[2009]JRC015A
royal court
(Family Division)
3rd February 2009
Before : |
V. J. Obbard, Registrar (sitting alone). |
Between |
G |
Petitioner |
And |
S |
Respondent |
IN THE MATTER OF REGISTRAR NOT PREPARED TO ACCEPT VALUATION OF HUSBAND'S SHARE IN ROOFING BUSINESS AT £175,000.
Advocate R. E. Colley for the Petitioner.
Mr N Le Gresley for the Respondent.
judgment
the REGISTRAR:
1. The parties in this case separated in January 2007. There are 2 children of the marriage and the wife (petitioner) lives with them in the former matrimonial home.
2. It is up to me to decide how matrimonial assets are to be divided. If there are sufficient assets to be distributed without the parties having to sell the former home, I must decide upon the compensation in the form of a lump sum which the wife will at some time, either now or in the future, pay to the husband (respondent) if she continues to live in the former home.
3. The parties have both liquid and illiquid assets. It is proposed to include the following assets (to the nearest £1000) in the "liquid" bracket:-
(i) the former home (equity) £460,000
(ii) husband's savings (net of joint overdraft) £ 53,000
(iii) insurance policies £ 13,000
(iv) shares £ 12,000
(v) husband's car £ 7,000
Total £ 545,000
LESS
(vi) wife's liabilities
(including equity release loan) £ 21,000
(vii) husband's liabilities including tax £ 11,000
NET LIQUID ASSETS FOR DISTRIBUTION £513,000
4. In the "illiquid" bracket it is proposed to include:-
(i) wife's pension CETV £ 28,000
(ii) husband's pension CETV £ 10,000
(iii) husband's business £175,000
£213,000
5. The wife's advocate proposed that the figure of £175,000 for the husband's business is a correct figure. I am not so sure. It is important to know, because it will affect the division of all the other assets.
6. The husband's accountant wrote to the husband's lawyer on 27th October 2008. The relevant part of his letter reads as follows:-
"Thank you for your letter of 24th October and I will respond to the points raised therein, in the same order as follows:
1. Whilst I agree entirely with your comments in respect of the value of the business, the business is a "going concern" and on the basis that neither Alex nor his partner are intending to sell or cease the business, it does have an on-going value for the purposes of determining his "net worth". Having looked at the profits generated by the business over the last three years and considering the current economic climate, I would suggest that the value of Alex's share of the business may be around £160,000 to £190,000, this being based on the "willing buyer and willing seller" principle. However, one must also bear in mind the fact that Jersey has a substantial number of roofing contractors (approx. 40 according to the 2008 telephone book) and therefore, the main value is in a competitor seeking to increase market share by the acquisition of a competitor. Otherwise, the business has little value, as the demise of one will merely find the business redistributed between the other operators in the sector".
7. Clearly the husband himself does not agree with the advice given to him by his accountant. In his evidence before me, he described how he came to be a roofer. For 10 years he worked for a Mr H., then as a builder's labourer, before starting up a partnership as a roofer with a friend. He does not have any offices. He does invoices and payslips from a "dated" computer. They do work by tender. It fluctuates how many employees they have. At the moment they are busy for a month. They employ a labourer and someone else. Their work is based on being "hands on" all the time. They have not been asked to tender for work this month. They have no long term work. He agreed with Advocate Colley that 2007 income was a good year. They worked on a major housing estate, also on private houses and small developments. It was as much to do with a cheap job as having a good reputation. The reality was that "you would never get that money (£175,000) in a million years". He didn't agree with the business being taken into consideration to this value.
8. Looking at the accountant's letter in some detail, it appears that, having given a value of the business, the accountant goes on to say that the value given may not be realistic under present conditions. He says that, in his opinion, the main reason why the business will have a value is for a competitor to buy it in order to increase market share. There are, however, about 40 roofing contractors in Jersey. It would seem extraordinary for me to expect another roofing contractor like this husband to spend £175,000 to increase market share. For one reason he would not have the capital to spend, and, secondly, it would profit him more to work harder to obtain the better contracts and to carry them out to the best of his ability, rather than attempt to reduce competition.
9. I am not implying that the accountant is wrong in the basis he is using for valuing the business. He is using the recognised "earnings" basis. In Unlocking Matrimonial Assets in Divorce (Family Law 2007) the authors Simon Sugar and Andrzej Bjoarski say this:-
"Trading companies are found to operate a business profitably, and if the company being valued is succeeding in this objective and achieving a satisfactory return on the assets employed, it is advantageous to keep the company going. Therefore, when assessing a shareholding on a going concern basis, the valuer will first look at the profit-generating potential of the company rather than the assets base."
10. The authors of the book go on to describe how to calculate a price/earnings ratio in order to calculate the value of a company's shares by relating them to the company's annual earnings.
11. The section which follows is entitled "discounts and adjustments to the quoted P/E ratio". The purpose of this is to calculate a share price using an adjusted ratio. One of the adjustments which can be applied is to consider information about actual sales of unlisted companies that have recently taken place.
12. I have not been shown any recent examples of company sales in the building sector. However I am sure as I can be that the husband in this case is right when he says: "you would never get the money in a million years". Indeed, I doubt the truth of the wife's advocate's submission: "At the point of retirement, it will provide capital for him". I think it more likely for a roofer who wants to move on to a less challenging way of earning a living to wind up the business, or to hand over his share to another younger person in return for an 'ingoing' of much less than the theoretical value of the business. I admit, however, that this is pure speculation on my part.
13. I am not saying that his company does not have any value. What I am saying is that, taking a pragmatic view in line with the advice contained in the book I have quoted, the husband's roofing company does not have a value as high as £175,000 for the purpose of ancillary matter proceedings after a divorce.
14. In order to establish a more accurate figure, I will need to hear further evidence from an accountant. However, for the time being, I think that considerable adjustment will need to be applied to the figure provided, principally:-
(i) because of the acknowledged down turn in profitability of companies associated with the building trade; and
(ii) because of the very "hands on" nature of the husband's business, making it difficult to sell on "good will" with the business once he and his business partner have left the business;
(iii) because, in practice, a roofer in Jersey is only as good as the quality and price of his last job.
Authorities
Unlocking Matrimonial Assets in Divorce (Family Law 2007) Sugar and Bjoarski.