set of compliant financial statements with ASIC;
· present those annual accounts at the AGM of shareholders.
By far, most private companies are small private companies. They need not:
· prepare annual financial statements;
· have accounts audited unless required to do so by members holding 5% of the issued shares;
· disclose financial information in the annual returns;
· convene an AGM.
The books of a company are defined in section 9 of the Corporations Act to include:
(a) a register;
(b) any other record and information;
(c) financial reports or financial records, however compiled, recorded or stored; or
(d) a document.
Part 9.3 of the Corporations Act makes the following provisions regarding the books of the company:
Inspection of books
Local of books on computer
Court (a judicial registrar) may compel compliance with inspection or supply of any book.
Admissibility of books in evidence.
Form an evidentiary value of books.
Falsification of books being an offence.
13. The ability of shareholders to inspect
Generally shareholders can’t inspect the books of a company. They may apply to the Court for an order pursuant to section 247A of the Corporations Act to allow them or someone else to inspect on their behalf. The applicant will need to satisfy the Court that the applicant is acting in good faith and for a proper purpose. Section 247A is subject to client legal privilege.
Access to company books could be authorised by the directors of the company or resolution of shareholders.
If the dominant purpose for inspection is to assist in other litigation to which the..