England and Wales High Court (Family Division) Decisions

IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		4th December 2014

Mr Nicholas Francis QC:

Introduction

1. This is the final hearing of an application dated 28^th November 2012 (amended 2^nd July 2013) by SJ (hereafter 'the wife') for the full range of financial remedies. The Respondent is RA (hereafter 'the husband'). The Intervenor is their son RF. He asserted at an early stage of the proceedings that his father held valuable shares in a family company, XY Limited (hereafter 'XY') on trust for him. The husband confirmed this assertion which, if correct, would have had the effect that the most valuable asset in the case was outside the court's jurisdiction.
2. On the 5^th March 2013 District Judge Hess ordered the hearing of the following preliminary issue within Financial Remedy proceedings:

'Whether the Respondent and/or the Applicant's shareholdings in XY Limited are held on trust for the Intervenor, and if so on what terms'.

3. On the 17^th January 2014, following a hearing lasting 8 days, I handed down my Judgment in respect of the preliminary issue and I determined that the husband's shareholdings in XY were not held on trust for RF but were retained by the husband and are, accordingly, available and relevant assets in respect of the wife's claim for a financial remedy order. RF's application for permission to appeal against my order was dismissed by the Court of Appeal on the 3^rd July 2014.
4. In spite of the determination of the preliminary issue, the parties have sadly been unable to come to agreed terms and I have heard, over almost two weeks, the claim by the wife for a financial remedy order. I was told that the costs of the preliminary hearing and of this hearing together total some £2m. It is of immense regret to record that this is a family where husband and son have been pitched against wife and daughters, where the wife says that she has been estranged from friends and family as a consequence of the marriage breakdown and has been living in substandard rented accommodation, where the husband describes himself as 'a broken man' and where one of the daughters, then aged only 40, suffered ill health shortly after giving evidence at the preliminary hearing. Yet, by the time I heard closing submissions, the difference between the husband's and the wife's respective open offers was remarkably proximate to the costs that have been incurred in this bitter family litigation.
   
5. Although the husband had been unwell during much of the earlier proceedings and had at times been represented by a Litigation Friend, I discharged the Litigation Friend during the hearing of the preliminary issue for reasons that I detailed in my Judgment in respect of that issue. The husband has attended the whole of the instant proceedings and was at all times represented by solicitors and by leading and junior counsel. I was told by the husband and by those representing him that he is now well and I have no reason to doubt it. Although the husband was represented by the same legal team during the hearing of the preliminary issue, he did not attend those proceedings and did not then give evidence.
6. In spite of the determination of the preliminary issue, RF has remained a party. This issue was debated at some length at the pre-trial review and a consensus was reached that RF's continuing involvement in the case was likely to help all parties, and the court. Plainly, if money is to be raised from the company, RF's position will be central. However, it was agreed that RF need not attend the entire hearing as he has full time business commitments. He was not represented at this hearing (having paid a very great deal of costs in respect of the preliminary issue) but he was able to cross-examine witnesses and make submissions to the court with considerable ability and skill.
7. I have had the benefit in the instant proceedings of hearing oral evidence from the wife, the husband and RF, as well as the experts to whom I shall refer later in this Judgment.

Background

8. The detailed background to this unhappy case was set out in my Judgment in respect of the preliminary issue and will not be repeated here in more detail than is necessary.
9. In short, the husband is aged 73 and the wife is 70. They were married in 1969 and have four children: A (41), B (39), RF (36) and C (31). The husband and the wife separated in July 2012, so this was a marriage of some 43 years. If ever there was a case where the sharing principle was to apply then this was surely to be that case, and the husband wisely conceded from the outset, in his Form E presentation, that: 'I accept that the marital assets themselves should be divided equally between us and that SJ has made an equal contribution to our long marriage'. When he made that statement, however, he contended that he held his shares in XY on trust for RF. Thus it is that I have been concerned with not only the usual and reasonably familiar territory of valuing shares in a private company, and a significant portfolio of real estate, and with the extent to which, if any, the existence of pre-marital assets constitutes a reason to depart from equality, but also with the extent to which, if at all, I should regard RF's expectations as one of the relevant circumstances of this case. The context of this is my earlier finding that RF had transformed the trading position and, accordingly, the value of XY, that he had in all likelihood saved it from extinction and that he had a legitimate expectation which fell short of a binding legal obligation, that he would inherit his parents' shares in XY on their respective deaths. I have also had to consider the company/group liquidity.
   
10. The wife issued a divorce Petition on the 24^th August 2012. An Answer was filed by the husband on the 19^th October 2012. That Answer was in due course withdrawn and Decree Nisi was pronounced on the 4^th June 2013.
11. Since the parties' separation, the husband has continued to reside at the former matrimonial home, L House, which has been his home for most of the time since he was in his teens. The wife has resided in various rental properties and it is a source of disappointment, to put it mildly, that whilst millions have been spent on the costs of these proceedings, the wife has moved from one temporary address to another, in homes which have been, by the standards of this case, less than satisfactory.
12. I also note with some dismay that, whilst the wife has had to borrow from Novitas at a cost of 18% pa, the husband has been able to borrow freely from XY to fund his own costs. This is hardly what one can call a level playing field and I say from the outset that I regard the wife's loan costs as a debt properly to be recorded as a debt for which she and the husband should both be responsible, at least until such time as anyone might persuade me that the general rule as to costs should, for some reason, not apply to this case. There may very well be cases where the husband should bear the cost of the high interest rates if he has forced his wife to borrow to fund her costs when he could have funded them himself.
13. I did at an early stage question the wife as to why she had borrowed from Novitas at a high rate of interest when she had resources of her own. Her reasonable answer was that such resources as she had which she could liquidate were held in a tax efficient ISA wrapper that could never be recovered if surrendered.
14. Conversely, the costs order which I made against the husband in respect of the preliminary hearing must be treated as his own liability. To introduce it as a legitimate debt would be to undermine the costs order which I made for good reason in respect of the husband's stance with regard to the preliminary issue. Had a more reasonable position been taken by the husband and by RF in respect of the true beneficial ownership of the husband's XY shares, vast sums, much time and still more heartache could have been saved, whilst still maintaining RF's argument regarding the 'moral obligation' to bequeath him the XY shares.
15. In her Form E the wife recorded that she holds 1,660 'B' shares in XY. Perhaps unsurprisingly, she stated in her Form E that she was not at that stage able to state the value of her shares. She made no reference to any trust, agreement or understanding that she held those shares for RF. In fact, RF sensibly made no application in the preliminary issue in respect of the wife's shares, albeit that from an evidential point of view his case in respect of those shares was the same as in respect of the husband's shares.
    
16. The husband's Form E is dated the 30^th October 2012. In that document he stated as follows:

"I own 50.22% of the 'A' ordinary shares in XY. For the reasons stated at box 4.3 below, I consider these are held on trust for RF at my death."

In box 4.3 the Husband said: /P>

"The impressive growth of XY in the past 10 years is almost entirely due to the efforts of RF and is not, I believe, something to which either SJ or I can or should lay claim….."

