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Disclosure, Hidden Assets and Working With

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1 Disclosure, Hidden Assets and Working With
Forensic Accountants To Locate Them Mike Emerson Partner Emerson Black Lawyers Brisbane © Emerson Black Lawyers 2005

2 First Step in Financial Proceedings
Identify the property pool Identify and value the wealth of the parties We are often charged with “finding the money” Assets may be actively concealed by a party i.e. not “discovered” Onus of discovering party to reveal true financial circumstances Process relies on veracity of the party disclosing Often necessary for other party to go FURTHER to reveal the TRUE financial picture © Emerson Black Lawyers 2005

3 Duty of Disclosure Oriolo v Oriolo (1985) FLC 91 – 653 Full Court of the Family Court Referred with approval to Smithers J in Briese v Briese (1986) FLC In financial proceedings each party must make a full and frank disclosure of all material facts & that such obligation is fundamental to the whole operation of the Family Law Act in financial cases and furthermore that mere compliance with the Rules of Court or Practice Directions does not alter the basic principle of the need for full and frank disclosure by the parties Each party has an obligation to make a full and frank disclosure of his or her financial position © Emerson Black Lawyers 2005

4 Rule 13.01 Family Court Rules
Each party has “a duty to the Court and to each other to give full and frank disclosure of all information relevant to the case, in a timely manner” Failure to comply with such duty may result the Court doing the following: Excluding evidence that is not disclosed Imposing a consequence (including punishment for contempt of Court Making a finding that assets exist Rule (2) states that the duty of disclosure starts with the pre-action procedure for a case and continues until case is finalised © Emerson Black Lawyers 2005

5 Rule 13.04 Family Court Rules
Requirements for full and frank disclosure includes inter alia: A party’s earnings; Vested or contingent interests in property (including property owned by a legal entity or partially owned or controlled by a party); Other financial resources of a party; Trusts over which the party has an direct or indirect power or control; Certain disposals of property in the 12 months immediately before or since separation; Liabilities and contingent liabilities. © Emerson Black Lawyers 2005

6 Financial Statement (Form 13)
Starting point for disclosure (Division 13.05) Court may order a party to file an affidavit giving further particulars of the party’s financial affairs Updated Form 13 to be filed prior to certain events such as (Division 13.06): Conciliation Conference Pre Trial Conference Trial If a parties financial circumstances “have changed significantly” since initial Form 13 filed. © Emerson Black Lawyers 2005

7 Examples of Non-Disclosure from Cases
© Emerson Black Lawyers 2005

8 Kannis v Kannis (2003) FLC 93-135 FACTS
Husband (“H”) transferred some funds to woman he had been involved with for many years H optometrist by profession & parties had est. number of successful optical business Profits of business invested in real estate At time of trial 23 properties & identifiable property exceeding $33M ISSUE Did H, in addition to monies undisclosed in foreign accounts, hold significant assets which he had failed to disclose including: Cash; Jewellery; Gold Bullion OUTCOME Chief Justice Holden made an adjustment of 10% to allow for the findings in relation to undisclosed assets Held that whether the non-disclosure is wilful or accidental is beside the point © Emerson Black Lawyers 2005

9 Efthimiadis v Efthimiadis (1993) FLC 92-361
OUTCOME Cohen J (Trial Judge) found wife’s evidence re business records and income from business should be rejected Full Court found evidence of her earnings inconsistent with outgoings Business records she produced virtually useless Trial Judge held husband understated his income Concluded he had $5,000 in safe Rejected his claims that he loaned his brother $10,000 Trial Judge used statements made by wife to her bank re her takings and value of business to discredit her evidence Also found alleged unregistered mortgage (claim by wife) to be sham © Emerson Black Lawyers 2005

