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Ex-Couple Share the Pain of Business ‘Divorce’

The termination of business and personal relationships can be equally painful – and that was certainly the case for one former couple who were struck by both forms of upheaval until a judge directed the equivalent of a commercial clean break.

The couple lived and worked together in purchasing buy-to-let properties and latterly in establishing a residential care home. They had borrowed heavily to fund their ventures and had received only modest incomes from their trading company, in which they each owned one share.

As their personal relationship deteriorated, the pair had each engaged in making tit-for-tat unauthorised withdrawals from the debt-laden company to the point where it became balance sheet insolvent. In those circumstances, she launched proceedings against him under Section 996 of the Companies Act 2006, claiming that his continued management of the company was causing her unfair prejudice.

In seeking to achieve a separation of their business interests, the judge granted the man an option to purchase the woman’s share in the company for £55,000. He appealed to the Court of Appeal against that decision, arguing that, given the company’s parlous financial position, her share was worthless.

In dismissing his appeal, however, the Court found that the company was not insolvent in the commercial sense, in that it produced maintainable levels of income and profitability slightly in excess of £100,000 per annum. In those circumstances, the woman’s share had a significant positive value.