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January 19, 2022

Anyone practising in matrimonial finance will be familiar with the non-payer, where obtaining an order for the division of the pot is only half the battle. In a case where the bulk of the assets are held within a limited company, the appointment of a receiver may be the best means of enforcement.

Imagine the following scenario. You are dealing with a long marriage where the assets are significant, but not huge, say £5m. There is some real property, but £4m of the pot consists of the husband’s shares in a company which is highly profitable, but which doesn’t have much liquidity. Most of the value in the company derives from the income it produces, which is large enough to enable annual lump sums to be paid to the wife. At the final hearing you therefore seek an order transferring to her all the liquid assets and settling for a series of lump sums, or what would probably now be better characterised as a lump sum by instalments (see BT v CU [2021] EWFC 87), to bring her up to broad equality. The District Judge makes the order you seek, and in accordance with good practice, the order provides that if the first payment is not made on time the whole amount falls due immediately, together with interest.

So far so good, but the husband is a belligerent character with a Victorian attitude towards women. He feels that the company is his and his alone and that his wife should have been content with the order he proposed, namely the family home and a modest income paid by way of periodical payments. He is determined not to comply with an order which he sees as unfair and he sets about doing everything he can to avoid it.

First, he launches an appeal, but permission is refused both by the District Judge and the Circuit Judge. Secondly, he seeks to set aside the order on the basis that the pandemic has caused an unforeseeable and dramatic change in circumstances, but that fails (as almost all such applications not involving a death do). Thirdly, he applies to vary the amount and timing of the lump sums/instalments, but that also fails in light of the strictures of section 31 MCA 1973, Westbury v Sampson [2001] EWCA Civ 407 and BT v CU.

Having run out of procedural road, the husband next decides that he will simply ignore the order, and the time for payment of the first lump sum passes, triggering payment of the whole amount (about £1.5m), which he hasn’t got, other than in the value of the shares, which of course he refuses to sell as these are the shares which produce the dividends which support his nice lifestyle.

The husband still holds the purse strings, however, and he attempts to pressurise the wife into agreeing to accept a lesser outcome than that to which she is entitled pursuant to the order. The deal he offers the wife is (surprise, surprise) adjacent to that which he has been offering all along. In discussions between them he tells your client, rightly, that she has no money with which to pay her lawyers, and that if she fights him she risks bringing the company down, thereby killing the goose which lays the golden egg, and they both risk coming away with nothing. Surely, he says, she doesn’t want that.

She doesn’t, but she also doesn’t see why she should accept less than she is entitled to. By now she is suffering from litigation fatigue, however: she has been battling her ex for years and achieved nothing other than a series of paper victories. Unless she can obtain an order for enforcement which will definitely work she is tempted simply to give in. So what to do?

Unless you want to limit your options to one form of enforcement (and why would you?), the standard form when applying for enforcement is now form D50K, which enables a party to apply to the court without nailing his or her colours to the mast. This form provides the court with a menu of orders from which to pick, namely an attachment of earnings order, a third party debt order, a charging order, stop order or stop notice, a writ or warrant of execution, or the appointment of a receiver.

On the facts of our case, with one exception, none of these orders will raise the money sought, given the only assets of value held by the husband are the company shares. There are no earnings which could satisfy the amount now owing and there are no third party debts owed to the husband; you could possibly obtain a charging order over the shares, but that won’t realise any money until the shares are sold; stop orders or notices won’t achieve anything and neither will a writ or warrant of execution.

The only order which has any real prospect of producing the money owed is one for the appointment of a receiver. Such an order is rarely made, indeed in the leading case of Maughan v Wilmot [2014] EWHC 1288 Mostyn J (inevitably) said that, due to the costs involved, the appointment of a receiver should be viewed as the “last resort”. Maughan apart, there are hardly any reported cases, although that of Whittingham v Whittingham [2017] EWHC 3318 in which John Pratley and I were involved, is one.

True it is that the costs of appointing a receiver are significant and, depending on the work required, these costs are likely to be of the order of £30,000 or so. In addition, there are the costs of the application, the costs of the initial hearing, and the costs of likely subsequent hearings to monitor the progress of the receivership. Cost alone is not a reason not to make the order, however, particularly as these costs will be borne by the defaulting party and may be seen as the penalty he pays for failing to comply with the order. As was also said in Maughan, “when the court makes an order the owner of that order is not the wife, it is the court. When you defy the order you are not defying your former spouse, you are defying the court.” When you sow the wind you reap the whirlwind.

Once you have decided that the appointment of a receiver is appropriate the next step is to identify a suitable candidate, who will probably be an insolvency practitioner from one of the larger firms of accountants. Given the rarity of such orders it is essential to select someone with previous experience of being a receiver, and someone of sufficient seniority to be able to deal with an irate and uncooperative husband and a board of directors probably in thrall to him.

