27 October 2021

Relationship between Family Law Act 1975, Corporations Act 2001 and other corporate matters

It is commonly believed that family law is a separate discipline of its own, and that family law practitioners need only have regard to the provisions of the Family Law Act 1975 (Cth) and associated rules.

However, family law disputes often intersect with other corporate practice areas and it’s important that lawyers adopt a holistic view for family law clients, to ensure all their legal law needs are met.

Relationship between family and corporate laws

A fundamental aspect of family law is the division of real and personal property. Today, it is common for matrimonial assets to include shareholdings in corporate structures and trust arrangements, which must be divided. Similarly, corporate relationships, such as those between shareholders, commonly need to be severed or restructured in the event of family relationship breakdowns. Herein lies the relationship between both the Family Law Act 1975 (Cth) and the Corporations Act 2001 (Cth).

Many are surprised to learn that the Federal Circuit and Family Court of Australia (FCFCoA) can make orders which are otherwise only available in civil state and federal courts under the Corporations Act 2001 (Cth).

It is for this reason that Bartier Perry’s family law, corporate law and litigation teams collaborate closely to ensure that the inevitable corporate aspects which arise in family law matters are sensitively and expertly handled.

To demonstrate the connection between family and corporate laws, consider the following fictional scenario.

Adam and Beth are in their mid-40s. After nearly 15 years and two young children, their marriage has irretrievably broken down.

Beth has engaged lawyers to act on her behalf, who have written to Adam about possibly applying to the court for divorce orders and property/financial settlement orders. Adam has also engaged lawyers to act on his behalf.

When Adam and Beth were dating, they founded a social media start-up, Social Media Pty Ltd. This was the corporate entity by which Adam and Beth conducted their business. At all times, Adam and Beth were directors and each held 1 fully paid ordinary share in the company.

Social Media Pty Ltd was a wild success and made millions of dollars in profit. To manage their wealth in the most tax-effective way, they created The Adam and Beth Family Trust, a discretionary family trust with a corporate trustee called A & B Investments Pty Ltd.

Beth is sole director and shareholder of the corporate trustee. The beneficiaries of the Trust are Adam, Beth and their two children, Charlie and Daisy.

As sole director of the corporate trustee, Beth can amend the trust and make distributions at her sole discretion in accordance with the trust deed.

After some back and forth between lawyers, Adam and Beth have agreed that Adam will resign as director of Social Media Pty Ltd and transfer his shares to Beth in exchange for Beth buying out Adam’s shares.

Adam’s lawyer discovers that Beth has amended the trust to remove herself and Adam as beneficiaries, replacing them with Beth’s mother. Adam’s lawyer discovers that this amendment was made at about the same time that the marital troubles began.

Beth then made several distributions of trust property to her mother. Adam thinks this was done to move matrimonial assets out of his control so that he would get less money in a property settlement.

To make matters worse, Social Media Pty Ltd has been served with a creditor’s statutory demand for payment of debt. However, Social Media Pty Ltd wants the statutory demand set aside because of a dispute about the quality and completeness of the services received, to which the statutory demand relates.

Another issue is that, amid the stress of the relationship breakdown, neither Adam nor Beth remembered to renew Social Media Pty Ltd’s registration with ASIC and the company has now become deregistered.

 

Question

Answer

Does the FCFCoA have jurisdiction to grant relief under the Corporations Act, generally?

Yes

Can the FCFCoA order that Adam resign as director of Social Medial Pty Ltd and transfer his shares in Social Media Pty Ltd to Beth?

Yes

Can the FCFCoA make orders against Beth's mum to set aside the trust distribution?

Yes, the FCFCoA could set aside the trust amendment and distribution to Beth’s mum, thereby compelling her to return the trust property.

Can the FCFCoA set aside the statutory demand against Social Media Pty Ltd?

Yes, the FCFCoA can set aside a statutory demand which threatens property of the marriage.

Can FCFCoA make orders to rectify the lapsing of Social Media Pty Ltd’s ASIC registration?

Yes, a party can apply to the FCFCoA for rectification of ASIC registers.


Scenarios like this arise more often than you might think in family law matters. If a marriage breakup involves significant business assets, gaining legal advice from someone with corporate as well as family law expertise is a wise move.

If you need advice on your situation, including any family and corporate issues, please contact the authors of this article for a confidential discussion.

Authors: Alicia Toberty, Gavin Stuart & David de Mestre