Case No. BV19D16672

28.The battleground in this case has largely been the value to be ascribed to H’s interest in the business. I shall use the words “the business” or “ABC” notwithstanding that it has been through a number of changes over time, including its name, and has various subsidiaries which need not be considered separately. By far the biggest of the issues is whether or not an uplift to the trading value of the business should be made to allow for the possibility/probability of what might be described as a “super-receipt” as happened in early 2018. This requires an analysis of the very early days of the business.29.H left the bank in May 2016. I am satisfied insofar as it matters that W was and remained supportive of H leaving the bank and setting up his own business. 30.ABC provides advisory services principally matching investors with investment opportunities. It also has begun to invest on its own behalf, albeit to date with much less success than its core activity.31.Between August 2016 – April 2017 H invested a total of £1.175m as start up capital. Some of this came from a joint account.32.Within 2 months of the establishment of what became ABC, it announced the acquisition of a US asset manager for $320m and the deal was completed in November 2016. ABC receives an annual management fee and what can be described as a profit share.33.In October 2016 a memorandum of understanding was signed with a large overseas bank which I shall call TC to set up what turned out to be a massive venture under which a sovereign wealth fund introduced very significant funds for investment. An agreement was formalised in May 2017 whereby ABC entered into a 10 year services agreement with TC under which it would receive an annual fee of $30m.34.The third major transaction was announced in February 2017 when the same overseas bank TC signed an initial contract to acquire another entity in respect of which ABC received a $20m advisory fee which was paid in December 2017. I am told by the Chief Operating Officer of ABC that this was one of only two deals where the company received a sum of this size as a one-off fee. I will return to this issue.35.However, in March 2018 ABC entered into an agreement with TC which is described on the document as being “The Confirmation and Termination Agreement”. In return for payment of $150m to ABC by TC, all the continuing obligations of ABC under the services agreement came to an end.36.W argues that this payment of $150m, along with the first payment of $30m received in June 2017, was a success fee paid to ABC for setting up the facility with the sovereign wealth fund. H says on the contrary, that it was simply an amortisation of the remaining 9 years of the contract.37.W says that I should do no more than look at the terms of the agreement. H accepts that having received $150m neither he nor his business partner were legally obliged to do any more work under the services agreement. H could have simply walked away with his half of $150m.38.H says that I should look at what actually happened on the ground rather than the strict words of the agreement. Whatever the agreement may have said, the work of ABC for TC was core for the survival of ABC. Doing the work opened the door to future agreements between ABC and TC. TC was by far its single most important client. There could be no question of simply downing tools and not completing the work that was originally required under the services agreement. The payment made good commercial sense from both points of view: ABC was in need of capital as it had not yet built up any significant sum from trading and from TC’s point of view it was able to buy its way out of the agreement which over its years of operation would cost it far more. And, says H, the fact is that H and his founding partner continued to carry out exactly the same work after the payment for TC as it had done before.39.I was told that the wording “termination” was the one chosen by TC. I have not been provided with any explanation as to why TC should choose such an inaccurate (on H’s evidence) description of the arrangement and I have heard no evidence from TC. On the face of it the agreement seems more favourable to ABC than TC, particularly in circumstances where TC could have terminated the services agreement mid-way through its term in any event. 40.W says that the payment was not simply a success fee but also a reward for the fact that for about a year between May 2016 – June 2017 H and his partner had worked for TC unremunerated. But, that would not easily explain the size of the payment. 41.I have no reason to doubt that H and his partner did indeed carry on doing all the work that they were originally obliged to do under the services agreement. I accept H’s evidence that this continued work was outside the scope of subsequent agreements entered into between ABC and TC. That is supported by the fact that the original services agreement required the work to be carried out specifically by H and his founding co-partner and the subsequent agreements were between different parties to the services agreement and required far greater input than provided under the old agreement.42.On balance, I accept H’s explanation and that I should not regard the payment as a one-off fee. However, I do not think that much actually turns on this dispute. 43.W says that it is central to the question of whether or not there should be an uplift in the valuation of the business. She says that it would lead to a major under-valuation if the potential of earning a huge occasional fee such as this was ignored, as it would be if the valuation simply reflected recent trading.44.Mr Bezant, single joint accountancy expert (SJE), in valuing the business in his first report in 2020 brought in the sum of $200m at a probability of 75%. In his second report in 2022 he regarded the probability of such receipt in the future as reduced to 50%.45.There has been no other occasion where the business has received any cash receipt above $30m at any one time. The average annual turnover of the business is running at some $30m. Of that, about half comes from the provision of services on an ongoing basis and half from one-off deals. In the 5/6 years of trading on only two other occasions has $20m+ been received as a one-off deal, one of them being in 2017 and the other recently.46.Since its early days when, to use H’s expression, everything it touched turned to gold, ABC has had a difficult time. Of the $75m H received following the termination agreement, $58m has been reinvested by him in the business. That was always the intention and it deserves no criticism. It was required to give ABC a capital base. Of the balance, about half was used to pay off the mortgage on the FMH and for the purchase of his sister’s interest in the Middle Eastern property.47.Unfortunately, since 2020 when the pandemic struck, the business has experienced significant challenges. The major difficulty related to an investment in a leisure industry business which suffered a disastrous loss of value. H had no access to ready funds to prop up the investment when the business hit difficulties. He sought to persuade W to charge the matrimonial home to provide additional funds. She declined for reasons which strike me as reasonable. In particular, the poor relations between the parties meant that there was no proper communication or discussion between them. The absence of sufficient funding meant that ABC had to sell its shares in the company at a very significant loss of $60m, which with other associated debts meant a loss of closer to $70m.48.The combination of the loss on this investment, which left a substantial loss on the company balance sheet, when combined with the sums due to the two founders in respect of their loans to the company meant that the company was carrying excessive debt. 49.Both H and his co-founder have made substantial operating loans to ABC and H’s loan now stands at $20.2m. The treatment of these loans in assessing the value to be attached to H’s interest in ABC is an issue I have to resolve. 50.I am told and have no reason to disbelieve that the founders are likely to have to write off a significant part of the debt owed to them, both to remove debt from the balance sheet but also to ensure that the new partners are not adversely affected.51.There is a long established intention on behalf of the founders to give the partners who they have recruited stakes in the business and W wisely has accepted that the interest of the two founders should be treated as if they held 32.5% rather than 50% each equity. The existence of the operating loans is unattractive to the new partners if it were to mean that their rights were subrogated to the redemption of the operating loans. On the other hand, they are of considerable value to the founders, including as a means of them extracting value in a fiscally attractive way.52.The extent of the reduction in the operating loans of H and his co-partner is not yet determined. On the evidence given to me it will be significant and I have determined that I should assume a 66.6% write-off.53.The effect of this has been calculated for me by counsel and provided to me in a schedule. I have adjusted the figures by reference to the other findings I have made. The net effect can be seen to add $6.73m to the value of H’s interest.54.That left four issues in relation to the valuation of the business for me to resolve:i)Should the upside addition of $20.914m be removed from the valuation?ii)ABC received a significant shareholding in a quoted company “Q” by way of payment. Should the value attributed to those shares in the valuation be discounted for the reduction of value in the shares since the SJE valuation took place?iii)When the leisure industry crisis was at its worst and an injection of funds was required into the business, H’s business partner paid in a little over $20m in two tranches to the business which was unmatched by H. I have to determine whether this should be treated as a priority debt, as claimed, before H’s interest is valued?iv)Should transaction costs in relation to the sale of various interests of the business in realisation be allowed for? Exactly the same issue relates to various investments made by H in his name.