Shareholder disputes involving unfair prejudice claims, share sales and deadlock, are often triggered by disagreements as to the value of a shareholding. A professional valuation by an expert valuer will therefore almost always be necessary to enable resolution of the dispute.
Expert valuations can however, present their own practical challenges. Share valuation is a subjective task. While it relies on objective, hard numbers like historical earnings and assets, the final valuation always depends on professional judgment and assumptions about future performance. This means experts can produce very different valuations in a particular scenario. If one party wishes to challenge a valuation however, they must be able to show that the valuation was unfair or unreasonable.
A fair and appropriate expert valuation should always be obtained when the value of a shareholding is in dispute. If you’re involved in such a dispute, contact the commercial litigation team at mfg Solicitors for early, strategic advice on the way forward.
Problems relating to valuations
Expert valuations play an important part in enabling the parties to resolve a shareholder dispute. The task of arriving at a reasonable and fair valuation of a private company and its shares can however be challenging for several reasons:
- The present economic circumstances must be taken into account
- There may not be an obvious market for the company, eg in a particular sector
- Expert valuers may use the same valuation method, yet produce differing results
- A private company’s profitability may be unpredictable, which means a ‘snap shot’ valuation of shares at a given date can give an unfair picture
- The acid test of any valuation is exposure to the real market (which is not possible in the case of a private company where no one suggests that it should be sold) (H v H [2008] EWHC 935)
Ultimately if the experts disagree then the valuation will be a matter for the court to determine. By way of example, in a recent case, two experienced professional valuers reached different conclusions on their share valuations and the judge decided to take a figure mid-way between their valuations when reaching an overall conclusion.
What is the risk if no expert valuation is obtained?
If no expert valuation is obtained, there is the heightened risk of an expensive claim being disputed between aggrieved shareholders who do not actually know the value of their respective claims.
Whilst the parties are likely to be directed to obtain expert valuation evidence during court proceedings, significant time and costs will have been expended by then.
What should we do?
It is important to obtain expert valuation evidence in respect to the company and it’s shareholding when a dispute arises between shareholders. The valuation will provide an indication of the value of the dispute and whether the costs that will be incurred in litigation justify the potential benefit that may be derived. Obtaining valuation evidence sooner rather than later will hopefully save the parties costs and result in the earlier resolution of the dispute
Most commercial disputes do not reach a final hearing as they can usually be settled with expert negotiation and/or mediation early on. However, if litigation becomes necessary, we will continue to work hard to protect your interests.
Contact us
Our specialist commercial litigation team supports companies in all sectors across a wide range of disputes, including shareholder disputes. For prompt advice, please get in touch with Ian Sheppard at mfg Solicitors on 01562 820181 or email ian.sheppard@mfgsolicitors.com