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	England and Wales High Court (Family Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Family Division) Decisions >> D v D [2010] EWHC 138 (Fam) (11 March 2010) URL: http://www.bailii.org/ew/cases/EWHC/Fam/2010/138.html Cite as: [2010] EWHC 138 (Fam)

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IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

		Manchester District Registry
		11/03/2010

Charles J

Introduction

1. 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.
2. At the PTR I directed that each side should "plead" their case. They did so, and I found this to be a helpful exercise.

General background and current circumstances

3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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

9. 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.
10. Earlier history is:

i) The husband's Great Grandfather and Grandfather purchased a farm, GE Farm, of which they had been the tenants. They traded in partnership and this farm is now owned by the Company.

ii) The husband's father joined his father and grandfather in their farming business at GE Farm. (I do not know when the husband's uncle joined and left, but this does not matter).

iii) In 1947, the husband's grandfather acquired a tenancy of WE Farm for growing fruit and the family farming business started one of the first "Pick Your Own" fruit enterprises in the area at that farm.

iv) In 1951, the husband's father went to America on a Nuffield farming scholarship and studied the growing of vegetables. He was there for under a year but acquired useful knowledge and experience from more advanced and different methods that were used in America (in this context broccoli and rhubarb were specifically mentioned in the evidence).

11. 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.
12. 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:

Date	No. of shares	Source
28.10.77	1500	Cousin
07.04.82	500	Mother
03.04.83	500	Mother
19.03.91	1144	Grandmother
30.04.94	5538	Father
	9182

13. 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.
14. 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.
15. 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.
16. The Company's business now has three component parts, namely:

i) farming (mainly vegetables but also cereal and a traditional rhubarb crop),

ii) packing, i.e. mainly packaging for supermarkets, and

iii) a processing unit which in broad terms washes, chops and packs vegetables for supply to amongst others the producers of ready made foods, supermarkets, schools, and restaurants.

17. 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.
18. To the east of W:

i) In the 1950s, the Company owned and farmed GE Farm and some small areas very close by, and also some tenanted land further away (that was later bought in 1996).

ii) In the 1960s, it rented a smallish area of land very close by.

iii) In the 1970s, it bought three areas of land slightly further away (the largest of which is some 121 acres).

iv) In 1983, CH Farm was rented initially by the husband and later by the Company. This is very close to GE Farm.

v) In 1987, the Company bought HH Farm.

vi) In 1990, the Company bought a business YRG, which was renamed, and in 1991 sold a small area of land to assist in funding that purchase.

vii) In 1993, the Company bought further land abutting CH Farm and very close to GE Farm.

viii) In 2002, the Company became the tenant of a farm close by (it abuts HH Farm). That tenancy expires in 2012. The Company has no security and has been told that the owner is contemplating a sale of the land.

19. The packing and processing operations are also based to the east of W and very close to GE Farm.
20. 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.
21. 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.
22. 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.
23. 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.
24. The land to the west of W was, as I have mentioned, all acquired and let after the marriage:

i) In 1994, the parties bought CG Farmhouse and the Company bought CG Farm (approximately 314 acres) which the husband described as the best vegetable growing land owned by the Company. It was a significant and costly purchase at the time. The decision to buy was made by the husband's father and the husband. The land had not previously been used for growing vegetables and the husband told me and I accept that, at the time, some people expressed the view that it would not be successfully used for this purpose, but his father and he disagreed. They have been proved correct.

ii) In 1995 and 1997, the company bought two areas of neighbouring land (CL Farmland) which in total is around 190 acres. The smaller area with separate access being to the east of the railway line that separates them.

iii) In 1998 and 1999, the Company bought a further 35 acres of land and rented three further areas of land.

iv) In 2006, the Company rented a farm abutting CG Farm.

25. 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.
26. 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.
27. 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.
28. The receipts were:

i) £1.2 million in 1996, on the compulsory purchase of land by the Highways Agency,

ii) £3.5 million in 2000, on the sale of land adjacent to the new motorway for development, and

iii) in the financial year to 31 March 2004, from the Highways Agency, £685,000 for crop compensation together with interest of £302,300.

The capital receipts total £5.385 million (plus the gross interest of £302,300).

29. 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).
30. 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:

i) farm land, buildings, processing and packing units, £9,896,000;

ii) residential property, mainly occupied by migrant workers, £922,500;

iii) a small piece of land presently used by the local cricket club for parking pursuant to an informal arrangement, which was has potential for residential development. This land was overlooked by the husband until it was brought to his attention during the hearing, when his initial description of its size (one third of the large courtroom) was a significant underestimate, (the Cricket Club land), £120,000;

iv) plant and machinery £985,220;

v) contingent corporation tax (£2,212,767) and selling costs at 3% (£244,415) payable on disposal of the non plant and machinery assets (including the Cricket Club land) totalling (£2,457,182).

31. 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.

Information extracted from the accounts and records of the Company with some comment

32. The turnover of the Company:

i) in the year to 31 March 1985 (the year cohabitation commenced) was £349,040, which is £795,464 when inflated by RPI, and

ii) in the year to 31 March 2003 (the year of separation) was £5,082,579, which is £6,058,703 when inflated by RPI.

Using "today's money" figures, this is an increase in turnover (adjusted for inflation) of 762% from cohabitation to separation.

iii) The turnover in the year to 31 March 2009 (the most recent available figures) was £6,837,766, which is £6,983,250 when inflated by RPI.

Using "today's money" figures, this is an increase in turnover (adjusted for inflation) of 878% from cohabitation to October 2009.

33. The gross profit of the Company:

i) in the year to 31 March 1985 (the year cohabitation commenced) was £92,511, which is £210,833 when inflated by RPI,

ii) in the year to 31 March 2003 (the year of separation) was £1,655,360 (included at £1,649,758 in the 2004 accounts) which is £1,973,277 when inflated by RPI.

Using "today's money" figures, this is an increase in gross profit (adjusted for inflation) of 936% from cohabitation to separation.

iii) The gross profit in the year to 31 March 2009 (the most recent available figures) was £1,403,152, which is £1,433,006 when inflated by RPI.