10 Weir v Weir (1993) FLC 92-338 ISSUES
Wife alleges her accountant, in valuing a relevant company, discovered discrepancies re understatement of sales; may have impacted on valuation of business; Parties’ son gave evidence that it was husband’s practice to pocket cash payments without recording them; Wife’s Counsel submitted : Husband deliberately incorrectly coded entries in order to mask his misappropriation of cash from cash sales. OUTCOME Trial judge not prepared to make a positive finding re husband’s alleged misappropriate of cash from cash sales; Full Court held that where clear evidence of non-disclosure: “…the court should not be unduly cautious about making findings in favour of the other party” © Emerson Black Lawyers 2005

11 Suiker v Suiker (1993) FLC 92-463 ISSUES
Husband applied for redundancy without informing the wife Redundancy entitled him to benefits of approx $160,000 OUTCOME Full Court held that the husband was under a duty to disclose to the wife before Consent Order made that he had applied for redundancy and what his benefits would be © Emerson Black Lawyers 2005

12 Morrison v Morrison (1995) FLC 92-573
FULL COURT HELD Wilful non-disclosure by the husband re abalone licence & true nature of his relationship with a third party in relation to sale of same; Husband’s failure to disclose robbed wife opportunity to litigate issue of true value of licence; Non-disclosure was of such magnitude to amount to a miscarriage of justice © Emerson Black Lawyers 2005

13 Mitchell (1995) FLC FACTS Husband embarked on financial restructuring involving establishment of family trust and superannuation fund; Effect reduced net value of net assets by borrowing against matrimonial home and moving borrowed funds into superannuation fund. ISSUE The restructuring meant the funds could only be regarded as a resource not an asset. OUTCOME Full Court felt the Trial Judge could have solved the issue by applying s.75(2) to give wife a substantial adjustment in her favour © Emerson Black Lawyers 2005

14 Malpass v Mayson (2000) FLX 93-061
OUTCOME Mullane J (Trial Judge) found husband significantly understated income of number of his companies; Rejected evidence that number of financial records stolen from his accountant; Not satisfied 1997/98 records provided reliable; Husband failed to call accountant as witness; Full Court held such failure could be relied on by Trial Judge when drawing adverse inferences against husband; Also held that Trial Judge had clear evidence from wife’s statements, husband’s history in cash dealings, discrepancy between details provided to court and lending institute and other evidence to find that there was substantiated undisclosed income. © Emerson Black Lawyers 2005

15 Some Non-disclosure Types
Blatant Deceiver Secretive Business Owner Person of Straw (benevolent relative / partner) Hopeful Investor (capital applied but no result yet) Small Business Operator (big contract pending) International Money Mover Warehouser Obstructive Procrastinator Puppet, Sham or Alter Ego Money Launderer © Emerson Black Lawyers 2005

16 Checklist in Respect of Hidden Assets
Examples of how assets may be hidden or undervalued: Failure to disclose or acknowledge cash takings or skimming cash from business owned; Assets simply “hidden”; Failure to disclose assets or resources held overseas; Undervaluing assets; Purchasing or registering assets in the name of “friendly” parties; Sale or transfer of business assets or shares at an undervalue to friendly parties; Provision of a benefit to a related party; Failure to include goodwill value of a business or undervaluing a goodwill factor; Failure to disclose assets acquired post separation; © Emerson Black Lawyers 2005

17 Checklist in Respect of Hidden Assets
Examples of how assets may be hidden or undervalued: Diversion of Funds; Collusion with an employer; Salary paid by a business to non-existent employee or money paid from the business to someone close; Debt repayment to a friend for a debt that doesn’t exit; Delay in signing long-term business contracts or Renewing leases until after divorce; Arrangements may be underway for a private company to be bought out by a public company at a substantial premium on share values; A failure to cooperate in relation to disclosure may in itself be a strong indication that a party has something to hide; © Emerson Black Lawyers 2005

18 Checklist in Respect of Hidden Assets
Examples of how assets may be hidden or undervalued: Manipulation of doubtful debts and write offs; Manipulation of stock figures; The second receipt book; The holding of assets including cash in unidentified safe custody boxes; Lifestyle is often an indicator of funds being available which may not have been disclosed or acknowledged. © Emerson Black Lawyers 2005

19 Initial client interview
Where Do You Look? Initial client interview Client’s perception of when serious matrimonial problems arose Subtle changes picked up by the client © Emerson Black Lawyers 2005

20 Jane's Story In the year prior to separation Jane noticed:
Her husband changed the way he handled finances; Bank account balances were depleted; His pay no longer deposited in joint account; Creditors demanding payment on delinquent accounts; More frequent business trips. Her lawyers recognized that her husband had probably hidden significant assets and unless located they couldn’t be included in divorce settlement. Michaelson, William M, “Divorce: a game of hide and seek?”, Journal of Accountancy Vol 181 (3), P67 © Emerson Black Lawyers 2005

21 Where Do You Look? Form 13 – compare information disclosed with the following: Tax returns; Real Property Searches; ASIC searchs; Balance Sheets & Profit & Loss Accounts; Bank Statements; Quarterly BAS Statements. © Emerson Black Lawyers 2005

22 Depreciation schedules may reveal an undervaluing of certain assets;
Where Do You Look? Income Tax Returns; Pay Slips; Depreciation schedules may reveal an undervaluing of certain assets; Similarly with assets in a self managed superannuation fund; Bench marks; © Emerson Black Lawyers 2005

23 Personal finance statements or loan applications;
Where Do You Look? Personal finance statements or loan applications; Credit card statements are of great assistance; Financial Statements for business over several years; Quarterly BAS statements for businesses; Databases and registries should be utilized; Telephone accounts; © Emerson Black Lawyers 2005

24 It is usually easier to obtain information before separation;
Where Do You Look? Websites; Passports; It is usually easier to obtain information before separation; © Emerson Black Lawyers 2005

25 Forensic Accountants in Family Law
Weir v Weir (1993) FLC Forensic Accountants in Family Law Special expertise / experience in unravelling complex financial structures; Valuing differing business entities; and / or Pinpointing discrepancies in financial statements; Carefully framing questions or requesting documents or pursuing lines of inquiry that might clarify these. The Family Law Rules 2004 made dramatic changes to the provision of accounting evidence in the Family Court. © Emerson Black Lawyers 2005

26 Forensic Accountants in Family Law
Parties may each retain SHADOW EXPERTS to review the opinions of the single accounting expert; Need a good working relationship between accountant and lawyer Criteria for good forensic accountant: Competence and experience essential; Ability to communicate at a number of different levels; Confident and articulate but not aggressive demeanour; Used to meeting and dealing with people at all levels; Experience in writing reports and giving evidence; Resilience to withstand cross examination; Compliance with practice directions and rules of court pertaining to experts. © Emerson Black Lawyers 2005

27 Forensic Accountants in Family Law
Meeting between client and forensic accountant should be arranged at an EARLY STAGE of the process; Not every separation requires a forensic examination; Knowledge of when to engage a forensic expert comes from experience; Clearly complex cases involving a number of corporate entities or trusts may require one. Similarly where there is specific knowledge of non-disclosure or high degree of suspicion of non-disclosure. © Emerson Black Lawyers 2005

28 Subpoenae Anton Piller Orders Mareva Injunctions
Pre-Emptive Strikes Subpoenae Anton Piller Orders Mareva Injunctions Tools to assist in locating and identifying or preventing dissipation of the asset or removal from the Court’s jurisdiction © Emerson Black Lawyers 2005

29 Anton Piller KG v Manufacturing Processing Ltd [1976] Ch 55 at p 62
Anton Piller Order A mandatory injunction requiring respondent to permit the applicant to enter the respondent’s premises to search for, inspect and remove documents or things specified in the order; An order for seizure of evidence to enable party to prove existence of undisclosed asset; Anton Piller KG v Manufacturing Processing Ltd [1976] Ch 55 at p 62 Ormrod LJ specified three essential pre-requisites: Extremely strong prima facie case; Damage, potential or actual, must be very serious for applicant; Clear incriminating evidence and possibility defendants will destroy such material. Division Family Law Rules © Emerson Black Lawyers 2005

