D v D

I shall for convenience refer to the parties as the wife and the husband. The wife seeks an order for ancillary relief. The main assets are (i) a private company (the Company) and therefore the case raises a number of the difficulties associated with such an asset, (ii) the old matrimonial home and (iii) the husband’s new home.

At the PTR I directed that each side should “plead” their case. They did so, and I found this to be a helpful exercise.

The parties were married on the 25^th January 1986. There had been one year of pre marital cohabitation. On marriage the wife was aged 29 and the husband 26. The wife is now 53 and the husband 49. There are two children of the marriage a boy aged 20, and a girl aged 18. The children were privately educated and are supported financially by their father. Both children are at University.

At the time of the marriage the wife was employed fulltime as a manageress at an Early Learning Centre and the husband was a farmer. The husband had joined the family farming business when he was 16 and then went to Agricultural College returning in 1981, aged 21, having graduated. At the time of the marriage he was fully engaged in the business which included farming at CH Farm where he lived and had a tenancy which the landlord had granted to him (not the Company) some 2 years earlier.

The first matrimonial home was the tenanted CH Farm House. In 1994 the parties bought CG Farmhouse, which was their last and only owned matrimonial home (the matrimonial home). The surrounding farm land (CG Farm) was purchased by the Company. The wife remains living at the matrimonial home.

The matrimonial home is set in 1.05 acres of garden together with a further paddock of 3.49 acres. It was valued as at 8 October 2009, by jointly instructed valuers, at £975,000 (£945,750 net of selling costs). The valuation excludes outbuildings which are owned by the Company. It is free of mortgage and until 2012 subject to a claw back in the event of development.

The husband moved out of the matrimonial home in November 2003. Initially he lived in a rented property. In November 2006 he purchased a home for £499,000 using a deposit of £160,000 and raising the balance by way of mortgage. He intends to remain living at that property (the husband’s home). That property has been valued at £499,000 and net of mortgage (£261,331) and selling costs at £223,100.

The wife filed her petition and Form A in May 2006. Decree Nisi was granted in August 2006. There is as yet no Decree Absolute.

The Company was incorporated in April 1952. Prior to that the farming business that became the Company’s business had been operated as a partnership between the husband’s father, uncle and grandfather.

Earlier history is:

The shareholdings on incorporation were 14,250 shares divided between the husband’s father (42%), his uncle (42%) and his Grandfather (16%). I do not know how his uncle’s shares devolved, but this does not matter.

The current share holding in the Company is that the husband holds 85.65% and his mother owns the balance (14.35%). The acquisition of his shares by the husband has been by way of gift and can be summarised as follows:

The husband’s percentage shareholding was increased when, in 1995, the Company bought 3645 shares held by his brother for a sum of £965,500 payable over two years. Thereafter, his brother played no part in the family business and sadly was subsequently killed in a motor cycle accident in 2000.

The husband’s father died in July 2009 and his shareholding passed to his widow. Up to his death he had maintained an active and, I was told and accept, an influential involvement in the business. The husband’s mother takes no active part in the day to day running of the business save that she discharges her responsibilities as Company Secretary.

As can be seen from this history the husband is now the majority shareholder and since the death of his father has been the only director responsible for the day to day running of the Company’s business. It is therefore now effectively his company (although he said that he thought that his mother may leave her shares to his children rather than to him). Through it he still farms the farm bought by his Great Grandfather and Grandfather in 1926 (GE Farm) and the farming heritage of his direct male line at that farm and in the area can be traced back to 1815 and his Great Great Grandfather.

The Company’s business now has three component parts, namely:

The husband provided helpful maps (agreed by the wife) showing the land owned and farmed by the Company now, and their dates of acquisition. The maps also show land that is tenanted by the Company now, but not that tenanted over the years. The tenanted land played no part in the valuation of the Company for the purposes of these proceedings. Also its role over the years, and in the future, was not gone into in any detail. The Company now owns and is the tenant of land to the east and west of W. The land to the west was all acquired during the marriage.

To the east of W:

The packing and processing operations are also based to the east of W and very close to GE Farm.

The packing operation comprises a range of steel portal frame buildings with parking facilities and a vehicle storage yard. The plant now has an internal area of some 45,000 square feet and has three main units. The Company bought the original pack house in 1991 and the husband was given the responsibility by his father of running this new facility. The husband’s brother was then also working in the business, mainly on the farming side. This new venture was successful and to upgrade its operation the Company extended its site and built a new pack house in 1999. And it built a new cold store in 2003.

The packing operation became and remains integral to the sale / marketing of the vegetables grown at the farms owned and tenanted by the Company. The provenance of the crop is important, as is quality and its packaging. The main customers are supermarkets. They are demanding customers in a number of respects, for example, as to quality, price and the terms and timings of their orders / contracts.

The diversification into processing commenced in July 2004 with the acquisition of a company involved in that business for £100,000. In 2005, the Company bought the site at which the processing unit is now based (the OG Site) and invested around £3m (the exact figure was not established and does not matter) in buying and equipping the processing plant.

As I have mentioned, all of this land and the operational base of the Company is to the east of W and centred on GE Farm which has been in the husband’s family (directly or through a family company) for generations and the packing and processing units are very close to it.

The land to the west of W was, as I have mentioned, all acquired and let after the marriage:

In 1985, the year cohabitation commenced, the Company farmed a total of about 500 acres (owned and tenanted), had 10 employees and a turnover of about £350,000.

It now farms around 3000 acres (owned and tenanted), carries out the packing and processing operations, has 118 employees and the accounts to 31 March 2009 show a turnover of around £6.84 million.

The purchase and history of HH Farm is of relevance because of the cash and working capital it generated for the Company as a result of the sale of parts of it for use (a) as a motorway, and then later (b) as a commercial development close to that road.

The receipts were:

The three main heads of expenditure of those moneys were (a) the funding of the purchase of the husband’s brother’s shares (nearly £1 million), (b) the funding of a new pack house (around £1 million), and the (c) the funding and equipping of the processing facility (this being the largest expenditure put at over £3 million in the husband’s business plan prepared for the hearing which accords with information as to that expenditure provided earlier).

On (a) updated valuations and assessments obtained for the purposes of these proceedings from jointly instructed experts, and (b) an unchallenged recalculation (using the same methodology as the experts) prepared by the wife’s counsel, the Company now has a gross asset base of about £11.92 million made up of:

As will appear later (a) the jointly instructed accountant also included a figure for goodwill, and (b) issues arise as to how the contingent corporation tax liabilities should be taken into account on a valuation of the shares.

The turnover of the Company:

The gross profit of the Company:

The shareholders’ funds:

The wife’s counsel provided an assessment of the increase in the value in land owned by the Company. The mathematics of this was not challenged and it concluded that the acquisition of land during the course of the marriage has resulted in an increase from £1,131,872 (adjusted for inflation to October 2009) to £5,015,247. This is an increase in real value of 443%, and put another way, the 1985 land value, expressed in today’s money, accounts for just over 23% of the present total value.

Issue was joined on these matters in the statements and the pleading. In my view correctly, (a) the wife through counsel did not pursue the findings she sought as to both aspects of this disputed participation, and (b) counsel for the husband also recognised that the exchanges in written evidence as to her participation in the business were essentially irrelevant.

I should however record that on the basis of the evidence I heard as to the wife’s participation in the purchase of HH Farm there was force in the husband’s contention, and I find, that the wife in her written evidence was seeking to re-write history by exaggerating her role in that respect. I am of this view because she gave oral evidence as to her part in the finding and the identification of the potential of HH Farm as a route for the motorway and in its purchase, which (a) was at odds with her written evidence on this topic and (b) essentially little different from the husband’s account.

It was common ground that she supported the purchase and in my judgment a purchase by the husband and the wife, if the Company did not buy, was not a realistic possibility.

The wife (in my view correctly through counsel) based her contribution to the business and the acquisition of assets on the non discriminatory approach to be taken as between the bread winner (the husband) and the home maker (the wife).

I accept and find that the opportunity to buy HH Farm first arose because of the relationship between the husband’s father and the relevant agent. At that time, it was well known (as is shown by a letter relating to the completion of the purchase dated 22 September 1987) that there was a real possibility that part of the land would be chosen as the route for a new road, but the plans for this were by no means settled. The vendors would have been fully aware of this and it would be very surprising if this possibility, and its uncertainty, were not factors taken into account in arriving at the price (£180,000).

There was no evidence as to when the prospect of there being the possibility of sale for commercial development of other parts of the land, if the new road went through the land, was identified. The compulsory purchase in respect of the road did not take place until 1996 (some 8 to 9 years after the purchase) and the sale for commercial development was some 4 years after that.

The land would be, and was, useful to the farming business of the Company. In my view this remained the case when the prospect that the new road would go through the land leaving parts of it difficult or impossible to farm profitably is taken into account. No contrary evidence to that view was given and the remaining parts of the land are still farmed by the Company. So, in my view from the view point of the Company (and subject to the purchase price) the purchase represented a “win / win” opportunity in that it could farm the land and it might obtain a windfall profit from the sale of a part or parts of it.

I accept and find (a) that initially the Company opposed the siting of the motorway through the land indicating a wish to farm all of it, but (b) that this opposition was sensibly abandoned because of the force of the opposition to other routes and the potential for large capital profits. Commercially the abandonment proved to be very beneficial.

The husband sought to place weight on the part his father played in obtaining a good price for the land and a good figure for crop compensation. As to the latter, he said that the initial offer was derisory and it is clear that the negotiations took a long time. As to the former, the negotiations were against the backdrop that absent agreement the price could be fixed by the Lands Tribunal. The evidence did not indicate the extent and nature of the negotiations over the sale of the land for commercial development. But I proceed on the bases (a) that the husband’s father was actively involved in those as well, and (b) that in respect of all aspects of the sales he achieved a good price, and crop compensation, as a consequence of him being a good and tenacious negotiator. However, this participation of his father was an aspect of good management of the assets and business of the Company and, save in that sense, it does not provide an additional factor in favour of the conclusion that this source of capital (the windfall as it was referred to in argument; albeit that understandably the husband did not like the use of the term) should be traced back to and be said to be, or essentially to be, a part of or the product of, the long term farming carried out through the generations by the husband’s family.

