The Court of Appeal has recently determined that a significant payment made to the director of a company in consideration of a very restrictive restraint of trade can be separate property in a relationship property dispute.
In the case of Thompson v Thompson CA701/2013 and CA 711/2013 [2014] NZCA 117 the Court found that the $72.3 million paid for the business represented a sum considerably higher than would have been paid for the business had the restrictive trade covenant not been given by Mr Thompson. The $8 million that Mr Thompson was paid was for the restriction on the use of his personal attributes or personal goodwill in the future and other obligations he assumed. As a result that sum was found by the Court of Appeal to be his separate property.
The situation may have been different if there had been an element of “business goodwill” involved in the payment. The sale document had been carefully drafted to identify the payment specifically for the restraint of trade. This is a significant finding which could affect a number of relationship property claims involving restraints of trade and identifies the need for careful consideration in the drafting of documentation on such business sales and the relationship property implications arising.
Parties are advised to make detailed enquiries and obtain legal advice prior to entering into any business or sale Contracts. Farry and Co. are experts in this area and can advise you in all aspects in relation to conveyancing and relationship property matters.
If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:
Michael Nidd
03 477 8870 or 09 379 0055
The information contained in this publication is intended as a guide only. It does not constitute legal advice and should not be relied upon as such. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain.