Partners Operating a Small Business –Avoid Appointment of Receiver and Manager

01/05/2019

Often one or other partner to a marriage or de facto relationship operates a business either a small business or a larger business.  Sometimes one and sometimes both the partners to the relationship are involved in the business. 

There can be many different structures by which a family conducts a business ; for example a company in which each of the partners are Directors and Shareholders, a business conducted through a trust or a partnership.  Each of these separate structures have their strengthens and weaknesses.

Some businesses require particular qualifications for a person to be able to provide the services for example professionals such as medical, architectural, engineers, real estate agents, lawyers and many more who require the appropriate training, certificates and licences to practice.  However the business is more than the services and often each of the husband and wife have different roles in the business.

Often the family business is the major source of the income for the family. 

One of the great difficulties that often occurs as a result of the breakdown of the marriage or de facto relationship is that the business suffers for many reasons including the fact that the partners can no longer properly work together to operate the business.  This can have devastating effects on the pool of assets that are available for division between the husband and wife.

Usually in the business there are financing arrangements in relation to the business and the banks or financier have security over all the assets of the family.

It is devastating to the maintenance of the assets if one or other or both of the parties take steps which have the effect of the business failing to operate properly.  Sometimes this will be the unintentional consequence of behaviour between the parties at the time of their separation.  If as a result of the separation the business cannot pay their own debts, the financiers will take action to recover the debts which could include appointment of Receiver and Manager and selling the assets. 

In other circumstances where the parties cannot agree as to the operation of the business an Application could be made to the Family Court or the Federal Circuit Court for an order that one party manage the business to the exclusion of the other.  The Court would have to be satisfied that the party managing the business is properly conducting the business and will account for the activity and the profits of the business in a proper manner.  This usually requires some order to obligate the party operating the business to properly disclose the position of the business.  Usually in such a case where the Court needs to be involved the relationship between the parties to the marriage have broken down to such a degree that the animosity and distrust will be conveyed to the Court and the Court will have to put in such strict controls which will add significantly to the cost of running the business.  This of itself will reduce the value of the business and the asset pool available for division between the parties.

In the most severe cases where the Court cannot be satisfied that the parties will conduct the business appropriately, the Court will appoint an independent Receiver to conduct the business. 

Experience shows that this is fatal even to the best small or medium size businesses.  This occurs as the Receiver or the Controller who is appointment is usually a Chartered Accountant.  Those Receivers and Managers or other controllers of the company appointed are under obligations to properly conduct the business.  This is time consuming and expensive.

It should be the last resort of any party to a marriage or defacto relationship (no matter how much the relationship has broken down) to wish for the appointment of a Receiver and a Manager.  We have seen this occur and we have seen many good and very good businesses be destroyed.  Most businesses generally do not survive the bitterness between the parties and appointment of a Receiver. 

The Receiver operates the business and would be paid firstly from the assets of the business and thereafter by assets available which would otherwise be assets that would be divided between the parties to the marriage.  Often a Liquidator may be appointed when the business cannot pay its debts as and when they fall due and the business would be sold.  What little is left would be divided between the parties.

We highly recommend that parties do everything they possibly can to prevent such circumstances.  Once a Receiver is appointed both the parties have lost control.

There are other alternatives that are available which would go a long way to protecting the assets without the high risk of destruction of the assets.

Careful consideration should be given to the type of the Application to be made to the Court and in such circumstances to best protect the assets for a distribution between the partners to the marriage or defacto relationship rather than to Lawyers, Accountants and Liquidators and others.

Watson & Watson family lawyers have taken over family law disputes at the request of one party after tens of thousands of dollars have been spent by clients combating each other with the use of expensive lawyers and accountants to fight about everything from a pot plant to a billiard table and staying in the matrimonial home that neither party can afford and will have to be sold to achieve settlement or compliance with Court Orders.  Once the money is spent it is gone forever.

We have been able to assist and resolve most of those matters even in the most difficult circumstances.  However not all are able to be resolved; it depends not only on the parties but also on the advisors to come to a resolution which results in the highest net assets to be divided between the parties.  It goes without saying that the greater the value of the assets and the less liabilities result in a higher value of the net assets to be divided and a better return for each even if one has to provide a small adjustment to the other party.

The earlier each of the parties come to the realisation that the pool of assets will be diminished by high friction with Lawyers and accountants the better prospect of a resolution where you will receive more. 

To discuss this matter and all matters relating to disputes during or following a break up of your relationship, please contact Richard Watson Senior Family Law Solicitor or his Personal Assistant Shereen Da Gloria to discuss your concern and address this important matter at the very outset.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.

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