Business Must Live With Expert Share Valuation
6th October, 2014
A majority business owner who bitterly disagreed with an expert valuation of his company’s worth will have to pay more than £4 million to buy out his estranged co-owner’s minority shareholding, following a ruling of the Court of Appeal.
The majority owner owned 60 per cent of the company’s shares and his co-owner 40 per cent. After the pair fell out, the minority owner’s employment was terminated. He claimed, amongst other things, that his dismissal was unfair; however a compromise was reached whereby the majority owner and the company agreed to buy him out.
It was agreed that the valuation of the minority shareholding – which was no easy matter as the company’s success relied largely on trust and good working relationships – would be decided by a firm of accountants acting as expert. The accountants agreed their appointment and issued a letter of engagement setting out the terms of reference.
The majority owner and the company fiercely objected when the accountants reported that the minority shares were worth £4,218,000.
Their challenge to the valuation was, however, dismissed by a judge. I appealing against that decision, the majority owner and the company made wide-ranging criticisms of the accountant’s methodology and argued that the minority shares were only worth a fraction of the sum at which they had been valued.
However, in dismissing the appeal, the Court noted that the parties had voluntarily submitted the valuation exercise to the accountants and ruled that their report was binding, regardless of its alleged flaws. The Court observed, “Parties who refer a dispute to an expert must be taken to have recognised that mistakes may be made, both of fact and law, but they are prepared to take that risk because they place a high degree of confidence in their chosen expert.”
If you are in dispute with business partners or fellow shareholders, we can assist you to obtain a fair settlement please contact Nick Clarke on 01244 405558 or email [email protected]