England and Wales High Court (Family Division) Decisions

IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

		Teesside Combined Court
		13/08/2012

1. The wife makes application for financial remedy orders on dissolution of marriage. She is represented by Mr Kennerley. The husband resists the application in terms of quantum and form sought. He is represented by Mr Bradley.
2. There is an agreed detailed chronology which should accompany this judgment. The pertinent details, as I find them to be, are set out herein. Each party has filed open position statements subsequently amended, the wife's as recently as 17 July 2012, 6 days before the hearing commenced. Both Counsel have produced opening 'skeleton arguments' - so called- which are very detailed and contain somewhat florid assertions, the latter which I do not propose to address.
3. The wife is 58 and the husband 61. They were married on 27 May 1983. There are 2 adult children of the marriage now 25 and 22; neither has any disability which renders consideration of their present position pertinent to outcome. The parties separated in August 2008 when the husband's relationship with another woman came to light. There is an issue as to whether this was the date of final separation in terms of irretrievable breakdown of marriage as opposed to July 2010, as asserted by the wife.
4. The wife's petition, issued in September 2009, was not served until September 2010. Decree Nisi was pronounced on 14 March 2011. The wife's Form A was served in November 2010. This supports the wife's contention as indicated in paragraph 49 below. Generally I prefer the wife's evidence to that of the husband, as I indicate below, which in this instance appears to me to be substantiated by the date of service of the petition and notice application.
5. The wife's current financial position is dire. She is subject to an Individual Voluntary Arrangement ("IVA") with all the connotations that that entails as to credit. She has additional significant debts attributable to the closure of her solicitor's practice. She has been indefinitely suspended by the Solicitors Disciplinary Tribunal since February 2012. She has suffered significant physical and mental ill health in recent years. I find she is unlikely to be employed in other than posts carrying very small honorariums in the future. She lives in the heavily mortgaged former matrimonial home and is dependent upon maintenance pending suit and family loans. She has minimal personal assets but may make recovery of a not insubstantial sum in contentious litigation still to be resolved. She has a modest pension pot.
6. By contrast, the husband's current financial position is secure. He is the majority shareholder (91.75%) in Z Ltd, a company primarily producing refreshments from which he is able to draw significant earnings whether by salary, dividend or utilisation of a director's loan account. In financial year ending 2010, that is before payment of maintenance pending suit, his average monthly drawings were in the region of £24,000. He lives abroad but is likely to return to the United Kingdom to live permanently in the short to medium term. He lives in rented accommodation at this time. His only financial debts are to the company in terms of his outstanding director's loan account and his present solicitors in relation to outstanding costs. He too has a modest pension pot.
7. There is no real dispute as to the valuation of assets – allowing for fluctuations of share prices, bank balances and mortgage redemption figures which are de minimus. I leave out of account valuations of furniture and motor cars which will remain in present ownership and are of roughly equivalent worth. There is an issue as to the extent of liabilities. As a result of my adjudication upon liabilities indicated below the notional pot amounts to approximately £7.675 m net this being the median figure of that which may be deduced from each party's asset schedule. The difference between the schedules is about £130,000. I find it is disproportionate to analyse the slightly different figures further in the context of the whole.
8. I note that the real property that is or is associated with the former matrimonial home, is heavily mortgaged and there are minimal savings or endowment/life assurance policies. The valuation of the company and the husband's majority shareholding by single joint expert Mr Clokey is unchallenged and based on open market value. His opinion that this is not an appropriate time for the company or majority shareholding to be placed on the market is shared by the husband and wife for different reasons, subject only to the wife's caveat that this does not render the company "illiquid" and does not militate against an equal, or near equal, division of net assets which will necessarily impact upon the corporate financial and/or shareholding make up.
9. There is an agreed schedule of issues which reduce to: (i) the treatment of the wife's substantial and the husband's lesser but significant debts; (ii) the evaluation of the wife's contributions to the development of Z Ltd and the welfare of the family: and, (iii) the quantum, nature and timing of the resultant award. This in an unusual context of transmuting fortunes of husband and wife's business ventures.