A product of that history was the ability of the Company to raise / borrow the purchase price of HH Farm. But the essential reality underlying this very large injection of liquid capital into the Company was (a) a sensible investment in 1987 in a “win/win” acquisition of land, and (b) the significant (and I accept good prices) obtained for parts of land and crop compensation and thus (c) a “crop” comprising a road and commercial development.

The sales resulted in a significant liability to tax on the capital gain in respect of which the Company could claim rollover relief. Accordingly, and understandably, the husband and his father were on the look out to purchase land and other assets to claim such relief.

The liquidity and trading success of the Company founded the results that the board was able to authorise high salaries / bonuses for the husband, and the Company had significant cash at bank. At the year ends 31 March, the cash at bank was:

From the year to 2005 the husband did not draw all of his voted salary / bonus and from 2004 his current account stood at:

The year end figures also show that:

The coincidence of the timing of these changes might have led the wife to assert that they had been made deliberately to support the husband’s case and to damage her claim for ancillary relief.

No such assertion was made and thus no such finding was sought. If it had been I acknowledge that the husband would have disputed it and relied on evidence relating to his conduct relating to the support of the wife and children to refute it and to support a finding that there was simply and only a coincidence of timing.

The major reason for the loss of liquidity was the investment of around £3 million in the processing plant in 2005. The husband pointed out that that investment was made before the wife’s petition for divorce. In his oral evidence he asserted that at that time he was hoping that there would be a reconciliation, and he was a regular visitor at the matrimonial home. I record that in my view when the husband was giving this evidence as to a reconciliation it did not ring true. Rather, his evidence seemed to relate to the commendable stance of both parties to promote and maintain their relationships with the children. Reference to the divorce petition supports that view.

However, I will assume in favour of the husband that up to the issue of the petition in 2006, and thus at the time that the major investment in the processing unit was made in 2005, he was harbouring hopes that there would be a reconciliation. When he asserted this he did not expressly link those hopes to the decision to invest in the processing unit or indicate what, if any, relevance he thought they, or the risk that he would be facing proceedings for ancillary relief, had on that decision. He did not assert that the decision was discussed or raised with the wife. Rather he asserted that the decision was a commercial one taken by him and his father in the interests of the Company.

That motivation was not challenged and I accept it. However what was asserted and I find is:

Both relate to the marketing of products produced by the farms and are therefore developments or expansions of the farming / production business that had been carried on before (and over the history had added to and then replaced some dairy and other livestock farming). The farming / production business necessarily always had a marketing or sales side and so these ventures are developments to, or changes in, that side of the business. There will have been other developments and changes over the years to reflect changes in the way in which we live and, for example, the emergence of the supermarkets, their market share and power.

The packing capability was introduced in 1991 (and so some 5 years after the marriage) and the husband was put in day to day charge of it. The driving force behind this change was the husband’s father (with the agreement and support of the husband). The husband indicated that its introduction and the respective roles in the business after this of the husband and his brother was a factor behind his brother leaving the business and being bought out. As I understand it, the purchase of CG Farm was not supported by the husband’s brother and was another factor that led to the husband’s brother leaving the business and his shares being bought by the Company (utilising the cash in the Company arising from the compulsory purchase of part of HH Farm).

It was a new venture that has proved to be successful and the facility was expanded utilising capital generated from HH Farm. The new skills required to make it a success, and its initial profitability, were not investigated in evidence but I have no doubt that there were a number of new skills that had to be developed, for example, in respect of the selection and packing of the vegetables and the provision of records relating to the provenance of the packed vegetables. Also skill and experience are required to trade successfully with the supermarkets having regard to their market share, business practices and supply demands. As to these matters the jointly instructed accountant provided useful general market information which the husband confirmed applied to the position of, and the problems faced by, the Company in connection with, for example, the approach of buyers employed by the supermarkets, the lack of written contracts and forward ordering and the rejection of produce.

In short, the introduction of the packing facility was a development of the marketing side of the farming / production business which proved to be successful.

The broad thinking in respect of the processing unit takes a similar course. But it involved entry into new markets as well as the utilisation of some of the skills involved and acquired in the farming and packing operations. As the price paid indicates, the processing company that was acquired was not a large one and, in any event, the nature of its processing business was changed by the Company from low volume / high margin sales to the wholesale market, to high volume / low margin sales to a different range of customers. The impact of this on the usefulness of that processing company’s contracts / goodwill and the experience and skills of its workforce was not gone into by the husband, but it seems likely that the change would diminish it considerably because, as the husband said in his second statement, the Company sought to operate in a different league and the staff acquired were resistant to change. This change, as he points out, increased turnover substantially. But it also substantially increased the costs and that increase and other matters have led to losses.

Also, the processing unit provided over capacity which meant that it could not be fully utilised with what was grown by the farming / production side of the Company’s business and thus by waste from, or diversion from, the packing operation. But there was no evidence that the fitting out was therefore reduced. To service this over capacity the Company has had to buy in produce (the husband estimated that this accounted for around 50% of the relevant sales) and this has made this aspect of the Company’s business vulnerable to changes in prices of the produce bought in on fixed price contracts with customers. This was another contributor to the losses that were made and, as I understood it, was not comparable to any buying in of produce for packing that may have been done in the past.

The husband in his second statement describes the processing operation as a new venture. In my view that is correct albeit that it is connected to the pre-existing arms of the business.

In my view, any reasonably competent lender would have required appropriately detailed projections of the operation of the processing unit before lending any significant amount for its purchase and fitting out costs. No lender was involved but this does not obviate the advisability and good commercial sense of preparing such projections when investing company moneys.

Although there have been problems relating to the farming and the packing unit they have, of themselves, remained profitable and the essential cause of the change to overall losses (after deduction of depreciation) in the years 2005 to 2009 has been the investment in the processing unit.

The present net capital value of the land and units making up the processing unit is about £1.3 million. I do not have a figure for the accumulated losses. But it is clear that as matters stand at present the investment in the processing operation has given rise to significant income and capital losses and a dramatic change in liquidity.

In his written and oral evidence the husband asserted that there was no formal or written business plan relating to its acquisition and that there had been no such plan when the major steps had been taken to embark on the packing side of the business and to purchase CG Farm. In short, his position was that the plans were in the heads of his father and himself and that in the past the Company’s Bank had not required a business plan when making loans or providing facilities (which in any event were not required in respect of the investment in the processing unit).

I directed that the husband should produce a business plan for the Company (with current records and management accounts (if available) in support). It was made clear that part of the purpose of this direction and business plan was to provide a vehicle for the provision by the husband of detailed, particularised and supported assessments of the prospects of the Company. So that plan should have included appropriately particularised detail of the present thinking in respect of all aspects of the business including the processing unit. Or that information should have been provided by other means (e.g. a presentation to the Company’s Bank or other potential lenders). In the case of the processing unit, which has made losses, the information provided should have covered in appropriate detail how the performance since it started matched the expectations for this large investment, how problems were being dealt with and the forecasts for the future. In respect of other matters the information provided should have covered (together with the documents complying with my direction relating to what the Company could borrow) the prospects of the Company in respect of alternative routes for raising finance including that ultimately proposed by the husband and why more could not be raised. So it should have included information as to the loss of crops and therefore turnover if land was sold (his final proposal involved the sale of CG Farm) and the intentions as to and the prospects of replacing the land that was sold with rented land and the cost of this.

The earlier written evidence of the husband, what he told Ms Howe (the accountant who has valued the Company), his business plan and his oral evidence:

The remainder of the business plan speaks in broad policy or objective terms without identifying by reference to past figures and projections what has been done and is being done to address the problems relating to (a) the processing operation, that it seems were first really recognised in December 2008, and (b) other problems referred to by the husband in his written and oral evidence.

Therefore when it is read alone, and with the reports of the jointly instructed accountant and the husband’s written evidence, the business plan continues an approach based essentially on generality and does not provide the outsider (and so the court, Ms Howe (the jointly instructed accountant) and the wife) with relevant detail and background information / figures to assess the future prospects of the Company on a properly informed basis.

A forecast to 31 March 2010 is exhibited to the business plan which divides the business into three parts. The profits so shown are similar, but not identical, to the forecasts for the year to 31 March 2010 provided to Ms Howe for the purposes of her supplemental report dated 13 November 2009, which were the figures used by the parties in submission and the ones I have used; they are contained in her calculation of the average underlying net profits. As she explained, they are understandably and appropriately based on figures provided to her by the Company rather than any investigation or audit she carried out.

No forecast beyond 31 March 2010 was provided. No projections or forecasts either on the basis of the borrowing proposed by the husband, or in respect of an award of the size sought by the wife, were provided.

The broad or “blue sky” thinking, upon which the investment in the processing unit, and the husband’s optimistic view of the future, is based was and is that the processing unit will create and enhance the Company’s position in the market generally by putting it in a good position:

Another part of the underlying thinking behind the investment in the processing unit was to utilise the roll over relief (and thereby, I was told, roll over around £750,000 of tax). In advancing that line of thinking it was not explained if it was considered whether the period to claim that relief could have been (further) extended, but I accept that in terms of reinvestment in the business, against the background thinking of the husband and his father that it should continue for many years and hopefully through further generations, the utilisation of roll over relief is commercially sound.

The general assertions made by the husband in his second statement, business plan and to Ms Howe (as recorded in her two reports) are to the effect that:

In his second statement, the husband said that he viewed the processing unit as a long term investment which he believes can be successful. As I have indicated his business plan added little detail to the broad generality of that assertion.

In his oral evidence the husband was asked questions by the wife’s counsel about the commercial thinking that underlay the investment in the processing unit and his present views as to the future of the Company, its profitability and margins. Through that route, or in chief, he had the opportunity to add detail to his generally expressed views on the past, present and future plans and expectations for the processing unit and the other aspects of the Company’s business. He rightly said that he is not an accountant; but he is the guiding mind of the business of the Company and as such (and as a farmer / businessman) he is in a position to provide such detail, but did not do so. Rather, he confirmed the general thinking set out in the documents I have referred to.

His general or “blue sky” underlying thinking makes sense and by reference to it I accept that there is a reasonable prospect that the future will show that the decision the husband made, with his father, to invest over £3m in the processing unit will be proved to be a good one that in the medium to long term enhanced the market position, security, profitability and value of the Company (as the decisions to buy CG Farm and to start the packing business were shown to be).

