Caroline Stanbury developed a business in which she provided personal fashion styling services to between five and ten extremely high net worth clients. She provided an intensely personal service, based on a close knowledge of fashion trends and the preferences of her clients.

It was evident that there was no delegation possible within the business model: Ms Stanbury was using her close knowledge of her small number of clients, combined with her knowledge of the most exclusive fashion items. She then skilfully matched the fashions to the individuals.

She also habitually arranged all her clients’ gifts, for birthdays and Christmas.

She realised that this part of the service could potentially be expanded: a luxury gifts business could be created with the potential to cater to a large number of customers. This was in sharp contrast to the intimate client base that she maintained as a personal stylist. This new business was known as Gift Library.com Limited.

The Gift Library business model required significant infusions of cash: a main selling point was that all lines were always in stock and available for immediate delivery. This included some very expensive items of designer jewellery and handbags costing many thousands of pounds.

Artemis agreed to provide further funding; however, one of the terms of the offer was that Gift Library acquired Ms Stanbury’s personal styling business.

Trading continued, aided by the additional cash resources from Artemis. At a later stage, other external investors became involved, and this resulted in increasing tensions in the boardroom. Ms Stanbury maintained that at least one of these investors was difficult to work with as he had insufficient knowledge of the luxury retail sector. The business continued to consume rather than generate cash. It was proving very difficult to hold large stocks and to generate reasonable returns on the significant capital that was required within the business model.

Ms Stanbury decided to leave Gift Library, largely due to the challenges around the boardroom table. It was agreed that the goodwill of her personal fashion styling business would be transferred to her for a nominal £1. The relevant company remained owned by Gift Library but became dormant.

The serial infusions of cash were not enough to resolve the various problems of Gift Library. Liquidators were appointed. The liquidators espied the prior transfer of the personal styling business to Ms Stanbury for a nominal sum.

After some delay, the liquidators brought a claim against Ms Stanbury, stating that the personal styling business had been transferred at a very material undervalue. A claim was made for £1.4 million. The claim was strongly resisted and the liquidators’ valuation was not accepted by Ms Stanbury. The case proceeded, albeit very slowly, to the doors of the court.

The scene was now set for the value of the personal styling business to be decided: the goodwill of a profitable business had been transferred for a nominal sum. What was the market value of the personal styling business? Could it really be considered to be worth only £1?

In part two we consider the nature of the litigation, the views of two valuation experts and the decision that was reached in this case.