Using "today's money" figures, this is an increase in gross profit (adjusted for inflation) of 680% from cohabitation to 31 March 2009.

34. The shareholders' funds:

i) in the year to 31 March 1985 (the year cohabitation commenced) were £256,506, which is £584,578 when inflated by RPI,

ii) per the accounts of the company in the year to 31 March 2003 (the year of separation) were £5,836,990 which is £6,958,001 when inflated by RPI.

Using "today's money" figures, this is an increase in shareholders' funds (adjusted for inflation) of 1190% from cohabitation to separation.

iii) The shareholders' funds in the year to 31 March 2009 (the most recent available figures) were £6,256,608, which is £6,398,919 when inflated by RPI.

Using "today's money" figures, this is an increase in shareholders' funds (adjusted for inflation) of 1095% from cohabitation to October 2009.

Land Values

35. 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.

The wife's participation in the business and the purchase of HH Farm

36. 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.
37. 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.
38. 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.
39. 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).

The participation of the husband's father in the purchase of HH Farm and the capital sums paid on sale of parts of the land

40. 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).
41. 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.
42. 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.
43. 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.
44. 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.
45. 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 liquidity of the Company as a result of the sales of parts of HH Farm, its profitability and the husband's drawings over recent years

46. 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.
47. 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:

2002	£2,199,988
2003	£2,610,366
2004	£3,670,937
2005	£1,966,957
2006	£4,289 (and since then it has stayed at a similar level)

.

The adjusted net profit (calculated by the jointly instructed accountant (Ms Howe) for the purpose of calculating the average underlying net profits and so with adjustments in respect of the depreciation and some other matters included in the Company's profit and loss accounts) before directors' remuneration and pension was:

2002	£786,055
2003	£1,044,426
2004	£1,092,588
2005	£644,073
2006	£165,613
2007	(£78,322)
2008	(£112,699)
2009	£55,590
2010	£533,864 (projected)

The husband's and the wife's salaries were:

2002	£395,250	(Wife £36,223)
2003	£395,250	(Wife £36,223)
2004	£443,000	(Wife £36,547)
2005	£402,000	(Wife £11,731)
2006	£52,000	(Wife £10,400)
2007	£170,200 plus £10,000 pension contribution	(Wife £10,400)
2008	£80,000 plus £10,000 pension contribution	(Wife £10,400)
2009	£80,000 plus £10,000 pension contribution	(Wife £10,400)
2010	£80,000 plus £10,000 pension contribution (projected)	(Wife £10,400) projected

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

2004	£0
2005	£322,709
2006	£385,965
2007	£252,665
2008	£210,284
2009	£75,013

At the date of the hearing that current account was in debit to the sum of £227,066 and so had been turned to a loan from the company without any director's remuneration (or dividend) being voted to cover it. The main reason for this was a decision to pay all the husband's outstanding costs in the week leading up to the hearing. Although:

i) this change of the husband from creditor to debtor is in line with the forecasted balance sheet as at 31 March 2010 attached to his business plan (which shows his loan account as being £130,000 overdrawn as at 30 December 2009 and £160,000 overdrawn as at 31 March 2010, for an unexplained reason but perhaps because of his need to pay his costs), and

ii) it was common ground that the outstanding costs of both parties would have to be met (and in the wife's case this would involve the payment of a sum to discharge her litigation loan), and so

iii) if this payment had not been made the court would have had to consider, as it still does in respect of the wife's costs, how the husband's outstanding costs were to be funded by withdrawals from the Company, and

iv) I appreciate why the husband's solicitors would want to be paid before the hearing,

the payment of his costs without (a) ensuring that the relevant gross salary or dividend was voted to justify the payment, (b) informing the court or the wife whether it was intended that a dividend or a salary/bonus was intended to cover and justify it (but I record that the indication in submissions and exchanges in court was that it would be covered by a dividend) and (c) providing any calculation of its effect on the value of the Company or the ability of the Company to raise further funds, to my mind was an unfortunate and unattractive course of action. In my view, a more constructive and appropriate course would have been to provide (before any payment was made) the details as to how it was intended to meet either the husband's costs, or both sets of costs, in the context of a detailed presentation of the steps proposed to raise and withdraw funds from the Company to meet costs and the award rather than, at the last minute, to simply procure that the husband's costs were paid.

49. The year end figures also show that:

i) notwithstanding the drop in salary from the year 1 April 2005 to 31 March 2006, that from 1 April 2005 the husband has drawn £549,775 in net salary from the Company plus so much of his salary for those years that was not added to his end of year current account,

ii) since separation at the end of November 2003 (during the company year to 31 March 2004) the liquidity of the Company, and thus the ability of the husband to draw moneys from the Company to meet the wife's claims, has been drastically changed and reduced,

iii) a significant drop in profit after the investment in the processing plant (and before adjustment for depreciation etc losses in each of the years to 2005, 2006, 2007, 2008 and 2009 with a forecast return to a profit for 2010).

The reasons for these changes in liquidity

50. 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.
51. 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.
52. 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.
53. 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.
54. That motivation was not challenged and I accept it. However what was asserted and I find is:

i) that it is obvious that this investment would have the secondary effects of (a) converting a significant sum of cash to fixed assets, and thus (b) drastically reducing the liquidity of the Company and therefore its ability (without borrowing or significant profits represented by cash in the Company's bank accounts) to fund (a) drawings by the directors and shareholders from the Company to maintain the previous level of salary, or (b) through salary or dividends liabilities to the wife and/or others, and

ii) because these secondary effects were so obvious, they were appreciated by both the husband and his father when (as directors and shareholders) they made this investment for commercial reasons.

I also find (as again it was so obvious) that both the husband and his father appreciated at the time that the investment in the processing unit was made that there was a real prospect that the wife would be making a claim for ancillary relief against the husband.

Packing and processing – new ventures or a continuum?

55. 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.
56. 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).
57. 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.
58. 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.
59. 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.
60. 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.
61. 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.
62. 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.

The commercial thinking behind the investment in the processing unit / the reasons for the recent changes in profit / the Company's projections and business plans

63. 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.
64. 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.
65. 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).
66. 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.
67. 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:

i) demonstrate the broad or "blue sky" thinking behind the investment in the processing unit, but

ii) indicate that little, if any, detailed investigation and planning had been carried out into the nuts and bolts of the venture.

This is reflected in a passage on the second page of the business plan, prepared by the husband with the help of the Company's accountants, namely:

"In August 2008 the Company extended its overdraft from £1.1 million to £1.6 million after meeting with the bank.

The Company at that point in time resolved to prepare budgets and improve results. (my emphasis) On experience quarterly or monthly Accounts were decided not to be effective and the first Accounts were prepared in December 2008 (9 months) ----------

It became apparent from an examination of these Accounts that considerable attention needed to be paid to the cost of labour with the changes in packing requirements and also in the process food department. Considerable effort has been devoted in the past 12 -18 months to improving margins as there was a considerable amount of waste in the processed food business and in making labour costs more in line with what was affordable "

Looked at simply as a management issue this account and its generality is troubling and indicates that there were no earlier detailed budgets, plans and projections directed to the performance, margins and costs of the large investment in the processing unit and other parts of the business.

68. 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.
69. 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.
70. 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.
71. 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.
72. 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:

i) to supply processed vegetables to a range of customers (including providers of ready cooked meals, restaurants and the supermarkets themselves or companies providing them with ready cooked meals),

ii) to best utilise vegetables that are not of the relevant high quality to be supplied through the packing operation (and thus its wastage),

iii) to best service a change in demand by the supermarkets to the sale by them of processed vegetables,

iv) to diversify and thus reduce the Company's reliance on its existing small number of main supermarket customers, and

v) to take best advantage through the three aspects of the Company's business of its position as the only substantial vegetable grower, packer and processor in the relevant area.

73. 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.
74. 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:

i) he believes that convenience foods are the future whether as ready made meals or as pre chopped / chipped / diced vegetables supplied to supermarkets,

ii) he is in negotiation with supermarkets and other potential customers,

iii) the ability to establish provenance will become more important (and that, as the only substantial vegetable packer in the county, the Company should be able to take advantage of this), and

iv) over the last year he has involved himself in the day to day running of the processing unit to address the problems that exist in respect of it by adopting the sensible strategies that he describes in general and policy terms in the business plan (without giving underlying detail and figures by reference to past performance and projections or forecasts).

75. 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.
76. 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.
77. 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).
78. 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.
79. 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.
80. 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 Company valuation

81. 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.
82. 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.
83. 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.

84. 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.
85. 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.
86. 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.
87. 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.
88. 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.
89. 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.
90. 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.
91. 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.
92. 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.
93. As appears later, in my view these points relating to the product of the investment after separation in the processing unit are relevant.
94. 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.
95. 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.

Other views on marketability

96. 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).
97. 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.
98. 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.
99. 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.
100. 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.

The range of valuation

101. As appears above the valuation has a number of "moving parts" and uncertainties within it.
102. 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:

i) Sale to a purchaser of all the shares in the Company as a going concern:

a) £9,378,900, on the basis that no deduction is made for the contingent tax liabilities,

b) £7,653,100, on the basis that all of the contingent tax liabilities are deducted,

c) £8,515,992, on the basis that half of the contingent tax liabilities are deducted (the mid point).

ii) Sale by lots with no goodwill and payment of all the contingent tax liabilities: £6,823,700.

So the realistic range on those figures is between (a) £8.7m to £8.3m (because a purchaser would negotiate some, but not a full, deduction of the contingent tax liabilities) and (b) £6.8m. This is a wide range given the totals involved. It was pointed out that the figures contained a small error because the 3% costs of sales was based on the gains rather than (as it should have been) the proceeds of sale.

103. 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).
104. 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).
105. 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.
106. 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.
107. 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.
108. 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.
109. I return to the methods by which moneys can be paid out of the Company, when dealing with affordability.
110. 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:

i) as I understand it the tax credit is given because of the tax already paid on realised profits by the Company in the past (dividend is only payable from realised profits). I therefore do not accept that it is appropriate to gross up the dividend by the 10% tax credit (which is one ninth of the dividend declared and payable and thus 10% of the taxable sum) as the wife's counsel has done,

ii) no adjustment relating to the husband's current/loan account was made,

iii) no account was taken of the dividend declared and payable to the husband's mother.

But I have not reworked the calculation to take these points into account because their individual and cumulative effects would be small and any reworking would give spurious accuracy to the valuation.

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

i) Sale to a purchaser of all the shares in the Company as a going concern:

a) £9,201,700, on the basis that no deduction is made for the contingent tax liabilities,

b) £7,433,700, on the basis that all of the contingent tax liabilities are deducted,

c) £8,317,650, on the basis that half of the contingent tax liabilities are deducted (the mid point).

ii) Sale by lots with no goodwill and payment of all the contingent tax liabilities: £6,604,200.

112. 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).
113. 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.
114. 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.
115. 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.
116. 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:

i) the range of value of the Company is reduced by £300,000 from the figures helpfully recalculated by the wife's Counsel (see paragraph 102) and is therefore between (a) £8.4m to £8m. and (b) £6.5m, and

ii) the husband has a tax liability of £56,767, that he will have to meet after the year end 31 March 2010 from drawings (by way of salary or dividend) from the Company and is likely to cover this by declaring a dividend of sufficient amount to enable him to do so at the same as the dividend is declared to set off his debt of £227,066.

I acknowledge that that is a broad approach. But in any event the bracket is a wide one (given its parameters) and its main relevance is in estimating the result in percentage terms, and thus the amount of a departure from equality which itself cannot be based on a formula.