Ms Howe points out in her supplemental report that, in the projected balance sheet for the year to 31 March 2010, a deferred tax asset has been created in respect of losses carried forward. She indicates that in her opinion such an asset would not have been created unless the husband and the Company’s accountants were confident that profits would be generated in the future and relieved against these losses. She was challenged in writing on this point and maintained her view. She was not cross examined on this view. I accept her view. Indeed a hope and expectation of future profit which was not quantified beyond 31 March 2010 was a theme of the husband’s evidence.

As I have indicated, a problem for the court and the jointly instructed accountant (and therefore also the wife and her advisers) is that the information provided does not enable them to form a properly informed view on whether the general thinking, business instincts and ability of the husband now (and his father before his death) will found a profitable future for the Company as the husband hopes and expects. It is, of course, also the case that good general plans can founder if the detail is not properly investigated and managed.

I return to these points when discussing the centrally important issues relating to affordability. As will be seen they found a conclusion that a different approach should be taken as between husband and wife and when considering the likely approach of a commercial lender.

The parties gave joint instructions to Ms Howe to value the husband’s shares in the Company and to consider the issue of liquidity. The accountant was not asked to express a view on whether there was any market for the shares, or to consider any detailed issues or suggestions relating to liquidity or exit strategies (although in her first report she covers the sale of residential properties from a base that she has been told by the husband that all the other assets of the company are intrinsic to the farming enterprise; and as will appear later this was confirmed and advanced by the husband when she was dealing with her supplemental report and questions raised on it). She also went on to explain, as would be well known to lawyers advising the parties that any dividend or additional remuneration would need to be accrued from available resources to ensure that the husband’s loan account balance was not overdrawn and that financing through remuneration or dividend carries with it significant tax consequences because of the need to cover and pay them. It is also of interest, and can have come as no surprise to the lawyers, that she comments that significant security was available from the value of the land. She added that it may be that a period of consolidation was required until the returns expected from the processing unit are achieved and that when and if this is achieved payment of the levels of remuneration previously enjoyed by the husband may be possible. When she was preparing that report (which is dated 28 January 2008) the husband told her that he would allow another year for it to turn round.

Those general and unsurprising comments are based on very general instructions, but they provide confirmation that estimates of the returns from the processing unit were plainly of importance to assessments of (a) whether the Company was likely to return to making significant profits, and (b) the ability of the husband to raise funds to pay the wife and to continue operating the Company.

As I have indicated in other cases, in my view such general instructions as to liquidity (i.e. to consider liquidity) fall short of what is required. When the matter came before me for pre trial review in October 2009, in addition to giving directions for “pleadings” (to include a range of possible solutions) and evidence relating to proposals relating to CG Farm (the Green Plan Proposal which I mention elsewhere), I gave directions that the accountant was to be asked further questions relating to the market for the husband’s shares (and thus the Company because no-one has suggested that his mother would not join in a sale or that there should be any discount in respect of his shares), what further borrowing (if any) could be maintained and how the Company could be utilised by the husband to extract funds. The letter of instruction then sent included the following passage relating to the last general question:

“----------- Mr Justice Charles put forward the hypothetical scenario of [the husband] wanting to raise money in order to purchase a business for his son. When answering the question it would be helpful if you would consider how and if the company could be utilised by the respondent to extract the sums of £2,000,000, £2,500,000 and £3,000,000.”

This reflects discussions in court and an approach I have found to be productive at FDRs, and elsewhere. I agree that an alternative hypothesis suggested by counsel for the wife of a controlling shareholder looking to raise money to meet liabilities to Lloyds, would also direct attention to relevant issues.

As I have mentioned, I also ordered the husband to produce a business plan and a document setting out the maximum monies he maintains could be provided to the company by borrowing (with documentary evidence and calculations in support). The pleadings I directed were to include the case of each party on the range of possible solutions and the terms of any suggested borrowing.

Ms Howe produced a supplemental report dated 13 November 2009. In the light of that, and the “pleadings”, on a further pre trial review on 27 November 2009 at the invitation of the parties, I directed that they could both put in evidence concerning the marketability of the Company as a whole. This resulted in reports from representatives of two firms of chartered surveyors, Savills (Mr Beer) for the husband and Smiths Gore (Mr Nicholson) for the wife.

In her supplemental report Ms Howe referred to some sales of companies to support the view that the Company as a whole could be sold and confirmed her approach to its valuation on the hypothesis that there was a willing buyer and seller. That valuation was on an assets basis, with an add on for goodwill.

In her first report (dated 28 January 2008) she included a sum for goodwill of £678,354. This sum was twice her assessment of the average underlying net profits after tax for the years to 31 March 2002 to 2007, the last year then being based on draft accounts. The assets element of her valuation was based on valuations by, Chartered Surveyors, Wilbys (Mr Scourfield) who were jointly instructed.

In her supplemental report (dated 13 November 2009 and so nearly two years after the first one) she changed her calculation of goodwill and based it on a multiple of four times the projected profit for the year to March 2010 for the packing business after making adjustments (which added back the depreciation included in the profit and loss account and made some other small adjustments) and deducting from that profit all of the husband’s remuneration and pension contribution. That produced a valuation for goodwill of £1,065,600. The remainder of her valuation is on an assets basis using the up dated valuations provided by Wilbys.

She was cross examined on this change relating to goodwill. The focus of that questioning was on the increase in the multiple used rather than in the change in the multiplicand (the adjusted profit figure). The cross examination made no inroads into undermining her reasoning which in the case of the multiple was largely based on those used in sales she identified.

On the information and instructions she had Ms Howe had plainly approached her task with care and diligence but to my mind a difficulty she faced, as she recognised in her oral evidence, is that if the underlying assumption of her valuation became a reality the willing purchaser would be likely to carry out a due diligence exercise and assess what it was prepared to pay for goodwill on its estimation of future profitability etc. from that base. Ms Howe was understandably not instructed to carry out such an exercise and as I have pointed out the husband has not provided equivalent information. It seems to me that these points and their potential impact on her valuation should be recognised.

Ms Howe accepted in oral evidence that if the customer of the processing unit she had been told had been lost had been replaced a small adjusted profit in respect of the processing unit could be added to the multiplicand in her goodwill calculation. She was not asked about (a) the multiple to be applied to that element of the adjusted profit, or to the profit from the packing unit, in the context of the husband’s optimism concerning the profitability of the two units, or (b) whether this would also result in a small increase to her net assets figure by adding back the £44,000 she deducted when adding the estimated profit to 31 March 2010 of £87,865.

So, although I do not criticise the reasoning of Ms Howe in either of her reports, I am of the view that the valuation for goodwill needs to be treated with caution both as a snap shot figure now and when considering how the Company should be treated and valued for the purposes of the s. 25 exercise and the order to be made. This is because in respect of both such a valuation inevitably involves the matters of opinion, and reliance on forecasts made by the husband (some of which were not born out by the results that occurred between the two reports). As to the former, Ms Howe’s valuation lacks some of the information that would be made available by a due diligence exercise. As to the latter, Ms Howe’s views on adding a sum for goodwill by reference to estimated profit of the processing unit to 31 March 2010 shows (although this was not put to her) that if a due diligence exercise or a properly supported business plan and projection showed that the processing unit was likely to be profitable (and for example that it would enable remuneration at the earlier high levels to be voted to the husband as she mentions in her first report) this could affect the goodwill valuation now. Further, and in any event, if such profits were realised this would have a major impact on (a) the value of the Company as a capital asset, (b) its ability to finance payment to the husband by way salary or dividend from profit or to finance borrowing for that purpose and more generally (c) the assessment of its value to the husband as the source of an income stream.

As appears later, in my view these points relating to the product of the investment after separation in the processing unit are relevant.

Ms Howe’s approach, and the hypothesis of her valuation as it includes goodwill, is the existence of a purchaser of the Company as a going concern. There is a contingent corporation tax liability of around £2.2m which would arise (subject to roll over relief) on the sale of all the capital assets. If there was an actual sale of the shares in the Company the allowance for this contingent liability would be a matter of negotiation between the vendors and a purchaser of the Company as a going concern, who would not be looking to sell all the assets in the short term. This adds a further significant variant to her valuation.

Additionally, of course, the valuation is based on opinion as to the likely sale value of the underlying assets, and the view that the underlying hypothesis of a willing vendor and purchaser is a reasonable possibility.

The view of both Savills (Mr Beer) and Smiths Gore (Mr Nicholson), who have relevant experience in the marketing of farms and farming companies, was that the prospect of finding a purchaser for the shares of the Company (and thus a purchaser of the Company as a whole as a going concern) was small and that the best, and realistically the only commercially sensible, way of marketing the Company was by lotting its assets. This would not preclude, and indeed in their view would be the best way of finding a purchaser for the shares (or all of the assets).

Any assets sale by lots would trigger the contingent tax liabilities and would be likely to remove or drastically reduce the goodwill element of Ms Howe’s valuation. Indeed that element would only be likely to survive if a purchaser of either or both of the packing and processing businesses, as going concerns, was found. No-one suggested that this was likely.

Wilbys (Mr Scourfield) confirmed that his valuations were of the assets individually, but on the basis that they would all be being marketed at the same time. His valuations were therefore in line with a lotting strategy and looked at the processing site and the packing site as sites and buildings.

At a preliminary stage of the hearing I disallowed a part of Mr Nicholson’s evidence relating to the discounting of the value of parts of the assets because this evidence went outside the permission granted (late in the day) for his expert evidence. In any event, I record that the limited oral evidence he gave on this aspect of his views, which was to the effect that Wilbys had overvalued some of the assets, was unpersuasive.

The underlying valuations of the jointly instructed valuers (Wilbys) therefore comprise the expert valuations that underlie both a valuation based on a sale of the shares and of the underlying assets (on a lotting basis). This valuation is necessarily based on professional experience and knowledge. It carries greater uncertainties than in some other cases of land valuation because of the incorporation within it of the prospect of a change in use of either or both the packing and processing sites and a lack of comparables.

As appears above the valuation has a number of “moving parts” and uncertainties within it.