10. The wife now seeks transfer of all real property forming or associated with the former matrimonial home, ultimately free of mortgage, a lump sum payment of £1.3 m within 28 days, the transfer of shares to the value of £3m within 28 days, the assignment of the husband's interest in the joint life endowment policy held with Scottish Life and ongoing periodical payments thereafter in a sum equivalent to £8,333 per calendar month less any dividends and net salary that she may from time to time receive from the company during their joint lives subject to further review, mortgage repayments and costs.
11. The husband counter proposes transfer of all real property forming or associated with the former matrimonial home, ultimately free of mortgage, a lump sum payment of £1m within 3 months, loan notes to secure further payment of £800,000 within 4 years, the assignment of the his interest in the joint life endowment policy held with Scottish Life and periodical payments in the interim to include mortgage repayments and a sum equivalent to £24,000 per annum less any income generated by interest payable on the loan notes for a limited term.
12. The tax implications in relation to either proposal are significant. The wife seeks indemnity for any capital gains tax payable on the sale of her shareholding but would seek to mutually co-operate with the husband to hold over his "gain" on the transfer of shares to her and to reduce her own fiscal liability by achieving "entrepreneur's relief". Basically, the husband seeks to fund his proposal by creating a new company and embarking on one of two schemes which involves a buy back of shares allotted to the wife. He offers to indemnify the wife for all taxation arising in whatever form. Whatever the quantum of the award I make he is adamantly opposed to the wife holding shares in Z Ltd. I could not impose any of these particular schemes upon the parties to give effect to the award I make but I assume that there will be all due co-operation necessary between the parties legitimately to minimise tax burdens as I indicate in paragraph 58 below.
13. I have had reference to all documents listed for preliminary hearing and identified during the forensic court process. I have heard evidence from the wife, husband, Mr W, a minority shareholder in Z Ltd and Mr C, the husband's accountant. I have read the witness statements prepared in support of the husband from Mr D and Dr A. I have regard to the contents of the agreed expert reports of Mr Peter Clokey and Mr Simon Richards. The reports relating to property valuations are agreed and contain nothing else of relevance for the purpose of this hearing. The closing submissions on behalf of the wife echoed her opening stance. The closing submissions on behalf of the husband were slightly ameliorated but with the underlying thrust that he could not countenance the wife's continuing involvement within Z Ltd even as minority shareholder.
14. But for one issue indicated below, where there is an issue of fact I preferred the evidence of the wife over that of the husband or the witnesses called on his behalf. The wife impressed me as a credible and accurate witness, not least by virtue of the fact that she was able to call upon contemporaneous documentation to support the majority of her claims. The one aspect of her evidence which I find less persuasive is that relating to the transfer of her shareholding in Z Ltd to the husband. I do not credit the fact that this was an oversight due to pressure of work or a qualified act with a view to future re-assignment or children's trust fund. I am also sceptical as to her "fear" of the husband being a reason to account for the transfer since she has not previously suggested domestic subjugation of any degree and appears a formidable woman in her own right. That said, having had the opportunity to assess the husband in the witness box over the course of a court day I found him to be cavalier, callous and aggressive in response to firm but proper cross examination. He was often shown to be mistaken, at best, disingenuous at worse.
15. I found the witnesses Mr W and Mr C to be equally unimpressive. They were obviously partisan and either self interested (Mr W) or careless (MR) and were also contradicted in significant respect by contemporaneous documents to events which they denied or dismissed. Mr W obtains rewards from the company which according to the sole joint expert are excessive and has secured an increase in his shareholding from 4% to 8%, with the consequent reduction in the Husband's holding in or about 2010/11. Mr C appeared to lack rigour in assessing the company's financial prospects.
16. I conclude on the evidence as a whole that the transfer of the shares to the sole name of the husband may well have been to reflect that he had primary control and responsibility for the venture. As will ultimately become clear, this impacts upon the exercise of my discretion as to the nature of the award but in my judgement is irrelevant to the issue of the wife's contribution.
