【海量案例】HXXg & CXX  FamCA 6XX
(1) That notwithstanding paragraphs 5 to 8 of the Order dated 22 October 2015, the Husband shall be permitted to:
(a) Purchase 1,221,000 shares in B Incorporated from Mr J with such shares to be held in the name of B Industrial Limited;
(b) Obtain a line of credit with Bank I in the name of B Industrial Limited in the amount of NTD$68,000,000 to facilitate the purchase of B Incorporated shares from Mr J;
(c) Provide the B Incorporated shares held in his personal name and in the name of B Industrial Limited as collateral for the line of credit obtained from Bank I pursuant to paragraph 1(b) herein.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym HXXg & CXX has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
FAMILY COURT OF AUSTRALIA AT BRISBANE
FILE NUMBER: BRC 5044 of 2015
REASONS FOR JUDGMENT
The parties to this dispute are Mr HXXg (“the husband”) and Ms CXX (“the wife”).
The husband is seeking permission, despite a freezing order made on 15 October 2015, to purchase a tranche of shares in B Incorporated (a company in Taiwan) for AUD$2,800,000 and for that purpose, to borrow funds using an entity wholly owned by the husband namely, B Industrial Limited. The husband’s shares and B Industrial Limited’s shares in B Incorporated are to be provided by way of security.
The wife does not oppose the purchase of shares but does oppose the borrowing of funds.
Relevant background facts
The husband and wife were both born in Taiwan and have lived for extensive periods in Australia as well as Taiwan. They were married in 1996 and separated in 2015. They have three adult children.
The husband and/or wife have an interest in at least nine corporate entities in Australia, known as ‘the B Group’. The husband and/or wife have an interest in at least thirteen corporate entities in Taiwan, known as ‘the Taiwanese interests’. They also have interests in other real property in Australia and Taiwan.
The husband lives in Taiwan and operates the Taiwanese interests with family members and others. Over the past five years the husband has expanded the activities of the Taiwanese interests in reliance on what he regarded to be the mutual interests of himself and the interests represented by B Incorporated owned by numerous family members and others.
The parties agree that their total wealth (whether held jointly, in individual names or by entities controlled by one or both of them, or in which they have an interest) is valued in the vicinity of AUD$200,000,000 of which about AUD$27,000,000 is located in Australia.
On 22 October 2015, Forrest J made an Order which for current purposes relevantly provides as follows:
(5) That each party is restrained, whether by themselves or through their servants or agents or by corporate entities controlled by them, from dealing with, disposing of, transferring or selling any shares held in his or her name in any entity within the [B Group] or their [Taiwanese] interests, without firstly obtaining the written consent of the other party or an order of the Court.
(6) That save as otherwise provided for in paragraphs 10, 11 and 12 hereof, each party is restrained, whether by themselves or through their servants or agents or by corporate entities controlled by them, from withdrawing funds in excess of ten thousand dollars ($10,000) per transaction from any bank account held by him or her personally or by any entity in the [B Group] or their [Taiwanese] interests, held in Australia, [Taiwan], or any other country, without firstly obtaining the written consent of the other party or an order of the Court.
(7) That save as otherwise provided for in paragraphs 10, 11 and 12 hereof, each party is restrained, whether by themselves or through their servants or agents or by corporate entities controlled by them, from dealing with, disposing of, transferring or selling any assets, stock or shares held by each of them or by any entity within the [B Group] or their [Taiwanese] interests, without the written consent of the other party or an order of the Court.
(8) That each party is restrained, whether by themselves or through their servants or agents or by corporate entities controlled by them, from increasing any liability held by each of them, or by any entity within the [B Group] or their [Taiwanese] interests, beyond the current level, without firstly obtaining the written consent of the other party or an order of the Court.
It is uncontroversial that all of the Taiwanese interests were established by the husband from shares transferred to him by his father or from funds gifted to him by his father. The core business is operated via B Incorporated.
Since separation, the husband has operated the Taiwanese interests and has met the liabilities held by the various Taiwanese entities. At the time this matter was before the Court in October 2015, C Incorporated (an entity within the Taiwanese interests) held a line of credit with Bank I in the amount of approximately AUD$4,400,000 of which AUD$2,200,000 had been drawn and this liability was fully discharged by the husband on 23 November 2015.
The husband and his brother are currently engaged in a struggle for control of B Incorporated. Each of them has an alliance with a number of other shareholders and up until 20 June 2016 the husband’s brother was able to exercise control. However, on that date the husband was able to secure a majority of board members with a minority shareholding. Subsequent to that date, a minority shareholder, Mr J, shifted his alliance from the husband’s brother to the husband. Mr J holds 3,068,500 shares in B Incorporated. With Mr J’s shares the husband and his alliance will be able to control a majority of the shareholding. The husband has until 31 July 2016 to buy Mr J’s shares after which they will be offered to the husband’s brother.