The range in the value, of the husband’s 85.65% shareholding (with no discount), on (a) the evidence, and (b) the unchallenged recalculation (using the expert’s methodology and taxation approach) prepared by the wife’s Counsel for the purpose of their final submissions is as follows:

The starting point used by the wife’s Counsel was Ms Howe’s final figure for net assets. They then made adjustment to that to take account of the Cricket Club land and added goodwill for the processing unit. They made no adjustment to the net assets by reference to the forecast to 31 March 2010 because of the replacement of a lost customer. Naturally Ms Howe’s final figure did not make any adjustment for the very late payment of costs by the husband that resulted in the conversion of his director’s current account from (a) an amount owed by the Company to him (a debt of the Company), to (b) a sum of £227,066 owed by him to the Company (an asset of the Company). As mentioned by Ms Howe in her first report this indebtedness will have to be covered by a vote of remuneration or dividend (and the tax liabilities so incurred will have to be addressed and funded).

The husband has not identified whether the plan is to cover (and so render lawful) that payment by voting a dividend or a salary/bonus, although as I have mentioned the indication from submissions and exchanges between Counsel was that he would take the “dividend route”. This would also accord with his proposal relation to the funding of his final offer (see later).

On either basis the indebtedness of £227,066 of the husband would be set off against what was voted to him, and would therefore no longer exist. So, in my judgment for present purposes it should not be treated as a debt of the husband to the Company and/or as an asset of the Company.

The payment giving rise to this change in the husband’s current/loan account and that change means that the adjustment made by Ms Howe in respect of his current/loan account in reaching her net assets figure should be revisited. Her starting point was the balance sheet as at 31 March 2009 (which included a debt to the husband of £75,013) and she adjusted this starting figure by reference to the balance still owed to the husband as at 30 September 2009 (to reflect drawings to that date). She did so by adding back £54,652 leaving a debt owed to the husband of £20,361. This has now been extinguished in reaching the reverse position that the husband now owes £227,066 to the Company. But in terms of the net assets that debt will have been balanced by a decrease in the Company’s cash or an increase in its borrowing. The net asset position will therefore be neutral leaving only the small adjustment to be made of adding £20,361.

So when the husband’s debt is set off against dividend or remuneration this will decrease the net assets by that amount. The approach to the relevant tax liabilities will also have an impact.

At my request the wife’s counsel provided a recalculation to take into account this debt of £227,066. They did this on the basis that it would be paid by the declaration of a dividend and that the husband would then have a tax liability of £56,767. The adjustment deducted from the net assets figure the grossed up dividend (by reference to the 10% tax credit i.e. £252,296) to cover the husband’s 85.65% of the declared dividend.

I return to the methods by which moneys can be paid out of the Company, when dealing with affordability.

The approach taken by the wife’s counsel uses the tax rates set out in a Table provided by Ms Howe in answer to questions relating to her supplementary report. I comment on their approach as follows:

On the basis they used the revised figures (which also corrected the error on sales costs) provided by the wife’s counsel were:

To my mind the reality is that the husband’s tax bill (£56,767) will have to be met either by a further dividend or by remuneration over and above the level included in the estimated remuneration to 31 March 2010 (it may be that it would not have to be voted until a later year, but if this was the route taken it would be voted in a year when the tax rate is likely to be higher). An approach in line with what I have been told in respect of the husband’s final offer (see below) would indicate that he would be likely to cause the Company to declare a dividend in an amount that would enable the debt to be set off and the tax on that grossed up dividend to be paid when it became due. That grossed up amount is £315,918 (calculated as follows: net sum required is £227,066 grossed up to pay tax at 32.5% would require £336,394 (total tax £109,328) less Tax Credit 10% of £33,639 = £75,689 so grossed up sum is £227,066 + £75,689 = £302,755. In reverse dividend is £302,755, so tax is calculated on that sum plus one ninth of that sum (£302,755 + 33,639 = £336,394, tax credit 10% = £33,639 plus balance 22.5% = £75,689). This equates to an uplift of 25% (which is the uplift used by the parties).

The “tax element” of that dividend could either be retained by the Company (as a debt owed to him) or paid out to him so that he could use it in the future to pay the tax when it fell due so it would either be a liability of the Company or paid out.

An alternative route to setting off the debt of £227,066 would be to vote grossed up remuneration. This route would not leave the husband with a tax liability. To cover tax and NI (total 41%) that would require a grossed up payment of £384,857, which would have a “knock on” effect on the taxable profits of the Company for the relevant year.

The valuation by Ms Howe is based on present valuations of the assets but takes account of some future events (e.g. the forecast to 31 March 2010). It therefore does not have a completely consistent “snap shot” date.

In my view, having regard to the calculations I have been provided with and the alternative routes open to the husband to satisfying his present debt to the Company, the pragmatic and fair course to take, is to proceed on the bases that:

These can be summarised as follows:

The table set out above excludes chattels and jewellery.

HC Farm is a property in which the husband has a half share that he inherited. The other half is owned by his brother’s children and it is included on the basis of a tenanted valuation (as I understand it of the whole) and without any deduction for capital gains tax (because this is unknown to the wife and was not estimated by the husband) or discount because the husband only has a half interest. The best price is likely to be obtained on a sale of the whole and the ability of the husband to effect or bring about such a sale now, was not investigated. The wife invited the husband to give his share to their children now. He declined to do so but indicated that his will provides and it is his present intention to leave his share to them on his death, if it then exists. Although it seems that this asset is not readily realisable at present, and it is an inherited asset, it could increase in value (if the tenancy ends or does not exist, as to which there was some doubt) and could (by a charge on his beneficial interest) provide some security for borrowing by the husband.

The husband’s mortgage of £261,331 has been deducted in arriving at the value of his home. He has to service that loan.

The table of assets demonstrates, as was surely always obvious to the parties and their advisers that:

To cover her paid costs and costs loan the wife needs £408,591 (and to discharge all her indebtedness £432,327). The husband’s latest Form H estimated his costs at £331,879 but indicated that he had paid costs totalling £335,050.

So the grand total for costs is of the order of £743,000, which is a significant figure when assessed against the value of the assets.

This was comfortable and commensurate with the husband’s drawings from the Company. Significant sums were spent on the matrimonial home (but these were not quantified).

The wife’s budget in her Form E (adding in sums paid by the husband that she did not quantify) was about £120,000, plus a further £20,000 for the children. The husband’s Form E budget including his mortgage payments was £119,599 (including the children). Less his mortgage payments this is a budget of £83,599. The wife was asked a number of questions about her budget, the husband was not. Sadly, and as is often the case, the wife did not provide in her oral evidence, or otherwise, a clear account of how she had compiled all of her budget.

I repeat what I have said in other cases that in my view parties to ancillary relief proceedings should provide clear information as to how they have compiled their budgets. This should be a simple task because all they have to do is to set out the thinking behind, and thus the justification for, the figures advanced. Further, it should not involve the expenditure of disproportionate time and money on the preparation of budgets and supporting material because, when a figure is in effect a “guesstimate”, this can be stated and it can then be considered whether more accuracy is appropriate. Rather, the provision of such supported information should (a) encourage realistic and sensible estimates with an appropriate explanation, (b) discourage speculative, excessive and aspirational budgets and (c) enable the court to reach an informed view on the appropriate level of future income need (generously assessed) without any detailed analysis or auditing of underlying figures.

The parties in submission reworked the wife’s budgets. The husband did this without any cross reference to his own Form E budget and on the alternative bases that the wife stayed at the matrimonial home (his figure was about £70,000) and that if she moved (his figure was about £60,000), but he did so without cross reference to the bases of his assessment of all the items (some were his actual expenditure). The wife reworked her budget by introducing the husband’s Form E figures into her Form E budget. This involved the reduction of some sums that on the evidence were in my view excessive (e.g. on holidays, food and repairs) and the introduction of items included in the husband’s Form E budget but not in hers (e.g. presents and depreciation and of the sums paid by the husband on the matrimonial home). This exercise resulted in a figure of about £97,000 (excluding a separate budget for the children). Essentially this was an approach in which both sides “played with the figures” rather than an exercise in which by reference to actual income and expenditure during the marriage they estimated (a) past expenditure, and (b) future expenditure to provide an equivalent lifestyle. For example, as I have mentioned no figure was estimated by either party of the amounts of drawings spent on improving the matrimonial home rather than general living.

By reference to the various budgets and the recorded salaries and drawings from the Company over the later years of the marriage, I estimate that a net income of between £80,000 and £90,000 for the wife would enable her to enjoy a lifestyle equivalent to that enjoyed in the later years of the marriage, when high salaries were voted to the husband. Before the voting of those high salaries, which followed the “windfall” gains from the sales of parts HH Farm and the liquidity that produced, the parties’ enjoyed a lower lifestyle.

Interestingly, both sides used an income for the wife of £75,000 per annum in their final submissions. The husband did so, by saying that the award he proposed would produce an investment fund which, on a Duxbury basis, would provide just under that sum, and the wife did so, by asserting that the lowest sum the husband could contend for on the evidence would be £75,000, and using it as an example for demonstration purposes.

The Duxbury figure to provide £75,000 per annum is £1.581m (this assumes no return for three years and then a pre tax return of 3.5%). At a net return of 3% per annum (a better return than assumed for the future in Duxbury) a capital sum of £2.5m is needed to produce an income of £75,000 per annum.

The wife instigated these discussions acknowledging that they were outside what could be ordered by the court under the MCA but that they could found orders based on undertakings. To my mind given the available asset base and the need to raise funds from the Company it was plainly sensible to raise and consider such avenues to see if they could, as a result of constructive negotiations, before at and after an FDR provide a fair solution by a combination of undertakings and order.

The possibility of a de-merger was raised. I was not referred to the exchanges and work relating to that.

A sale and lease back of land, and in particular CG Farm was raised. Further the possibility of a transfer of CG Farm to the wife and her leasing it back to the Company was raised. Neither was progressed. I pause to add, as I commented during the hearing, that it seems to me that when a company has a significant land base the possibility of the land being transferred to one of the parties and that party letting it to the company is a possibility that may be worth considering (although extraction costs may be high) and if the company occupies land owned by the parties this may well become even more attractive.

Until effectively the hearing the common position in the discussions was that the wife should, as she wished, retain the matrimonial home notwithstanding that it can be said to be too big for her present and future needs.

