Peel J. Final Hearing in Ultra High Net Worth FR case involving valuations of complex business structures.

Facts

The parties had a long marriage of nearly 30 years including a period of cohabitation. The parties began their relationship with minimal assets and each party made a full contribution over the course of the marriage resulting in over £260m worth of assets including various complex business structures.

H had set up a technology business in the early stages of the marriage that had been very successful. The business was considered to have a value of £200m.

The parties had initially sought to appoint separate experts to value the business at the First Appointment on 17 January 2024. The parties agreed to instruct a SJE in the first instance and the judgment of BR v BR [2024] EWFC 11 provided guidance on when an SJE should be instructed rather than two separate experts.

It was agreed between parties that this was a sharing case.

Issues

The issues that the court had to consider were:

1. whether the SJE valuation undervalued the contentious business interests;
2. whether there should be a Wells sharing arrangement;
3. whether one party should buy the other party out; and
4. whether there should be a departure from overall equality to reflect the liquidity of assets.

W disputed the SJE’s valuation of the business interests and argued that the business interests had been undervalued and/or purposely manipulated by H in an attempt to lower the amount of settlement she received. W challenged the SJE’s methodology and conclusions.

H sought to buy W out and W proposed a Wells sharing arrangement for the primary business interests.

The non-business assets were £45m in value comprising property, bank accounts, investments and funds extracted from a business restructure. The parties had been able to agree the division of the properties

The court heard evidence from both parties and the SJE accountant.

Judgment

Peel J considered the case of Versteegh v Versteegh [2018] EWCA Civ 1050 and accepted that valuations of businesses are considered fragile and uncertain. It was accepted that the SJE’s valuation was not unreasonable and although there had been two errors in the report at first instance these had been explained by the SJE in evidence.

Peel J ruled that the figures for the business valuation were ‘robust and within a reasonable range of tolerance’ and sufficiently accurate to achieve a fair outcome and adopted the figures put forward in the SJE’s report. The court made a minor adjustment in the value of the business and considered the total value of the business interests to be £310m and reduced the value to £218m after deducting notional costs of sale at 3%.

W sought to rely on figures provided by her own shadow accountants which valued the business higher and the court declined to attach any weight to that evidence as it was not admissible unless permission had been granted under FPR Part 25.

The court noted that Wells sharing should be avoided where possible and H’s offer to buying out W was preferable to a Wells sharing arrangement. Peel J considered that such an arrangement would provide parties with a clean break and reduce conflict between the parties moving forward who would otherwise need to have ongoing commercial ties. The court raised concerns about a Wells sharing arrangement being unworkable and destroying significant value in the business interests. It was accepted that H had an emotional attachment to the businesses and had expressed a desire to retain them.

Peel J ruled that H should retain the entirety of the business interests and the assets should be divided overall as to 55% to H and 45% to W. The departure from equality was justified as H had received business assets which were considered risky and uncertain and operating in a highly volatile sector.

The parties had excessive costs with H’s costs being over £1.5m and W’s costs being over £3.5m. W’s costs had been higher because her instruction of corporate lawyers and shadow accountants to scrutinise the SJE’s report cost £1.9m. The court accepted that W had no knowledge of the inner workings of the business and required more work to be done to test and probe the SJE report but found that her costs were still excessive. W was ordered to pay £375,000 in costs to H.