Business valuations in financial remedy proceedings

This blog details the factors that indicate whether a business should be valued in financial remedy proceedings and highlights cases in which a valuation may be unhelpful, where the principal value of the company is as an income stream or if there is a range of opinion about the value or where the value may be theoretical.

The most common types of business considered by the courts in proceedings for financial remedy are limited companies (both public and private), partnerships and sole traders.

Clearly, there is a big difference in the court considering a multinational public limited company and a sole trader, yet there is no formula to determine whether a valuation is necessary in any given financial remedy case. If in doubt, a forensic accountant might be willing to skim a company’s accounts and give a view about whether a valuation would be worthwhile. However, it is important not to consult someone who might be suitable to appoint as a jointly instructed expert at a later stage, potentially creating a conflict of interest.

The court is likely to consider some or all of the following questions, when assessing if a business should be valued:

  • Do the parties own a substantial proportion of the company? Who owns the remainder?
  • Is there any indication that the business might be sold within the foreseeable future?
  • Are the parties approaching a trigger date/event when the business may be sold or wound up?
  • Do the accounts show sizeable profits, turnover or capital assets?
  • What is the state of the company’s liquidity (as indicated on the balance sheet)?
  • Is there a substantial discrepancy between profits and the parties’ standard of living?
  • Are there any documents that specify the valuation that must be adopted, particularly common in partnership deeds.

The court is unlikely to order a formal valuation when one party’s interest is held as:

  • As sole trader.
  • A business that is simply an income stream for the family.
  • A small minority shareholding in a quoted company.

There are also circumstances where a valuation will not assist the court, e.g. where a business deals in cash and a forensic examination of the paperwork will not disclose the whereabouts of that cash.

Valuations are often a matter of opinion on which experts differ. A thorough investigation into these differences may be extremely expensive and ultimately, disproportionate use. In seeking to base a financial award on a business valuation that is no more than a very broad guide, risks creating an award that is unsound and likely to be unfair.

If a business does need to be valued, an application to adduce evidence should be made at the First Appointment, in keeping with the procedure under Part 25 of the Family Procedure Rules 2010 (FPR) and FPR Practice Directions 25B – E. Ultimately, it may be useful to consider the early input from an accountant to assess the value of a business.

If you wish to discuss the role that your business may have in any settlement of the matrimonial finances, contact Philip Hunter or Pui Uro based in our offices serving Bedford and Northampton on 01234 889777 for a free consultation.

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