Court determines how minority shareholding should be valued

The High Court has settled a dispute about how a minority shareholding in two companies should be valued in accordance with their articles of association.

The two companies were owned by eight shareholders. The articles of both companies restricted the right of shareholders to sell their shares and granted pre-emption rights to other shareholders, giving them first refusal on any shares to be sold.

The other shareholders could purchase the relevant shares at a "prescribed price" which, if no agreement could be reached, would be determined by independent accountants.

Two minority shareholders wished to sell their shares.

The High Court ruled that the accountants had to conduct their valuations on the basis of a pro rata proportion of the value of the whole equity of each company, rather than on the basis of the price which might be achieved for the shares given their status as a minority shareholding.

The companies appealed, arguing that the starting point in English law was a presumption in favour of an approach that put a realistic value on the shareholding, rather than favouring an artificial value based on the overall value of the company as a whole.

The Court of Appeal rejected this argument. It held there was no presumption one way or another and so the issue had to be determined based on the articles of association.

In the articles, the prescribed price was stated to be the sum "per share" according to valuation of the company on a going concern basis. The reference to a going concern had to mean valuing the company as a whole. Once that value had been found, the prescribed price would be calculated by ascertaining a price per share on a pro-rata basis.


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