17. The husband, along with his sister J, had inherited the family company XY from their father. The husband spent many years working hard for the company, as did the wife, albeit to a lesser extent. Indeed, the husband detailed the long hours which he still devotes to company business, rising early in the morning and working through each day and well into the evening. Nevertheless, I formed the distinct impression that he is now somewhat out of touch with many aspects of the reformed company structure and business and that his contribution day to day is somewhat less important than he probably believes. I am equally confident that this is a view that is shared by RF, but that RF has wisely and sensitively refrained from expressing it to his father.
18. RF is now the Managing Director of XY which is the parent company of a number of companies (the X Group), the principal trading vehicle being an manufacturing company called Y Manufacturing Limited (hereafter 'Y Ltd'), of which RF is also the Managing Director.
19. In my earlier Judgment I set out in some detail the circumstances in which the company was reorganised in the early years of this century. The current allocation of shareholdings in XY is as follows:-

a) 15,108 ordinary 'A' shares of £1.00 each are held by the Husband;

b) 1,660 ordinary 'B' shares of £1.00 each are held by the Wife; and

c) 17,011 ordinary 'B' shares of £1.00 each are held by RF.

20. Whilst RF's shareholding constitutes 50.36% of the company's issued share capital, the position with regard to the shares is such that the 'A' shares have enhanced voting rights which effectively gives the husband a controlling interest in the company. This assertion is subject to the interpretation of a somewhat opaque paragraph in the Articles of Association of the company, but certainly the parties have at all times acted on the assumption that it is correct and I do not think that it is necessary, for the purposes of this Judgment, to go behind that presumption.

The parties' respective positions

21. The wife's clearly articulated case is that she seeks an equal division of the parties' net assets on a clean break basis, including of course the value of the husband's shareholding in XY. She seeks a lump sum of £15.6 million together with a pension adjustment of some £600,000 in her favour to achieve equality of pension income. It was also sensibly made clear on her behalf that "that figure was not and is not set in stone as there are and will always be minor variations in the asset values".
22. Perhaps somewhat inevitably, the wife's articulation of an apparently straightforward position in fact overlays a series of complications, some of them typical to these cases and some of them less so. In particular, the wife seeks to exit with cash and to leave the husband with shares, giving rise to familiar arguments with regard to what has become known to family lawyers as 'Wells sharing issues'. Of course, such an approach also gives rise to the need for a determination by me as to the value of the husband's shareholding in XY, hence I have heard detailed forensic evidence on this issue, to which I return.
23. Prior to the commencement of the hearing, the husband had made an open offer which he said amounted to £11 million on a clean break basis, mostly in cash, revealing a difference between the parties of some £4.6 million; plainly a substantial sum. In fact, the husband's offer involved a transfer to the wife, as part of her entitlement, the loan notes referred to in some detail in my earlier Judgment and which, as part of the company reorganisation, were supposed to be held by the husband for the benefit of the parties' daughters. In this respect, Mr Cayford on behalf of the wife not unreasonably drew my attention to the apparent conflict in the husband's position. On the one hand, says Mr Cayford, the husband relies on the moral obligation to leave the XY shares for RF, yet on the other hand he ignores the moral obligation to leave the loan notes for the daughters.
24. In spite of my findings in the preliminary hearing, the husband has continued to argue that the value of his XY shares should be discounted on account of RF's contribution in increasing the value of those shares. I deal with this issue below under the discussion as to the value of the XY shares.
25. On the 15^th October 2014, the day when I heard each parties' respective closing submissions, the husband made a new offer on the basis of two complicated alternatives. It depended on a number of variables and so putting a precise value on it is impossible until after the computation stage, but certainly the new offer appeared to address some of the obvious difficulties which the court had heard in relation to values and unknowns.
26. Both parties have approached this case on a clean break basis, albeit that on some formulations there would be a delay in effecting this clean break whilst assets are disposed of in an orderly fashion. I have no doubt that this should if at all possible be a clean break case, for not only would it meet the statutory objective, it would also bring financial finality to a family which has waged this war for so long and at such personal and financial cost to them.

Computation of the assets


27. As is often the case, the greater part of the oral hearing was taken up with the computation process. I shall go through each asset in turn prior to setting out a schedule of assets and my findings as to their value, where they have not been agreed.

L House

28. The former matrimonial home, L House, is in the parties' joint names and from the outset the husband accepted that it should be treated as a joint asset beneficially. Even though it could, perhaps, be construed as non-matrimonial property, in the sense that it was brought into the marriage by the husband, given its central status in the marriage and to the family, it is in my judgment impossible to construe this in reality as anything other than matrimonial property. The husband has said that he wishes to remain living there and, even though the property plainly exceeds his needs to a significant extent (it has 8 bedrooms), this is not a case where needs will dictate the outcome, given the scale of the resources. The husband has been unwell, as is more particularly referred to in my earlier Judgment, and his desire 'to stay at home' is in my judgment entirely reasonable. The wife does not seek to persuade me that this would be wrong, but it does mean that I have to alight on a value for the property, rather than take the easier route of ordering a sale and dividing the net proceeds.
29. Although L House is part of a wider estate of land and outbuildings, the house itself has been valued by Strutt & Parker at £950,000. The issue was complicated by reason of a suggestion that the house could be converted into flats, or perhaps even pulled down to make way for new housing units. Although it is likely, as discussed below, that the wider estate will be built upon, at least in part, the evidence as to the possibility of enhanced value was unconvincing and based largely on conjecture. In the absence of compelling evidence to the contrary, I accept that the value of the property is £950,000, as advised by Mr K, the jointly instructed valuer. From this must be deducted the conventional notional 3% costs of sale, producing the figure of £921,500.

Development site at L House

30. Behind L House is a series of outbuildings etc. which were for many years used by XY, or one of its subsidiaries. The land and buildings are in the husband's sole name. The manufacturing business has now been moved to state of the art premises at F Road. I heard much evidence about the need to attract customers with impressive modern premises in order to compete with massive cheaper manufacturing businesses from, in particular, China and India.
31. The husband sensibly conceded from an early stage that the wife was beneficially entitled to half of the value of this site. In his section 25 statement he said, "I have made it clear throughout this case that I am prepared to split equally all of the non-company assets, with an adjustment for the fact that I am retaining L House intact". This has removed from my consideration the issue as to whether this was non-matrimonial property and whether some adjustment should be made accordingly.
32. The development site was also valued by Strutt & Parker on a jointly instructed basis. [The judge here dealt with a valuation issues]. Thus it is that I have a range of possible gross values from £6.8 million to £9.4 million.
33. Given that I am ordering that this site should be sold and the proceeds divided between the parties, it seems to be unnecessary for me to speculate or make findings as to its value beyond the range of figures referred to in the preceding paragraph. The parties have a common interest in securing the best possible price for the site and I am quite sure that the best way forward is for me to make an order for sale of the site, with consequential directions to follow. I recognise that there will be some delay before the proceeds of sale of the site will be received by the parties.
34. Capital Gains Tax will be payable out of the proceeds of sale. The sum to be shared between the parties is of course the net sum.

