Fair Value in Shareholder Disputes: A Guide for Solicitors
Shareholder disputes under s994 Companies Act 2006 frequently require the court to determine fair value for a minority shareholding. The forensic accountant's role is to apply appropriate valuation methodology and address the contentious question of whether a minority discount should apply.
The Fair Value Standard
Section 994 proceedings require the court to order the purchase of the petitioner's shares at fair value. The starting point is typically a pro-rata share of the total enterprise value, but the court has discretion to adjust for minority discount depending on the circumstances of the dispute.
The forensic accountant values the business using maintainable earnings methodology (typically EBITDA or EBIT multiples), adjusted for normalised earnings, with clear reasoning on the multiple applied and any discount for lack of marketability or minority status.
Minority Discount Debate
The minority discount debate turns on whether fair value requires a discount for the lack of control associated with a minority holding. English case law provides guidance, but the appropriate discount remains fact-specific. The forensic accountant must address both positions with transparent reasoning.
Joint Expert Meetings
In SJE appointments, the joint expert meeting under CPR Part 35 is a critical stage. Areas of agreement and disagreement should be clearly identified, with reasons for any disagreement documented. Solicitors should ensure that the joint letter of instruction addresses the key valuation issues before the meeting takes place.
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