17. The wife's substantial indebtedness arises from her practice as a solicitor. She was a qualified Solicitor when the parties met in 1982. In 1983 she became a salaried partner and then an equity partner in 1984. In 1988, she acquired 40% of the equity in AB solicitor's practice and 20% of the equity in AB Property Centres. The property centre business was sold in 1989, the wife's share being £40,000. In 1990 she increased her equity in AB to 50%. In 1995, the Wife began trading as sole practitioner as ABC – C being her professional/maiden name. She subsequently opened a temporary office in the Midlands and by 2005 was employing over 60 people with a turnover in excess of £3m and profits in excess of £1m.
18. Things began to unravel in 2004 when the wife's practice was subject to a two day forensic Solicitor's Regulation Authority investigation. This related to the deduction of fees in industrial disease cases for payment to third parties. In November 2005, the Wife was diagnosed with breast cancer. She underwent surgery three times in 2006, and thereafter radiotherapy and chemotherapy. In 2006 the wife's firm was referred to the Solicitors Disciplinary Tribunal. In May 2007, it was required to repay £730,000 to the DTI, who had successfully appealed the tariff set for the payment to lawyers in one type of industrial disease cases. The payment had to be made over a 12 month period. The wife borrowed £100,000 from Z Ltd via the husband, and repaid the same in 2008. From the end of 2007 the recession and the collapse of Northern Rock impacted adversely on conveyancing work. The firm's turnover fell drastically and a large number of staff were made redundant. The firm's PII insurance premium was significantly increased and ultimately resulted in the firm being unable to obtain cover. Payment of PAYE, National Insurance and VAT went by the board. In March 2010, the wife's practice was fined £5,000 and ordered to pay costs of £70,000. In addition there was the cost of legal representation and repayment of fees. The total cost amounted to approximately £263,000. The firm's insurers have only recently settled this claim, the wife receiving £8,410, net of legal fees and retention. A bankruptcy Petition was issued by HMRC for the non-payment of tax in January 2011. To avoid bankruptcy, in May 2011 the wife entered into an IVA with her creditors. The wife's firm ceased to practice in 2011. By reason of her inability to pay the 'run off' insurance cover required, the Wife is guilty of a disciplinary offence and is currently suspended from practice as a Solicitor. The cost of this insurance funded by the ARP is now included within her IVA.
19. I am satisfied on her evidence that throughout this downturn in the firm's fortunes she attempted to maintain and re-align her practice moving, , to smaller premises and utilising a property ('the DCH') which was adjacent to the former matrimonial home. I am satisfied that post ceasing to practice the wife had to retain a skeleton administrative staff and office premises to oversee the transfer and archiving of her files which she has funded by loans from family members. Equally I am satisfied that although the wife had, with hindsight over extended the firm's business that the consequent financial losses did not result from any negligence, recklessness or misfeasance on the part of the wife.
20. The wife asks me to find that the husband's recalcitrance to fund/ commit to a proposed financial arrangement with HMRC to pay the outstanding £173,000 odd was designed to render her bankrupt and a malicious act. Whilst I have formed an adverse view of the husband I note from a contemporaneous e-mail that he appears to have been offering assistance, however begrudgingly, as a last resort. There is no convincing evidence that HMRC would ultimately have accepted the wife's proposals as satisfactory. There is evidence that Z Ltd could have paid the total bill at this time. However removal of this capital sum would have significantly eroded the company's working capital and would be likely ill advised. Therefore I am not prepared to criticise the husband unduly in this regard.
21. I find the wife had little option but to apply for an IVA. In order to effect it she was required to deposit £400,000 with nominees and must pay £3840 per month from income pending payment to her creditors, who in the interim are to receive 37 pence in the £, with balance from any capital settlement she receives in these proceedings. Whilst I have forborne to criticise the husband in relation to his stance vis a vis HMRC, I do condemn his actions in the proposed IVA.