The Assets and Liabilities

117. These can be summarised as follows:

The Asset / Liability	Husband	Wife
CG Farmhouse (the matrimonial home) allocated to the wife although owned 50/50		£945,750
HC Farm	£223,100
The Husband's home	£222,699
The Husband's funds
(£228,812 – £227,066)	£1,746
Pension	£43,273
	£490,818	£945,750
The Wife's funds		(£23,736)
The Wife's paid costs (costs loan)		(£238,212)
The Wife's outstanding costs		(£170,379)
		(£432,327)
The Husband's 85.65% interest in the Company	(see above)
The Husband's present debt of £227,066 to the Company	(see above)
The husband's personal tax liability of £56,767	(see above)

118. The table set out above excludes chattels and jewellery.
119. 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.
120. The husband's mortgage of £261,331 has been deducted in arriving at the value of his home. He has to service that loan.
121. The table of assets demonstrates, as was surely always obvious to the parties and their advisers that:

i) the available sources to provide a home to the wife and an award to enable her to live are the matrimonial home and the Company, and

ii) even if the matrimonial home was to be sold moneys would have to be raised from the Company or its shares to fund the wife's award.

The costs expended show the advantages to both sides of taking a practical and constructive approach to the investigation of how that money could be raised.

122. 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.
123. 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.

The standard of living during marriage / budgets

124. 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).
125. 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.
126. 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.
127. 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.
128. 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.
129. 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.
130. 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.

Raising funds from the Company

The Green Plan Scheme and other suggested solutions

131. 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.
132. The possibility of a de-merger was raised. I was not referred to the exchanges and work relating to that.
133. 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.
134. 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.
135. 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.
136. 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.
137. 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:

i) preserving the Company, and

ii) providing the wife with a fair award.

Rather than, as one might have expected the husband who, with his advisers, had access to the relevant figures and information and must have been aware of the need to raise money through or from his interest in the Company to fund the wife's award on a clean break or other basis. In part, this reflects the stark divide between the parties as to the fair and principled approach to be taken to the Company and its value in conducting the s. 25 exercise.

Dividends and remuneration

138. 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:

i) the voting of remuneration / bonus to the husband,

ii) the Company declaring a dividend,

iii) a sale of the shares, or

iv) by a distribution on a winding up following a sale of the Company's assets.

As appears later, both sides based their final offers and arguments on the dividend route and I accept that, if a sale of the shares, or of all the assets of the Company (followed by a liquidation) is to be avoided, that appears to be the most sensible route (subject to the financial impact of the attitude of the husband's mother).

139. 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%.
140. 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).
141. 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:

i) the personal tax on the dividend declared (and thus the debt to the shareholder) is calculated on that sum plus one ninth of that sum, the taxable sum,

ii) the tax credit is 10% of the taxable sum, and

iii) the tax payable is the balance of the tax payable on the taxable sum (at the relevant rate) less the tax credit.

A calculation of the grossing up of a sum required to meet a payment, if that payment and the tax are to be met from the dividend, is included earlier in the context of the adjustment to the valuation to take account of the husband's debt to the company of £227,066.

142. 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.
143. 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%.
144. So if an award is to be funded by dividend the result has to be considered either:

i) on the basis that it will create a personal tax liability for the person who receives the dividend (which he or she has to meet, so that the funding of that will have to be considered), or

ii) on the basis that the amount of the dividend declared enables the recipient to fund the award and the tax liability from it (the grossed up approach).

145. 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.
146. 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.
147. 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:

i) the husband's tax debt and how it will be funded,

ii) the debt of the Company to his mother and her tax debt, and thus

iii) the change in the net assets of the Company resulting from the funding of the award.

In short, the point that it will cost the Company (or the husband more) more than the sum paid to the wife to fund that payment needs to be factored in. This was not done in the net effect calculations advanced on behalf of the wife and the husband did not put in any such calculations. The position is different if the premise of the assessment is that the award will be funded by net proceeds of the husband's shares after their sale or a sale of all the Company's assets.

148. 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).

The law

149. 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.
150. 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.
151. 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".
152. 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.
153. 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.

The husband's case

154. 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).
155. In my view this is wrong.
156. 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).
157. In my judgment, no such principle or approach can be founded on existing authority. Although, I accept that:

i) a fair departure from equality for "good reason" in the application of the sharing principle can amount to a result that gives one party 100% of the value of the relevant assets, and

ii) inherited or gifted land (and perhaps in particular estates and farms) that have been in a family for generations (or for less time) may found arguments that there should be such an approach,

in my view the cases do not show that simply because the relevant assets are, or derive from, gifted or inherited farms or farming assets (or estates) they are to be so treated with the result that there is no need to look further at the circumstances of the case to see what impact (if any) the sharing principle is to have on the ascertainment of the fair award.

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

i) P v P (Inherited Property) [2005] 1 FLR 575 (cited with approval in Miller) does not support the view that there is a rule or approach that applies to "farming cases" alone (even if they could be sensibly defined), and that

ii) the leading cases of White, Miller and Charman make it clear that the principles to be applied in reaching a fair result on a principled basis are ones that fall to be applied in all cases having regard to all their circumstances, and thus in a fact sensitive manner (see for example paragraph 162 of my judgment in R v R).

159. 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:

i) an award based on both sharing and need is a principled award, and

ii) in a case in which there is a good reason for departing from equality, the need principle does not as a matter of principle dictate or cap the award.

160. 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.
161. 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.
162. 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.
163. 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.
164. So, in my view these main planks of the husband's argument and approach to this case are flawed.

Sale of the husband's shares, or the approach to be taken to the Company and thus the farming business

165. 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.
166. 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.
167. 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.
168. It does not mean that the husband's approach that there should be a clean break on the bases:

i) he should retain and continue to run the Company, and

ii) his assertion of what the company could afford to borrow now and in the short to medium term without providing properly particularised information (as he was ordered in October 2009 to do, but failed to do) of the maximum the Company could afford to borrow and the range of possible solutions by reference to (amongst other things) the raising of funds to meet a lump sum payment, should found and limit the award

is fair or correct.

169. This reflects:

i) the starting point in respect of the correct approach to be taken to pre-acquired and gifted assets recognises that the existence of such property can be expected to carry little weight in a case where a claimant's needs cannot be met without recourse to it (see Lord Nicholls in White at page 610). That recourse could be based on the capital value of, a sale of, or the income return from the relevant property, and

ii) the point that a clean break is not to be achieved at the price of fairness, or must represent a result that in all the circumstances is fair.