The Green Plan Scheme was raised against that background. It involved the transfer to the wife of (a) the matrimonial home, and (b) some adjacent land and outbuildings by the Company. The wife being of the view that this would provide her with the potential for some development or income from the use of the land for a livery. The wife’s oral evidence demonstrated that she had effectively done no work, or was not prepared to reveal the work she had done, in assessing the prospects of, and potential gains or income from, such uses of the matrimonial home and adjacent land. The scheme also introduced valuation issues as to the enhancement in value of the matrimonial home and the depreciation in value of the farm if it was implemented. Absent the husband’s co-operation the scheme was not an option. Although, as I understand it he was never keen on it he did not rule it out and valuation evidence relating to it was therefore obtained.

This scheme could only be implemented by agreement and thus undertakings in an order. At the end of the day, neither side advanced it as part of a solution in final submissions. This has the result that the wife does not have the prospect of enhancing her income from use of adjacent outbuildings and land owned by the Company, and it was not suggested that she could earn significant income by any other route.

I record that there is force in a submission made by counsel for the wife that it was the wife and her advisers who have driven discussion on alternative solutions to this case with the aim of:

The upshot of the failure to identify an alternative route for raising funds from the Company was that funding of an award would have to be by:

It is I think helpful to remind oneself of points relating to the first two possibilities. First as Ms Howe pointed out (1) at present the effective rates of tax of a distribution of profits (a) as remuneration is 48%, and (b) as dividends is 46%, and (2) on the increase in tax rates next year this will become (a) 56.6% and (b) 54%.

Dividend can only be declared and paid from profits available for distribution and the basic rule is that those profits are the difference between the company’s accumulated realised profits and its realised losses (see Palmer’s Company Law paragraph 9.801 and following). Here no point was raised that the accumulated profits (less the accumulated losses) were not sufficient to enable a dividend to be declared (the balance sheet to 31 March 2009 included under the main heading “Capital and Reserves” the sum of £6.265m (profit and loss account).

If funding is provided by the dividend route, as the company has in the past paid tax on the profits there is a tax credit. In broad terms this works in the following way:

That calculation is based on the tax rates for 2009/2010 and on those rates the grossing up equates to 25%, which is the approach used by the parties.

Next year the rate on dividend income increases from 32.5% to 42.5%. On my calculations this will result in grossing up that equates to 36%.

So if an award is to be funded by dividend the result has to be considered either:

Other than in their approach to recalculating the value of the Company to take account of the very recently created debt of £227,066 owed by the husband to the Company Counsel for the wife has taken the grossed up approach in the calculations they have provided.

So far as I am aware the Company would have to declare a dividend in respect of all its ordinary shares. This would create debts owed to the shareholders (here the husband and his mother). The mother could waive payment of that debt or leave the money in the Company. Her tax position if she was to waive the debt was not addressed and there was no evidence that she would be prepared to waive her dividend or to leave the debt outstanding. I have not investigated her tax position if she was to waive the debt.

When an award is based on the premise that the Company will remain a going concern (and that was the premise underlying the final positions of both sides, save that the wife acknowledged that it might fail) a consideration of the net effect of an award or a comparison of the positions of the parties after the payment of an award by the husband to the wife, account should be taken of:

However, as appears later, in the proposal the husband put to the Company’s bank he explains the funding he proposes on the basis that a grossed up dividend (i.e. one in an amount that will enable him to pay the personal tax due on the moneys paid to the wife from his dividend) is declared. If this route is taken the amount of the dividend payable to his mother in respect of her 14.35% shareholding would reflect that grossed up approach (and this is shown by the husband’s proposal to the Bank).

At the heart of the legal arguments advanced in this case is the approach to be taken to the Company and thus to the inherited and gifted asset comprising or representing a farming business.

There was inevitably common ground that the source of the husband’s shares in the Company, and thus the farm and farming business, provided a “good reason” for a departure from equality in the application of the sharing principle.

This case therefore raises points that I have addressed recently in R v R [2009] EWHC 1267 (Fam) and J v J [2009] EWHC 2654 (Fam). At the time of the hearing my judgment in J v J had not been handed down, but I provided the parties with a copy of the section of it under the heading “Part 3 - The law”.

Neither side argued that my analysis and approach in those cases was wrong and in support of their rival positions I was referred to passages from them and from cases referred to in them. I shall not repeat my lengthy discussions of the law in those cases. I adopt and apply them and in particular the passages relating to (a) the “general starting point”, (b) the relationship between the application of the need principle and the sharing principle, (c) the analysis of how the court is to assess the departure from equality for good reason in the application of the sharing principle (and see Behzadi v Behzadi [2009] 2 FLR 649), (d) the spring board or advantages derived from pre-acquired assets and/or assets gifted before and during the marriage, (e) the impact of post separation events, (f) the way in which the parties led and organised their lives together and (g) clean break.

I deal later with my approach to the provision of information by the parties both of whom had a duty to give full and frank disclosure.

At the heart of the husband’s case is the proposition, that as a matter of principle in the application of the sharing principle (that he accepts applies to all of the assets of the parties) his interest in the Company should for good reason be left wholly out of account because it is a gifted or inherited farming company. So, he says that as a matter of principle the award is to be based on, and only on the application of the need principle applying the s. 25 criteria to it (and so acknowledges that the departure from equality in respect of his interest in the Company that he argues for on the application of the sharing principle is subject to him meeting the wife’s claim based on need generously assessed).

In my view this is wrong.

A theme of the husband’s argument in support of this proposition was that as this was a “farming case” the principle to be applied in assessing the fair result is only the need principle or, put another way, the departure from equality in applying the sharing principle to the husband’s shares in the Company should be one that gives the husband 100% (and should be left out of account subject to the satisfaction of an award based on need).

In my judgment, no such principle or approach can be founded on existing authority. Although, I accept that:

I accept, as was submitted on behalf of the wife that:

Another submission made on behalf of the husband was that once there is a “good reason” for departing from equality it is the need principle that determines the departure because it is the only principled route by which an award can be quantified. As appears from R v R and J v J, whilst I agree that (a) “need” informs and could in some cases dictate such a departure, and (b) there are difficulties in justifying by reference to a formula (expressed in words or as an equation) or mathematically an award that contains a departure from equality, and is in an amount that is higher than a “need based” assessment:

Turning to the facts. Albeit that the husband can trace his farming heritage and a farming business back through a number of generations the assertions to the effect that the farming land and business now owned and carried out by the Company has been in his family for generations is plainly not made out. This is because it fails to have any proper regard to (a) the acquisition of land over the years, (b) the development of the farms and business by the respective generations during their periods of management from the start (or springboard) they had, and (c) as aspects of (a) and (b), during the marriage the Company has, applying a number of relevant tests, increased in size and value. During that period it has increased its land base, it has developed and changed the size of its operations overall, it has developed or changed its business by the introduction of packing and processing and it has had the advantage of windfall profits.

In short, the Company has developed and although still linked to its history, and farming operations of generations of the husband’s family over the earlier years (both before and after its formation), it is now of a different nature and size to the company that existed in 1985. Essentially, many of the developments and changes have come about through business decisions by its management (and thus by active change rather than passive change) in the same way as happens in companies involved in different businesses (many of which will also have a land base). For the purposes of ancillary relief, the non discriminatory approach to contributions that falls to be applied means that those who have been involved in the management of the business who were married have been supported by the domestic (and other contributions of their spouses) and those domestic contributions (and here that of the wife in her support of the husband) fall to be taken into account.

During the relationship between the husband and the wife, the most relevant management contributions have been provided by the husband’s father and the husband.

In my judgment, it has always been clear that this is not a case in which it can realistically be said that the Company’s asset base and business that has been acquired by the husband through his gifted 85.65% shareholding is the same as, or is to be equated to, that inherited, created and passed on by the previous generation. That is not to say that the platform created before the Company was formed and by the times of the various gifts by which the husband became a shareholder (and which increased his holding) are not factors to be taken into account in determining how that gifted asset should be shared and taken into account in assessing the wife’s fair award.

So, in my view these main planks of the husband’s argument and approach to this case are flawed.

I accept that (as would have been the case if he had started the farming business himself and wished to carry it on) the fact that the Company carried on a family farming business is a strong factor in favour of the view that an award which compelled the husband to sell and cease to carry on what has now become his business would be unfair.

This is because this business was at the centre of the family life of the parties and the way in which they ran the lives together. The farming business was the source of their income and lifestyle, the husband was brought up as a farmer’s son at the family farm, he had worked there throughout his working life and there was plainly a sense, understanding and expectation within the marriage and the family more generally that he would farm the family farm for his working life and if possible the farm should pass on to the next generation (albeit that he exaggerated the dynastic nature of the Company, the farms and the farming business). This is what the wife married into and accepted.

This factor points strongly in favour of preserving the Company as a going concern and brings into clear focus in this case whether a clean break can be achieved fairly on that basis and thus how on that premise funds could be raised from the Company. That means that the available options to achieve this end and affordability must be analysed.

It does not mean that the husband’s approach that there should be a clean break on the bases:

This reflects:

In my view the assessment of whether a clean break is fair is not confined to a consideration of capital values but should also have regard to the nature of the underlying assets and thus for example the difficulty in valuing them, the market for them and how they have been treated and thought of by the parties during their marriage.

This involved a late increase in the capital sum offered but an abandonment of his earlier positions that the wife should retain the matrimonial home (CG Farmhouse) and that CG Farm should be retained by the Company. This change was made to increase the available funds by proposing a sale of CG Farm and the matrimonial home together to enable the parties to take advantage of the marriage value this would produce.

The offer was based on the proposition that the wife should be paid the whole of the marriage value, with the result that she would receive an estimated net sum on the proposed sale of £1,067,000.

The offer was of that sum plus a lump sum of £1,500,000, a total of £2,567,000.

It was based on an offer of a short term loan from the Bank made by a letter dated 10 December 2009. I return to this, the thinking that underlies it (so far as this has been identified and disclosed) and its effects on the Company when discussing affordability and in reaching my conclusions.

From that sum of £2,567,000 the husband asserted that the wife could pay her debts and buy a home at £600,000 leaving a capital sum for investment. The husband put that capital sum at £1,534,000 but in my view that underestimated the wife’s debts by about £30,000 and her costs of moving by between £20,000 and £30,000. So I take the capital sum at around £1.48m. This would produce around £70,000 on a Duxbury.

A suitable new home at £600,000 was not identified in the evidence as the wife had reasonable reasons for criticising the examples given in such a price range by the husband.

