Profinance Trust SA v Gladstone

Under the Companies Act 1985, the court has a broad discretion to order fair relief once unfair prejudice is established. The power under section 461(1) is not confined to the examples in section 461(2) and can, with caution, include a quasi-interest element where an early valuation date is required. The claim must be clearly advanced and supported by evidence.

The prima facie valuation date for a going concern is the date of the order or actual valuation, subject to fairness on the particular facts. An earlier date may be justified by destruction or reconstruction of the business, a new economic identity, or serious prejudice during a market fall. It must not give a minority shareholder a one-way benefit. An appellate court may substitute its own discretion where the first-instance exercise rests on material factual error and the undisputed core permits final resolution.

Profinance Trust SA, a 40 per cent minority shareholder in Americanino Ltd, presented a petition under section 459 of the Companies Act 1985 against Mr Gladstone, the majority shareholder. The parties reached a partial compromise. The petition was conceded to be well founded and accountants agreed valuations at several dates.

The deputy judge ordered Mr Gladstone to purchase Profinance's shares and ordered Profinance to pay half of his assessed costs. His decision is reported at [2000] 2 BCLC 516. The appeal concerned whether the purchase price could include an amount equivalent to interest for delay and which valuation date would produce a fair result. The Court of Appeal also considered the challenge to the costs order.

Disposition

The valuation appeal was allowed. The Court of Appeal substituted an order requiring Mr Gladstone to purchase Profinance's 40 per cent holding for £86,000. The appeal against the costs order was dismissed.

1. Quasi-interest. Once a petition under section 459 of the Companies Act 1985 is well founded, section 461(1) gives the court a wide power to make an order giving relief. That power is not limited to the examples in section 461(2). It can include an amount equivalent to interest for the period before payment where an early valuation date is necessary for fairness. The power must be exercised cautiously. The claim must be clearly advanced, supported by evidence, and shown to be the only or best route to a fair result. Continued ownership of the shares will ordinarily weigh against such an award. The decisions in Re Bird Precision Bellows [1984] Ch 419 and [1986] Ch 658, and Elliott v Planet Organic [2000] BCC 610, did not establish an absolute prohibition.
2. Valuation date. The starting point for valuing an interest in a going concern is the date of the order or actual valuation, as close as possible to the sale. This is subject to the overriding requirement of fairness on the particular facts. An earlier date may be appropriate where the company has been deprived of its business, reconstructed or given a new economic identity, or seriously affected during a general market fall. A claimant is not entitled to an advantageous one-way result, particularly where severe prejudice is not established. The parties' conduct in making or rejecting offers may also be relevant.
3. Application. The deputy judge had exercised his discretion on too limited an evidential foundation. He misunderstood the nature of the original joint venture and placed excessive weight on an inference that the company's increased value was attributable to Mr Gladstone's efforts after Mr Serra's departure. The appellate court declined to remit the matter because that would cause further delay and expense and the core facts were undisputed. On those facts, the fair valuation was the agreed March 2000 value of £215,000, giving £86,000 for Profinance's 40 per cent holding. Permission to appeal was refused.

1. Court of Appeal — Allowed the valuation appeal and substituted a purchase price of £86,000; dismissed the appeal against the costs order. [2001] EWCA Civ 1031.
2. High Court, Chancery Division — Ordered the majority shareholder to purchase the minority holding and ordered the petitioner to pay half of the respondent's assessed costs. [2000] 2 BCLC 516.