170. 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.

The Husband's Final Offer and thus the Award he seeks

171. 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.
172. 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.
173. The offer was of that sum plus a lump sum of £1,500,000, a total of £2,567,000.
174. 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.
175. 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.
176. 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.
177. 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:

i) falls short in terms of income,

ii) creates a significant risk that it would also fall short in the standard and amenity of the home the wife would be able to sensibly buy balancing her housing and income needs, and

iii) creates a significant risk after a long marriage that, even if the Duxbury calculation turns out to be accurate, the wife is put in financial difficulty as a result of her not having any cushion to finance a need.

178. 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.
179. 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.
180. It was not suggested that the wife had any relevant earning power.
181. 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.
182. 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.
183. 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:

i) the husband would retain what he wants to, namely the Company (absent CG Farm, which of course he would like to keep) whereas

ii) the wife would lose or give up the asset she would like to retain (and which until very late in the day the husband recognised it would be fair for her to retain),

iii) the capital payment would be by reference to the borrowing the husband has sought from (a) the Company's bank (I refer to his unsatisfactory approach to the raising of funds and affordability later), and (b) the present product of his (and his father's) decision to invest in the processing unit, which they considered to be a sound long term investment and appreciated would reduce the ability of the Company to fund an award to the wife, and

iv) the husband would retain all the hoped for future benefits (as well as risks) of that business decision which he has failed to estimate beyond 31 March 2010 (but which he maintains will prove to be a profitable investment).

The Wife's Final Offer and thus the Award she seeks

184. 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.
185. 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.
186. 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.

Affordability

187. 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.
188. 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.
189. 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.
190. 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).
191. 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) "

192. 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.
193. 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.
194. 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.
195. 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.
196. 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:

i) The Company had been granted an overdraft facility of £500,000 in April 2004, that overdraft facilities were renegotiated after that and that in March 2009 the facility was £1.6m (the highest it has been). This mirrors and flows from the loss of liquidity and losses after the investment in the processing unit.

ii) At the end of November and in early December 2009 (following a hearing before me) approaches were made to the Company's Bank, in particular (a) by a letter dated 1 December 2009 from the husband's solicitors to the Bank and then later (b) by an undated proposal from the husband.

iii) The letter of 1 December 2009:

a) refers to correspondence with the Bank in October 2009 which had been disclosed earlier and shows that an approach had then been made to the Bank who had indicated that it could consider a bridging arrangement subject to, amongst other things, very clear plans and feasibility of proposed assets sales, and then

b) records that the husband had been told by the bank that it would consider making a loan of £1m (on identified terms).

It then asks: "Firstly, is the aforegoing feasible and the amount correct; would any further amount be available?".

iv) The letter of 1 December 2009 then goes on to set out a number of approaches to raising money put on behalf of the wife (in her pleading and elsewhere) and asks if, which the husband has no intention of doing, he sought additional borrowings of £1/1.5m from another source and it became available what impact this would have on the present overdraft facility.

v) The undated proposal from the husband to the Bank also refers back to correspondence in October 2009 and makes a proposal for a loan of £1.5m with the objective of declaring a dividend of £2.335m (his share £2m) on the basis that he will draw £1.5m to fund a payment to the wife and retain £500,000 to cover his tax liability. It then goes on to set out that the loan would be repaid on the sale of CG Farm for about £2m and the payment of corporation tax that would then arise by the sale of some residential properties.

vi) The proposal ends by enclosing forecasts to 31 March 2010 and stating that forecasts for the year to 31 March 2011 will be prepared in January and February 2010 once the planting schedule is fixed, and

vii) on 10 December 2009 the Bank wrote confirming that it had approved additional facilities in the sum of £1.5m and stating that "on the current information provided and recent trading performance of the Company" (my emphasis) for the time being this would be the extent of the Bank's appetite to lend monies to the company. I have already referred to this letter (and the accompanying facility letter), it underlies the husband's final offer.

197. As to those communications I comment as follows:

i) they are very late in the day,

ii) the nearest the husband comes to asking whether the Bank would lend more than is proposed by him is in the second half of the question posed in the letter of 1 December 2009,

iii) a higher proposal is then made by the husband and is accepted by the Bank,

iv) there are no forecasts that add to his business plan,

v) "very clear plans and feasibility of proposed sales" (sought by the Bank) are conspicuous by their absence, the closest is the undated proposal by the husband plus its enclosures,

vi) it is made clear that the husband has not sought finance from other lenders,

vii) the Bank's statement as to its appetite to lend more money is understandably qualified by reference to the information provided and recent trading performance. It therefore leaves out of account any informed view on the prospects of a return to good profits because, as the husband hopes and expects, the investment in the processing unit will be proved to be a sound commercial investment,

viii) the husband's proposal, accepted by the Bank, involves the sale of CG Farm only and not the farm together with the matrimonial home (the relevant valuations being the farm: £2m and together £3.2m - giving a marriage value of £100,000 to £125,000) whereas his final offer is based on a sale of the two together on the basis that the Company would take no benefit from the marriage value,

ix) there is no evidence that the Bank (who have or would have a fixed charge over CG Farm) have or would agree to that approach to the marriage value, and

x) the most detailed explanation of the husband's position on affordability is remarkably and inappropriately to be found in the undated proposal produced after the hearing had begun in the bundle of correspondence with the Bank.

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

i) the lack of any projections or feasibility studies in respect of the processing unit (and/or the remainder of the business if necessary on informed assumptions relating to the planting schedules) are conspicuous by their absence,

ii) there is no detailed response to either (a) the suggestions as to raising money made by the wife referred to in paragraph 196(iv) above (he did give a detailed response to the Green Plan and de-merger was not pursued), or (b) the possible methods of raising capital discussed by Ms Howe in her supplementary report,

iii) it is effectively only by inference that it is asserted that the last offer from the Bank is the maximum amount that the husband maintains could be provided to the company by way of borrowing to fund an award to the wife, and

iv) the calculations in support of that assertion (which the husband was ordered to provide) are conspicuous by their absence.