30 Require respondent to disclose specific information relevant to case;
Anton Piller Order The order may: Require respondent to permit the applicant either alone or with another person, to enter the respondent’s premises and inspect or seize documents or other property; Require respondent to disclose specific information relevant to case; informing anyone other than his lawyer that an order has been made. Division 14.04(3) Family Law Rules Requirements of an affidavit in support of application See also Conditions or undertakings in Federal Court Practice Note (8 April 1994) © Emerson Black Lawyers 2005

31 Mazur v Mazur (1992) FLC 92-305 Talbot v Talbot (1995) FLC 92-586
Examples from Cases Mazur v Mazur (1992) FLC Only property briefcase containing $20,000 in closet in former matrimonial home Court held that it is essential for Court to take steps, when it is necessary, to permit property to be ascertained & to be retained Talbot v Talbot (1995) FLC To grant an order against someone who is not, and will not be a defendant in an inter partes application would be “to introduce an unwarranted extension of the field of operation of what is, in any event, a very draconian procedure” Lindenmayer J © Emerson Black Lawyers 2005

32 Mareva Injunction A temporary order which temporarily freezes assets to prevent dissipation of the asset within the jurisdiction of the court, or removal of the assets from the court’s jurisdiction Division Family Law Rules Division (1) A party may apply if: Order will be incidental to an existing or prospective order made in favour of applicant; OR Applicant has existing or prospective claim that is able to be decided in Australia © Emerson Black Lawyers 2005

33 Mareva Injunction Division (2) Obligatory for applicant to file affidavit in support which includes: Description of nature & value of respondent’s property in & out of Australia; Reason applicant believes respondent’s property may be removed from Australia & why dealing should be restrained; Damage likely to result; Identification of anyone other than respondent who may be affected by order and how affected; Amount and basis of substantive claim & if made ex parte details of possible response © Emerson Black Lawyers 2005

34 Jackson v Sterling Industries Ltd (1987) 162 CLR 612
Examples from Cases Waugh v Waugh (2000) FLC Full Family Court held: before Family Court can make interlocutory injunction must be satisfied that risk of disposal of property in order to defeat judgement evident Jackson v Sterling Industries Ltd (1987) 162 CLR 612 “As a general proposal, it should now be accepted in this country that a Mareva injunction can be granted…. If the circumstances are such that there is a danger of [the defendant] absconding, or a danger of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with so that there is a danger that the plaintiff, if he gets judgement, will not be able to get it satisfied.” © Emerson Black Lawyers 2005

35 Lucas Industries v Hewitt (1978) 18 ALR 555
Subpoenae The service of a subpoenae to produce documents and / or give evidence Lucas Industries v Hewitt (1978) 18 ALR 555 “The purpose of the process of subpoena is to facilitate the proper administration of justice between parties. For that purpose it is the policy of the law that strangers who have documents may be put to certain trouble in searching for and gathering together relevant documents and bringing them to court. It is according to the same principle that persons who have knowledge of facts are put to the inconvenience of being brought to court and are required to give evidence.” Subpoenae are a most useful tool to parties or practitioners to assist in production of records which may divulge hidden assets © Emerson Black Lawyers 2005

36 Bankers or financial institutions used by a party Accountants
Examples where subpoenae are useful: Bankers or financial institutions used by a party Accountants De Facto spouse or partner Compliant family member Credit card provider Solicitors Business organizations and employers © Emerson Black Lawyers 2005

37 Level 8 “Northpoint” PO Box 13166
231 North Quay GEORGE STREET POST OFFICE BRISBANE QLD BRISBANE QLD 4003 Ph: (07) Fax: (07) Direct “Disclosure, Hidden Assets and Working with Forensic Accountants to locate them” by Mike Emerson, Partner Research Assistant: Kathryn Neri (Articled Clerk) Powerpoint presentation: Danielle Wright (Articled Clerk) © Emerson Black Lawyers 2005

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