Trust fund fight is turned on its head
Gina Rinehart's family feud has turned into a legal thriller, complete with accusations, unpredictable twists and pathos, writes Adele Ferguson.
When Gina Rinehart made the bombshell decision last week to stand down as trustee of the multibillion-dollar family trust, little did she know the relatively unknown Adelaide accountant Bruce Carter, who has no blood ties to the family, would be the only nominee left standing.
Then, in a shock twist, Carter withdrew his nomination just before he was due to take the stand on Friday afternoon and have the blowtorch applied to him by Rinehart's legion of silks.
It wasn't a prospect Carter had looked forward to, given the high stakes battle over the $5 billion family trust, but when his wife died suddenly after returning from a holiday in Paris just a few days ago, it all became too much for him.
It was a decision that wasn't taken lightly and threw a spanner in the works for Rinehart's estranged son, John Hancock, and daughter Bianca Rinehart but given the untimely death of his wife, it was entirely understandable.
It leaves both sides up in the air about who will run the trust after Hancock made an equally surprising announcement earlier this week that he would no longer nominate as trustee. It is yet to be seen whether this changes.
The legal battle was begun on September 5, 2011, by Rinehart's third child, Hope Welker, now 28, over the $5 billion Hope Margaret Hancock Trust that Rinehart has been running on behalf of her four children since 1992. A few days later, Hope's two older half-siblings, Hancock and Bianca Rinehart, joined the action to have their mother removed as trustee, claiming "deceptive, manipulative and disgraceful conduct" in relation to her management of the trust.
Since the family feud became public, it has been a game of ping-pong as various family members have put forward nominations as replacement trustee, only to later pull out.
To date, three of Rinehart's four children have nominated and withdrawn. Welker was the first, withdrawing her nomination after pulling out of the legal action against her mother due to financial difficulties and a marriage break-up. Then came Bianca Rinehart, who took Welker's place only to withdraw in April, leaving Hancock to nominate himself and an independent, Carter.
But as the trial began, things started to unravel when Hancock made a shock decision to withdraw his nomination and Bianca Rinehart decided to renominate. In a statement Hancock said: "I decided to stand down as replacement, in the interests of family harmony, and support Bianca's nomination."
His withdrawal came after iron ore billionaire Andrew Forrest swore an affidavit supporting him as a credible and worthy candidate. Forrest waded into the fight to support a friend who asked for help and also because he felt uncomfortable at the slur the family fight was levelling at corporate Australia.
What Bianca Rinehart and Hancock had not counted on was that the court would back the argument of their younger sister Ginia Rinehart that such a late change required an investigation of the suitability of Bianca and her past. It was time the court was not prepared to give, despite the fact Bianca had been a board member of a number of family companies from 1998 until 2011.
In another twist, the court then knocked Ginia's proposal for an independent trustee on its head. Ginia's suggestion was that the most suitable way to manage the trust was to appoint an independent trustee such as ANZ Trustees. Like Bianca's nomination, Ginia's proposal had been submitted too late, leaving Justice Paul Brereton to rule against it on the basis that there wasn't enough time to allow her siblings to investigate her proposal.
Against this backdrop, the court has listened to some serious allegations about Rinehart's time as trustee. One was that she committed "fraud on power" when she amended the company's constitution when she formed the Hope Downs joint venture with mining company Rio Tinto in 2006. Rinehart has denied any wrongdoing and will outline her motives as the trial continues.
A key allegation is that Rinehart's grand plan was to change the constitution to cement her control of the trust and the Hancock Prospecting family jewels. The trust holds 23.4 per cent of Hancock Prospecting, and the rest is owned by Rinehart.
In a nutshell, the amendments to the constitution were complicated but they had the effect of locking Rinehart in. They did this by stopping any shareholder in Hancock Prospecting from "transferring shares" in the company to anyone other than a non lineal descendant of Rinehart. (Previously the shareholders were allowed to transfer the shares to one another.) The changes also meant that if any shareholder decided to sell their shares, the company automatically had the right to buy them. Given Rinehart controls 76.6 per cent of Hancock Prospecting it meant she had the right to buy them. Another amendment that if the trust was ever run by an independent trustee rather than a family member the shareholders would be deemed to have offered their shares for sale would make Rinehart's position unassailable.
Put simply, if the four children were kept divided, the prospect of having their shares sold from under them if they appointed an independent trustee would be a massive deterrent. It prompted the barrister for Hancock and Bianca Rinehart, Chris Withers, to argue in the court the impact of the changes to the constitution was to cause "harm to the beneficiaries of the trust" and give Rinehart a "pre-emptive right" to maintain control.