199. 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).
200. She:

i) refers to an email from the husband which answered her question as to how each asset of the Company is used and whether that asset could be sold. His answer was to the effect that some outlying fields of GE Farm could be sold (but he did not identify them with any precision) and that residential properties could be sold, and therefore

ii) understandably, she proceeds on the basis of the prospect of bridging finance from the Bank by reference to the residential properties that the husband told her could be sold.

201. 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.
202. 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"

203. 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:

i) the profitability and prospects of the Company, and thus

ii) issues relating to its value and to affordability.

204. 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).
205. 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.
206. 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.
207. But whether or not there was such a division the following points are helpful and address her additional instructions on affordability:

i) Her appendix based on an alternative source at HSBC setting out the loan capital and interest payments over periods of 5, 10 and 15 years for loans ranging from £1m to £3m.

ii) Her view in answer to a written question that Banks increasingly look at EBITDA (earnings before interest, tax, depreciation and amortisation) when considering interest to cover loans.

iii) Her view in her first report that: "There is certainly significant security available from the land and buildings but it may be that a period of consolidation is required until and if the returns expected from the prepared food site are achieved. Thereafter, payment of the levels of remuneration previously enjoyed by Mr D may be possible", which is reflected in her supplemental report and answers to written questions about it.

iv) Her view that in theory Banks remain willing to consider lending up to 70% of adequate security, although amounts loaned are limited to what a company can afford to pay.

v) Her views set out in both her reports on the depreciation charged by the Company in its accounts and in the forecast to 31 March 2010, founds her conclusion that, although that approach is within an acceptable range for the purposes of the Company's accounts, in cash flow terms (i.e. before depreciation) the Company should be much better placed than is suggested by the profit forecast to 31 March 2010. She also pointed out that this conclusion is reinforced by the forecast balance sheet which shows a decrease in the overdraft balance of £113,000 despite the husband's loan account being shown as £160,000 overdrawn, and

vi) following on from that conclusion, her unchallenged appendix calculating the underlying profit shows a forecast profit (and a positive cash flow) of £266,422 after (a) adjustments for depreciation and other matters, (b) a provision for capital reinvestment of I was told £200,000, (c) director's remuneration of £80,000 and pension contribution (£10,000) grossed up to £122,068, and (d) tax (£75,460).

are relevant and helpfully address the additional instructions on affordability given to her.

208. 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).
209. 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.
210. 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".
211. 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.
212. She was not asked about these views in her oral evidence.
213. 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.

Where does that leave the parties and the court on affordability?

214. The general answer is in difficulty in large measure from lack of information.
215. 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.
216. 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.
217. 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).
218. 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:

i) the production of a business plan and (with calculations) a document setting out what the husband asserted could be borrowed by the Company, and

ii) evidence of the actual views of commercial lenders based on properly supported explanations of the reasons why the investment in the processing unit had not been profitable and projections as to why this would change and a range of alternative proposals (including those suggested by Ms Howe).

219. This was not done.
220. 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:

i) as I have explained, through his business plan and otherwise he has failed to provide any reasoned and supported assessment of what the Company could afford and still have a reasonable prospect of remaining in business,

ii) thus he has failed to provide, with appropriate supporting material and calculations, what he says is the maximum that the Company could borrow,

iii) the wife's counsel was correct when in closing he submitted that even now the wife and the court have not been told by the husband what his view is on what land (freehold and tenanted) the Company needs to retain to survive (and thus for example what land it can sell and what it can borrow and remain in business),

iv) as to (iii), the inference behind his final offer is that he is of the view that the Company will be able to sustain (a) the borrowing on which it is based (and its overdraft), and (b) the sale of CG Farm on which it is based and survive. But he has failed to provide any detail of his forecasts and projections that found that view (even in the limited sense of showing the timing and cash flow effects of the payments that the Company would have to fund or would owe (for tax, and to the husband and his mother) and their impact on the ability of the Company to meet its other liabilities before and after the sale of CG Farm),

v) as to (iii) and (iv), the husband was given the opportunity in the witness box to provide additional information generally and by reference to (a) land the Company would seek to rent and/or (b) his thinking on the impact on turnover, costs and margins that would result from the loss of what he described as the Company's best vegetable growing land. But he was either unable or unwilling to do so,

vi) as to the underlying bases of his final offer there are a number of other gaps including:

a) the approach to be taken to and the impact of roll over relief, albeit that this featured prominently in the reasons behind the investment in the processing unit,

b) the position of his mother was not explained, and

c) the position of the Bank to the wife receiving all of the marriage value and how the Company could in effect make a gift of this to her and thus how a proportion of it could be paid to her other than through a distribution to the husband,

vii) he has not approached any potential lenders apart from the Company's Bank and has not provided any evidence that he asked that Bank how much it would be prepared to lend on the basis of worked alternatives relating to what the Company could sustain in the future or otherwise,

viii) rather, the evidence indicates that it was only very late in the day that he approached the Company's Bank with a proposal that would fund his final offer in the circumstances I have described and commented on earlier,

ix) he has not taken a pragmatic and sensible approach to an assessment of how an award of the size sought by the wife (or any award above what he has offered) might be funded, or to demonstrate that it could not be, and

x) he has advanced his offer (based in part on his approach to the Company's Bank to borrow £1.5m and not any higher sum) on the present position of the Company following its investment of £3m plus in the processing unit which to date has not been profitable, but which he maintains was a sound and sensible business decision which will prove to be profitable, and by so doing he has unattractively on a generalised basis sought to limit the award by reference to the present rather than his hoped for and expected increased profitability of the Company arising from an investment made after the separation of the parties.

221. 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.
222. 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.

The approach to be taken to an assessment of value, liquidity and affordability on the information provided and thus the evidence

223. 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.
224. In my view, having heard him give evidence, the position is not:

i) that he has done the work to provide much of the relevant information and suppressed it, or

ii) that he has suppressed relevant detail as to the past and projections that are in his head rather than on paper (which can often be the case with competent directors of small companies).

Rather, I have concluded that he has not done the work and/or the relevant analyses with any rigour and the lack of particularised estimates, projections and business plans (which I accept could largely be in his head rather than in formal documents) reflects his general business approach over the years.

225. 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:

i) be taken into account and reflected in orders for costs, albeit that this can affect the balance of the result of the award made (this is a future issue that was flagged up during the hearing), and generally

ii) that approach is to be preferred to reflecting those matters as a free standing point in the amount of the award, and thus in effect as a punishment in that way, but

iii) in assessing the assets and their value, affordability and risk, those matters can found inferences being made against the husband.

226. 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:

i) was, and will prove to be, a good one, that

ii) will, together with the other aspects of its business, found a secure future for the Company and a return to it making significant profits and therefore (a) it being able to pay a large salary or dividend to the husband and/or raise finance, and (b) an increase in its capital value and marketability.

227. 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.
228. 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.
229. This difference of approach to affordability (and value) puts the court in a dilemma because it cannot ignore the point that the assessments:

i) of what could be raised to fund the award,

ii) of what is fair as between the parties

would be based on different underlying approaches to future success and profitability of the Company and in particular of the processing unit.

230. 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) to be able to fund the borrowing that Ms Howe suggested might be possible in the short to medium term (i.e. £3m over the present overdraft), and/or

ii) to fund borrowing based on future profits as opposed to, or as well as, sales of assets in the short term.

231. 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) the level of borrowing suggested by Ms Howe (£3m above the overdraft) represents the maximum that could be sought now,

ii) at that level of borrowing the survival of the Company would be at significant risk having regard to its management and performance since the investment in the processing unit, and

iii) a commercial lender would not be persuaded to lend so much until at least some of the projected profitability was proved by performance.

These views are supported by the history of the processing unit and the fact that the hoped for turn round in one year that the husband told Ms Howe was his position when she was preparing her first report (dated 28 January 2008) has not occurred albeit the forecast to 31 March 2010, and her assessment of the underlying profitability, shows improvement.

232. 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:

i) there is a reasonably good prospect that the Company could raise more than the £1.5m (over overdraft) that the husband has sought and been offered, and

ii) with appropriate assistance the husband's prospects of converting the nature of a loan of between £1.5 and £2m (in addition to the overdraft) from one based on short term bridging relating to the sale of assets to an interest only loan (possibly in parallel with a distribution in specie and a lease back by the wife to the Company, which I could not order) are reasonably good, and might well enhance the long term survival and prosperity of the Company.

Miscellaneous

233. 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".
234. 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.
235. 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.
236. 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.
237. 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) to show how unsuccessful the investment in the processing unit has so far been, and

ii) to confirm the unfairness and unattractiveness as between the husband and the wife of the husband's approach of taking the present disappointing result of a post separation decision (made by him and his father) as a limiting factor to the award on a clean break basis.

The final offer and the award suggested by the wife

238. 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.
239. 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.
240. 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:

i) infer that the award the wife seeks is affordable, and further or alternatively

ii) proceed on the basis that the husband should take all the risk that it is not and thus of the consequence that he will have to sell his shares or wind up the Company to pay the award.

241. 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.
242. 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.
243. 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:

i) contrary to the approach taken during the marriage the Company should not be treated primarily as an income source and as an asset that the husband would work in for his working life and wish to pass on, and thus

ii) the shares would be sold or the Company wound up after a sale of its assets.

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

i) whether the arguments in favour of a clean break lead to that conclusion, notwithstanding the strength of the argument and the common approach of the parties that the Company should be preserved, and

ii) the amount of the award on the basis that it will be met from the net proceeds of the shares in the hands of the husband and the uncertainties relating to what that sum will be, which could be addressed by making an award of a sum equal to a percentage of those net proceeds.

245. 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.
246. 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.

Conclusions

247. 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.
248. 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.
249. 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).
250. 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).
251. 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.
252. 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.
253. 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.
254. 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.
255. 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.
256. 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.
257. So, the real points in connection with determining whether there should be a "clean break" are:

i) the assessment of the risk that the lump sum or lump sums ordered cannot be paid absent a sale of the shares or a liquidation of the Company,

ii) the assessment of the consequences of such a sale should that risk materialise, and

iii) the assessment of the fairness of an award premised on a sale of the Company now.

258. 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).
259. 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:

i) The strong argument that the husband should if reasonably possible be permitted to continue farming through the Company and the factors that support it (e.g. its history, its treatment as an income producing asset and the choices made by and the basis upon which the parties ran their lives together).

ii) The approach to the management of the farming business and its major investments (the last being the processing unit), which has been as I have described it.

iii) The present valuations focus on the present (and up to 31 March 2010) and on the information provided (which accords with the management approach and strategy over years) a properly informed assessment of prospects and risk cannot be carried out.

iv) The value of the Company should be looked at and assessed both as at present (and thus in the knowledge of the range of valuation and views on marketability) and in the light of its prospects and risks as an income source and as an asset that the husband expects will increase in profitability (and thus value) because the investment in the processing unit will prove itself to be a good one.

v) The future prospects and thus income yield of the Company, as well as the removal of liquidity arise from a post separation investment made in the circumstances and with the knowledge I have described, and will be based on a combination of the capital investment and management decisions (which can be compensated by reasonable remuneration).

vi) This is a long marriage (the contrary was not suggested) with the contributions I have mentioned which resulted in the lifestyle and standard of living I have described and quantified, and

vii) the broad approach in percentage terms to the departure from sharing is as I have set it out earlier.

