Jersey Unreported Judgments

2001/141B

ROYAL COURT

(Family Division)

 

29^th June 2001 

 

 

 

 

 

Reasons

Division of parties' assets - valuation of company - payment of lump sum by husband.

 

 

judgment

the registrar:

1.        The petition in this case was filed by the wife on the grounds of the parties' separation for one year and the consent of the husband.  The decree nisi was pronounced on 12th July, 2000, but the decree has not been made absolute pending the resolution of ancillary matters.  The parties have a daughter who is now 20 years old and works with her mother.  According to the petition she is the "Director of a Limited Company specialising in finance sector staff recruitment".  Matters would have been resolved by now, if the parties could have agreed, or at least agreed in principle, the value of the Company.

2.        As I will explain, not only is it hard to place a value on the Company, it is also necessary to place that value in the context of a marriage of 23 years, the parties' contributions to that marriage, and their agreement that their assets should be shared equally between themselves.  This agreement is in general terms, as I shall also explain is in accordance with guidelines set out in the recent case, decided by the House of Lords, of White -v- White [2000] FLR 981.

3.        It is also necessary to point out that the Company was set up by the wife with her friend X, who is a specialist in appointment agencies and who wanted to do something to help the wife at a time when, not only her marriage was in difficulty, but when she also had severe health problems.  Being a diabetic, she had recently lived through a period when she had gone completely blind.  There is no doubt that the advice and encouragement gave at the time the company was set up was invaluable.

4.        The husband is, according to the petition, "Managing Director of a Company carrying on the business of investment advisers". He described himself when he gave his evidence as the manager of a firm of stockbrokers.  My understanding is that he has had a career in the field of stockbroking since before the marriage, and clearly has a proven track record.  The list of assets which follows reflect considerable success.  His pensions have been built up over the period of his career, and although it may be true that there be no such thing as absolute security, the three pension values, together with £234,673 of investment portfolio, represent, I have no doubt, in the hands of the manager of a firm of stockbrokers, a solid investment indeed.

These are his assets:-

	Valuation at separation date	Value now
Foreign & Colonial Pension	£12,183	£20,278
Portfolio	£63,203	£234,673
Schroder Pension	£18,226	£20,708
Britannia Pension	£53,697	£52,500
Old Mutual	£56,002	£82,858
½ Legal & General (joint)	£3,040	£2,184
Jewellery	£1,000	£1,000
Contents	£10,000	£10,000
Bank (sole name) ½ Bank account (joint name)	£33,000 £1,780	£56,742
Total	£252,131	£480,963

A list of the wife's assets, but without attempting to value her business, are these:-

	Value at date of separation	Value now
Car	£7,000	£3,500
Jewellery	£1,000	£5,000
Bank accounts (sole name)	£45.22	£118,986
½ Bank account (joint names)	£1,780	-
½ Legal & General	£3,040	£2,184
Total	£12,865.22	129,670

So, not taking the business into account, the wife, both at the date of the parties' separation, and even more now, has found herself in the weaker position. 

5.        Without wishing to simplify the issues, the husband's argument is essence this: the value of the company exceeds the difference between the two parties' net assets position, both at the time of separation and at present, so it is not necessary for the Court to decide upon which date to value the assets.  All that should happen is that the husband should retain the assets presently in his possession, and she should retain hers.  No money need change hands, because the value of the company is more than sufficient compensation.

6.        The wife's argument is that the company is possibly worth only perhaps £10,000, or, as now proposed by the wife's accountant, a maximum of £44,006 this calculation being made on what is known as the "Assets Basis".  However, if the method of valuation used by the husband's accountants is used, namely, the "Earnings Basis", then a multiplier of 3.5 should be applied, resulting in the company being valued at £359.037 as opposed to a figure of nearly £1,000,000 being proposed by the husband's accounts.

7.        The parties each instructed accountants, who had met before the hearing and attempted to agree as much as possible.  Indeed, there had been a Consent Order stating:-

"the parties accountants will meet and, following such meeting, shall set out in writing the value they each place upon the petitioners' business as follows:-

(a)       at the time of the parties separated;

(b)       at present."

