Company valuation was unfair
Posted: 14th July 2015
Valuing shares in a business is never easy and it becomes even harder when a company’s accounts do not reflect its true profitability. That was alleged to have happened before two directors fell out and one was required to buy the other out.
Following the end of their business relationship, director A took legal action against director B, claiming that his management of the company (a restaurant) was causing her unfair prejudice. Those proceedings were settled on the basis that the company would be independently valued and director B would buy out director A.
The valuer based his report on the company’s profit and loss accounts. Director A argued that this had resulted in a significant under-valuation because ‘handwritten takings’, which did not appear in the accounts, had been left out of consideration. She claimed that they more accurately reflected the company’s trading position but her arguments were rejected by the judge at first instance.
In upholding director A’s challenge to that decision and overturning the valuation, the Court of Appeal found that the handwritten takings formed part of the company’s ‘books and records’ and that the valuer, by not taking them into consideration, had failed to put a fair value on her shareholding.