Supreme Court New South Wales Medium Neutral Citation: Jennifer Helen Sullivan v Richard Gregory Hughes as Administrator CTA of the Estate of V H Moy [2015] NSWSC 1225 Hearing dates: 21 August 2015 Date of orders: 21 August 2015 Decision date: 21 August 2015 Jurisdiction: Equity Before: Rein J Decision: See [39] and [40] Catchwords: EQUITY - Application for judicial advice pursuant to s 63 of the Trustee Act 1925 (NSW) - Whether an administrator is justified in accepting an offer to purchase a share in a company held by the estate - Claims for family provision out of the estate under the Succession Act 2006 (NSW) - Claimants oppose the sale of the share Legislation Cited: Succession Act 2006 (NSW) Trustee Act 1925 (NSW) Cases Cited: Nil Texts Cited: Nil Category: Consequential orders (other than Costs) Parties: Jennifer Helen Sullivan (Plaintiff) Richard Gregory Hughes as Administrator CTA of the Estate of V H Moy (First Defendant) The Protective Commissioner of NSW as the tutor appointed to represent Doreen Helen Moy (Second Defendant) Stephen Victor Moy (Third Defendant) Representation: Counsel: J. Moy (in person) (Plaintiff) R.G Hughes (solicitor) (First Defendant) G. McInnes (solicitor) (Third Defendant) Solicitors: Hughes & Co Solicitors (First Defendant) McInnes Attorneys (Third Defendant) File Number(s): 2007/256082 Publication restriction: nil EX TEMPORE JUDGMENT 1. Mr Victor Moy died on 22 April 2002; I shall refer to him as Victor. The grant of letters of administration of Victor's will was made on 14 December 2009 and issued on 3 May 2010. Mr Richard Hughes, solicitor, was appointed the administrator of Victor's estate. Mr Hughes has applied to the Court for advice pursuant to s 63 of the Trustee Act 1925 (NSW) concerning the sale of a share in Dorvik Pty Limited ("Dorvik") held by the estate. 2. Dorvik is a company incorporated in or about 1976 which operates at Tuncurry, and is a mechanical engineering firm principally making customised steel reinforcing mesh for use in reinforced concrete and fabricating steel components associated generally with the construction industry. 3. The directors of Dorvik at present are the third defendant Stephen Moy ("Stephen"), Victor's son, and Stephen's wife, Annette Moy ("Annette"). 4. Victor by his will left a half interest in his Dorvik share to his wife, Doreen Moy ("Doreen") and the other half to Stephen. 5. In 2007, Jennifer Sullivan ("Jennifer") daughter of the deceased and of Doreen, commenced proceedings against Mr Hughes in his capacity as administrator, making a claim under the Succession Act 2006 (NSW) for a provision to be made in her favour out of the estate. 6. In these proceedings, Stephen brought a cross-claim, in which he contended that he was the beneficial owner of the share in Dorvik that forms part of Victor's estate, and also of the share held by Doreen. 7. In related proceedings, Kristi Moy ("Kristi"), Jennifer's daughter, commenced proceedings against Mr Hughes, also seeking provision out of Victor's estate under the Succession Act. 8. On 11 April 2014, a settlement was reached between the estate, Doreen and Stephen. As a result of the settlement, of the three issued shares in Dorvik, one is held by Stephen; the second is held by Doreen, whose affairs have, since 15 November 2007, been managed by the New South Wales Trustee and Guardian; and the third share is held by the estate. 9. Stephen has offered to a pay $166,667 for each of the estate share and Doreen's share. That values Dorvik at $500,000. The offer to purchase the estate share is not conditional on acceptance by the New South Wales Public Trustee and Guardian on behalf of Doreen. 10. Kristi has made two offers to which I shall return later. 11. No other offers have been received by the agent acting on the sale of Dorvik, nor has there been any significant interest expressed by any person for the purchase of Dorvik or its business. 12. Mr Hughes requests advice as to whether in all the circumstances he would be justified in accepting Stephen's offer to purchase the share in Dorvik held by the estate. 13. When on 31 July 2013 Mr Hughes raised with me the need for him to obtain judicial advice, I indicated that he should provide me with an affidavit and also indicate what other affidavit evidence I would need to read in order to be able to give the advice which he indicated he wished to obtain. 14. Mr Hughes did subsequently provide me with a copy of his affidavit dated 13 August 2015, an original of which was filed in court today. He also asked me to read the affidavit of Stephen of 28 July 2015 which was filed in court on 21 July, which I have done. 15. On 31 July 2015, I raised with Mr Hughes the question of whether Jennifer and Kristi should be notified of his application for advice. Mr Hughes indicated that he thought that notification would be the best course. I said I would give consideration to those persons being notified, but would be assisted in receiving Mr Hughes' affidavit before making a decision on that point. 16. Kristi and Jennifer were made aware of the application for judicial advice and appeared today wishing to be heard. Whilst there is doubt as to whether they have any right to be heard, since they are not beneficiaries under the will, but rather, applicants making claims on the estate, Mr Hughes did not oppose them being heard on the application. Kristi and Jennifer as claimants, have an interest in the estate having more assets rather than less and since Stephen is sole beneficiary under the will and the offeror, there is no-one to oppose the sale but them. 17. Kristi and Jennifer have filed affidavits in relation to the question of sale of the share. Kristi's affidavit is dated 7 August 2015, and Jennifer's affidavit is dated 20 August 2015. 