Valuation of shareholdings – on what date?

8 April, 2015

The principal remedy in shareholder disputes is an order for the purchase of the complaining party’s shares by the wrongdoing (usually majority) shareholder.

There is therefore fertile ground for further disputes around the valuation of such a shareholding.  One of the things that can affect valuation is the time at which the valuation is undertaken as the value of a company / shareholding can fluctuate significantly over the lifetime of a shareholders dispute. 

The timing of the valuation was considered in some detail in the case of Re K R Hardy Estates Ltd [2014] EWHC 4001 (Ch).  A number of different points in time were considered as being the appropriate point to value the minority shareholder’s shares.  These included:

  • The date the unfair prejudice occurred
  • The date on which the value of the shares was adversely affected
  • The date the Petition was issued
  • The date on which the order for sale was made

After reviewing the possible dates the conclusion was that the fairest date was the date on which the order was made, although it was left open to adjust the value to reflect the direct loss which the particular shareholder had suffered as the result of salary / benefits being withdrawn.

What this case illustrates is that whilst there is flexibility as to when a shareholding is valued the court tends to the view that a going concern ought to be valued at the date on which it was ordered to be purchased.  if another date is proposed then there will need to be some justification to the effect that it would be unfair to the petitioner for the shares to be valued on that date.

By way of example, if the respondent to a petition deliberately takes steps to damage a company such that by the time the order for sale of the shares is made it is worth considerably less than when the unfair prejudice started, it is very likely that the court will say that an earlier valuation date is appropriate.

However, if the company is worth less as a result of external factors such as changes in the market then the court is unlikely to order an earlier valuation date merely because it favours a meritorious petitioner.