Once selected, the receiver should be asked to compile a witness statement confirming their suitability, willingness to be appointed, expected costs and providing details of their insurance. All of this is required by CPR Part 69, which is applied to financial remedy cases by virtue of FPR 33.2.

At the same time, the wife should file a statement confirming how much she is owed (this will be an ambulatory amount, given interest and costs) and explaining why no other method of enforcement will work. If the husband wishes to allege that the appointment of a receiver is inappropriate (perhaps by providing evidence that he is about to make the payments required) then he would be well advised to file a statement in response.

The case will then be listed for a hearing, which will probably have a time estimate of about three hours and be dealt with on submissions. It may be a good idea to have the receiver on stand-by to give evidence at the hearing, to head off any technical objections which may be raised by the husband.

The most crucial document to put before the court is probably the draft order, as most District Judges are unfamiliar with such orders and are unlikely to be prepared to embark upon making one without first seeing a comprehensive draft. Fortunately the standard order is extremely detailed, reflects everything required by CPR Part 69, and attaches a schedule setting out the objectives of the receivership. Before the hearing it is good practice to run the draft past an accountant (not the receiver, who must remain impartial) to ensure that it will give the receiver all the power he or she needs to take control of the relevant assets and deal with them in such a way as will give the receiver the best possible chance of raising the money necessary to clear the debt owed to the wife.

Once appointed, the receiver will stand in the shoes of the husband in respect of those assets referred to in the order. It is possible for the receiver to receive all of the husband’s assets, but this is messy and probably unnecessary. The key assets will be the husband’s shares in the company (or companies) and provided these are correctly specified the receiver will have all the powers they need.

What happens next will depend on the receiver. Almost certainly they will wish first to arrange a meeting with the husband and then with the board of directors in order to establish some ground rules as to how the receivership is to proceed and to identify what steps the husband suggests might be taken in order to raise the money. Often the mere appointment of the receiver is a great shock, which might suggest they have not been properly advised that it was a possibility. Be that as it may, when it does happen the non-payer must finally come to terms with the fact that the citadel which they thought impregnable has fallen and now he must deal with the invader. This alone is often enough to ensure that money which the husband had previously said was impossible to raise, appears as if by magic, perhaps without the receiver having to flex their muscles. If that happens the receivership can be over almost before it has begun.

Sometimes of course the husband’s belligerence will continue, and often he will have surrounded himself with like-minded people equally determined to frustrate the receiver. This will cause difficulty, as receivers are not businessmen and if they can avoid assuming the day-to-day running of the business they will, given this is much better left to those who understand it and who are already in post. Should the receiver meet resistance in carrying out their task, however, their ultimate sanction is to remove the directors and replace them with a board who will comply. If no one can be found, they may have to perform the role themselves, with such help as can be found. Obviously the more they have to do the more expensive it will be, and ultimately it is the husband who is paying, so it is in his best interests to co-operate.

Once a functioning board is in place, the receiver will be able to control the company and can set about raising the sums owed to the wife (not forgetting his own fee). Usually recourse will be had first to any available cash, then borrowing, then the sale of any surplus assets. Any sums extracted from the company will of course be subject to tax on extraction into the hands of the receiver, standing in the shoes of the husband, before being passed on to the wife.

Once this low-hanging fruit has been picked, if a significant shortfall remains the receiver will turn to more painful methods of raising funds, such as factoring debts and ultimately he or she may have to consider selling some or all of the shares themselves. This will usually be a last resort, given the difficulty in selling shares in a limited company, particularly one in receivership, and the destabilising effect likely to be had on the company. Ultimately, however, a receiver is like a terminator – they will not stop until their mission has been accomplished, no matter how difficult – and if selling the shares is necessary to raise the funds, then, subject to court scrutiny, this is what will happen.

It is usual, although by no means inevitable, that the court, having appointed the receiver, will wish to monitor his or her progress and will provide in the initial order for a further directions hearing. Alternatively, the court may provide that such a hearing is to be listed at the instigation of either party or the receiver. Such a hearing may not be necessary if the receivership is proceeding smoothly, but if it isn’t, and particularly if a sale of shares is necessary, it may be in everyone’s interest for a hearing to take place, to ensure fairness to all concerned, not least the receiver.

Once the receiver has collected their fee and paid to the wife such amounts as are necessary to comply with the order in full, including interest and any costs orders, the receivership can be discharged and the shares, or such shares as remain, can then be returned to the husband.

The appointment of a receiver is rare, but it does happen, and my most recent involvement was in a case heard only a few weeks ago. It is rare not because lots of applications fail, but because usually people comply with court orders, no matter how much they may huff and puff about unfairness, and because when they don’t comply usually there are other (cheaper and less draconian) methods of enforcement available. Where there is no alternative, however, and where the application is prepared carefully, the appointment of a receiver is the hammer which will crack the nut.

Nicholas Sproull