Valuation
1. Share value
When a shareholder is forced out or “wants out”, the value
of his shareholding needs to be assessed. In order to do this, the company
will have to be valued first. Early and appropriate legal advice is
essential under these circumstances
2.
Minority shareholdings
Minority shareholdings are generally sold at a discount
to reflect the fact that ownership of the shares does not confer control
of the company. This clearly works to the advantage of the majority
shareholders. However, the position of the shareholder who may be regarded
as a quasi-partner is less clear. It is often argued that there should
be no discount applied to the value of the share of a quasi partner
shareholder. However, judicial thinking is turning against this (see
Irvine & ors -v- Irvine & ors [2006] EWHC 1875 (Ch)).
3. The approach of the courts
It is essential to work with lawyers and accountants who understand
the process and the way in which litigation evolves.
The date of valuation is of critical importance and the court normally
designates a date as the valuation date.
The court will rely on expert evidence in determining the price for
shares.
Also, the court can make adjustments if the company has been devalued
by inappropriate transactions. For example, it is possible that a director
may have enriched himself at the expense of the company thereby reducing
its value
4.
The expert valuer
4a. The role of an expert valuer
An expert valuer is often appointed as a single joint expert to determine
the “fair value” of a given shareholding.
4b. The appointment of an expert valuer
It is important to identify potential experts who have the appropriate
qualifications and experience of valuing companies and who have experience
of acting as an expert witness in court proceedings. Independence is
essential. Identifying potential experts should be done by the parties’
solicitors in conjunction with their clients.
4c. The instruction to the expert
Careful consideration needs to be given to the drafting of the instruction
to the expert and the instruction must fully identify the issues that
the expert should take into consideration when preparing a valuation.
We have experience working with a wide range of expert valuers in a
wide range of business sectors and will ensure we will select one with
you who is the most appropriate for your needs.
