What's it worth? The fragility of valuations in family business in Hong Kong

Whether you are negotiating, litigating, mediating or arbitrating, when it comes to finding a fair resolution of financial claims on divorce - in England and Wales or in Hong Kong - the first question is 'what is available?' This involves quantifying all of the family's financial resources which includes calculating the costs involved in their realisation (tax, costs of sale etc). 

When it comes to distribution (how assets should be divided) the court may also be asked to determine the extent to which assets are matrimonial, and therefore likely to be shared,  or non-matrimonial where there is no entitlement to share and they will only be available to the extent that they are required to meet a need or to compensate one party. 

Family companies are particularly common in Hong Kong. They are often used for the daily expenses of the family, are bound up with other family members, and are not easily disposed of.

This article considers questions of quantification and distribution in the context of a family business, and whether the courts in England and Wales, and in Hong Kong, have a similar approach. 

Valuations

In England and Wales and also in Hong Kong, often a Single Joint Expert is instructed to prepare a valuation report. The report will likely indicate: a present-day value (or range of values); the extent to which funds can be extracted; the costs involved in extraction (including tax); and potentially the implications to business structure/value of various extraction options. 

Where both parties accept the expert's valuation it is more straight forward – there is more certainty as to what is available. However, where more than one expert is instructed, or questions are raised (for example as to the correct methodology of the valuation or the raw data used to inform the report) then each party may have a very different position. 

Where cases are litigated, it is for the court (not the expert or the parties) to determine the value. Judges who have concerns regarding the fragility of valuation will likely find it is not possible to 'fix' a value with any certainty. Instead, they must form a view of the likely value and use that to assess fairness when it comes to distribution.  

Marital or non-marital

In addition to the difficulties associated with valuation, quantifying what portion of the total valuation is marital (i.e. a value which had accumulated when both parties were making equal and matched contributions to the welfare of the family), and what portion reflects an unmatched contribution which is not attributable to marital endeavour, can be complex and controversial. The court must decide on whether to adopt a broad brush approach, and adjust the percentage of the total assets to reflect the fact that the entire value is not matrimonial, or a more mathematical approach, where the court seeks to quantify the non-marital value and then consider whether it should be excluded in its entirety or taken into account and to what degree. 

Examples of these principles in practice: In Vince v Vince [2025] EWFC 389 the judge calculated the marital element of the total value of the business by reference to the marital period as a proportion of the whole period of the business’ existence to date. This is not just the date of marriage to the date of separation but rather the marital partnership which the judge found endured for 22 years. Whereas in ST v AR [2025] EWFC 4 the husband's business interests were entirely non-matrimonial – they had been inherited from his grandfather before the marriage, he was a passive investor and had planned to preserve the assets for future generations – he was a mere custodian. The wife's claim was therefore limited to her needs (albeit quantified in the context of a standard of living that meant she received £13.75m to meet her needs). In AG v GF [2024] EWHC 3478 a business interest which was not fully matrimonial was divided 75% to the husband and 25% to the wife to reflect the non-marital element. In the Hong Kong Court of Appeal in PW v PPTW [2015] HKFLR 213, the intermingling of family expenses with company income to maintain the family's high standard of living, was indicative of marital assets which should be shared despite the fact that the husband's companies were premarital. The wife in that case had been awarded 45% of the total assets at first instance (and so the premarital arguments had been taken into account to an extent), and the Court of Appeal dismissed the husband's appeal.

Liquidity 

When deciding how to reflect the illiquidity or risk in a private company, the courts in both jurisdictions have three choices:

1. An 'accountancy discount' – which is that the business valuation reflects a discount for factors such as lack of control, lack of marketability, and lack of risk.
2. A 'court discount' – when determining an overall settlement and considering all of the circumstances in the particular case, the court exercises its wide discretion to allocate the resources in such a way as to reflect illiquidity and risk – often resulting in the person taking the greater risks receiving a larger share.
3. Both the accountancy discount and the court discount where both are relevant separately and so this would not constitute a double counting. 

In Vince v Vince the husband had recently decided he no longer wished to sell the business, and the court would not order a sale in circumstances where he could comply with the order made to make a lump sum payable to the wife. However, the fact that a sale had been in prospect made the judge less sympathetic to liquidity arguments. Whilst the court would deduct the costs of realising the shares in the business it did not apply an additional discount. The husband was, however, given additional time to make the payment to ensure that he could realise the cash in a way that minimised impact on the business.

In AVT v VNT [2015] HKFLR 436, the Hong Kong Court of Appeal, in respect of the husband’s minority shareholding, held that no further discount would be given on the valuation as a discount had already been given by the expert on the basis that a minority shareholder has no power to decide how a company is to be run. Where the company was a quasi-partnership (as here where the father and the husband were the only two shareholders), it would not be appropriate to apply a discount. Further, it was unlikely that the husband would be forced to sell his 30% interest in the open market in circumstances in which a discount would be forced upon him. It was more likely that, should the husband’s shareholding be sold, this would be at the same time as the business as a whole, in which case the husband would get the full value of his shares.

Sharing the shares 

The Hong Kong and English courts may consider the business interest is shared in specie, so that each party retains shares.  Whilst this removes the questions of value and results in sharing the risk and liquidity, courts are often reluctant to impose such a solution as it antithetical to the clean break. A clean break is where there is no further financial entanglement between the parties. In England, the court has a statutory duty to consider a clean break and in Hong Kong, whilst it is not a statutory requirement, it is strongly encouraged Continuing to have a stake in a family business achieves the opposite. 

Which court?

Where both parties are shareholders and directors of a business, their dispute might also come within the remit of the Companies court. Ordinarily of course, it would be unhelpful and disproportionate to have similar disputes being litigated in two different courts. The High Court case of Ng, Christina v Capella Capital Ltd & Anor [2020] HKCFI 442 confirmed that, unless there was a remedy only available in the company court, where divorce proceedings have already commenced, the dispute over matrimonial assets should be resolved by the family court. The decision was affirmed in the Family Court in PMCL v AKK and Anor [2025] HKFC 105.  Courts in England and Wales would likely take the same approach – all related cases should be heard together rather than litigated separately. 

However, in both jurisdictions it is worth noting that there may be remedies available in the Companies Court that would be of use during divorce proceedings – for example where one spouse is a minority shareholder. Working with lawyers in the relevant specialism enables us to ensure clients have advice on all relevant fronts. 

Practical tips

When it comes to private family businesses, it is important to be alive to issues of valuation, liquidity, and implementation – balancing the need to meet the requirement to fulfil financial obligations on divorce with concerns about ensuring the sustainability of the business. Asking the right experts the right questions at the outset can be key.