Alleged debt to XY arising on sale of the development site

35. In the statements filed in respect of the preliminary issue there was much evidence concerning an alleged debt which it is said by the husband and RF arises on the sale of the development site, assuming that planning permission were granted, as is the case.
36. The husband told the court that RF had visited him almost every day that he was in hospital in 2012. He said that he reached an agreement with RF that XY would be paid the sum of £1.2m from the proceeds of sale of the development site as compensation for moving. The husband said that XY had paid various costs, including the cost of re-locating to its new premises in F Road, and that it was entitled to be reimbursed for these costs. When it was pointed out to him in cross-examination that the company had paid these costs through its accounts and would be able to offset the costs against profits for tax purposes, the husband was unable to say whether he had agreed to reimburse the company the net cost or the gross cost. Still further issues arise in respect of VAT on professional fees, which doubtless the company will have been able to re-claim.
37. The husband also said that he agreed with RF that RF would be paid a 'success fee' of £1m if there was a successful planning application for the site. In cross-examination the husband later said, "Maybe it's not £2.2m now because of tax law, maybe it's changed". The husband's evidence was at times confused and discursive. Whilst giving this evidence, he insisted on describing in great detail a yachting trip that he had taken alone at a time when he had 'dark thoughts' and, although this disturbing evidence was largely immaterial to the issues that I have to decide, it helped me to understand at least some of the substantial emotional and mental health issues that have confronted the husband. I also bear in mind that the alleged agreement to reimburse XY was made, on the husband's own case, at a time when the husband was an in-patient for mental health reasons. The husband told me himself that "it's very hard to remember all this, especially when you are on those wicked drugs", which was a reference to the prescribed medication that he was taking at the time. I also note, from the chronology of the husband's medical history, that in late July 2012 the husband had been described by a Dr S as "psychotic and suicidal", that the police collected his guns and that he was committed to G Hospital on the 27^th July.
38. If I am to find that there was an agreement to make a payment to XY of £1.2m (or any other sum), then I need to find evidence of the agreement coming from a source other than the husband. I feel completely unable to rely on the husband's account, even before coming to consider the more complex area of whether, in any event, the husband had capacity to make such an agreement at the time when he says it was concluded. However, if it were necessary for me to determine this issue I would conclude that on the balance of probabilities the husband lacked the capacity to make such an agreement at the time when it is said to have been made.
    
39. In paragraph 80 of her statement dated 29^th October 2013 (in connection with the preliminary issue), the wife had said as follows:

"I understand from B that he [RF] is alleging that RA had promised him a success fee of £1m if the planning permission is granted. I do not know whether this is true or not but I would remind them both that L House is our jointly owned former matrimonial home and I certainly do not consent to any deals of that kind, under any circumstances. I also understand that RF wants £1.2m compensation for moving the factory from the land behind L House…,"

So, here the wife reports what B has told her, but takes the issue of the agreement little further forward.

40. In paragraph 69 of her statement dated 28^th October 2013 (in connection with the preliminary issue), B had said as follows:

"At the meeting on 28 December 2012 ….RF said that my father had promised him £1m if he dealt with the planning and said that this was a verbal agreement between them. When I mentioned it to my Father, my Father said he was not aware of this and was very surprised".
B later said that "I was very concerned that my Father was not in any state to deal with this".

41. This corroborated my view (if further corroboration were needed) that the husband's evidence on the issue is unreliable. I also note that in the husband's Form E dated 30^th October 2012 there was no reference to any liability on his part to the company.
42. RF said in his evidence that he, on behalf of XY, and the husband as owner of the site, reached an agreement as long ago as 2010 that XY would be paid £1m if planning permission was granted for the site. RF said that "we wanted to cover costs and make a contribution to various elements, I punted at £1m". He said that the matter was also discussed with his father whilst he was in hospital in July 2012. He said that "my father was at times fine but I wasn't putting to him to sign up to it, I was prepared to take on a reasonable reflection of the cost" and later he said that "the discussions were not to pay for all the costs but to contribute to some". In support of the need for payment to the company he prayed in aid that the company had been at the site since the 1950s and owned all of the buildings there. RF produced a detailed schedule of costs and expenses connected with the site, totalling some £2.469m. Of this, he was able to verify £1,032,285 by production of invoices. A great deal of these invoices related to legal and professional fees. RF also listed £1m as the estimated cost of preparing the site and relocating. He did not pursue before me the argument that he should be entitled to a 'success fee' and I am bound to say that I would have taken some persuading that his parents should pay him what amounts to a bonus for successfully negotiating planning permission.
43. Whilst RF may well have had discussions with his father back in 2010, I have seen no evidence to support the conclusion that a binding agreement was reached in 2010. Furthermore, as already set out above, there is no reference to any such agreement in the husband's Form E which was signed in October 2012. Moreover, RF could not have known back in 2010 what costs were likely to be incurred in respect of the site.
44. Mr Dyer urged me on behalf of the husband to accept that, even absent agreement, XY had a reasonable claim to £1.2m on a quantum meruit basis. The problems with this argument are manifest. First, whatever the original plan may have been when RF first discussed the matter with his father, the fact is that the company needed to move away from these old fashioned premises anyway. It is clear to me that the first rate manufacturing business which now exists as part of XY could not have conducted operations from the development site at L House. If this is right, why should the company be reimbursed the costs of relocating or of clearing the site? Secondly, if I am to make a quantum meruit assessment (ie, the actual value of services performed) I need evidence of what the value of those services is. I have already noted that RF has produced invoices for a little over £1m of the sum claimed. Of that, £710,824 relates to the costs of relocation and I am not satisfied that the company can properly claim this back from the site owners. Conversely, there are professional fees which amount to £303,857. A great number of these are from M, a firm of solicitors who acted and advised in relation to the planning issues. Although I was not taken through each invoice page by page (and there are very many of them) I am satisfied that it is reasonable for the company to be reimbursed for these costs, for without the grant of planning, the land would have a value but a fraction of the range now expected. Also claimed are 'further legal and other professional fees' of £150,000, otherwise unidentified, and £63,000 for 300 hours of RF's own time. Whilst I have no doubt that RF worked long and hard on the project, he carried out this work to enhance the value of an asset belonging to his father. RF now owns half of XY, which he was given by his parents, and I am far from certain that he has a legally enforceable claim against his father, for his own time, in enhancing the value of an asset belonging to his father.
45. Doing the best that I can with the information that I have, and in the absence of cogent evidence of an enforceable agreement against the husband, I find that XY can reasonably claim £500,000, from the husband. This is made up of the professional fees of £303,857 referred to above for expenses incurred in respect of the site, together with an additional sum for an enormous list of extra expenses. Careful consideration will need to be given by the company as to how it manages this in its own accounts (for example the figures that I have quoted for professional fees include VAT in respect of which the company will doubtless have made a claim and which presumably it will now need to account for). For the avoidance of any doubt, my assumed figure of £500,000 is inclusive of VAT where that has been paid.
46. I have already indicated that I shall make an order for sale of the site. For the purpose of computing the net proceeds of sale of the site, I find that it is fair and proper for a sum of £500,000 to be paid by the husband to the company from the proceeds of sale and the husband will need to undertake to the court to effect such a payment. I cannot imagine that he will be reluctant to offer this undertaking, but I cannot force him so to undertake and I shall hear submissions on the issue should the need arise. It is entirely a matter for the husband whether he chooses to make a further payment to the company if he feels that there is a moral (if not legal) obligation to make that sum up to the aforementioned figure of £1.2m. However, if the husband does choose to make that additional payment, I am satisfied that it is a matter personal to him and the additional payment must come from his own share of the resources after effect has been given to my order. Similarly, nothing that I have said here would seem to prevent the company from suing the husband if it wanted to do so in respect of the alleged agreement. However, in my judgment that is an extremely unlikely prospect, not only because I do not believe that RF would cause the company to sue his father but, more particularly, because in contractual terms I believe that the company would find it hard to establish that a binding agreement had been made that entitled it to sums greater than those for which I have allowed.
47. Although this was not canvassed before me, it would seem likely that the sum payable to XY can be offset against gain on the site for CGT purposes but this is not a matter in respect of which it is necessary for me to reach a conclusion.

Other real property assets

48. There are three further properties owned by the husband, with agreed values for the purposes of these proceedings as follows:

Property A 635,000
Property B 165,000
Property C 85,000

In respect of each of these, sale costs of 3% (inc VAT) must be deducted. CGT is agreed at £184,366. So, a total net figure of £674,084. I am not going to order a sale of these properties, it is up to the husband what he chooses to do with them, and for the purposes of this case I use the figures set out above, which are not in issue. If the husband decides to sell and the actual sale prices should vary then so be it.