In my view if only looked at on the basis of what the wife would receive, and thus only on the basis of the need principle, this offer:

As to her income needs, as appears earlier I have assessed them at between £80,000 and £90,000 to maintain the lifestyle enjoyed at the end of the marriage. Although (a) this was a higher lifestyle than that enjoyed in the earlier years (which neither side quantified), (b) in part was based on the “windfall” gain, and (c) would reduce if a smaller house was bought, in my view on an application of the need principle (looking simply at what the wife gets) it is an appropriate benchmark figure because it represents the product at the end of their lives together.

So, in my view the approach of the wife’s counsel that an income of £75,000 was an absolute minimum (subject to affordability) was correct.

It was not suggested that the wife had any relevant earning power.

So, even on the husband’s case that the award should be determined only by the need principle his final offer absent a top up by periodical payments falls short of a fair award. It was not suggested that a top up by way of periodical payments was not affordable and the evidence does not suggest that it would not be.

So, the husband’s offer and case is that there should be a clean break which in my judgment does not meet a capital award based on the need principle. This result would therefore have to be founded on arguments based on the desirability of a clean break and affordability of a lump sum rather than the “ring fencing” of the capital value of, and income return from, gifted property (here the Company). In this context and generally it was not suggested that the husband could not afford to make periodical payments over and above his suggested capital award. No such suggestion could have been made on the evidence.

If his final offer is assessed more generally and having regard to the sharing principle its unfairness is accentuated. This is because it is based on or results in (a) the parties giving up assets that have both emotional and financial value namely CG Farm and the matrimonial home, but (b) leaves the husband with the Company (with its liability for the additional borrowing) on the basis that the wife will not share in any of its value assessed on a capital or future income basis. So:

It was that the matrimonial home (£945,750) should be transferred to her together with a lump sum of £2.75m plus a sum to enable her repay in full her costs loan and her other debts (total £432,327) and so a lump sum of say £3.2m.

On a grossed up basis utilising the dividend route the funding of this lump sum would require a dividend to be declared in favour of the husband of about £4.26m (and this leaves out of account the dividend to his mother which on that approach would be £713,000. Giving a grand total of around £4.97m. Next tax year the figures will be higher. But the dividend could all be declared this year and therefore, as I understand it, be taxable at current rates.

These grossed up figures (or lower figures and the tax liabilities they would create) were not identified by either side in the course of argument. Neither side put in a calculation or description of how the Company would be able to pay such a dividend or otherwise fund the proposed payment of £3.2m.

It is clear that (a) affordability is a relevant and important factor and therefore (b) it needs to be addressed with appropriate particularity. This need is enhanced because, for understandable and generally accepted reasons (discussed for example in R v R), both sides were keen that there should be a clean break.

Although it is clear that issues arise as to whether such an award can be fair to both sides neither side advanced alternatives that did not involve a clean break save by a passing reference to there being two lump sums or the lump sum being awarded by instalments.

In my view this problem (i.e. whether a clean break can be achieved on a fair basis) has always been at the heart of this case, particularly if (as I find and was always recognised by the wife) there is a strong argument that (a) it would not be fair to make an award that effectively demanded the sale of the Company, and therefore (b) the Company should primarily be regarded as a resource on a going concern basis as it was during the marriage. During the marriage drawings were based on trading and the “windfall” profit.

A continuation of that approach involves an appropriately particularised investigation of what the Company can borrow and pay out now and in the short to medium term by way of dividend and/or salary to fund an award to the wife (in short affordability on a going concern basis).

So, as I have mentioned the present position, prospects and business plans of the Company are central to the issues relating to affordability and underlay my directions, referred to earlier (a) concerning the additional instructions to Ms Howe on affordability, (b) that the parties should plead their cases (including alternatives) and (c) that the husband should prepare and serve by 13 November 2009 a business plan and a document setting out:

“ the maximum monies he maintains could be provided by the company by borrowing (with documentary evidence and calculations in support) ”

The present position and history of the Company can be and has been (with some assistance of the husband and the Company’s accountants) examined by outsiders by reference to its accounts, books and records, a projection to 31 March 2010 and the valuations of its assets. This has been done.

The prospects and business plans and thus the limits of the Company’s present and future ability to borrow to fund distributions by way of salary or dividend in the future is uniquely information that the husband is in the best position to provide (with professional assistance) on an appropriately particularised basis. This is because he is the directing mind of the Company.

I have already commented on his business plan. From those comments it will be apparent that it fell short of expectations and proper compliance with my direction.

On 27 November 2009, the husband indicated that he did not propose to provide further information on the maximum monies he maintained the Company could borrow because the Bank would not put anything in writing lest it be deemed to constitute an offer. But on being told that he needed to comply with that direction he obtained an extension to do so. As appears below he did not fully comply and by a letter dated 10 December 2009 the Bank confirmed its approval of a further facility.

It was not until the hearing (following a further request for it coupled with notice that an application for an order would be made) that a full bundle of communications between the Company and its Bank was provided. This showed or confirmed that:

As to those communications I comment as follows:

Further, by reference to this correspondence and the other written material provided by the husband and his oral evidence:

As instructed in her supplementary report Ms Howe discussed a number of possible ways of raising finance. These were not the subject of her oral evidence but she had been asked questions in writing about them which she had answered. She repeats the possibility of there being a de-merger (but this was not pursued before me).

She:

Pausing there, in that email response on 12 November 2009 the husband says that nothing has been formalised with the Bank “as we have not been able to determine the level of funding that is required”. This is clear confirmation that (as indicated to the court on 27 November 2009) work had not been done to comply with my direction relating to company borrowing and a strong indication that there was no intention to take proper steps to comply with that direction. Also the email reflects what the husband had told Ms Howe as to what could be sold when she was preparing her first report and he did not provide an explanation for his change of position (very late in the day) on this, or of his plans and thinking as to how the loss of CG Farm would be managed and reflected in the Company’s results. The point that the Bank was seeking or demanding an early repayment involving a sale of CG Farm does not show that that sale was commercially viable, or whether and if so why the husband changed his view on the commercial viability of such a sale.

Returning to Ms Howe’s report, she quotes from the letter of 21 October 2009 from the Bank where it states:

“Trading is still at best marginal and the improvements seen in the interim figures need to be sustained until viability can be proven. Facilities at the current level only justified by level of security and no appetite to increase our exposure at the present time”

This quote, in October 2009, confirms a basic underlying problem in respect to borrowing and affordability namely the need for the investment in the processing unit (and the business as a whole after it) to demonstrate the good sense of that investment and profitability from a commercial point of view. This will be done best by actual performance but it could also be estimated (and demonstrated in that sense) by appropriately supported projections. To my mind therefore as we are by definition looking into the future the quote confirms, and draws the attention of the husband and his advisers to, the need for such projections to enable a properly informed assessment to be made of:

Pausing there, I comment that it seems that the “October appetite” has now been increased on little additional information, and without explanation being provided to the court and the wife as to why it is thought by the husband the Bank has now reached the view that it will lend £1.5m for a non commercial purpose, namely to enable money to be paid out from the Company to the husband to fund or towards the wife’s award. The inference is that the Bank rely on the security offered and the “bridging” nature of the loan, but if that is so the husband has not explained how it has been persuaded that the Company can meet its overdraft and other obligations after the sale of CG Farm (or his thinking as to that).

Ms Howe raised the possibility of splitting the property ownership from the trading operations and what she described as its “perceived trading risks identified by the Bank” by a tax and stamp duty free route, namely by interposing a holding company. The end result would in her view be that the holding company (a) would have properties to a value of about £10.8m and an existing secured loan facility of about £1.6m, and thus (b) would be in a better position to approach its bank for further borrowing.

She was not asked any questions about this. I confess that I am not clear why a lender who took a fixed charge by way of security would thereby be better protected and why this separation of property and trading has such advantages, because it is always the trading that will finance the interest and repayment, absent enforcement of the security. Also it seems to me that if such a hiving off of the trading operation was to fail that might create problems for the husband in the context of him being disqualified as acting as a director.

But whether or not there was such a division the following points are helpful and address her additional instructions on affordability:

She concluded it seems on her “holding company route” that the Bank might make an interest only loan of “up to £1.5m at least until the Company’s recovery is shown to have been sustained” (my emphasis).

That conclusion is based on her understanding from what she had been told by the husband that it was only some residential properties (and a few fields) that could be sold and thus a short term facility based on such sales which she calculated would raise net £593,163 and could fund remuneration net after tax and NIC of £350,000.

She was asked by the husband (in a written question) that if CG Farm was also to be sold (leaving property and thus security valued at about £8m rather than £10m) did she still consider that a bank could be persuaded to lend an additional £1.5m and her answer was that she did because ignoring bridging loan facilities the total loan facility would be £3.1m (overdraft £1.6m plus £1.5m) “which would represent some 39% of the security available and therefore in theory a bank might be prepared to lend on this sum”.

She was also asked in writing whether in her view the Company could meet the costs of a loan of £1.5m that she identified (£60,000 per annum plus an arrangement fee of £18,750, so £78,750), whether the company could sustain the payment if interest rates increased and how and when she thought the capital was to be repaid. She responded that she thought that the Company would be able to meet the payments (and higher payment in the future if interest payment rose) and that the structured business proposal she had suggested would incorporate capital repayments.

She was not asked about these views in her oral evidence.

I add because it demonstrates the unconstructive approach taken by the husband to the issue of what the Company could borrow that Ms Howe was also asked in writing whether she had any evidence that the rate she used 3.5% above base (provided by another source at HSBC, which she points out in her written answer) would be achievable by the Company. This is the rate offered in the facility letter dated 10 December 2009 and is something that the husband should have known if he had sought to properly comply with my directions or had taken a constructive approach to what the Company could afford to borrow.

The general answer is in difficulty in large measure from lack of information.

Ms Howe’s effectively unchallenged evidence does not match the husband’s position as to the maximum that the Company can afford (and thus the sums available to fund a clean break). A significant difference is that Ms Howe bases her approach in the short term on the granting of an interest only loan rather than one that is a short term bridging loan dependent on repayment through the sale of assets (and in particular of the best farming land owned by the Company CG Farm), which in November 2009 the husband had not identified as a candidate for sale.

