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Treatment of businesses affected by Covid 19 pandemic.

Businesses which have been adversly affected by Covid restrictions have come under the spotlight in divorce courts.


In March 2020 when the country was moving into lockdown as a result of the Covid 19 pandemic there was a great deal of uncertainty about the effect it would have on the economy, and whether the value of properties, and other assets such as businesses, would plummet.


This lead to speculation amongst divorce lawyers, whether this would lead to a series of applications to the court to re-open divorce settlements ordered before the pandemic, which seemed unaffordable in the new situation. Which is what happened when house prices crashed in the aftermath of the 2007/2008 financial crisis.


As events have played out, the Covid 19 pandemic has affected different areas of the economy in different ways, but on the whole things have not been as bad as the gloomiest projections and, in particular, house prices have continued to rise. So there have been fewer applications to the court than was anticipated. But on the whole where they have happened, the courts have taken quite a hard line, and have refused to accept that the pandemic of itself is sufficient reason to reopen a pre-pandemic divorce settlement.


Mr Justice Mostyn recently considered a case* where the order was made in November 2019. The judge at that time directed that the husband should keep his company, which supplied school meals, and make a series of quite substantial payments to his wife over the months to come. The business was profitable and the lump sums were intended, at least in part, to reflect the value of the business the husband was keeping.


In March 2020 schools were closed, the company’s sales and turnover were immediately affected. Although it claimed financial help through the various government schemes, profits dipped substantially and the company began to make a loss.


The husband applied to court to reduce the payments he had been ordered to make to his wife. His legal team argued that the global pandemic was an event which was entirely unforeseen, and unforeseeable in November 2019, and so would justify a variation of the original order. That broadly speaking, is the test established by previous case law.


Foreseeability is the key issue. To be unforeseeable, the probability of the occurrence of the event has to be so small that a reasonable person would have been justified in neglecting it or brushing it aside as far-fetched at the time


Mr Justice Mostyn said that, whilst it might have been entirely unforeseeable in November 2019, that there would be a global pandemic of Covid 19 proportions, there have been financial crises in the past, so an economic downturn in 2020 was not unforeseeable.

As he put it, in November 2019 the question “what chance do you see of a global pandemic arising in 2020 which has the result of wiping out this businesses operating profit?” might have got a very different answer from the question “what chance do see of a global financial crisis arising which has the result of reducing this businesses turnover by X % in 2020”

Mr Justice Mostyn said that such applications also have to be based on the impact of the downturn on the business itself, rather than on a downturn in the broader economy. Mr Justice Mostyn looked at the company’s figures, and decided that the impact of Covid 19 was not sufficient to justify any variation in this particular case, so he dismissed it.


*BT -v- CU EWFC 87.

 

Health Warning :This post is intended as a general guide only – tax is a very complicated subject, and getting it wrong can be very expensive so it is important to obtain expert advice about your own situation, I can certainly accept no responsibility for any loss you might suffer as a result of relying purely on the information on this website.

 

John Pratley is an expert divorce lawyer, who has more than 25 years’ experience advising clients purely about divorce and related family law issues, such as the financial consequences of separating and divorcing. After establishing the first niche family law practice in Bristol, and going on to senior management roles in a national firm, John set up Apple Tree Family Law in 2018. Apple Tree Family Law solicitors specialise in advice about divorce and financial issues.

We are based in Bristol and Exeter, but we have clients all over the UK and further afield. We offer, simply, clear and accurate advice about divorce and family law issues, and the very best client service, for a clear and reasonable price.