The husband’s sister and cousin are prepared to join with him in the purchase of Mr J’s shares in an arrangement that would see the husband purchase 1,221,000 shares. The husband wishes to proceed with this purchase before his brother is able to do so. In order to make the purchase he proposes to borrow all or part of the purchase price as he does not currently have sufficient cash reserves to do so.
The husband’s case
The husband contends that the proposed transaction is critical to the ongoing successful operation of the Taiwanese interests and to preserve their value. The husband contends that the proposed transaction will enable him to maintain control of B Incorporated, which is the husband’s primary asset and the asset in which all other entities held by him in Taiwan hold an interest.
The husband contends that other investments made by him were made in consideration of the close proximity of ventures owned by B Incorporated and the opportunity for the sharing of expenses and the relationship in connection to the existing 500 tenants in the B Property to aid in leasing a new venture established by him, known as C Property.
The husband contends that if he and his alliance lose control of B Incorporated, this will have an adverse impact on returns and profit margins for the Taiwanese interests.
By way of example, the husband describes how, prior to 20 June 2016, his brother’s control of B resulted in some of the proposed tenants being prevented from signing leases in the husband’s new C Property venture and in order to entice tenants the husband was forced to reduce the rental prices for some tenants in order to increase occupancy. Without maintaining the control of B Incorporated, the husband contends that the projected profitability of C Property will be extended from three years after opening, being 2019, to five years after opening, being 2021. This will result in a loss of projected profits of approximately AUD$1,248,207 to AUD$2,912,483.
There is no evidence before the Court to indicate that the husband has defaulted on any liabilities held by him or any of the Taiwanese interests since separation. Indeed the evidence suggests the contrary viz that he has met the liabilities. It is contended that the extent of the husband’s interests is such that there is little likelihood of him being in a position of defaulting on any liability held by him or any of the Taiwanese interests.
The husband proposes purchasing the shares through B Industrial Limited, a company which is held 100 per cent by the husband, in order to minimise taxation liabilities.
B Industrial Incorporated is the only entity in Taiwan in which the wife holds an interest. It is held 83.5 per cent by the husband and 16.5 per cent by the wife.
The husband contends firstly, that any loss suffered as a result of the proposed transaction from a loss in value of the shares sought to be acquired is likely to be limited to less than AUD$2,800,000 and given the size of the property pool in dispute, this is a relatively small sum. Secondly, the husband contends that any loss suffered can be limited to the husband in a final property settlement as there are other assets available from which the wife can achieve a just and equitable outcome. Finally, the husband contends that the purchase of shares by way of loan is a commercially viable and necessary investment by the husband in order to protect the Taiwanese interests and maintain their value. While part of the purchase sum could come from dividends payable to B Industrial Limited the husband’s strong preference is to maintain cash reserves within the company and borrow the full sum at very low interest rates.
The wife’s case
While the wife does not oppose the purchase of shares per se she does oppose the borrowing of the funds. It was submitted by counsel for the wife that should the husband default on this loan it may cause the ‘whole house of cards to topple’.
Although not opposing the purchase, counsel for the wife nevertheless argued against granting the relief sought because:
There is no change in the factual circumstances from those when the freezing orders were made by Forrest J;
There is no demonstrated prejudice to the husband if the orders are not varied;
The price proposed to be paid for the shares is significantly in excess of their value;
The loss of control argument is misplaced because the husband and his alliance currently control five of the nine board members whose positions will remain for at least three years, Mr J has only indicated that he would not guarantee future support and even with the purchase, one or another of the other minority shareholders could withdraw from their alliance with the husband;
The provisions of the Taiwan Companies Act would prevent the change in direction proposed by the husband’s brother or the cancelling of contracts; and
There is no demonstrated ability on the part of B Industrial Limited to service the additional borrowings.
The wife contends that, there has been no change in circumstances since the freezing order made in October 2015 and refers in particular to the husband’s evidence in relation to buying minority shareholders’ interests:
My brother and I and our respective alliances have been purchasing shares from minority shareholders to gain control of [B] over the past 3 to 4 years.
The wife contends that absent evidence from the husband’s alliance, his cousin and sister, that they will not buy all of the shares if the husband does not participate, he has failed to establish any demonstrated prejudice.
The wife refers to recent sales of shares in B with the most recent sale in the past 12 months being at a price of NTD$30 per share, as opposed to the NTD$55.40 per share proposed by the husband. She also refers to the value attributed to shares in the company balance sheet at NTD$12.91 per share.
The board positions in B Incorporated (five of nine) which the husband and his alliance secured on 20 June 2016, are positions for at least three years and such directors cannot be removed without cause, and then only by resolution carried by two thirds of the shareholders. The husband and his alliance have full control over the board of B Incorporated for at least the next three years without the need to increase their shareholding. Mr J has not indicated that he will not support the husband’s alliance in the future, just that he could not guarantee future support. The alliance to which the husband refers is made up of a number of minority shareholders whose allegiance could change in the future, such that the slender majority achieved by this acquisition could be lost at the hands of any one or more of them and the husband and his alliance could repeatedly be held to ransom to buy minority shareholdings at high prices.