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

i) An order should not be based on a sale of the shares or the liquidation of the Company. (Neither side sought this as part of their primary case which to my mind is a proper recognition of the strength of the argument that this is the fair underlying approach).

ii) If the underlying premise of the award is that the husband is to retain his shares and thus the Company, a fair balance would be for the wife to retain the matrimonial home. Even though it can be said to be too big it remains the case that the children still regard it as home and are likely to return there regularly for some time.

iii) An order that produced a high risk that the Company would not survive and its shares or assets would have to be sold and therefore the husband would receive a sum by reference to the lower end of the range of valuation (and be deprived of the chance to demonstrate that the processing unit was a sound investment) would produce, or would carry high risk that it would produce, an unfair result.

iv) If the underlying premise is that the Company is to continue to trade and be managed by the husband, a capital or sharing award based only on (a) the present valuation range, and (b) limited information as to the prospects of the processing unit (only a general assertion beyond 31 March 2010) would not represent a fair starting point as between husband and wife.

v) Point (iv) flows from the conclusions that as between husband and wife (i) it would be unfair if the husband did not have to take into account the hoped for and expected success of the investment and (ii) the investment followed the earlier management approach of the controlling minds of the business and on that approach in broad terms the underlying thinking has some force, so it would be fair for the parties to both take the risks and potential advantages that flow from it, and

vi) the estimation now of the profitability of the processing unit and its future results and thus its projected and actual success or failure impact the present and future value of the Company, affordability and risk.

261. 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.
262. 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:

i) a non amortised sum is not appropriate,

ii) the inclusion of a capital cushion leading to an award higher than a Duxbury sum would be appropriate on the basis of a need approach (generously assessed) to cover uncertainty in the calculation of the capital sum and to provide flexibility having regard in particular to the length of the marriage, the contributions during it and thus the way in which the parties ran their lives together and the nature and value of the Company as a capital asset and an income source, and

iii) if such a cushion extends a need based approach too far, then but importantly subject to the relevant cross check by reference to sharing, the inclusion of a cushion as a part of, or as an adjunct to, a need based assessment is nonetheless appropriate at this stage, and thus before an assessment based on sharing.

On that approach it seems to me that that cushion should not exceed £500,000 and the balance of the award sought by the wife would then, on a Duxbury basis, produce an annual income above an income that reflected the parties' lifestyle.

263. 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:

Husband	Wife
£490,818	£945,750
£8.4m / £6.5m
(£3.2m)	£2.75m
£5.69 /£3.79m	£3.70m
60% / 51%	40% / 49%

264. 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.
265. Is a clean break a fair possibility? It seems to me that this question has always been at the heart of this case.
266. 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.
267. 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:

i) when setting the income level by reference to need (and thus the standard of living of the parties), and

ii) when applying the sharing principle,

the potential future profits from the investment after separation by the Company together with its total future profits and thus the profits available for distribution or sharing are relevant factors.

268. 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):

i) in my view some of that cushion can be found in the matrimonial home and the ability of the wife to downsize in the future,

ii) the remainder of the cushion should be identified within any lump sum awarded, and

iii) the wife's income should be financed by the balance of a lump sum award and/or periodical payments.

269. 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)).
270. 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:

i) a cushion of the order of £500,000 attributing say £250,000 to the ability to downsize would be appropriate,

ii) a sum of £432,000 to cover debts is appropriate,

iii) if a capital sum to produce an income on a Duxbury basis of £75,000 (£1.581m).

271. 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.
272. 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.
273. 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:

Husband	Wife
£490,818	£945,750
£6.23m / £4.33m	£1.831m (£2.263m to the wife less her debts of £432,000)
£6.72m / £4.82m	£2.78m
71% / 64%	29% / 36%

The wife's percentages by reference to the value of the Company would increase if there was an adjustment to take account of the fact that the wife is getting all the matrimonial home. But the figures and the calculation have a spurious accuracy.

274. 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.
275. 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:

Husband	Wife
£490,818	£945,750
£8.4m / £6.5m
£2.263)	£1.831m
£6.63m / £4.73	£2.78m
70% / 63%	30% / 37%

276. 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.
277. 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:

i) the wife should be limited to an award that is below or at the bottom of the range of a fair award, or

ii) the husband should be made to take a very high risk that the Company could not afford to raise and distribute sufficient to meet the award and survive.

278. 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.
279. 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:

i) the investment in the processing unit (a) for the reasons and with the expectations and (b) with knowledge of its effects that I have described, and

ii) the approach of the husband on affordability.

280. 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.
281. 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.
282. Such an award would therefore be based either:

i) on an inference that the Company could raise sufficient to fund the award and survive, or

ii) on the premise that the husband would be likely to have to sell his shares or liquidate the Company.

283. 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.
284. However:

i) I have concluded that it would not be right to make that inference because the evidence does not support it,

ii) I have concluded that in all the circumstances an award based on the premise that the husband will have to sell his shares or liquidate the Company would not be fair, and thus

iii) I have concluded that a true clean break based on a lump sum or two or more lump sums cannot be achieved fairly, notwithstanding the advantages to both sides that would flow from such an award that are identified in the cases (none over and above those and which are special to this case were identified).

Those conclusions are based on and reflect the magnetic factors and building blocks identified earlier (see paragraphs 259 and 260).

285. 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.
286. 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:

i) the husband can raise and pay a lump sum of £1.5m (his offer) based on the offer of borrowing he has received or on a renegotiated basis,

ii) the wife should receive the matrimonial home,

iii) the wife should be allocated a cushion as in my worked example, namely of £500,000 of which £250,000 is allocated to her ability to "down size",

iv) the wife's debts should be allocated to the lump sum, leaving arguments on the costs element of those debts to be decided,

v) the balance of the lump sum should be allocated as an income producing sum, and

vi) the balance of her income should be funded by periodical payments.

287. As to that approach I repeat and record that:

i) in my view the Company is in a position to raise more funds in the short to medium term than the husband suggests, (but not enough to fund a fair clean break award), and

ii) there was no suggestion that the Company could not afford to pay salary or dividend to the husband to enable him to meet periodical payments.

Both are exemplified by the husband's alternative proposal and Ms Howe's evidence.

288. 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.

Result

289. So I make an award comprising:

i) a transfer of the matrimonial home to the wife,

ii) the payment of a lump sum of £1.5m to the wife, and

iii) the payment of periodical payments at the rate of £44,000 per annum to the wife.

I will cover points of timing and detail when this judgment is handed down and any arguments of costs are determined.