HHJ Hess. Final hearing involving valuation and matrimonial nature of business.

Husband (52) and Wife (38) cohabited from 2010, married in September 2017 and separated in Spring 2022. The length of marriage was therefore 11.5 years.

Computation

There were several issues as to whether certain liabilities should be included on the asset schedule. However, the main task for the court was to determine the value of Company Y and how its value should be distributed.

Company Y Valuation

H held a 100% shareholding in Company Y. An SJE was appointed to assess the value of H’s shareholding. Following H’s successful Daniels v Walker application, a second expert was also instructed. Whilst the experts agreed on an EBITDA figure, they disagreed on the multiplier to be used to calculate an earnings basis valuation.

HHJ Hess reminded himself as to the fragility of business valuations and particularly that of assessing a suitable multiplier. He decided that the figure to be selected should be the midpoint of those suggested by the experts. The experts also differed slightly as to the net debt to be deducted from the headline figure. Again, HHJ Hess took the midpoint of the experts’ suggestions.

On this basis, HHJ Hess found that the net value of the company was £9,976,792.

Matrimonial Nature of Company Y

The court’s next task was to determine the matrimonial nature of Company Y.

It was common ground that H had held shares in Company Y since 2004. In August 2010, Company Y purchased Company X, which was based in England. At the point of cohabitation in September 2010, both experts agreed that the value of shares in Company Y was £1,250,000 before tax. In order to produce a fair figure for present calculations, HHJ Hess chose to adopt the method used by Wilson LJ (as he then was) in Jones v Jones [2011] EWCA Civ 41. This is notable because the Jones method is rarely applied in reported cases.

In applying Jones, HHJ Hess determined that the pre-cohabitation purchase of Company X by Company Y in August 2010 was a ‘springboard’ event, as the group turnover figures changed significantly thereafter. As such, HHJ Hess doubled the 2010 valuation figure and applied a share index figure of 1.54, having taken the average of the FTSE All Share Index, the FTSE 350 Index and the FTSE 100 Index of the period between September 2010 and the present. Therefore, HHJ Hess upgraded the 2010 figure from £1,250,000 to £3,850,000. He then deducted 28% to account for Country A tax, thus reaching a final figure of £2,772,000.

The matrimonial portion of H’s shareholding was therefore £9,976,792 less £2,772,000 = £7,204,792.

Distribution

Section 25 discussion

When assessing W’s needs, HHJ Hess commented that it was not obvious that somebody aged 38 should be awarded a whole life Duxbury fund, referring to discussion within the interim report of the Duxbury Working Party (see paragraph 4.3 of the executive summary). However, in any event, W’s sharing entitlement was greater than the court’s needs-based assessment.

Outcome

In order to equalise the parties’ share of the matrimonial assets, HHJ Hess determined that H would need to pay W £3.25m. However, he decided that a departure from equality was required because W would be receiving cash (or a copper-bottomed asset) whereas H would be left with the risk-laden shares. As such, the lump sum figure to be paid to W was reduced from £3.25m to £2.5m, leaving H with 62% of the marital assets and W with 38%.