8.        Despite the accountants' meeting, I only have the report of A which sets out reasons for his valuing the company on the "Earnings Basis" method and finally coming up with the value of the company:-

(a)       31st January 1999: £466,980; and

(b)       1st January 2001: £956,045.

9.        However, I have a number of loose papers which explain the evidence which was given by B, the wife's accountant, explaining why he would prefer the "Assets Basis" method of calculating the value.

10.      I accept the submissions of Advocate Fitz for the husband that the correct method for valuing the company must be the "Earnings Basis."  I also accept the comments of the accountants regarding the essence of the business being a partnership between the wife and X "whereby the profits arising from the business would be shared equally".  I accept A's comments regarding excessive directors' remuneration and management fees, and, therefore, accept his figures proposed as adjusted profits for the years ending 31st January, 2001, 2000 and 1999.  I note the reasons for applying a "PE" ratio of 5, rather than 10, which has been used to estimate the market value of quoted recruitment agencies mentioned by the Financial Times.

11.       To summarise, but subject to what follows, I believe that the husband's accountant has been fair in estimating the value at £466,980 or £956,045, as set out above, for the purpose of a sale.

12.      Another of the accountants' observations is that the company operates "as a team" and so the business is "one of substance and is not reliant on any one individual".  This was in contrast to the evidence given by the wife, who disagreed.  Phrases used by her were: "If I left the business, I don't think they could run the business." "I am the business getter.  I solve problems."  There are matters which are certain.  The company is very successful at the moment.  It is not a "one man band" but it depends on a small number of "personalities".  I accept that the success of the team depends on strong leadership, which at the moment, is provided by the wife.  However, I suspect the present business climate in the Island and other factors all play a part.

13.      If I am to rely exclusively on the accountancy evidence then the value of the company is sufficient to compensate the wife for any loss of her interest in the joint wealth, which will now remain in the hands of the husband.

14.      However, there remains for me a doubt.  However successful the company may be, it remains a comparatively risky venture in the hands of a charismatic leader who has suffered major health problems.  Despite her determination to stay on "till she drops", it is a matter of speculation how long this might be.

The Law

15.      It is unusual that in balancing the assets of the parties that it is an asset of the wife which needs to be valued in order to achieve a fair settlement.  The well known matrimonial cases of White -v- White, already referred to, and the case of Potter -v- Potter [1983] 4FLR  331 and the case of B -v- B [1989] IFLR 119 decided by Anthony Lincoln J in the High Court, all concern assets principally in the hands of the husband at the time of the divorce.

16.      As I understand it, until the case of White -v- White, it had been common practice for counsel for a wife in cases where assets were substantial, to argue in favour of their client that £X would satisfy her "reasonable requirements" and that from the assets of the husband, he was in a position to afford such settlement.  Indeed, included in the statutory check list of matters for the Court in the UK to consider in resolving dispute on ancillary matters is the following paragraph:-

"(b)      the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future."

17.      In the case of Preston -v- Preston [1981] 2FLR 331, Ormrod LJ said:

"... the word "needs" in paragraph (b) of S 25(1) in relation to the other provisions in this section is equivalent to "reasonable requirements" having regard to the other factors and the objectives set by the concluding words of the section"

He then referred to other cases in support of his contention.

18.      However, the case of White seems to me to have changed the way in which the Court should approach, not only cases in which assets were very substantial such as was involved in the case of Preston, but also those more modest cases in which there may be a family business or other family property to divide.  The head-note of the case of White reads: -

"(1)     The objective implicit in the provisions of Part II of the Matrimonial Causes Act 1973, s 25 was to achieve a fair outcome in financial arrangements on or after divorce, giving first consideration where relevant to the welfare of children.

           (2)        Fairness required the court to take into account all the circumstances of the case.  In seeking to achieve a fair outcome, there was no place for discrimination between husband and wife and their respective roles.  Fairness required that their division of labour should not prejudice or advantage either party when considering their contributions to the welfare of the family under S25(2)(f).  If each in their different spheres contributed equally to the family, then in principle it mattered not which earned the money and built up the assets.  Before making an order for division of assets, a judge should check his tentative views against the yardstick of equal division.  As a general guide, equality should be departed from only if, and to the extent that, there was good reason for doing so.  The need to consider and articulate reasons for so doing would help the parties and the court to focus on the need to ensure the absence of discrimination.