It is difficult to put a figure on the maximum amount that Ms Howe considers could be borrowed in the short to medium term. Neither side pursued this with her. The indication from her written evidence is that she is of the view that by a combination of (a) the present overdraft, (b) bridging finance involving the sale of assets in the short term (either residential properties or those properties and CG Farm) and (c) interest only finance, the company would be able to negotiate an additional £1.5m of borrowing. If (b) is taken at £1.5m the total over the existing overdraft would be £3m. This is subject to the understandable and major provision that the lender would have to be persuaded that there was sufficient present and future profitability to warrant such a loan being made.

As to the present, Ms Howe points to her recalculation of the maintainable (underlying) profit at £266,422. In her final submissions counsel for the husband accepted this figure but then asserted that Ms Howe had suggested that such a figure might be available for distribution but there has to be liquidity to distribute. But Ms Howe’s points on borrowing did not suggest the distribution of that profit rather she suggested its use to fund borrowing that could produce the cash (liquidity) to fund a distribution (by declaring a dividend or by remuneration).

In the longer term Ms Howe’s approach is based on future profitability. This inevitably brings one back to how future profitability can and would be demonstrated to a commercial lender. I had intended and hoped that the Court could reach an informed view on this through either or both:

This was not done.

I acknowledge that it is not an easy task for the husband to provide a clear picture of what is likely to happen in the future and the reactions of commercial lenders. But I have concluded that the husband’s approach to affordability has been one in which he has failed to properly comply with the directions of the court and one which has been unconstructive, inappropriate and unattractive because:

In part, this approach is founded on his flawed approach in law and on the facts of this case that his shares in Company should be attributed 100% to him and the wife’s claim should be assessed on a clean break (lump sum) basis only by reference to her needs.

But his position in law and final offer is also limited by and is based on his stance as to affordability because this caps his clean break offer, which he seeks to justify by reference to need, and there is no evidence that at any stage he took an approach that promoted an informed decision being made by a lender (or others) as to what was affordable if (a) the wife should retain the matrimonial home (which was his position until very late in the day), and/or (b) her budget in her Form E (or a sum equal to his budget in his Form E) founded the Court’s view as to her need.

As I have explained the husband’s approach and failure to comply with directions and provide relevant information from the controlling mind of the business causes problems. These have a direct link to the decision to invest in the processing plant because an estimate as to its future is a vital ingredient of assessments of value, liquidity and affordability.

In my view, having heard him give evidence, the position is not:

The problem is therefore not the classic one of failure to comply with the duty to provide full, frank and clear disclosure of existing and known material. But in my judgment, by analogy to the approach taken to such breaches (see for example Baker v Baker [1995] 2 FLR 829, Al-Khatib v Masry [2002] 1 FLR 1053, J v V [2004] 1 FLR 1042 and Duckworth Matrimonial Property and Finance paragraph B3 [53] and Rayden paragraphs 16.34 and 17.28 ) the failures of the husband (with professional help) to comply with court directions and his approach to affordability described earlier can:

Further, and in any event, in my judgment as the husband (and his father) took the risks involved in making the investment in the processing unit (with its obvious impact on liquidity and the ability to fund an award to the wife which I have found was appreciated by the husband and his father) on the basis of the business approach he (they) favoured, and with the hopes and expectations that it will turn out to be a sound and profitable commercial venture, the fair approach to be taken as between the husband and the wife is one which accepts that the husband’s hopes and expectations are likely to be fulfilled and therefore that it is likely that the decision to invest in the processing unit:

Such an approach not only has an impact of the ability of the Company to borrow in the short to medium term, it also has an impact on the fair approach to be taken to the value of the Company as between the parties. This is because, as I have mentioned its future profitability from an investment made after separation would found a higher goodwill element in a valuation using Ms Howe’s approach and would naturally enhances its value to the parties as the source of an income stream, which was the way in which it was regarded during the marriage.

But, in my view it has to be recognised that an outsider, and in particular a commercial lender, would not proceed on that basis or underlying assumption without being satisfied that it is correct either by reference to (a) results or to properly particularised projections, and (b) its view of the ability of the management to maintain those results or to make good those projections.

This difference of approach to affordability (and value) puts the court in a dilemma because it cannot ignore the point that the assessments:

Focusing on what a commercial lender might be prepared to advance to the Company to fund an award and thus on the basis that the loan is to be distributed. The husband’s evidence, and his past management approach, do not found the view that he would (even with appropriately focused help) have good prospects of persuading a new lender, or the Company’s Bank of his business acumen and management skills and thus to accept his views and projections that the Company will make sufficient profits:

I have concluded that even if the husband could, with appropriate professional help, advance a convincing case to a commercial lender of significantly increased future profits it is more likely than not that:

I pause to mention that the evidence I have set out and those conclusions relating to a borrowing of £3m support the following conclusions (which I have reached) that:

The husband advanced in closing an alternative and secondary submission involving the payment to the wife over three years of £370,000 by annual instalments of £75,000 and then two of £150,000, together with interest on the unpaid sums expressed as maintenance. This was accompanied by a reference to the current trading conditions but what was referred to as the “expectation of improvement”.

Firstly, this is confirmation of expected improved (but unquantified) profitability. Secondly, it is an indication that the husband thought that this additional amount would be affordable and certainly that he was prepared to take the risk of having to meet these payments.

The sum offered was calculated from the valuation of the processing unit and thus a sum of approximately £1.3m after selling costs and tax. The sum of £370,000 was half what it was said could be distributed net from that sum. If this valuation of £1.3m is compared in round figures with the position if the investment in the processing unit had not been made and the £3m plus had been retained, the comparison would be with the capital invested less the loss of roll over relief (I was told £750,000) plus interest, say £2.5m. This ignores increased profitability because the overdraft would not have been necessary and increased drawings.

So this hypothesis would add another £1.2m to the value of the assets based on a sale by lotting and liquid fund of £2.5m would present a much more attractive proposition for a purchaser of the shares because then the assets of the Company would include cash available for investment and expansion and a business (farming and packing) with a consistent profit history. Also that liquidity would have a major impact on affordability.

I accept that this comparison has considerable artificiality in that it does not represent what did happen, or what would have been likely because some investment would probably have been made of the large cash reserve flowing from the “windfall profit”, but to my mind it serves:

I have rejected the husband’s argument and proposed award when looked at on only a needs basis, and thus on the assumption that an approach that also applied the sharing principle would not achieve a higher result.

I now turn to the wife’s case and suggested award. As I have mentioned neither party provided a worked example or calculation showing how the award urged on behalf of the wife could be (or could not be) funded.

At the heart of the wife’s argument are the points that as (a) she has been the party who has driven or attempted to drive sensible discussion to found a result that enables the husband to continue to trade, (b) Ms Howe has identified a maintainable profit of £266,422 for the year to 31 March 2010, (c) the husband maintains that the Company will increase its profits because the processing unit will be shown to have been a sound and profitable investment and (d) the husband has failed to approach the issue of affordability by complying with the directions made by the court and in a constructive manner that provides the court and the wife with full and clear information, the court should:

To fund the lump sum payment sought by the wife the Company would have to be able to raise a grossed up sum (or enough to enable the husband to pay his tax liabilities). Even leaving out of account the dividend that would be payable to his mother and corporation tax on the sale of any assets in my view the minimum that would have to be borrowed (at present tax rates) would be £4.2m.

In my view on the evidence this is significantly more than the sum that the Company could borrow in the short term (say the next two years) and survive. So, and notwithstanding the force of the points put by the wife, I have concluded that it is not enough for her to say, as she did, that there is a “cash flow profit” forecast and so the necessary level of borrowing can be achieved or the court should infer that it can be achieved. In this context, I note that although the wife provided information and worked calculations as to the cost of borrowing none of these were at this level.

So, in my judgment I should not infer that the Company could raise the sum required to meet the wife’s suggested award and survive. It follows that her suggested award cannot be assessed on the premise that the Company will continue to trade, and has to be assessed on the bases that:

That raises the question whether an award on the premise would be fair. That raises two primary points:

The net effect of such an award would not have to take account of the point that the net assets of the Company would decrease by an amount greater than the sum paid to the wife.

As appears later I have concluded that an award should not be based on the premise that the husband will have to sell his shares or all the assets of the Company.

Sharing. I have already discussed need in the context of the husband’s offer and rejected his approach to sharing. As appears from my decision in R v R, and the decision of Coleridge J in J v V, by a different route the need principle may have a large and informative and possibly determinative part to play in assessing a departure from equality, but an assessment applying the sharing principle in all the circumstances still has to be carried out.

Here the application of the sharing principle is complicated by (a) the period over which the husband was given his shares and the participation in the business of the husband’s father (with the matrimonial contribution from his wife), (b) the source of the “windfall profit” namely from what I have found to be a “win / win investment” in the land sold for development, (c) the active and passive changes and developments in the Company during the marriage and (d) the investment of over £3m of that “windfall profit” in the as yet unsuccessful processing unit and the points that (i) this potential profit will arise after the end of the “marital partnership” but will be based on that capital investment together with the work of the husband and employees of the Company, (ii) this combination is not the same as the earning capacity of say a banker or an accountant and (iii) the husband’s work will be compensated by remuneration which can be taken into account in assessing the profit.

The first three problems make an estimate of the platform or springboard provided by the gifted assets and their contribution to their present value more difficult than in cases of many pre-acquired or pre-gifted assets. The fourth problem makes the quantification of an award that departs from equality more difficult because the sharing is related to the “windfall profit” invested after separation and if that investment is to be treated as a good one it would increase the present capital value of the Company (inevitably on a “snap shot basis”) because it would reflect the (as yet unquantified) but hoped for and expected profit which, as Ms Howe pointed out, might return the Company to the position of being able to vote remuneration (or a combination of remuneration and dividend) equivalent to that awarded in 2002 to 2005 (i.e. the years leading up to separation).

In necessarily broad terms, taking the approach set out in J v J I have concluded that a fair approach to have regard to the fact that the husband received his shares by way of gift (and the points made that his family have farmed in the area for generations and the changes and developments made during (and since) the time that the husband and wife were living together) is to attribute 30% to the gifted nature of the shares leaving the husband with 65% of the present value (i.e. that 30% and half the balance of 70%), potential and risk of the Company and the wife with 35% thereof. Inevitably this percentage has a spurious accuracy and has to be considered as being within a range (see for example Behzadi paragraph 23.2).