18. A great deal of each of their affidavits is inadmissible in form and really in the nature of submissions, but more importantly, of no relevance to the issue upon which Mr Hughes seeks advice. 19. Kristi at the Bar table today was certainly alive to the need to focus on the question of why she and her mother say that Mr Hughes should not accept the offer from Stephen. Their reasons are that they believe that Dorvik is worth a lot more than $500,000. They assert that the one third share held by the estate is worth $500,000, valuing Dorvik at $1.5 million. 20. Jennifer also pointed out that Mr Hughes is not an accountant and cannot make an assessment, in her submission, as to what the company is really worth. The $1.5 million figure to which I referred stems from a document annexed to Kristi's affidavit, and it is a report from Forsyths chartered accountants dated 16 September 2008 which valued Dorvik as at 30 June 2007 at $1.55 million. 21. Kristi and Jennifer tendered a report dated 13 March 2013, which became Exh 1 today, of a Mr Griffiths under his firm Prosperity's letterhead, in which Mr Griffiths raises questions concerning a number of matters in relation to the accounts of Dorvik and a related company called Trenchweld, which in Mr Griffiths' opinion would warrant detailed investigation, and as Mr Griffiths himself notes, at considerable further expense. 22. Mr Griffiths' report focuses on accounts earlier than obviously March 2013, and of course does not examine or comment on the accounts that were subsequently prepared and which have been annexed to Stephen's affidavit of 28 July 2015. 23. It may well be that a number of the points made in Mr Griffiths' report remain valid, but that is not necessarily so. 24. In a further letter from Mr Griffiths dated today and which became Exh 2, he seeks to draw to Jennifer's attention, and hence she to the Court's attention, his view in answer to the comments made in the Forsyths report concerning whether it was appropriate for Stephen to compare his remuneration package at Dorvik to that of a corporate steel manufacturer, he having raised the question of whether the remuneration paid to Stephen and other employees was reasonable in his March 2013 report. 25. Jennifer and Kristi claim that Stephen has benefitted out of his involvement with Dorvik beyond any legitimate entitlement that he had as managing director and as shareholder. They have called on Mr Hughes as administrator to investigate their claims and to pursue Stephen. 26. I note that Mr McInnes, who appears for Stephen, disputes that there is any substance to the allegations made by Kristi and Jennifer, and I certainly should not be thought to have accepted that their claims are valid. 27. Mr Hughes does not know whether there is any substance to these claims, and he has indicated that, even if Jenny and Kristi were entitled to require him to investigate, which is by no means clear, he is unable and unwilling to do so without being put in funds. 28. On Mr Hughes' evidence (see para 13 of his affidavit), neither Jennifer nor Kristi have been willing, and at least in the case of Jennifer, able, to provide funds to him for the purposes of investigating the allegations made by Jennifer and Kristi further, nor has the NSW Public Trustee and Guardian. 29. The Griffiths report to which I have referred indicated that there was insufficient information to enable Mr Griffiths to value the shares. I have referred to his concerns. But once again, it is relevant to note that on Mr Griffiths' assessment, Jennifer would need to sell her house in order to pay for the significant accounting and legal costs that would need to be spent. Obviously, if Mr Hughes was to be required to embark upon such a course, he as administrator of the estate would also incur those significant costs, and he does not have those funds available to him. 30. Dorvik has loans from Stephen and Annette, and there are long term employee entitlements. I proceed on the basis that there may be questions about Dorvik's management, including for example as to whether Stephen and Annette's level of remuneration has been excessive, and whether loans made to the company are all in fact capable of being established, before a definitive view of the true value of Dorvik could be determined. 31. Having regard to the fact that Dorvik has been trading at a loss in recent times, there is a real question as to what value should be ascribed to the business. It is not clear that liquidation will provide any amount to shareholders, and nothing to support the conclusion that the estate would receive more than $167,000 on liquidation. 32. Mr Hughes has received two offers from Kristi, as I mentioned before. The first offer was, he says, not in writing. Kristi contends that it was in writing, but has not produced any evidence of it. Nevertheless, Mr Hughes has set out the oral offer in his affidavit, para 22, and Kristi accepts that the offer made by her is correctly recorded in that affidavit. 33. The offer was that Kristi would pay $750,000 for all three shares in Dorvik, but provided that Dorvik is unencumbered and has no debt. 34. Mr Hughes is not inclined to accept that offer, and has given a number of reasons in his affidavit as to why that is: 1. The first is that he cannot accept an offer on behalf of Stephen and Doreen, and Stephen has indicated he would not accept that offer, and Doreen through the New South Wales Trustee and Guardian has not indicated any willingness to accept the offer, although nor has she, through the solicitor for the New South Wales Trustee and Guardian, rejected the offer. 