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Court Rules on ‘Fair Valuation’ of Company Shares

officesIn circumstances where the sole director of a property investment company had inflicted unfair prejudice on his fellow shareholder by procuring the transfer of its entire portfolio to himself at an under-value, the Court of Appeal has given guidance on the equitable method of valuing shares in the company.

The claimant, who was a 50% shareholder in the company, had made a successful petition under section 994 of the Companies Act 2006 in respect of unfair prejudice he had suffered upon the transfer of the company’s portfolio of 46 properties to the sole director (the defendant), who also owned 50% of the shares. The defendant was ordered to purchase the claimant’s shares and the issue thus arose as to how those shares should be fairly valued.

The court allowed the defendant’s appeal against a first instance ruling on the valuation method to be employed so as to entitle him to deduct the costs incurred in selling the properties from the amount that he has to pay for the claimant’s shares. Other deductions in respect of, inter alia, interest on loans and corporation tax liabilities were disallowed by the court.