Ancillary relief
The main determinant of value for most trading companies is the net assets they own and the profits they are able to generate in the future. Thus in times of economic uncertainty it is understandable that businesses will decrease in value.
But although times may be hard at the moment, the potential for a future return to profitability should be recognised and reflected in the valuation.
This means the valuer should secure a thorough understanding of the business' future trading potential as part of the valuation process.
In addition, if the business owner is suggesting that the business will cease to trade (and hence is worth nothing) then that assertion should be tested. There is certainly a role for an experienced forensic accountant in all of this.
A waiting game
Economically straitened times may prove to be an opportunity for the business owner to pay the wife a reduced figure in divorce proceedings, as the business value will be set much lower.
Might it therefore be advisable for the wife (assuming she does not own the business) to adjourn the lump sum claim until prosperity returns to the markets?
The court has the discretion to adjourn the whole or any part of ancillary relief proceedings. This can be a very useful device, for where a husband, say, is expecting to receive a substantial dividend or bonus at a determined date in the future, then the court would be minded to postpone the capital claim until the monies have been received.
Significant cases include:
D v D (Financial Provision: Lump Sum Order) [2001] 1 FCR 56
The husband was a member of an incentive scheme that could result in considerable additional income – the court adjourned the proceedings with the requirement that the parties report back within two months after the results of the incentive scheme were known.
However, it would appear that the courts are not willing to adjourn claims on the basis that a company, which is presently struggling, will return to profits some time in the foreseeable future.
Smith v Smith [1983] FLR 154
The court held that it had to balance the wife's interests against the need to end the litigation. The rising costs and increasing uncertainty meant that the court was not prepared to sanction an adjournment.
Thus:
a) It is unlikely that the court will allow adjournments on the grounds that the economy is likely to come out of a recession
b) Adjournments may be granted when the outcome of an event is likely to be certain and achievable within a given timeframe
c) The party seeking the adjournment must satisfy the court that it is appropriate in the circumstances
Look at the accounts
It is easy and tempting in this present economic climate for business owners to call in the receivers in order to defeat the spouse's claim for ancillary relief. When the trend in sales is downwards the proposition of impending insolvency has the ring of credibility. However, a detailed review of the accounts should be undertaken in order to identify anything untoward.
In one recent case in which BDO were involved the husband had called in the administrators despite the fact that the company was still balance sheet solvent. A quick review of the accounts revealed a high level of legal and accountancy costs. We discovered that the costs related to a new business venture the husband had set up, with the help and assistance of his accountant. Unbeknown to the wife his plan was to close down the present company (putting it into administration, on the back of reducing sales) and form a new venture.
It transpired that the reduction in sales was largely due to him transferring sales to the new venture; a deliberate ploy to reduce the settlement.