2. The second point is that the offer is not in writing. That problem, it seems to me, can be easily cured. 3. The third is that he has no confidence that Kristi could fund the purchase. There is no indication given to him as to how she would do so, and when I asked Kristi today, she indicated that she does not wish to reveal the source of funds as it is "confidential". In my view, Mr Hughes is entitled to have a concern as to whether Kristi has the ability to pay, and to be told what the source of funds is, so that he can be confident that Kristi has the ability to complete the transaction. 4. The fourth reason is the requirement that the company be sold with no debts and unencumbered, which leaves the return to the estate as highly doubtful. 5. The fifth matter is that Mr Hughes cannot compel Stephen alone to bear the burden of any debt of Dorvik, and he could not compel Stephen to accept such an offer. 6. The sixth matter was his concern as to Kristi and Jennifer's ability to run the business, but that in my view is quite irrelevant from the estate's point of view. 1. I raised today with Kristi whether she would be willing to make an offer of $175,000 for the estate's one share on precisely the same terms that have been offered by Stephen, except for the amount. Kristi said she was not willing to do so, and indeed that she would be "mad" to make such an offer. 2. She did today make a further offer to Mr Hughes to buy the three shares in Dorvik for $525,000, that is, three times $175,000, but again on the basis that Dorvik would be transferred free of debt and with all loan account obligations settled, so that in effect Dorvik would be unencumbered. 3. As I mentioned, one of the reasons put forward by Kristi and Jennifer for contending that Mr Hughes should not accept the offer is that Mr Hughes is not an accountant and cannot assess the true worth of Dorvik. I accept that Mr Hughes is not an accountant, but he is the administrator appointed by the Court on the application of all of the current contestants, Stephen, Kristi and Jennifer, and he is an experienced solicitor who needs to consider the offer in the context where there is some accounting other material to which he can have regard, and he has carried out other work to which he has referred in his affidavit, in order to consider the prospects of sale of the business and as to what would be an appropriate response from him as the administrator of the estate. 4. Mr Hughes is very concerned about how the estate could possibly establish what in fact Dorvik is truly worth and he is faced with the following problems: 1. no offers to buy Dorvik from anyone but Stephen and Kristi so that the net sale proceeds can be distributed to each of the shareholders, including the estate 2. in relation to Kristi's offers, the problems which I have identified, and with no certain benefit to the estate in Kristi's offer being accepted, even if contrary to the reality the other shareholders could be required to accept the offer 3. there is no current prospect that anyone other than Stephen would be willing to buy the one share owned by the estate, and no realistic likelihood of anybody in the future wishing to buy that one share in a private company nor any realistic prospect of anyone buying the three shares in Dorvik without knowing how much debt has to be met by Dorvik 4. the absence in the estate of funds to undertake the type of forensic examination which would be required to assess the true worth of the shares 5. an accrued liability of the estate to Mr Hughes as administrator of the estate of more than $61,000 in costs and expenses, which the estate is presently without receipt of the funds offered unable to meet 6. the extremely limited interest which agents appointed have obtained from the public 7. the fact that even as at March 2013, Mr Griffiths was noting that Dorvik's turnover had dropped remarkably, and Mr Hughes deposes to his information concerning the current position in relation to manufacturing businesses in rural towns and his knowledge of the change in the industry since then leading to many closures of small conferring businesses; 8. the significant period of time that has elapsed since 30 June 2007, when the company was valued at 1.5 million 9. the prospect that any higher value of shares may be dependent on whether recoveries that Kristi and Jennifer assert could be obtained are litigated to finality 10. the very real prospect that expenditure on accounting and legal advice would come close to or even exceed the amount that would be remaining in the estate if Stephen's offer was accepted and Mr Hughes' costs to date paid, ie, approximately $100,000 1. In the circumstances I have no doubt that Mr Hughes is well justified in accepting the offer of $166,667 made by Stephen, if Stephen is willing to extend the offer made by him on 19 May 2015, an offer found in the letter of 12 May 2015 sent to Mr Zucker; see page 67 of Mr Stephen's affidavit, but which everyone accepts was copied to Mr Hughes on or about 19 May, for a further short period. This will see $166,667 paid into the estate, enabling Mr Hughes to continue with his administration, have his costs paid, and to defend the claims of Kristi and Jennifer which he is required to do until such time as he is advised (or forms the view himself) that settlement of those claims is warranted. I so advise. 2. Mr Hughes' costs of this application should be paid out of the estate. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 August 2015