FAMILY COMPANY FAMILY LAW TREATMENT ON PROPERTY SETTLEMENT
If you have separated and you and/or your former partner operates a company family law considerations will include obtaining financial information about that company. Even if you have not been involved in the company, it forms part of the asset pool to be divided with your former partner. You will want to know what value should be given to the interest in that company in a family law property settlement.
This won’t be a problem for you if you have been actively involved in the business and are a director or partner. You should then have direct access to that information.
For some people though, their former partner has operated the business and even though they may be registered as a director or shareholder in a family business, once separation occurs (or perhaps for all time) they may find that their former partner is preventing their access to any financial information about the business.
It is not uncommon in family law property matters to see that one of the parties to a relationship has effective control of the management of the business whilst the other party has had little involvement, perhaps providing some assistance such as bookkeeping.
Even so, when it comes to dividing the assets of the relationship, the family company or business forms part of the assets to be divided and having the information and documents needed to value that interest is very important.
Under the Family Court and Federal Circuit Court Rules each party is required to make a full and frank disclosure of his or her financial circumstances. Where a former partner is a director of a family company family law requires that that person provides the other party to the relationship with documents such as the financial reports of the company and its tax returns and ATO Notices of assessment.
If your former partner fails to comply with her or his disclosure obligations, you may obtain orders for disclosure if you are involved in a family court proceeding. If you are not in court, then trying to insist on compliance by your former partner can be a frustrating exercise that may only result in increased legal fees for you if there is no satisfactory response.
Depending upon the set up of the business or company family law aside, there may be alternate options that can be pursued to obtain the information in a more timely and cost effective manner. These options are available through the Corporations Act 2001 (Commonwealth) and through the Australian Securities and Investments Commission (ASIC).
The availability and type of information that can be obtained will vary in accordance with the size of the company being dealt with as different size companies have different filing and accounting requirements. A private company will fall into one of 2 size classifications – “Small” or “Large.”
Specific criteria are used to determine the size classification of the private company in a particular financial year.
A “Large” private company is required to have financial statements prepared in accordance with certain Australian standards, have an annual audit of the financial statements, to lodge financial statements with ASIC and to present the accounts at a shareholders annual general meeting.
A “Small” private company does not have the same requirements. Only where members holding 5% of the issued shares require the company to do so is an audit of financial statements and accounts required.
Other Potential Options Available
Are you a director of the company?
If you are a director of the company, provisions within the Corporations Act 2001 (Cth) and at Common Law give you a right of access to the company financial documents. This is on account of your duties and responsibilities to manage and make decisions for the company. If you are a director but have had no real involvement in managing the affairs of the business, an application can also be made for a person such as a lawyer or accountant to inspect the documents on your behalf.
The company must permit the inspection and a person who is a director has the right to take copies of the company’s books.
If you have been the less involved or non-participating director of a family company family law will not allow you to convene a meeting of directors. However, under the corporations law, you may call a meeting of directors of the company where you are yourself a director. The company constitution will have rules that set out procedures for meetings and how they are called. Sections 248A-248G of the Corporations Act 2001 (Cth) includes rules for directors’ meeting. Attending a directors’ meeting can be helpful for you to maintain a role in the management of the company, obtain financial information about the company and to have some control or influence if your former partner/director is acting outside the scope of her or his authority.
Are you a shareholder of the company?
Access to the Company documents
In contrast to a director of the company, the documents a shareholder or member of the company is entitled to obtain is limited to official documents rather than accounts and financial records (unless the company itself is party to a proceeding such as a family law proceeding).
Directors of a company (and shareholders by resolution passed at a general meeting) can permit access to company books but this is less likely to occur if the company is controlled equally by separated partners.
Where an application is made in writing to the company, a shareholder of the company is entitled to receive a copy of the company constitution. This may also be obtained by making a request to ASIC, if they have previously required that the constitution be lodged with them.
Shareholders are also entitled to have access to the minute books of the company for meetings of shareholders as well as the resolutions passed by shareholders.
A register of the company members can also be inspected and copies obtained.
If the company is solely owned by the former spouses/partners, the Family Court can order that directors’ minutes be provided.
Any two or more shareholders holding at least 5% of the company’s share capital can call for a shareholders meeting.
As a shareholder, you are entitled to receive notice of all general meetings of shareholders and to ask questions at the meeting.
Like any decision made in your Family Law matter, it is always best (although often difficult) to make a cost versus benefit analysis when considering your options.
It may be more practical and time-saving for you as a separated partner to consider convening a meeting of the company family law “financial disclosure” obligations of your former partner may be a more difficult path depending upon the attitude of your former partner and whether you are at court to obtain disclosure orders. Convening a meeting may avoid delays, costs and limitations which can be involved in discovery (disclosure) through the Family Court or through the subpoena processes.
LGM Family Law has the experience to deal with complex property matter issues, including those involving multiple businesses, corporations and trust structures. We aim to resolve our clients’ matters quickly, cost effectively and amicably with the former partner. Where it is necessary however, we will recommend legal proceedings and represent you through to obtaining final orders.