The wife contends that the Taiwan Companies Act provides sufficient safeguards to prevent the husband’s brother making major changes to the direction of the business interests of B Incorporated e.g. Article 185 requires a voting majority of two thirds to terminate any contract or lease or transfer any essential part of its business.
Finally, the wife refers to the lack of demonstrated ability on the part of the proposed borrower of the AUD$2,800,000 (B Industrial Limited) to service the loan, referring to the fact that the borrower currently trades at a loss.
Discussion and findings
Counsel for the wife cited a number of authorities in support of the submission that the Court should not entertain a qualification to the freezing Order made on 22 October 2015 where there has been no change in circumstances. However, as those authorities demonstrate, a change in circumstances is but one matter for the Court to consider when exercising its discretion to qualify an existing injunction. The overriding consideration remains what the justice of the case requires.
As Rodgers J observed in Hospital Products Limited v Ballabil Holdings Pty Ltd  2 NSWLR 622 at 699:
... The object must remain throughout to prevent disposal of assets in furtherance of the illegitimate aim of making oneself judgement proof and of stultifying the order of the court;
and Brereton J said in Paris King Investments Pty Ltd v Rayhill  NSWSC 578 at :
The circumstances and basis on which interlocutory relief is granted means that it is not to be regarded as immutable pending the final hearing, but may be reconsidered when the justice of the case so requires. To warrant reconsidering interlocutory relief will usually require that there has been some relevant change of circumstances since it was last granted or considered, which change may bear on the criteria governing the grant of interlocutory relief ...
In any event, in my view, the actions of the husband’s brother in preventing a number of tenants from taking up leases in the husband’s C Property venture and thus demonstrating an intention to act in a way which may be contrary to the best interests of the Taiwanese interests, is a new fact since October 2015.
In response to the submission that the husband has failed to demonstrate any prejudice because of a lack of evidence that his cousin and sister would not take up the balance of the shares in the event that he is unable to purchase them, counsel for the husband submitted that his client was not in the business of wasting the Court’s time. I take it from that submission that I should infer that alternatives have been considered by the husband prior to embarking upon this expensive course involving court proceedings. I accept that submission. The husband is clearly a successful and experienced businessman and I consider it unlikely that this application would have been commenced had there been a reasonable alternative.
In paragraph 35 of the husband’s affidavit filed 22 July 2016 he sets out the most recent share transaction history for B Incorporated which demonstrates that between 16 March 2015 and an unknown date in 2016 the price per share has varied from a low of NTD$12.68 to a high of NTD$60.00. The price of NTD$60.00 per share was achieved on 6 August 2015 and the most recent sale was at NTD$30.00 per share. On the basis of that history the proposed purchase at NTD$55.40 per share is not without precedent.
As counsel for the wife concedes, the purchase of minority shareholdings in B is something that the husband and/or his brother have undertaken over the last three or four years. The husband and his brother have come to a crossroads in their relationship where the husband can no longer rely upon his brother to make commercial decisions which will necessarily be to the advantage of the Taiwanese interests. The husband’s brother’s interference in attracting tenants to the C Property venture demonstrates a justifiable concern on the part of the husband. As the husband explains, other entities within the Taiwanese interests stand to lose significant revenue should management contracts not be renewed and such decisions may have a significant impact on the time it will take for the C Property venture to become profitable.
While the husband may currently control five of the nine board positions he does so on the basis of an overall minority shareholding. With the acquisition of these further shares he will control the board on the basis of an overall majority shareholding. It improves his position and he clearly considers it to be a sound commercial decision.
While Article 185 of the Taiwan Companies Act limits certain activities it does not, for instance, prevent a failure to renew a contract. I accept therefore that ‘even if a group of directors can control the majority of the board seats, they cannot fully control the direction of the company without controlling the majority of the equity interest of the company.’
It is true that the proposed borrower, B Industrial Limited, has shown a loss in the 2014 and 2015 financial years. However, the husband has a demonstrated history of meeting the liabilities of the Taiwanese interests and I have no reason on the evidence before me to doubt he will do so in future. Indeed, the evidence indicates that his ability to meet the liabilities of the Taiwanese interests is likely to be enhanced by this share acquisition as it will assist in maintaining or enhancing the profitable operation of the Taiwanese interests.
I accept that the husband’s preference for B Industrial Limited to maintain cash reserves in the form of dividends is a reasonable commercial decision.
In any event, I accept the submission, made on behalf of the husband, that in the event of a loss, the other assets of the parties can achieve an outcome where such a loss could be borne solely by the husband.
Counsel for the wife did not refer to any evidence upon which I could find there is a risk of the Taiwanese interests being lost in the event of a default on a payment arising from the proposed borrowing.
In summary, I am satisfied that the husband would suffer prejudice were the qualification to the freezing order not permitted. Any prejudice to the wife can be satisfied, if necessary, from the extensive other assets of the parties.
I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Carew delivered on 27 July 2016.
Date: 27 July 2016