(3)       Section 25(2) did not rank the matters listed therein in any hierarchy and other matters might also be relevant.  The importance and weight to be attached to them depended on the facts of the particular case.  Financial needs was only one of the several factors to be taken into account in determining a fair outcome.  The available assets of the respondent did not as a matter of principle become immaterial once the claimant's financial needs were satisfied.  When considering s 25(2)(b), confusion would be avoided by courts ceasing to employ the expression 'reasonable requirements' and returning to the language of 'needs', which preserved the necessary degree of flexibility."

19.      It could be that prior to the decision in White, the Court would have taken a different view in the present case and might well have decided that, whatever the accurate value of the company, the "reasonable requirements" of the wife could, in any event, be met by her continuing to enjoy the fruits of that enterprise. 

20.      However, in following the guidelines of White, and in checking my tentative view against the yardstick of equal division, it seems to me that I should enquire further into the value of the company and that I am entitled to look at the quality of the investment and the nature of the security it offers.

21.      In the case of N -v- N [Financial Provision: sale of company] [2001] FLR 69, the only way in which the wife was to be offered a fair division of family assets was for the husband's business to be liquidated.  The Judge, Coleridge J, refers to the case of White.  In order to resolve the parties' dispute over ancillary matters, it was necessary for him to place a value on the husband's business interests.  As in the present case, there was no agreement as to the "multiplier" to be applied to business income.  The accountants reasoning was criticised as being "somewhat subjective."

22.      Listening to the two accountants who gave evidence in the present case, I concur with that sentiment.  Furthermore, the accountants' clinical analysis of figures does not always take into account individual concerns of the parties involved and their futures, as individuals, without being able to rely on the support of the other, financial or otherwise.

23.      This was very much the attitude of the Court in N-v-N, where there were difficulties associated with valuation and realisation over time.  A relatively low figure was available in cash.  The rest of the assets were tied up and extracting cash from them was fraught with obstacles and problems.  This was taken into account in deciding upon the valuation to be placed upon the business by the Court.

24.      Furthermore, it was appropriate to have an eye to the valuation of assets at the date of separation, rather than the date when the hearing took place, where there had been a very significant change accounted for by more than just inflation or deflation.

The Decision

25.      However difficult it is to make a decision regarding the true value of a company to somebody who is running it, not wishing to sell, I take the view as follows:-

(i)        The wife and X are, in truth, "partners" in the company.

(ii)       That, for the purposes of a sale, which, after all, is most unlikely, the accountant's report offered by A is fair.

(iii)      However, for the purposes of matrimonial proceedings and with regard to recent cases, I am entitled to look into the long term value of the investment from the wife's point of view.

(iv)      I take into account the somewhat dramatic success of the company since the parties' separation.  Such success cannot be counted on in the future, and it is not accounted for by just inflation.

(v)       For the purpose of these proceedings I assess the wife's present interest in the company as being £300,000 ( a total value of £600,000).  With "an eye" to the value at the date of separation, and bearing in mind the difficulties there may be in future for the continued success of the company and for the wife to continue running it, it should not, in my judgement, be assessed any higher.

(vi)      Therefore, the wife's total assets are now worth £429,670 as compared to the husband's £480,963.  The difference is just over £50,000.

26.      A fair outcome of these proceedings, therefore, will be for the husband to pay to the wife the sum of £25,000 which must be paid to her within one month from the distribution of this order.

27.      Should there be further application with regard to costs, I anticipate hearing further from the parties' advocates.

Authorities

White -v- White [2000] FLR 981.

Potter -v- Potter [1983] 4FLR  331.

B -v- B [1989] IFLR 119.

Preston -v- Preston [1981] 2FLR 331.

N -v- N [Financial Provision: sale of company] [2001] FLR 69.