Tips For First Appearances

The Business Valuation

The typical family run business dynamic often presents challenges within the context of a mediation.

The typical family run business dynamic often presents challenges within the context of a mediation. The difficulties arise where;

  • One party wishes to retain the business – usually the principal operator;
  • The other party wants to be paid out;
  • The valuation has come in – usually with a large goodwill component based upon an assessment of future maintainable earnings;
  • The valuation of the business is disproportionately large in comparison to the value of the other assets – the family home, maybe some other geared investment assets and some superannuation policies;
  • The business is not in a cashed up position or have surplus assets capable of liquidation leaving the only source of funds for a payout being a loan through a financier.
  • The financier will want security, usually in the form of real property.

The other option – sale of the business – is untenable to either party, exposing them to  an unquantifiable taxation liability, lack of certainty of sale price and delay. People often don’t settle upon unknowns.

Add into the mix the usual lender requirement that there be a consolidation of all debt upon re-financing and potential Div 7A liabilities, it is easy to see the tsunami of issues coming over the horizon.

However, as challenging as this scenario might be, it does not mean mediation is counter-intuitive. They just need more preparation. I have seen a few of these types of mediations come agonizingly close to settlement only to fail due to lack of preparation.  

ADR Chamber’s Top 10 Tips for all mediations can be refined specifically for the business dynamic mediation. Be prepared to plan and consider other options that a court would not necessarily order and discuss these extensively with the client. That is of course one of the advantages of mediation, it opens up a range of solutions not otherwise available to a court. Getting out of a X-Y% of an agreed Asset and Liability pool mindset may go a significant way toward providing pragmatic and realistic advice to a client.

As an example only;

  1. How about vendor finance ? OK, the bank needs real property to secure the Husband’s finance, but the Wife wants the house (and cash) as part of the deal. Is it possible to structure the settlement whereby the house is transferred subject to the Husband’s mortgage? Extensive pre-mediation discussions with financiers and accountants will assist this. It can be done !
  2. How about vendor finance #2 ? Don’t exclude payment plans secured against a real property or even a fixed and floating charge over the business interests. Again, extensive pre-mediation consultation (and even undertaking pre-mediation discussions and preparing a draft order to this effect) with other experts including a commercial lawyer may be needed in this scenario.
  3. Trading cash for certainty.

Identifying the potential dynamics for a difficult mediation should be met with extra preparation and an extra willingness to think outside of the usual parameters of “what a court would do”.

Ove the next few months we are focusing upon “Tricky Mediations”. Next month will be the “Ambit Negotiator”. Have you experienced a tricky type of mediation that is reasonably common and wants us to write about it ? Feel free to bounce me a reply.

The Ambit Position

We’ve all been in that mediation. You start at 50% knowing that around 55-60% is probably the range but the other side comes back with 80%. Even after your hard hitting position statement highlights the relative merit in merely a 5-10 % adjustment for s75(2) factors, the other party is hell bent on their starting position.

This was one of the scenarios that was put up at the recent QLS-FLPA Residential. It was suggested that where one party was stuck in an “outside the range” position, that the mediator was to express a view or an advice as a means of getting the ambit claimant into a reasonable range. Surely that’s why you brief a barrister with years of experience in family law to mediation in the first place right ?

Wrong.

The following is from the National Practice Standards:

5. Mediators do not advise upon, evaluate or determine disputes. They assist in managing the process of dispute and conflict resolution whereby the participants agree upon the outcomes, when appropriate. Mediation is essentially a process that maximises the self-determination of the participants. The principle of self-determination requires that mediation processes be non-directive as to content.

6. Some mediation processes may involve participants seeking expert information from a mediator which will not infringe upon participant self-determination. Such information is deemed to be consistent with a mediation process if that information is couched in general and non-prescriptive terms, and presented at a stage of the process which enables participants to integrate it into their decision making. Such information might include the provision of general information and a reference to available material that could assist the participants. For example, a referral to resources that could be used by parents in a family dispute to determine the impact of options upon children or other family members.

7. Some mediators may use a “blended process” model whereby they provide advice. These processes are sometimes referred to as “advisory mediation”, “evaluative mediation” or “conciliation”. Such processes may involve the provision of expert information and advice, provided it is given in a manner that enhances the principle of self-determination and provided that the participants request that such advice be provided. Mediators who provide expert advice are required to have appropriate expertise (see Approval Standards at Section 5(4)) and to obtain the consent of participants prior to providing any advisory process.

Mediation is a process of empowerment for a client. They are in control. It may be their last opportunity to exert control over their dispute.

Last week I had two parties who started the day 20% apart. The difference was due to the weighting of initial contributions of one party some 25 years earlier. The fact of and quantity of such initial contributions was disputed. The parties came within 10% 

< Return

Contact Us | Make A Booking