In Re K R Hardy Estates Limited  EWCH 4001 (Ch) the Companies Court recently considered the appropriate date for shares to be valued at, following a court ordered sale on a successful unfair prejudice petition. The valuation of shares in such circumstances can cause problems because there are many potential valuation dates which can be adopted, leading to very different valuations.
The Judge commented that it would be unusual for the valuation date to be the date on which the relevant unfair prejudice first occurred. Such a date was simply a useful reference in the process of evaluating the correct date. The starting point is that an interest in a going concern should be valued at the date on which it is ordered to be purchased. However, importantly, it was noted, there is an overriding requirement that the valuation needs to be fair on the particular facts.
The Judge acknowledged there were a number of circumstances, which might require the court to take an alternative date. An earlier valuation date may be required, for example, where (i) a company has been deprived of its business or (ii) the company has been reconstructed or significantly changed so that it has a new economic identity or (iii) where there is a general fall in the market while the petition is on foot, particularly if the court strongly disapproved of the conduct of the majority shareholders. A claimant is not entitled to a “one way bet” – the court will not direct an early valuation date simply to give the claimant the most advantageous exit from the company, especially where severe prejudice has not been made out.
In this case, the Judge contemplated a number of possible dates for the valuation of the shares. These included the date (i) when the unfair prejudice occurred; (ii) when the shares changed value; (iii) when the court was petitioned; (iv) when the defence was served; and (v) when the order for the shares to be purchased was made.
After considering the circumstances of the case the Judge concluded that there was no reason to depart from the usual position that the relevant date for the valuation of the shares is the date of the order. There was no deprivation of business, the business had not changed and there was no suggestion that the market had fallen. The date of the order had the advantage of certainty and was the most fair of all the possible valuation dates.
Valuing shares at the date of the court order should ensure that shares are valued at the date as close as possible to the actual sale. Thus, the sale price should reflect the value of what the shareholder is selling. However, importantly, although this is the starting point it is not an inflexible general rule. The court will consider all of the facts to ensure that fairness is achieved. This should reduce the risk of a majority shareholder manipulating the value of the shares while proceedings are ongoing.