Value of the Group

49. A great deal of court time was occupied with regard to the value of the husband's shareholding in XY. I have already set out the respective shareholdings above.
50. In his Form E, the husband asserted that his shares had no value to him because he held them beneficially for RF. I found against him in that respect at the preliminary hearing, thus the value of his shareholding is now very much an issue in the case. Jason Lane of Saffrey Champness was instructed by the parties as a single joint expert to value:

a) XY;

b) The value (separately valued) of each of the Group subsidiaries;

c) The gross and net value of the husband's and the wife's respective shareholdings in the Group; and

d) The liquidity of the Group, including tax efficient ways of releasing funds.

Although Mr Lane's findings were not accepted by the husband or RF, I did not hear from any expert in rebuttal of what Mr Lane advised.


51. Mr Lane's summary findings are at [A2/215]. In his opinion, the value of XY as at July 2014 was 'around £50m'. Within that valuation is an asset referred to throughout these proceedings as 'the Z assets' and to which I refer below. I have reached the firm conclusion that I should approach the value of XY absent the Z assets and then deal with the Z assets differently. In summary, my reasons for this are that the Z assets are extremely hard to value and could in time produce a substantial profit for the company, or the project could flop. I am sure that it could cause unfairness to one or other party to endeavour to try and guess at a figure for the Z assets, rather it is better to wait and see what happens. I deal with the Z assets in more detail in paragraphs 75 to 79 below.
52. Within Mr Lane's figure of 'around £50m' is the following breakdown:

£'000
Company	Methodology	Valuation (k)
Y Manufacturing Ltd	Capitalised earnings	28,923
Q Ltd	Net assets	5,699
R Ltd	Net Assets	Nil
S Ltd	Capitalised earnings	8,110
T Ltd	Net assets	9,522
Dormant companies	Net assets	260
Total combined group		52,514k


Selling costs take the figure down to more or less the £50m mark. Mr Lane explained that, in this exercise, he had valued Q Ltd on a net asset basis since its net assets were worth more than the value that would be achieved on a multiple of earnings basis.


53. By a letter dated the 6^th October 2014, Mr Lane amended his figure from 'about £50m' to 'about £52m'. He explained that this was because he had inadvertently omitted to include the assets of XY as a standalone company after adjusting for consolidation. These were essentially freehold assets which have been valued by Strutt & Parker. Although Mr Lane's valuation basis and conclusions are the subject of serious challenge by both the husband and RF, it was not suggested that he was incorrect to increase his valuation by some £2m to account for this error.

Value of Y Manufacturing

54. The principal area of disagreement in respect of Mr Lane's valuation relates to Y Manufacturing. RF urges me to reject Mr Lane's valuation of Y Manufacturing on a capitalised earnings basis, but instead to value the company on a net asset basis. He is supported in this approach by the husband, but in fact the husband asserted, for reasons which were not always easy to understand, that the company was worth considerably less than its net asset value. It was clear that RF saw the difficulties of such an approach and he did not seek to adopt it.
55. In addition to Mr Lane's lengthy and comprehensive report, I have the numerous replies to questions properly put to Mr Lane by the parties and I had the benefit of his detailed oral evidence at court. In fact, for reasons connected with his availability, he was the first witness to give evidence, but in the event his diary cleared and so his evidence was concluded towards the end of the hearing once he had heard evidence from RF. This was important since he was able to hear, and in due course comment upon, RF's evidence about the current state of the company.

Methodology

56. Having provided the usual information as to the valuation methodologies available in respect of private companies, Mr Lane formed the clear conclusion that the correct approach to valuing Y Manufacturing was a combination of net assets and capitalised earnings. RF urged me to adopt solely a net asset approach. The husband, as I have recorded above, urged upon me a figure substantially below even the value of the net assets. On the husband's behalf, Mr Dyer submitted that it was wrong to use large, publicly quoted multi-national manufacturing companies as comparables.
57. Mr Lane came under sustained professional attack from Mr Dyer, for the husband, and from RF. By the time of the final hearing, Mr Lane had adjusted his figures upwards by reference to new data but he maintained his position as to methodology. He was clear in his mind that the proper starting point in respect of the value of Y Manufacturing was to consider the EBITDA (earnings before interest, tax, depreciation and amortisation) and then select a suitable multiplier by reference to the manufacturing sector, appropriately adjusted. He admitted early in his evidence that he is not a specialist in the manufacturing sector, but it was clear that he and his colleagues had researched the sector. Mr Lane was criticised for not visiting the company premises and for not meeting RF, in his capacity as CEO of the company. I am bound to say that it surprised me that, in a case of this size, and where a six figure sum has been charged by Saffrey Champness for their report and the work ancillary to it, the principal valuer had not visited the company premises or met its most senior officer (RF). It will not of course be in every case that such a visit is justified, and I am sure that Mr Lane was under pressure of work and time, but given the figures in this case I think that it is unfortunate that Mr Lane did not visit the company premises or meet with RF. Having said that, Mr Lane's colleagues did visit the site and meet RF and there is no doubt that the first draft of much of what has been written in the report was from Mr Lane's colleagues, albeit that it was Mr Lane who signed the report off and gave evidence in court.
58. Having decided that a multiple of earnings is the correct approach, Mr Lane advised the court that a suitable multiplier in his opinion would be 5. He believes that this takes into account the risks to the Group (and which I discuss below) and also reflects the basis of a recent approach by a private equity firm which considered acquiring XY. Mr Lane attached at Appendix G to his report a list of AIM, LSE main market and NYSE listed companies in the manufacturing sector as evidence being used in these sectors. Applying what he called 'industry recognised discounts', his conclusions were that an overall discount of 15% should be applied to multiples of AIM quoted companies and 30% for main market (FTSE and NYSE) companies. He advised that, taking into account the specific risks facing Y Manufacturing, the appropriate multiplier is 5.
59. Having noted and, to a limited extent agreed with, Mr Dyer's criticisms of Mr Lane, I have to ask whether they actually undermine the report and its conclusions and I am confident that they do not. Mr Dyer, supported by RF, invites me to find that a net asset basis of valuation is used for manufacturing companies because they are "in the position of being a highly capital intensive sub-contracting business with a narrow customer base, who place orders but provide no long term contracts". He asks me, in effect, to ignore profitability and to look only at asset values. He produces no expert evidence in support of this proposition but refers to other transactions in the sector, namely:

a) Q Ltd (purchased by XY);

b) P Ltd; and

c) S Ltd (purchased by XY).

Mr Dyer asserts that EBITDA was not even mentioned, let alone relied upon, in respect of the above three transactions. In reality, it is generally far from easy to decipher on what basis a purchaser has acquired another competitor. Of course we can look at figures and speculate. At one end of the scale, the purchaser may be willing to pay a significant premium to acquire a competitor business and that business's client base, and there can be a host of other 'special purchaser' factors. At the other end of the scale, a purchaser can sometimes scent, or know of, pending problems for the company being acquired and can use that information to effect a discount. Rarely does one actually see, in the market place, stated reasons for purchase prices, especially in the sector of the private company, such as those under debate. Here, of course, we have the advantage that the three comparables used by Mr Dyer are companies which XY actually acquired.