22. There is no doubt that the wife had sought and obtained loans from the husband which he had sourced from the company. She had and has not repaid them. I am satisfied that she believed that these were 'personal loans' rather than from her own director's loan account, as they came designated to be and of which facility she had not previously been aware nor had the contemporaneous company accounts disclosed the same. She had not previously been requested to pay rent on the use of the DCH. A back dated demand was issued by the company, undoubtedly at the husband's instigation, at a time when the IVA was in prospect. I am satisfied to the requisite degree that the husband instructed solicitors to obstruct the IVA proposal and thereby caused delay and additional cost. There is reason to believe that he may have done so with the intent to strengthen his own bargaining position, but I incline to think that he did so in a sense of unjustified and juvenile pique. Fortunately, whether or not by reason of judicial comment at an earlier stage in the proceedings, Z Ltd do not now pursue the debt raised against the wife in the IVA. This I take into account in calculating available assets and liabilities and reaching quantum of lump sum.
23. The £400,000 security was loaned by her mother. Mr Bradley correctly identifies that loans to the wife from this source in the past have not been repaid and invites me to conclude that neither will this sum be, nor the additional £71,000 used to fund staff in the cessation of practice. These he suggests are likely to be regarded as an advance inheritance and, although a non matrimonial asset, will meet some of the wife's needs in this case. The wife disputes this. She concedes that her mother has not called in loans in the past but points to the significance of the larger sum in terms of size and the manner in which her mother was forced to raise it. This sum is entirely out of her control. All creditors have agreed to it's repayment as first call upon any capital received. As to the smaller sum she makes plain that she regards herself as under a moral obligation to repay the same so that she is not unduly enriched at the expense of her sister or the intended legatees whom she believes to be grandchildren. I am convinced by her evidence and reasoning that these are real debts as are the others outside her IVA, including outstanding costs, which in total amount to about £101,750.
24. The skeleton argument filed on behalf of the husband for this hearing refers to the wife's "deep personal indebtedness". Strictly speaking it is her personal debt to which I pay regard as one of the matters identified by Matrimonial Causes Act 1973, section 25(2) (b), but ultimately I do not regard it be exclusively her burden. Her initial financial success benefitted him, Fentimans and the family. Her ultimate downfall was initiated by events occurring during the marriage and must be borne as a family misfortune. There is no reason to excuse a party from such liabilities arising from misfortune rather than mala fides in the overall assessment and division of wealth. In that I intend that this indebtedness of the wife will be top sliced before appropriate division of assets the husband may reflect that his conduct in increasing the costs of the IVA comes at a price to him. In my opinion this sufficiently reflects the conduct which I condemn in paragraph 21 above.
25. I find absolutely no merit in trawling through the evidence relating to the wife's rental and subsequent purchase of a property in London or her purchase and onward sale of the DCH to Z Ltd in terms of consent or acquiescence by the husband. The house in Holland Park was sold for a small profit. The DCH is a company asset shown at purchase price value. These past conveyancing transactions have no relevance to outcome.
26. Historically, the husband director's loan account was redeemed by declaration and payment of dividend – described as a "paper exercise" by Mr Kennerley. The reason for non declaration of dividend in the year preceding the hearing of this application was stated to be to provide "transparency" in relation to the operation of his director's loan account. I regret this explanation is too subtle for me to comprehend. Mr Kennerley concedes that this redemption will lead to a personal tax liability for the husband but argues that to permit the amount shown in the director's loan account to stand in full as a liability would mean that; (i) the wife had been indirectly funding her own maintenance pending suit, the husband's living and legal expenses for the last 17 months; and (ii) does not reduce the value of the company or the husband's shares.
27. As to (i) Z Ltd is the sole source of financial provision for the family at this time. The husband's usual monthly drawings of salary and dividend could not meet the order made for the wife's interim support. His legal costs are a liability which he will need to meet. There is no evidenced claim for "add back" in relation to his own living expenses. I find no merit in the argument. As to (ii) I accept Mr Bradley's submissions that the single joint expert, Mr Clokey's up to date final equity valuation of the company, adopted by each party as the basis of calculating the value of the husband's majority shareholding, includes the husband's directors loan account "as fully recoverable with no or limited delay in repayment" to the company. Therefore, if a dividend is declared to repay the director's loan account then the final equity value of the company is reduced by that amount, and consequently so will be the value of the husband's shareholding or, if it remains an "asset" to the company to boost the value of the husband's shareholding then it remains a personal liability to him. In these circumstances the overall pot is reduced by the amount of the Director's Loan outstanding.
28. The business that became Z Ltd was commenced and incorporated following the marriage in 1983. The company manufactures and sells refreshments. The husband's great grandfather had commenced manufacture and selling these refreshments door to door in the in the early part of the 20^th century. It ceased to trade many decades ago.
29. I am satisfied at the time of his marriage that the husband had harboured the nascent wish to re-introduce the product that he clearly remembered being manufactured and sold during his childhood. He disclosed it to the wife on their honey moon. I am satisfied that the 2 recipes upon which the company was founded emerged from the husband's relative's possession post his marriage to the wife. I am equally satisfied that he was encouraged, sponsored and assisted by the wife to make his dream a reality and that he would be unlikely to have succeeded in the same or any degree without her positive contribution as legal and business (formal and informal) adviser, bank guarantor and provider of the family bankroll during the early years of marriage and business formation. This is not to suggest that the husband was not wholly committed to the development of the business nor failed to contribute, at first in labour, to the development of what is now a prospering company. However, I have no hesitation in identifying the company as a matrimonial asset.
30. The development of Z Ltd has taken place over a number of years. Vital preliminary funding was provided from the husband's modest earnings as a wine bar manager and the profits from running and subsequent sale of the couple's towel laundry business –its purchase funded by a loan from the wife's mother – and local enterprise grants. The wife's professional standing undoubtedly assisted the arrangement of banking facilities. I am satisfied beyond the requisite degree that the wife was an equal driving force with her husband at this stage.
31. The business was incorporated in several years after the marriage. The husband and wife each held 50% of the issued share capital, jointly owned the intellectual property rights and were directors in the business. The company's registered address was that of the wife's solicitor's practice and she provided and paid for the administrative staff. The wife as director, utilising her legal acumen, successfully challenged a ruling of HMRC with consequent tax levy and thereby saved the company significant amounts going forward.
32. The early years, as with many a new company, were loss making. In the year to May 1990 there was a cumulative loss of £87,489. At this time the husband was approached by 'PF Ltd' to acquire his interest. The wife refused sale of her share holding and the deal was scuppered. However, HW Ltd showed interest and acquired an option. The husband accepts that the wife attended a meeting in Somerset only three days after the birth of their youngest son to ensure that the deal went through.
33. The parties transferred 90% of their holding to S Ltd (a subsidiary of HW Ltd). The husband and wife held the remaining 10% in a 3:2 ratio. By a deed of assignment the parties transferred their joint interest in the intellectual property and "know how" to S Ltd in exchange for a ratchet profit agreement to which they were jointly entitled to receive royalties. Both were offered places on the board and the husband became an employee at a salary of £30,000 pa and spent most of each week working in Somerset developing the product. The wife maintained the running of the family home and care for the children in the North East.
34. During this time a new bottle was developed which became part of the brand, new products and outlets were facilitated. In February 1994 the husband and wife attended a meeting to argue for the re-acquisition of the intellectual property rights and the business. Consequently the intellectual property rights in the company were transferred to the husband and wife in equal shares. The company itself was retained by G Ltd to carry forward the losses against tax. All of the legal work in respect of the deal was undertaken by the wife pro bono.
35. Thereafter a new business plan, source funding, banking facilities, professional advice and support were required. The new company DH Limited (named after the matrimonial home) was formed and the subscriber shares issued to the husband and wife. A balance sheet dated 31^st October 1994 indicates that it was intended that the husband and wife would be equal shareholders in DH Limited. Ultimately the shares were issued solely to the husband. I have referred to my finding in relation to this transaction in paragraph 13 above.
36. However, I find that the wife continued an involvement in the business. She personally guaranteed an overdraft facility up to £10,000, with the Co-op bank on 20^th December 1994 and 23^rd March 1995. In August 1997, the she gave a further guarantee in respect of the company's banking with HSBC. She remained a guarantor until 9^th August 2011. From 1994, to January 2005, the company was operated from the matrimonial home, administration being undertaken by the wife's secretary and other staff. The business first generated a profit in the financial year ending 1998 and was then able to recruit staff and employ specialist consultants. The wife's practical involvement reduced thereafter.
37. After the parties ceased to live together in 2008 the wife continued as a non executive director of the company. She was evidently consulted by the husband in respect of issues that arose including a dispute with Mr W, one of the husband's witnesses in this case. In this regard in 2010 the wife attended with the husband upon a specialist who was to provide advice on the issue of commercial agency.
38. The wife's contribution to this burgeoning business is amply demonstrated in contemporaneous documentation as I indicated above, including the option agreement in respect of the sale to HW Ltd , subsequent drafts of business plans and a letter written to Mr W dated 2^nd July 2010, by Ms Singleton, solicitor, on the husband's instructions in which reference is made the "huge risk for a 12 year period, to take the company to the next level again when it was purchased back from AL by [the husband] and [wife] who gave up her shareholding to (the husband), but retained a directorship". I reject the husband's evidence which is entirely dismissive of her role within the company. He is self deluding in believing he is the sole author of Z Ltd's success.
39. I do not ignore the obvious emphasis that each placed upon their respective business interests. I am satisfied that the wife would have had to devote significant energy towards the development of her own career and in latter years have been significantly distracted by her ill health and professional misfortunes. I am satisfied that the husband had considerably more 'hands on' involvement in the development of Z Ltd. However, it is absurd to suggest that this denudes the wife of the contribution she made or otherwise significantly reduces the import of her early involvement in the company.
40. An audit of respective contributions to the welfare of the family is not confined to the pursuit of commercial interests. When the parties met the wife was employed and owned property, the husband was unemployed and lived with his parents. The wife's property was sold and subsequently "traded up" and may be traced to the former matrimonial home. The wife maintained, arranged and funded domestic arrangements for the care of the children during the husband's absence following re-acquisition of the company in 1994.
41. It is apparent from the above that I consider that the wife in this case was far more than a sleeping partner in the husband's business ventures. I find her early contributions to the family actually out matched those of the husband. This I regard to be important when I come to consider what, if any, of the increase of the value of the company post separation in 2010 is 'non-organic' and solely attributable to the input of the husband.
42. The former matrimonial home is in, Northumberland. It is a 5 bedroom village property with large grounds. The house is valued at £760,000 - £785,000, the sum of £772,500, the midpoint of the bracket, adopted in the asset schedule. Whilst it appears from the opening skeleton argument that the husband considers that the valuation is materially low, he has not sought to challenge the same in cross examination of the single joint expert and I therefore pay no regard to his opinion. There are 2 mortgages secured against the property resulting in a net equity of £57,412. Land to the north of the property, subsequently acquired during the marriage, is valued at £30,000. The wife seeks to retain the former matrimonial home for her continued residence. There is no real issue as to this. The accompanying parcel of land is unlikely to have any market in the absence of the accompanying property but may enhance the sale, in due course of the former matrimonial home. There is no real issue as to its designation.
43. The purchase of the DCH by the wife was said by her to have resulted from the husband's long held desire to own the same. Having been purchased for £410,000 by Z Ltd with the aid of a loan in that sum from the wife, she was repaid £375,000 – which valuation appears in the company accounts. The reason for the shortfall appears to be the stated belief by the husband that he was duped by the wife. He therefore declined to direct the company to repay her the £35,000 difference although she may regard this may well be subsumed in the loans she has previously secured. Having heard the evidence on this discreet point I find it yet further evidence of the husband's ill concealed vitriol towards the wife with no real substance or relevance. This property is presently occupied by the husband's brother and one of his sons, making more vindictive the husband's demand for back payment of rent in the wife's IVA. It is shown as a company asset and encompassed within the valuation of Mr Clokey, who nevertheless regards it as a surplus asset. The wife seeks to own it. It is unnecessary for her accommodation and I merely regard it as an asset which may be utilised to meet or off set the award I intend to make.
44. I have regard to the well established jurisprudence in this field and have little need to rehearse the principles here to be obtained from the case of Miller v Miller; McFarlane v McFarlane [2006] 1 FLR 1186 as applied and expounded upon by the Court of Appeal in Charman v Charman (No 4) [2007] EWCA Civ 503. In so far as Mr Bradley and Mr Kennerley rely upon and refer me to other reported cases to support their respective arguments I merely observe that the decisions themselves are fact specific and do not detract from the principle that the exercise of my judicial discretion must seek to achieve fair outcome in the particular circumstances of this case paying due regard to section 25(2) of the Matrimonial Causes Act 1973 as interpreted by the House of Lords and Court of Appeal in Miller, McFarlane and Charman.
45. Mr Bradley argues that I should depart from the principle of equality and in doing so may still adequately provide for the wife's needs. As a backstop he seeks that whatever quantum I determine to be fair and appropriate should not include any shareholding in the company. Mr Kennerley seeks exact parity in quantum and a share in the prospective profits of Z Ltd by transfer of shares. His closing argument in this regard did not exactly mirror the evidence of the wife who was not dismissive of a lump sum in appropriate amount.
46. The arguments advanced by Mr Bradley to support departure from equality are on 3 broad fronts. The first relating to 'exclusivity' of business interests, the second as to post separation growth in company value and the third, liquid versus illiquid assets.
47. The first argument I dismiss for the reasons given in paragraphs 28 to 39 above in relation to contribution.
48. That there has been an increase in the valuation of the company in the opinion of Mr Clokey is obvious from the fact of the 2 reports he has prepared in 2011 and 2012. His valuation, based on EBITDA (Earnings before interest, tax, depreciation and amortisation) is formulated by reference to most recent historical financial performance, comparable profitability to other companies and growth prospects for the sector, and cross referenced by comparable company market valuation. In doing so he was obviously cognisant of the surge in profits since 2008. In his opening skeleton argument Mr Bradley "recognised that this growth came from a company that was already well placed and well run at the time the marriage ended" but argues that post 2008 it must be seen to be attributable to the husband's "post separation endeavour."
49. I indicate in paragraph 3 above that I find the date of physical separation not to accord with the irretrievable breakdown of the marriage which took place in 2010. I am satisfied by the wife's evidence that up until July 2010 the husband had certainly expressed ambivalence on this matter to her and still turned to her for advice in relation to the company, evidenced by their joint visit to see Ms Singleton, solicitor in 2010. I also find great assistance on the issue of post separation accrual from Mr Clokey; the significance of the contents of his report is obviously not restricted to base line figures. In his unchallenged opinion of June 2012, "revenue has grown strongly in each of the past 5 years due to product launches, increased volumes and occasional price increases". Volume growth in the main was driven by increased levels of trade with wholesalers. "The increase in profitability is driven by the revenue growth ...and the ability of the company to maintain control of its costs within an environment of growing sales volumes." Z Ltd "have benefitted from the concurrent rise in popularity of the sector."
50. In these circumstances I do not consider that the company did other than to achieve its latent potential accrued during the course of the marriage. The spring board was already in place and needed little adjustment. Whatever post separation credit I do afford to the husband in this regard is more than matched by the wife's earlier contributions. In that I propose to crystallise the wife's past contribution by deferred lump sum order secured by loan notes, his future endeavours will be adequately recognised.
51. I uphold Mr Kennerley's submissions that the husband's shareholding is incorrectly described as an "illiquid" asset. It is not. The company is marketable albeit that such course is not advised at this time. This company is not 'dynastic'. I find it more likely than not that the husband will consider sale in the short to medium term – when the time is right from perspective of certainty of outcome in these proceedings and the right consideration is on the table. Bearing in mind the post tax profits posted in financial year ending 2012 allegedly achieved in the midst of difficult trading conditions in excess of £1.1m, the negligible external debt, and the opinion of Mr Clokey as to the potential continuing profitability of this company, which I accept, the wife has rightly described it as a "cash cow". Therefore there is little force in this case in arguing that the comparatively small net worth of the real property, endowment policy and wife's shares together with a comparatively modest lump sum that may be raised by the company without recourse to the husband's shareholding produces a copper bottomed versus uncertain outcome in favour of the wife which displaces the need for parity.