At this point, an auditor could independently value the shares at "fair value" but they could be purchased over any length of time. Withers said in court: "The beneficiaries have no right of redress against the company and no right to sue the company or director if the repurchase is to their disadvantage ... the first defendant is rewarded for a breach of trust." He said this was not the way the constitution was meant to be done.
The children have never been close. Hancock and Bianca Rinehart had a different father from Hope and Ginia, which created complications and a bitterness that worsened as the children grew up and grew apart. The rift was not helped by the fact the four children were educated in different schools around the world and some were given more privileges than others, depending who was in and out of favour with their mother at different times. It meant that bonding between the siblings became all the more difficult. Even before the falling out in 2011 there had been few family reunions organised.
Most Christmases, birthdays and Mother's Days have come and gone without the presence of all four children and their extended families together in the same room as their mother. Whether Gina Rinehart has been too busy to organise such events or decided it was in everyone's interests to keep them apart, the brutal reality is there have been few opportunities for the Rinehart/Hancock clan to get together.
Given the changes to the constitution and the insistence that Rinehart prefers a lineal descendent to run the trust, it is difficult to imagine how that can happen without third party intervention such as the court.
At this point in the trial, Hancock is the most obvious candidate, yet his mother has made it clear she thinks he is "unsuitable" given he has spoken to the media when he should not have.
Greg Milton, the Englishman who was married to Rinehart for eight years from 1973 to 1981 and is the father of Hancock and Bianca Rinehart, told Fairfax Media he saw the case as a fight being undertaken by an organisation that "appears to be continuing a vendetta against [my] children for no valid reason except [their] mother may have something personal against me or want roles and privileges for her second set of children [Hope and Ginia, fathered by Frank Rinehart] to the detriment [of John and Bianca]. It's amazing John can withstand that sort of pressure."
Milton got divorced in 1981 and agreed he wouldn't see John and Bianca, who were four and five at the time, until they were adults.
"I am personally disgusted that my children are now having to fight the office machine [a term he uses to describe the entourage of lawyers and accountants who do Rinehart's bidding], as I had to, to receive what Lang intended them to have as a matter of course," he said.
The trust was due to vest on September 6, 2011, when Ginia turned 25. It is worth at least $5 billion, which would make each of the children billionaires in their own right. But they have had little access to their inheritance since Rinehart took over from Lang as trustee when the children were minors.
The court fight revolves around Rinehart's decision as trustee to demand the voting rights to the children's shares in return for extending the vesting date of the trust from September 6, 2011, to 2068 on the basis they would be made bankrupt by a massive capital gains tax bill. Hancock obtained a ruling from the Australian Tax Office in 2012 that said the beneficiaries would not face a capital gains tax on the trust vesting. This means no bankruptcy threat.
It is a case that has been pitched as mother versus son, then mother versus daughter and sister versus sister. It is about power and control. As Hancock said recently: "My hope is my mother is just doing this to apply the blowtorch and see what my melting point is."
Meanwhile, Rinehart has painted herself as the biggest victim in the ongoing war, with her lawyer on Friday telling the court she had been so selfless that she could not retire or pour her billions into philanthropy.
Ginia Rinehart, 27
The youngest child, her 25th birthday in September 2011 — the date at which the trust was supposed to vest — kicked off the feud. Ginia sided with her mother and is now considered the heir-apparent. Her engagement to Ryan Johnston recently ended.
Hope Welker, 28
The first of Gina Rinehart’s two children with the late Frank Rinehart, who was 65 when he married the then 28-year-old Gina. Hope, who has two children, originally sided with her half-siblings, but withdrew from the legal action this year due to financial problems and a broken marriage.
Gina Rinehart, 59
One of the richest women in the world manages Hancock Prospecting and has been
running the Hope Margaret Hancock Trust on behalf of her four children since 1992.
Bianca Rinehart, 27
Bianca, who has one child, was the successor to the family business after John's departure. Involved in the business from 1998 but withrew from full-time employment in 2008, and stepped down from all company boards in 2011 after joining the legal action against her mother.
John Hancock, 38
Gina Rinehart’s oldest child, the first of two with Englishman Greg Milton, who she married at 19 and divorced eight years later. John, a father-of-two and the heir apparent until the falling-out with his mother, believes Lang Hancock wanted him to take over the family business.
HOPE MARGARET HANCOCK TRUST
The $5 billion trust at the centre of the feud. Named after the late Hope Hancock, wife of Lang, who set up the trust in 1988 for his grandchildren’s “education, advancement and benefit”. The trust owns almost 25 per cent of Hancock Prospecting, and was meant to vest in September 2011.