Ownership and Management

Business and Succession Planning: Not Learning the Hard Way

By James Austen

When establishing succession arrangements business owners should always consider how such arrangements correspond with personal estate planning. One recent case, involving a family farm in Cambridgeshire, illustrates the importance of such considerations.

Following a bitter row involving three sisters and the executors of their father’s estate, the High Court made a rare order liquidating Brand & Harding Limited – a company which owned the family farm in Cambridgeshire. Arguments between the shareholders had led to deadlock and the company was unable to take effective management decisions. The judge therefore considered it in the shareholders’ best interests to dissolve the business.

Whilst difficult personal relationships can sometimes lead to legal disputes irrespective of the most carefully laid plans, the events leading to this case illustrate the value of joined-up business and personal succession planning. With a different approach, the likelihood of this dispute arising (or, at least, destroying the company) would have been reduced.

There are important lessons here for every business owner.
In his will, Bryan Harding specified that he did not want the farm to be sold. Some shares in the farm company passed to two of his daughters, whilst the remainder were transferred to trustees (his widow, a local solicitor, and Esmond Edwards, the accountant husband of his eldest daughter, Elizabeth Edwards) for the benefit of his widow and children.

After Harding’s death in 2001, disputes regarding the management of the business arose between his younger two daughters, Sally Harding and Rosemary Walton, and Esmond and Elizabeth Edwards.
About a year after Bryan Harding’s death, Elizabeth Edwards effectively took sole control of the daily management of the company.

Apparently at her invitation, the company’s accountants were replaced with her husband, who was a staunch supporter of his wife’s management, notwithstanding the mounting concern of his sisters-in-law, who considered that there were irregularities in the payments to Elizabeth and Esmond Edwards for their services.

When the accountancy and bookkeeping work were subsequently removed from their power, Esmond and Elizabeth Edwards refused to co-operate with the new accountants (or, following intemperate correspondence, even pay their invoices from company funds), examples of what the judge called the inability “to disentangle their personal animosities from the business decisions that needed to be taken about the future of the company.”

As the personal relationships between the sisters deteriorated further, control over the company began to be used as a weapon in the feud. Elizabeth Edwards refused access to the company’s records to her sisters in retaliation for what she considered their misconduct.

Conversely, Rosemary Walton and Sally Harding refused to sign company cheques raised by Elizabeth Edwards (on spurious grounds), meaning that the company’s suppliers went unpaid.

Following that, the rival camps held competing company meetings at the same time in different places. The sisters refused to acknowledge the existence of the other meeting, which each purported to remove the members of the opposing side from office.

Inevitably, the dispute reached the High Court, and all parties in this unhappy saga were ultimately criticised by the judge, who agreed that the company was manifestly deadlocked and should be wound-up.

Lessons for the Well-Advised Business Owner
Business owners should always dovetail their business succession arrangements and their personal estate planning. Ownership structures put in place either during lifetime or on death should reflect and support the plans for the management of the business.

It is common (and often desirable) to hold business interests in trust, but the choice of trustees is crucial. Here, the trustees did little, if anything, to help the family avoid unnecessary disputes. Appointing Esmond Edwards was particularly ill-advised, as allegations of partisanship and conflicts of interest were almost inevitable once relationships broke down. Good, independent, trustees can act as “honest brokers” to defuse family rows and even prevent disputes from arising at all.

Even where personal animosities run deep, commercially-minded advisers can often end bitter family rows (often through mediation) if instructed early enough, and before positions have become entrenched.

This case is an unfortunate reminder of the consequences of personal disputes becoming uncontrollable where insufficient attention is given in advance to the management and ownership of the business following its owner’s death.

Business owners should take early, joined-up advice on these issues whenever they update their will or undertake tax planning regarding their business interests during lifetime.

James Austen is a solicitor in private client at Speechly Bircham LLP, specialising in advising business owners and the owners of landed estates. James can be contacted on +44 (0)20 7427 4547 and at: james.austen@speechlys.com.