60. I shall deal with each of the three companies referred to in the foregoing paragraph.

a) Q Ltd
£4.68m was paid for Q Ltd which, says Mr Dyer, was a discount to net assets which stood at £5.1m. Mr Lane said that he had himself valued Q Ltd on a net asset value basis since net assets provided a higher figure than a multiple of earnings basis. There is nothing controversial here and I would expect to see net asset values used if that produced a higher figure than the multiple of earnings basis, since net asset values are what you would sell the company assets for, ie 'the bottom line', short of an extreme 'fire sale' situation. The company had minimal profits and had suffered from declining turnover and this was supported by management commentary which suggested that the company was in difficulty.


b) P Ltd
P Ltd was purchased for £738,000; its balance sheet revealed net assets of £814,000, which Mr Dyer uses to support his submission that this was a discount to net asset basis of valuation. This provides no useful guide to methodology in the sector since Mr Lane's (unchallenged) evidence was that P Ltd was purchased on 'a breakup value'. He said that the turnover of P Ltd had dropped dramatically, that the accounts showed a 'catastrophic drop in turnover' and that this was a company in distress.


c) S Ltd

i) Mr Dyer asserts that S Ltd was sold on a net asset plus premium basis. Mr Lane asserts that it was sold at a discount to EBITDA. He says that completion of the S Ltd deal was October 2010. He says that the 2009 accounts show that turnover was down from £12m to £9.9m and that the company was in fact loss making. He says that if you add depreciation to the operating loss you arrive at EBITDA of £191,000. He said that if you then average the next period you arrive at EBITDA of £1.732m. If you then average the £1.732m and the £191k you arrive at EBITDA of £962,000 and that, on the basis of a sale at £3,359,400 that produces a multiple of 3.46. He admitted that he did not have full details of the transaction but said that it was clear that the sale was in excess of net asset value.


ii) The husband's evidence about S Ltd was illuminating. He said that 'the father' was an alcoholic and had upset customers. He said that N (a major customer of both S Ltd and Y Manufacturing) had found out and that "he was in a difficult position and that he had to sell in the end". The husband said that the purchase price paid by XY for S Ltd was, in the end, 'a horse trade' but that they paid over net asset value on the basis of unexpected profits that had arisen in the year of purchase. I note that net asset value was £2.675m and that the price paid was £3.3m. The husband's evidence in this regard was at odds with what Mr Dyer, on the husband's behalf, was asking me to accept. Mr Lane had also commented on the importance of the sudden upturn in S Ltd's profits, pointing out what we would all expect, namely that what interests a purchaser most is future maintainable earnings.


61. A number of other factors were urged upon me by Mr Dyer as favouring the net asset approach, in particular:

a) Narrow customer base;

b) The manufacturing company is at a cross-roads, needing to win new accounts and having no contracts in place;

c) Costs will be incurred in the inevitable re-structuring; and

d) The management structure is flat and any new management would need to introduce a new Managing Director.


62. These points were all properly put to Mr Lane, and he disagreed with what was put to him. RF carefully took Mr Lane through his points. RF's first point, and a well recognised one in cases such as this, related to his own central role in the manufacturing company and the risk that a purchaser would seek a large discount to reflect the possibility of losing him. To this Mr Lane responded that on a sale RF would act rationally to maximise any sale and would seek to maintain key customer relations. Mr Lane recognised that if, for example, RF were to die suddenly, there would be 'a period of disruption'.
63. I am left with the expert evidence of Mr Lane, whose experience and reputation as a forensic accountant in these courts is considerable, and I find that his methodology is not in any way undermined by the comparables that were put to him. I accept that a purchaser of Y Manufacturing would want to look carefully at the predictable maintainable earnings of the company and apply a multiple to that figure. A purchaser will want to know what sustainable profit it can look forward to, for that is surely the purpose of its investment. I accept that it will then be necessary to look carefully at the company balance sheet in order to determine whether any asset values should be added to the figure achieved, the most obvious example being property assets, but there can of course be numerous other asset classes relevant here. I reject the proposition put to me by RF and the husband that a purchaser would, in effect, ignore the profitability or maintainable earnings of the company and pay attention only to its net asset value. This is a company with a long and proud history of profitable trading with a high class, if small, customer base. There are good points to be made about the vulnerability of the company to its small customer base and the risks from competition, in particular from India and China. I shall reflect these risks when considering the appropriate multiplier to be applied to the company's maintainable earnings.

Maintainable EBITDA

64. In his report, Mr Lane concluded that maintainable EBITDA for Y Manufacturing is £4,605,000 [A2/257]. In arriving at this figure, Mr Lane has, as one would expect, used a mixture of historic, current and forecast figures. His view was that a private equity purchaser, for example, would look at a 5-7 year timeline. Relevant to this exercise would be the recent level of capital expenditure. For example, if the company has recently re-equipped plant and machinery, one might expect that to generate more earnings and the level of capital expenditure in the short to medium term to fall. Here, Mr Lane worked on the basis that capital expenditure had run at the rate of about £1m pa, but that the company had also recently re-tooled (and also set up a factory, relevant to Project Z).
65. Mr Lane accepted that EBITDA was, in fact, slightly up on the forecast figures, but he was not persuaded that it should materially alter his EBITDA figure going forward.
66. Management accounts for Y Manufacturing showed the actual performance for the current year was marginally in excess of the forecast figures.
67. Minutes of the Y Manufacturing board meeting held in July 2013 reflect RF's optimism for the future performance of Y Manufacturing.

Appropriate multiplier

68. The selection of a multiplier is necessarily one more akin to an educated guess than a statement of scientific fact. A number of factors were explored by Mr Dyer and by RF in their cross-examination of Mr Lane in an effort to undermine his chosen multiplier of 5. Mr Lane conceded that 'I appreciate that my multiplier of 5 is subjective; arguments could be advanced that it could maybe be 4'. From my perspective as the judge I bear in mind that it has been said time and again that valuation is an art and not a science and I must arrive at a valuation that is suitably cautious and does not just pay lip service to the future risks that Y Manufacturing faces. I also bear in mind, and agree with, what Moylan J said in H v H [2008] 2 FLR 2092:
    "The purpose of valuations, when required, is to assist the court in testing the fairness of the proposed outcome. It is not to ensure mathematical/accounting accuracy, which is invariably no more than a chimera. Further, to seek to construct the whole edifice of an award on a business valuation which is no more than a broad, or even very broad, guide is to risk creating an edifice which is unsound and hence likely to be unfair. In my experience, valuations of shares in private companies are among the most fragile valuations which can be obtained."
69. I must have regard here to the fact that Y Manufacturing historically has had a very small customer base with no ongoing contracts and that this will materially affect the chosen multiplier. RF told me, and I accept, that 90% of Y Manufacturing's business is with just three customers. I see this issue as more relevant to multiplier than to the issue of maintainable earnings, albeit that the two blend together, but it is plainly relevant to value. It does not, in my view, support the proposition that Mr Dyer urges upon me, namely that it results in a net assets basis of valuation. Furthermore, I must be careful to ensure that I do not discount twice, as in both at the earnings level and multiplier level.
70. [Omitted]
71. Whilst paying proper regard to the danger of losing N as a client, I also bear in mind the length and quality of the relationship that Y Manufacturing has with N, and its other big customers, and the fact that it is not particularly easy for these customers to transfer their manufacturing engine demands to other suppliers.
72. Having carefully considered the evidence of Mr Lane and of RF and taking full account of the careful arguments and submissions that I have heard, in my judgment the appropriate multiplier is 4. Mr Lane conceded that '4 might not be the wrong figure' and, in the light of the concerns expressed to me, by RF in particular, I believe that a multiplier of 4 is more appropriate. Ascertaining the correct multiplier is always going to be a matter of judgment and I believe that I am right to err on the side of caution. This caution is increased, rather than diminished, by the fact that it is not the husband or the wife who effectively controls this company, but their son RF. Applying a multiplier of 4 to EBITDA of £4,605,000, I arrive at the figure of £18,420,000. This compares with the figure of £23,025,000 that was used by Mr Lane applying a multiplier of 5 to the same EBITDA (paragraph 5.6.9 of his report).

