Restructuring a Business following Divorce

We have previously written about the advantage of appointing a Court Appointed Receiver over the assets of the non-cooperative party (“H”) in divorce proceedings.

The appointment of a Receiver over H’s assets may be enough to convince him that it’s time to take the Order seriously, at which point assets will often be sold or funds raised for a settlement with little intervention from the Receiver.

However, matters can become further complicated where both the husband and wife (“W”) are shareholders in a family run limited company.  Even if the Court Order instructs W to transfer the shares to H she may not be willing to do so until a lump sum settlement is paid.

Milsted Langdon were recently appointed over such a case, further complicated as H did not have the disposable funds to pay the full lump sum.  We were appointed over H’s assets which included shares in a number of associated and group Companies and assets, both in the UK and abroad.

Being appointed Receiver over the shareholding in a limited company in the UK means that a broad range of legal rights provided by the Companies Act, the company’s Articles of Association and shareholders’ agreement pass to the Receiver.  This would usually include the right to receive a dividend and the power to remove and appoint directors.  This last option can seriously focus the mind as there is always a concern, however ill founded, that the involvement of the Receiver in the running of a company can seriously damage its long-term survival due to key staff and customers being unnerved.

In this particular case, at our first meeting with H we discussed an offer he had previously put forward and how it might be altered to forge a successful outcome.  If no agreement could be reached, we advised that we would enforce the shareholder’s rights and become involved in the management of the business.

As an interested but independent third party we then negotiated between H & W and a solution was reached whereby one of the companies (“the Purchaser”) would acquire W’s shares at market value.

Milsted Langdon’s tax team reviewed the agreement to ensure that all tax requirements were met and a Share Sale and Purchase Agreement (“SPA”) was drafted which set out the terms of an initial sum and then deferred payments to W from future profits to cover the Court ordered lump sum due.  As a safeguard, in case the Purchaser defaulted on the payments, a Personal Guarantee from H was included in the SPA on which W could then rely.

Once the SPA was signed our involvement as Receiver was no longer required and we sought our release from the Court.