This assessment is on the premise that the Company remains a going concern. If the premise was that the husband was to realise his shares by sale (or liquidation) in my view the effects of the as yet unsuccessful investment in the processing unit after separation would reduce (or remove) the departure from equality and therefore result in the wife having a higher percentage. This is because the losses caused by that investment at that time are largely the result of that “active” business decision to invest, rather than general market forces and so, in my view, it would not be fair to set the sharing award by reference to percentages as at separation carried through to current value.

Also a departure from equality will generally not reduce an award below the amount of an award based on need. If a 50/50 division does not meet a needs based award the question of a top up through periodical payments arises as does the question whether the arguments in favour of a clean break warrant such an award by reference to the value of the assets at the date of the trial.

In this context of an award based on sharing I add that the sharing of the other assets also has to be taken into account. The husband’s interest in HC Farm is inherited and therefore there is a good reason to depart from equality as to that asset. The pension is small, and the equity of the husband’s home was acquired with the use of Company moneys post separation and therefore it seems to me follows the sharing of the shares in the Company. But the matrimonial home (albeit paid for with moneys derived from the Company) was acquired during the marriage and for that reason, and because it was the matrimonial home, in view there is strong argument that it should be divided 50/50.

The valuation of risk and prospects in the context of sharing raises equivalent difficulties to those discussed in respect of affordability. These problems have the impact that an assessment of a departure from equality by reference to the present valuation leaves out of account the hoped for and expected profits of the processing unit albeit that it leaves the risks of further losses (which are not projected) with the husband.

Clean break. An order for the payment of two lump sums is a clean break award, whereas an award for a lump sum to be paid by instalments is not because such an award can be varied.

Historically the approach to the variation of a lump sum payable by instalments was different to that taken to a variation and capitalisation of periodical payments (see Westbury v Sampson [2002] 1 FLR 166 and Pearce v Pearce [2003] 2 FLR 1144). How the matter stands following the approval in the House of Lords of my obiter comments in Cornick v Cornick (No 3) [2001] 2 FLR 1240 (see paragraph 43 of Lord Nicholls’ speech in Miller; McFarlane and VB v JP at paragraphs 42 and 43, and Hvorostovsky v Hvorostovsky [2009] 3 FCR 650) is perhaps a matter of argument. But to my mind when an instalment order is made because of identified problems relating to affordability the differences narrow (perhaps to the point of extinction) and, in any event, if that is the underlying problem there are sound arguments for adjourning the claim for periodical payments or for making a nominal order, to preserve maximum flexibility to achieve fairness.

So, the real points in connection with determining whether there should be a “clean break” are:

There is the added complication that because of higher tax rates the cost of extracting a second lump sum in the future will increase, albeit that it seems to me that the relevant dividend could be declared now and the risk focused on the ability of the Company to raise money to discharge the debt to the husband (and to his mother) that would be so created (and to enable them to meet the tax they owe).

Magnetic factors. Standing back and taking an overview of the factors that are relevant I have concluded that the following are key or magnetic factors in determining the approach to the application of the sharing and need principles and thus what is a fair result applying the statutory criteria:

Building blocks. That leads me to the following stepping stones or building blocks for the award:

That leads me to the view that the award suggested by the wife should not be made because of my conclusion that the Company could not raise sufficient moneys to enable the husband to pay the suggested lump sum and survive as a going concern.

Further and in any event, in my view it is too high an award. On a need basis I accept that the transfer of the matrimonial home (plus an ability to down size and release a capital sum) would be fair, but I have concluded that a lump sum after the payment of the wife’s debts of £2.75m is too high by reference to the standard of living enjoyed during the marriage. In reaching that view on a need basis of assessment I have concluded that:

On a sharing basis the award would be premised on a sale of the shares (or a liquidation after an assets sale). On that basis the award would be met from the proceeds and the Company would not have to raise and vote a higher sum to the husband to enable him to meet it. Returning to the assets table and the range of valuation the award would have the following net effect:

The preponderance of the expert evidence is in favour if a sale by lotting rather than of the shares on the basis that the Company is sold as a going concern. This puts the more likely sharing award closer to 50/50 rather than 65/35, and notwithstanding the argument that the wife should have more than 35% based on the depressive effect of the investment in the processing unit in my view the award sought by the wife would have to be justified on need rather than sharing.

Is a clean break a fair possibility? It seems to me that this question has always been at the heart of this case.

For the reasons given I start from the building blocks that the husband is to retain the Company on the premise that it is more likely than not to be able to survive (and prosper in the long term) and the wife is to receive the matrimonial home.

To my mind the approach that I have decided should taken as between the parties to the investment in the processing unit, and the approach of the parties to the Company prior to separation, have the consequence that:

In assessing an award based on need (subject to a cross check by reference to sharing) as mentioned earlier (when discussing the award sought by the wife at paragraph 262) I have concluded that it is appropriate to include a capital cushion over and above the income from a capital sum by reference to Duxbury (at best a guide):

The wife has debts (mainly for costs) of £432,000 and the general rule (and thus the starting point) on costs points to an award that enables her to pay them. This leaves any arguments that may be advanced to the effect that there should be a departure from the general rule on the payment of costs to the separate and later exercise of discretion concerning them in the light of that award (see the grounds for such a departure set out in FPR Rule 2.71 (4)(b) and (5)).

There are a number of approaches to the quantification of an award from such building blocks to see whether it is affordable on a clean break basis. For example, one could start a worked example from a conclusion on the maximum borrowing the Company could afford. Or as I have now do, from a needs assessment based on an income of £75,000 per annum, which is at bottom of the relevant range. On that basis the award would have the following parts:

That would require a capital payment of the order of (£250,000 + £432,000 + £1.581m (the Duxbury sum) = £2.263m. At present tax rates if funded by the declaration of a dividend to cover the payment of that sum and the personal tax due on it would require just over £3m. If that sum was to be covered by instalments based in part on a dividend declared next year the overall sum would be higher; but I understand and have assumed that all the dividend could be declared this year and be taxable at current rates and that the timing of the payments of the award would relate to when the Company could afford to meet its debt to the husband.

Starting from the other end this award would be based on a borrowing of about £3m which ignores the moneys needed to pay a declared dividend to the husband’s mother (and/or the personal tax in respect of it) and any corporation tax on disposal of assets.

Sharing. On the premise of this approach (namely the survival of the Company and funding through the “dividend route”) a comparison of the positions of the parties needs to factor in the point that the Company has to raise more money than the sum paid to the wife by the husband (or provision to cover the husband’s tax has to be factored in). The valuations carried out by Ms Howe and counsel for the wife show that the net figure for the husband’s shares is about 72% of the gross value of the Company. On that basis the gross values of the Company on the range I have taken for the value of his 85.65% shareholding becomes £11.66m to £9.02m, and if those are reduced by a borrowing of £3m they become £8.66m and £6.02m. That would then be the underlying value of the Company and would (on the basis that the net value of the husband’s shares is 72% thereof) mean that after raising the borrowing (and paying out the dividend to the husband to fund the award) the range in the value of his 85.65% holding would be between £6.23m and £4.33m. Returning to my table of assets that gives (in round figures) a range in value of the total assets of:

On the premise that the Company is to remain as a going concern it seems to me that there is more force in taking the values based on Ms Howe’s approach (i.e. a sale of the shares) for comparison purposes and in that context I am not in a position to quantify any increase in value that would flow from a valuation based on the approach to future profitability that I consider to be appropriate as between husband and wife.

If the underlying premise proves to be incorrect the comparison would be based on a sale or liquidation (after some borrowing) and perhaps as a matter of some urgency which would be likely to depress the value. Going back to the assets table and range of values the award would have the following net effect:

The “sharing assessment” has a number of uncertainties and a spurious accuracy. But in my view an award at the level of this worked example would be below (or at best at the bottom of) the range of an award based on sharing by reference to the assessment set out in paragraphs 247 to 254 hereof.

The crucial question. In my view the crucial questions come down to whether the advantages of a clean break to both parties lead to a result that:

In considering those questions my conclusions on the ability of the Company to borrow £3m and survive found the view that the husband would not be able to fund a clean break award of the amount set out in my worked example which I have concluded would be at or below the low end of the range.

That means that I have concluded that if there is to be a clean break award limited by what the husband would be likely to be able to raise through and distribute from the Company, on the premise that it would have a reasonably good chance of survival, the wife would have to receive an award that was below the fair range. To my mind in all the circumstances of this case that would not be a “fair clean break”. This is particularly the case having regard to:

It was no part of the wife’s case that she considered such a clean break to be fair or one that should be imposed on her.

So, in my view a clean break award would have to be based on a lump sum payment somewhere between my worked example and the award sought by the wife and thus by reference to borrowing above the amount suggested as possible by Ms Howe and which I have concluded the Company would be likely to be able to raise and survive.

Such an award would therefore be based either:

I confess that in the context of an award which I would consider to be fair on a needs basis (a) the strength of the wife’s arguments in support of such an inference, and (b) my frustration due to the failure of the husband to comply with directions of the court and his approach to affordability, it is tempting to make that inference or to proceed on the basis that husband should take all the risks that flow from the Company not being able to fund the award and survive. This temptation is increased by the investment in the processing unit in the knowledge of its effects on liquidity and the potential claim by the wife.

However:

Once that stage is reached I see little advantage in making an order for a lump sum by instalments because that would be on the premise that an application to vary was expected. As appears earlier (see paragraph 256), in my view the test to be applied on that application would be similar to that relating to one concerning periodical payments and, in any event, (a) the problems in identifying the amount of the instalments which are exacerbated by the lack of appropriately detailed projections, and (b) doubts as to the tests to be applied on the expected application to vary the instalments, support the view that to provide a platform from which fairness can be best achieved on that expected variation application, the wife’s claim for periodical payments should not be dismissed.

Having reached that position I have concluded that the simplest and the pragmatic course to making an award that is fair is to assess it a follows:

As to that approach I repeat and record that:

On that approach that leaves a balance of £818,000 (£1.5m - (£432,000 debts and £250,000 = £682,000) which would, on a Duxbury basis, provide an income of about £41,000. My estimate of the income needed by the wife to enable her to enjoy a lifestyle equivalent to that enjoyed in the later years of the marriage was £80,000 to £90,000 and therefore in my judgment she should be paid periodical payments at the rate of £44,000 per annum.

So I make an award comprising: