[2025] EWHC 2997 (Fam)

At the time of the parties’ marriage the brothers ran a shop together. From this AF had the idea of Product X. He secured the IP rights for Product X in 2012. The spray was originally marketed by a company, Company D. That did not involve the husband or his other brother. The people who played a part in it with AF were L, M and N.

Company E was used in 2014 to replace Company D. The relationship with L had broken down. The shares in Company E were held by AF, M and N. AF had 58% of the shares. It was funded by a remortgage of the brothers’ mother’s house. The husband was brought into Company E as an employee to keep an eye on his mother’s money. He left the shop towards the end of 2014. AE subsequently joined him in Company E.

In 2015 Company A was founded to hold AF’s shares in Company E. These were not transferred until March 2016, after the licence agreement referred to below had been concluded. The shares in Company A are held as to 1/3 by each of AD, AE and AF.

In January 2016 AF entered into a licence agreement with Company E, AF was subsequently replaced as the licensor by Company F, a company of which AF was the ultimate beneficial owner . (In 2018 this was replaced by a Country B company, Company G at about the time AF moved to Country B.) The licence agreement is as to 20% of the revenue of specified products.

The business grew and from 2017 Company A started to buy out the shares of the other owners of Company E, and started to declare dividends. It is now the majority shareholder of Company E. It has 95% of it.

Further held by Company A are other businesses, materially:

These have been loss making and have been funded by Company A, or the Husband’s brother, AF.

There was a very substantial difference between the parties as to the value of the husband’s interest in Company A in the ES2 provided at the start of the hearing. (I record that the dispute as set out in the ES2 is prior to having received expert evidence on the impact of the sale of Company C.) The wife puts it at nearly £14 million while the husband puts it at some £6 million. They also disagree about how the husband’s director’s loan account (DLA) should be treated such that, taking the DLA into account, the wife puts the husband’s business interests at some £8.8 million and the husband puts it at -£1.8 million.

The differences derived broadly from the following points:

The husband tells me that the DLA derives from the costs of Property A renovation, living costs (for him, the wife and the children), legal fees (both his and the wife’s), and costs for contact supervision.

There is also a substantial difference between the parties as to the husband’s potential income from Company A as recorded in the ES2. The husband relies on a net figure of £144,000. That is described as net salary in the ES2, but it is described as a dividend in his section 25 statement. (After I raised a query about this, it has been concluded that all his income is by way of dividend, and he has no salary. The different tax rules for a dividend meant that the net income was changed to £168,000.) The wife started with £144,000 (as a net salary) and then adds a net dividend of £1.3 million. Mr Dodge was asked to opine on sustainable income from Company A. The figure of £1.3 million derives from what is called scenario 2 in Mr Dodge’s report. That scenario envisages no dividends going to AF but, in accordance with what has happened previously (averaged over a few years) £1.1 million going to the husband, £500,000 going to AE and the balance of the sum that Mr Dodge considers could be taken as a dividend being divided between AE and the husband. That would give the husband a gross £2.155 million, or net £1.3 million. The reason that Mr Dodge advances this scenario is that AF has not taken a dividend historically, having received in the order of £5m from the royalty payments. Mr Dodge also advances a scenario 1, where each brother takes an equal dividend in accordance with their shareholding. That generates a gross figure of £1.24 million or £750,000 net. This will need to be considered further below.

In consideration of the dividends point it needs to be noted that prior to June 2024 Company A was not entitled to grant dividends over £360,000 as part of the Covid loan conditions. That condition no longer applies as the Covid loan has been repaid.

It should be noted that the valuation exercise for the business interests is dated as of the 31 December 2023. More recent accounts have not been provided.