Adjustments to value of Y Manufacturing

73. Mr Lane suggests the following adjustments to the Y Manufacturing valuation, although for the reasons detailed above, I start with a value of £18,420,000 rather than £23,025,000:

Enterprise value	18,420,000
Deduct bank debt	(3,359,000)
Add surplus property	323,000
Add surplus assets (Z)	9,900,000
Deduct contingent tax (Z)	(966,000)
Total equity value	24,318,000

74. For reasons that I outline in the next section of this Judgment, I have decided to remove Z from the value of Y Manufacturing, so that items 2 and 3 of the table above need to be applied to the enterprise value, but not items 4 and 5. The effect of this is to reduce the value of Y Manufacturing by £3,036,000 to £15,384,000.

Project Z

75. Z Ltd ('Z') was incorporated as a special purpose vehicle to acquire a process from W Manufacturers Ltd (who were upgrading their own machinery and wanted quickly to dispose of their old machinery) at a discount and to supply, install and commission the complete production line to an identified foreign buyer. As Mr Lane's report describes, Z was acquired with a loan of £1,418,000. This was invested by Y Manufacturing and a loan facility agreement entered into between Y Manufacturing and Z, secured on the assets acquired. As a consequence of time delays on the part of Z, the terms of the facility agreement were not satisfied and Y Manufacturing has taken control of the assets, although the outstanding loan is still recognised on the balance sheet of the Group. As the owner of the Z assets the Group has been responsible for all development and storage costs of the assets and will continue to incur these costs until the assets are capable of being supplied to the foreign acquirer.
76. It is clear that RF places considerable hope value in the Z project. The husband was critical of the project but, with respect to him and to all his past achievements, I have already observed that the husband is out of touch with the modern, hi-tech business that Y Manufacturing has become.
77. RF exhibited a detailed report on the project, its opportunities and risks. RF observed, and I accept, that the project remains 'a good opportunity' but that there remains a risk that the project could be 'aborted'. In my judgment there are serious risks in trying to average the value of something that could end up being aborted, or, conversely, could end up as a serious money maker on a world class scale. I should not take this risk if there is an alternative route, and in my judgment the better course is to 'wait and see'. Whilst this may run counter to the desire for a swift clean break, in my judgment the risk of unfairness to one or other party is too great by taking that easy route. The husband in effect stands to gain by 50% of any money made from the Z project. If I make an award in this case on the basis that he receives substantial sums from the project, and he does not, then he has been unfairly treated. Similarly, if I write down the value of the project by a substantial amount to reflect risk, or even write it off altogether, and it comes good, then the wife has failed to share in what is in effect a windfall to the husband. I say 'windfall', for the husband has had nothing to do the Z project, albeit that he stands as a shareholder to benefit from profits that might be made from it.
78. Late in the day, on the 15^th October (ie during the course of the final hearing), the husband made an offer which included an offer that he and the wife each 'receive a 25% share of the profit made by the Project Z', although the offer limited the share to a bracket of £2m to £8m. According to the calculations sent with that letter, this would potentially produce a net dividend range to each of the husband and the wife, of £549,000 to £1,097,000. As a matter of legal entitlement, the husband and the wife would be able to benefit from the Z project as shareholders. I have some sympathy with RF's claim to retain for himself the benefit over £8m, but it seems to me that I must expect that the parties will receive their actual entitlement and I do not impose an upper limit. If an exit is found for the Z assets then the husband and the wife should share in that benefit in accordance with their shareholding, although of course I cannot and do not direct the company as to how it should effect this benefit. I propose to order that the parties should share equally in the benefit that might accrue from the Z project so that the order shall provide that each party must account to the other for 50% of the net benefit that they each receive in respect of the Z project.
79. I find further support for my decision to remove the Z assets from the assets presently available from paragraph 2.5 of a letter from Mr Lane to the wife's solicitors where he says:

"…should any further investigation be required by the court I would re-iterate again my recommendation that an independent specialist valuer be appointed ….to estimate the current market value of the Z assets since I am not qualified to provide a market value for these assets".

Sensibly, no one suggested that I should adjourn the case, at still further cost, to acquire such expert evidence.

Value of S Ltd

80. As appears from the table at paragraph 52 above, S Ltd was also valued by Mr Lane on a capitalised earnings basis. This methodology was also challenged on behalf of the husband and by RF. For similar reasons to those discussed above in the case of Y Manufacturing, I reject that challenge. Mr Lane determined that the maintainable earnings of the company were £1,622,000, resulting in an enterprise value of £8,110,000 using a multiplier of 5. Applying the same caution to S Ltd as I have applied to Y Manufacturing, for broadly the same reasons, on a multiplier of 4 it equates to an enterprise value of £6,488,000. This compares with net assets in its accounts of £4,921,000.

Summary of my findings as to the value of XY (excluding Z)


81. I find that the value of XY, having removed the Z assets, is as follows:

Y Manufacturing	15,384,000
Q Ltd	5,699,000
R Ltd	Nil
S Ltd	6,488,000
T Properties	9,522,000
Dormant companies	260,000
XY Ltd	3,355,000
Updated property valuations	405,000
Total combined group	£41,113,000
Costs of sale 2.25%	(925,043)
Net value	£40,187,958

82. The husband owns 44.73% of the XY shares and the wife owns 4.91%. It has not been suggested that there should be a minority shareholder discount, given the fact that this is a family company. On a pro rata basis, excluding the Z assets, this values the husband's shares at £17,976,073 and the wife's shares at £1,973,229. During the course of the evidence, with some prompting from me, it became clear that legitimate and straightforward measures could be taken to ensure that CGT payable on the transfer or sale of shares would be at 10% on the basis that Entrepreneur's Relief would be available. I assume for the purposes of this Judgment that the parties will agree to take such steps as they properly can, on advice, to mitigate CGT and so I assume that it will be at the rate of 10% in each case. I am of course prepared to hear further submissions on this issue at the forthcoming directions hearing if I am told that the parties have been advised that some or all of the CGT will be at 28%. I bear in mind that the lifetime allowance for Entrepreneur's Relief is presently £10m, so it may be that part of the husband's CGT will be at 28%.

Pension investments

83. The husband has pension investments with a CE of £1,865,430 and the wife has pension investments with a CE of £753,000. The competing schedules have very slightly different figures, probably just a reflection of valuation date. The wife says that there should be a pension sharing order to provide her and the husband with an equal income. Given that the wife is younger and female, this would provide her with a greater share of the combined fund values. I would regard such an approach as unfair and anachronistic in a case where assets exceed the parties' needs. The recent well publicised changes to pension regulations will mean that pension investments are virtually to be treated as bank accounts to people over 55, as these parties are. Why should someone receive more just on the basis of gender? There may have been an explanation when rules required the purchase of an annuity. However, to give the wife more than the husband, on account of either age or gender would seem to me to be unacceptable discrimination unless it is a case which is governed solely by needs. If a person should receive more of a pension fund under the modern rules simply because she (or he in the case of a marriage where the husband is much younger) is likely to live longer, then such an approach would logically extend to all capital assets. Moreover, European Union judgments and rules are rapidly outlawing discrimination on account of gender. In cases where distribution is being made on a basis which is not guided by need it is, in my judgment, incorrect to distribute a pension fund on the basis of equality of income and there is no need for actuarial reports in the overwhelming majority of such cases. I should expect courts to be most reluctant in the future, in bigger money cases, to provide permission for actuarial reports on the issue of how to effect equality of income. Moreover, I suspect that annuities will, in the overwhelming majority of cases, become a thing of the past.

The loan notes

84. As part of the reorganisation of the Group (considered in detail in my judgment on the preliminary issue), loan notes were issued and have a present value of £1,560,000. These are in the husband's name but it was agreed that they would be passed to the daughters on the husband's death. It is part of the husband's case that these loan notes should now be transferred to the wife and treated as having a value in her hands of £1,560,000. Mr Cayford contends on behalf of the wife that this seems to fly in the face of the agreement that the daughters should have them, and I agree. I regard it as unprincipled for the husband, on the one hand, to seek to rely on the agreement that the XY shares pass to RF but to seek to extricate himself from the agreement about the loan notes. They should stay with him and I must hope and expect that he will honour the promise that he made to his daughters. It is not appropriate in my judgment for part of the value of the loan notes to appear in the wife's column. If, as I would hope and expect, the husband offers an irrevocable undertaking to pass the loan notes to his daughters on his death, then I shall remove them from the schedule of assets altogether. If he will not give me an undertaking in these, or similar, terms, then I shall hear submissions from the parties at the forthcoming directions hearing as to how to proceed on this issue. My preliminary view is that I would, in those circumstances, transfer the loan notes to the wife if she were to offer me an undertaking in similar terms, as I would expect her to do. Thus again they would be effectively removed from the schedule of assets and liabilities in the case.

Salary due to the husband

85. RF has arranged for XY (or one of its subsidiaries) to pay the husband £139,000 net pa for the rest of his life. The parties have sensibly agreed to attribute a capital value to this income stream and it seems to me that the proper way to approach this is by reference to the well recognised Duxbury tables in At A Glance. Accordingly, I attribute a value of £1.6m to the income stream.

Other agreed assets

86. There are various other assets, the value and ownership of which has not been in dispute, and which appear in the table that follows.

The assets in the case summarised

87. The outcome of the analysis of the assets conducted above, combined with the agreed assets about which there is no need to say anything other than simply to list them, is as follows:

L House (net of selling costs)	921,500
Development site[1]	8,000,000
Costs due to XY	(500,000)
Property A (net of selling costs)	615,950
Property B (net of selling costs)	160,050
Property C (net of selling costs)	82,450
CGT on investment properties	(184,366)
Accounts and investments (H)	429,156
Accounts and investments (W)	678,955
H's liabilities (inc costs)	(576,186)
W's liabilities (inc costs)	(792,532)
Policies (H)	52,932
H's 44.73% of XY (excluding Z)	17,976,073
10% CGT thereon	(1,797,607)
W's 4.91% of XY (excluding Z)	1,973,229
10% CGT thereon	(197,323)
Income stream due to H from XY	1,600,000
Pension
Total	28,442,281


As I have already indicated that I intend to split the pensions equally by reference to value, I do not show the CE of the funds in the above table. I have also left chattels and personal valuables off the schedule. This is not a case where the parties will have to sell such things to meet their needs. I would hope that the parties will be able to agree an equitable distribution of these items on well understood principles, but I shall give them liberty to apply to a District Judge at the Central Family Court in the event that they cannot reach agreement. Any such application must be made within three months of the date of my Order.


88. As I have also indicated above, I intend to await actual sale figures in respect of the development site, so I must remove these from the above table for the purposes of ascertaining what distributive award I should make. This means that I must deduct £7,500,000 from the above total, resulting in a figure of £20,942,281. If my aim were to achieve broad mathematical equality then this would imply leaving each of the husband and the wife with assets of approximately £10.5m in addition to pension assets, the proceeds of the development site and any profit from the Z.

The section 25 factors

89. Before reaching my decision as to the appropriate way to distribute the assets referred to above, I have regard to the factors prescribed by s 25 MCA 1973 (as amended).
90. The income, earning capacity, property and other financial resources
    I have set out in some detail my findings as to the available resources. There is no reason to expect that the parties are likely to acquire any resources not referred to. As regards income, the husband will have his income from XY and I have, by agreement, attributed a capital value to that. Given the ages of the parties, plainly they are not to be expected to take steps to acquire an earning capacity.
91. Financial needs and obligations
    Both parties have the need for a home and for money to live on. Given the available assets , this has not been a case where detailed cross-examination on capital needs or budgets was appropriate. Of course, when I set out my decision below I shall stand back and consider whether the parties are able to meet their needs, but it could not realistically be said that one party has greater needs than the other.
92. Standard of living
    The wife described the standard of living as 'comfortable' and the husband described it as 'good'. Such adjectives are perhaps of little help, albeit that the Form E invites such a response. Plainly this was a marriage where the parties lived well, were able to pay for school fees for their children and enjoyed many luxuries.
93. The age of the parties and the duration of the marriage
    The parties have both passed normal retirement age. This was a very long marriage and the facts of this case obviously suggest equality of outcome. Apart from the XY shares, where different considerations apply because of the family arrangement, the husband accepts and agrees that this is an equal sharing case.
94. Physical or mental disability
    Although the husband's ill health was a significant feature of the preliminary hearing, it has not been suggested to me that it should impact the distributive process in which I am now engaged. As the parties move into old age they will quite possibly need help, as people do, but there are sufficient assets here to afford that.
95. Contributions
    Given the length of the marriage, I cannot possibly treat one party's contribution as more important than the other's. However, the husband urges upon me a different treatment in respect of the XY shares, on account of RF's contribution. Although RF is 'a party', I do not read section 25(2)(f) as referring to parties other than the parties to the marriage. I do, however, regard RF's contribution as important when I move on to consider 'all the circumstances of the case'. I also bear in mind, when considering the distribution of assets, that the husband has never considered or conceded that the value of his XY shares falls into the equal sharing principle.
96. Conduct
    No one has suggested that conduct, in the sense implied by section 25(2)(g), should affect outcome.
97. All the circumstances of the case
    In my Judgment in respect of the preliminary issue I paid tribute to RF's efforts in transforming the fortunes of Y Manufacturing and I referred to the performance figures over a large number of years which demonstrate this. In the context of my finding in that Judgment that the husband and the wife had reached a non binding agreement in principle with RF that he would, in due course, acquire the shares in the group it would, in my judgment, be wrong for me not to take these discussions into account, in the same way that I am keen to preserve the loan notes for the benefit of the daughters. It would, in my judgment, be perverse if I were to make an order that would in effect mean the sale or destruction of XY and I need, therefore, to turn to the issue of liquidity to see what sums can reasonably be generated by and extracted from the company.
98. I also bear in mind the desire in most cases to achieve a clean break wherever possible. That desire is greater in this case than in most, given the length and the cost of this bitter dispute. I find that the idea of the wife continuing to hold shares in XY is an uncomfortable prospect. The time has come, if it can be achieved, to separate the finances of this family and allow them to move forward independent of the other. I recognise, of course, that my decision in relation to the sale of the development site and in respect of the Z assets will mean that the parties remain linked together so far as these assets are concerned. However, these are discrete issues and I am clear that the risk of unfairness by treating those two assets in any other way outweighs the natural desire for immediate finality.
99. My greatly preferred outcome in this case is for the wife's shares to be transferred to the husband or acquired by the company and for the wife to receive other assets instead. If the wife exits the case with mainly cash then she will be in a better position than the husband who will be left with XY shares. However, this would be an outcome that would be the most likely to give effect to the expected, but not contractual, arrangement that RF will in due course inherit the XY shares. It will be a matter for the husband to take advice and decide the most tax effective way of transferring shares to RF, but it may well be that the original arrangement under the restructuring would still work. That is not directly a matter for me.
100. Having regard to the rearranging of the assets to which I have already referred, the position now looks as follows as between the parties:

Asset	H	W
L House (net of selling costs)	921,500
Development site	Ignore for present
Costs due to XY	Ignore for present
Property A (net of selling costs)	615,950
Property B (net of selling costs)	160,050
Property C (net of selling costs)	82,450
CGT on investment properties	(184,366)
Accounts and investments (H)	429,156
Accounts and investments (W)		678,955
H's liabilities (inc costs)	(576,186)
W's liabilities (inc costs)		(792,532)
Policies (H)	52,932
H's 44.73% of XY (excluding Z)	17,976,073
10% CGT thereon	(1,797,607)
W's 4.91% of XY (excluding Z)	To company
10% CGT thereon		(197,323)
Income stream due to H from XY	1,600,000
Pension (approx. value)	1,300,000	1,300,000
Totals	20,579,952	989,100


On familiar Wells principles, if the wife has liquid assets and the husband has much of his wealth in shares, it is fair and reasonable that I should make an order leaving the husband with a greater percentage of the assets. Realistically, it is overwhelmingly likely that the husband will never in fact realise the value of all of his shareholding, which he will pass to RF either during his lifetime or on his death. I have, by agreement, already attributed a value to the XY income stream, so it is not safe to assume that he will receive dividends in excess of that. In considering what is a fair outcome I must have regard to the issue of liquidity and, in particular, the ability of XY to raise monies to pay out to the husband for all or part of his shares.


XY liquidity

101. Any cash realisation by XY will of course generate tax and expenses. RF's evidence was that the maximum that XY can extract is £3.44m and that this net sum could be extracted within 9 months. He also said that he would be able to procure the transfer to the husband of £4m worth of land. Mr Cayford contends that XY has significantly greater liquidity, for example it could sell properties that it no longer requires.
102. The husband will, on RF's proposals, receive land from the company worth £4m. I am told that it may be possible to float off a company in the husband's name to hold property investments and that this may be treated by HMRC as a demerger rather than as a disposal. However, inherent in this would be a tax risk and it is a matter between XY and the husband as to who should bear this tax risk. In the husband's open offer letter dated 15^th October, written with RF's co-operation and approval, the husband agreed to carry this risk and to be reimbursed in due course by any Z monies received by the company; accordingly I assume that this is what will occur. The effect of this is to generate liquid assets of £7.44m. I must assume that, in exchange for these assets, the husband will transfer shares to the same value back to the company, so that its effect is neutral for balance sheet purposes.
103. Mr Lane was more robust on the issue of liquidity. He concluded that XY 'could potentially realise liquid resources of up to £19,980,000' 'through a disposal of its surplus assets and activities, in addition to fully leveraging its operating assets'. If this were just the husband's company then I could see that requiring him to raise liquid sums by that basis may be appropriate. However, I am clear that some of the means of raising monies put forward by Mr Lane are highly controversial and I have already said that it would be unfair, in my judgment, to undermine the family's plans that RF should eventually own the shares in the company if I can avoid doing so whilst still producing a just outcome for the wife. I am also confident that it is unnecessary to raise sums as large as Mr Lane posits might be possible.
104. The husband also has the land at Property A, Property B and Property C, all of which can in due course be sold. Furthermore, he will in due course receive substantial sums upon the sale of the development site.
     
105. In the table set out in paragraph 100 above, a net value of £16,178,466 is there in respect of the husband's shareholding. For all the reasons that I have set out above, I am confident that the husband will not receive full value for these shares and it would not be right for him to have to pay out half of this sum to the wife. In my judgment, he should pay to the wife a lump sum equal to 35% of the net value that I have assessed for these shares. That is £5,662,463. For the avoidance of doubt, this sum will extinguish any interest the wife has in the company, and so I require her to transfer her shares in accordance with the next paragraph. Thereafter, it is common ground that she is entitled to 50% of the balance of the assets. There will inevitably be a delay before she receives her half share of the sale proceeds of the development site and any monies from the Z assets.
106. What is the effect of this? I have decided, and will so order, that the wife have 35% of the value of the husband's XY shares, and that (as part of the foregoing arrangements) her own XY shares should be acquired by the company in such legitimate tax efficient manner as the company may be advised. Accordingly, the shares, and the lump sum due to the wife in respect of them, can be removed from the table, although her CGT liability will of course be crystallised. The table now looks as follows:

Asset	H	W
L House (net of selling costs)	921,500
Property A (net of selling costs)	615,950
Property B (net of selling costs)	160,050
Property C (net of selling costs)	82,450
CGT on investment properties	(184,366)
Accounts and investments (H)	429,156
Accounts and investments (W)		678,955
10% CGT on share transfer		(197,323)
H's liabilities (inc costs)	(576,186)
W's liabilities (inc costs)		(792,532)
Policies (H)	52,932
Income stream due to H from XY	1,600,000
Pension (approx. value)	1,300,000	1,300,000
Totals	4,401,486	989,100

107. The sum of this table is £5,390,586. Half of that is £2,695,293. After taking into account the resources which the wife already owns, this results in a lump sum payable by the husband to the wife of £1,706,193, which I round to £1.7m. When added to the aforementioned figure of £5,662,463, this results in a total lump sum payable by the husband to the wife of £7,362,463, which I round to £7.4m. There will be a full clean break between the parties upon payment of this sum.
108. The effect of the above is as follows, using the original asset table as the template:

Asset	H	W
L House (net of selling costs)	921,500
Development site[2]	4,000,000	4,000,000
Costs due to XY[3]	(250,000)	(250,000)
Property A (net of selling costs)	615,950
Property B (net of selling costs)	160,050
Property C (net of selling costs)	82,450
CGT on investment properties	(184,366)
Accounts and investments (H)	429,156
Accounts and investments (W)		678,955
H's liabilities (Inc. costs)	(576,186)
W's liabilities (Inc. costs)		(792,532)
Policies (H)	52,932
H's 44.73% of XY (excluding Z)[4]	10,536,073
10% CGT on XY shares	(1,797,607)
Land transfer XY to H	4,000,000
Cash extracted from XY	3,440,000
W's 4.91% of XY (excluding Z)		To company
10% CGT thereon		(197,323)
Income stream due to H from XY	1,600,000
Lump sum H to W	(7,400,000)	7,400,000
Pension (approx. value)	1,300,000	1,300,000
Totals	16,929,952	12,139,100

109. Standing back from my award and checking against the yardstick of equality, I am satisfied that this outcome is fair having regard to the fact that the husband is unlikely to receive actual value for his shares beyond the £7.44m. Given that the husband's presentation throughout has been that the shares are not his anyway, then the fact that he may not receive money for all of his shares cannot be said to be unfair to him. I have, by agreement, attributed a capital value to the husband's income stream, albeit that it is not capital in reality. My order enables effect to be given to the anticipated arrangements with RF, does not undermine the company's survival, and is likely to ensure the livelihood of hundreds of employees. I have no doubt that the sums referred to above amply provide for the parties' needs.
110. If, having considered this Judgment, the parties, on advice, for tax reasons wish to effect different methodology to achieve the outcome which I have ordered, I am of course willing to hear submissions on that issue. I end by expressing the fervent hope that this fractured family may now set itself upon a course of conciliation.
     

Note 1    For the purposes of this table I have assumed a mid point, however for reasons articulated above, my intention is that the net proceeds are split after it has been sold.    [Back]

Note 2    For the purposes of this table I have assumed a mid point, however for reasons articulated above, my intention is that the net proceeds are split after it has been sold.    [Back]

Note 3    Apportioned equally between the parties.    [Back]

Note 4    Adjusted value after land transfer and cash payment.    [Back]