52. However, in the exercise of my discretion I conclude that save in the last resort this parity should not be achieved by transfer of shares to the wife. This decision is not based upon the husband's contention that the wife will disrupt the efficient running of the enterprise rather than my assessment of the husband and Mr W whose obvious antipathy to the wife's involvement may well result in decisions adverse to her prospective minority shareholding spawning satellite litigation. I do not find Mr Kennerley's solution of an injunction made under the inherent jurisdiction of the Court a sufficient safeguard in this respect. Nor am I persuaded by his argument that a shareholding is the only possible 'compensation' which can adequately meet the wife's past contribution. The reality is that the wife will continue to benefit from the profits of the company by reason of the periodical payments order I intend to make. I do also bear in mind that argument as to the division of labour since 1994 which, whilst not undermining equality of contribution, is fairly honoured in continuation hereafter. What I make clear however is that in the event that the husband seeks to argue in implementation of the award I make that he is unable to raise the capital required I otherwise award shares to equivalent outstanding value of lump sum as the only adequate reflection of fair outcome in this case.
53. Mr Bradley's backstop argument which I refer to in paragraph 45 above invoked the use of loan notes, redeemable at stages and, at the latest, upon sale of the company. He proposed that interest payable on the notes should fund the wife's maintenance. This solution benefits the wife as to certainty of quantum of lump sum, albeit deferred and permits enforcement, if necessary against the husband's shareholding or proceeds of the same. However, whilst the interest payable upon the loan notes (in whatever percentage) may be credited to maintenance it will not be sufficient to meet her needs in the period of deferment; neither would any dividends likely to be declared on the appropriate shareholding equivalent to the lump sum I order to be paid.
54. No challenge has been made to her future budgetary requirements and the sum she seeks is well within the husband's assessments of his own living expenses. That said I observe that there are economies she may reasonably make in the context of the whole package I intend to impose. I reduce her claim accordingly. In these circumstances of not insignificant continuing income provision I make some small adjustment to the quantum of lump sum that would otherwise be awarded.
55. I am satisfied that the company has ability to raise liquid sums and/or extract immediate value from the company to the benefit and upon the direction of the husband in the range of £920,000 to £1,670,000 on the basis of Mr Clokey's report. I note the approaches made to banking institutions by the company have relied upon the forecasts produced by Mr C which are less reliable. The DCH is identified as an asset surplus to operations. The prospects of this company entitle me to conclude that capital will become accessible in future years whether from increased profits or further loan facilities without detrimental impact upon business.
56. I arrive at the following determination. The husband will transfer to the wife all his legal and beneficial interest in the former matrimonial home, accompanying land and endowment policy. The husband shall pay to the wife a lump sum of £ 4m. £1.25 m will be paid within 28 days in order for the wife to satisfy those debts encompassed by the IVA and her extraneous indebtedness in the sum just exceeding £100,000, including outstanding legal costs. The remainder will be deferred in payment as follows: £1.25m will be paid by 31 December 2013 or upon the sale of the husband's shares whichever is the sooner from which she will redeem the mortgage on the former matrimonial home, and the remainder, £1.5m on or before 31 December 2015 or upon the sale of the husband's shares whichever is the sooner.. In the interim, he shall pay periodical payments of £12,000 per month until payment of the first £1.25m, and thereafter £7,500 per month until further order together with a sum equal to the mortgage interest repayments in relation to the former matrimonial home until the mortgage upon the same is redeemed from the second lump sum payment. The wife shall give credit for any interest upon the loan notes to which she would otherwise be entitled and one half of any net monies she recovers as the result of her outstanding litigation concerning lapse of critical illness cover. There is to be a clean break as to capital.
57. I have considered Mr Kennerley's argument as to the merits of making an order for costs against the husband with reference to FPR 2010 Part 28.2(1), 28.3(2), and 28.3(5) – (7). In this case I make no order. There is much to criticise the husband for in his obstinate refusal to recognise the wife's contributions and the consequent increase in costs occasioned thereby, but I bear in mind that the costs will come from the same pot that will provide the wife with the appropriate award. In this respect Part 28.3(7) (f) holds sway at this time.
58. I have assumed that the wife will give all necessary and reasonable co-operation to achieving the most tax efficient vehicle for the husband to sustain these awards. I give permission to apply as to implementation and order accordingly.