Bilkus v King & Anor

In an unfair-prejudice share purchase, the court will normally seek a clean break and a single valuation date close to the actual sale. A valuation should reflect the risks affecting the company’s future earnings, including dependence on a single contract. A deferred or staged valuation is exceptional and must produce a fair order.

Disputed allegations of misfeasance are for the court, not the valuer. However, an expert valuer may disregard past payments which a prospective purchaser would not expect to recur. An enhanced price representing interest or lost return requires a clearly pleaded and evidenced case establishing that it is necessary for fairness.

Michael Bilkus petitioned under section 459 of the Companies Act 1985 after Graham King excluded him from the management of Clearsprings (Management) Ltd and failed to issue him the agreed half shareholding. Following earlier specific-performance proceedings, Bilkus became a shareholder and obtained the appointment of a nominee director.

King offered to purchase Bilkus’s shares without a minority discount. The remaining disputes concerned the identity of the valuer, the valuation date and method, challenged company payments, an alleged interest element, interim payment and costs. The central questions were whether valuation should be staged, which matters required determination by the court, and what directions would achieve a fair share purchase.

1. Valuation structure. The court rejected the proposed two-stage valuation. Although exceptional circumstances might justify such an order under section 460(2)(d) of the Companies Act 1985, fairness and the normal policy of a clean break militated against keeping the parties connected after the sale. A deferred sale would give Bilkus the benefit of consideration without simultaneously transferring title to King.
2. Valuation date. Shares should ordinarily be valued as close as possible to the actual sale, subject to the overriding requirement of fairness. The valuer was therefore directed to value the company as a going concern at 1 December 2003, without a discount for Bilkus’s minority interest. The valuation had to reflect the risks affecting the company’s future earnings, including the uncertain renewal of its principal contract. Each side accepted the resulting risk of a rough edge from a single valuation date.
3. Challenged payments. Disputed questions concerning misuse of funds were matters for the court rather than the expert accountant. However, the parties accepted that the valuer could disregard past payments which a prospective purchaser would regard as non-recurring or impermissible in assessing future profitability. No separate determination of the challenged payments was therefore required.
4. Interest and interim payment. The claim for an additional interest element was raised too late and was unsupported by evidence. Nothing exceptional justified it. Although the court had jurisdiction under CPR Rule 25.6 and section 461 of the Companies Act 1985 to order an interim payment, the claim was unsupported by evidence and the repayment of Bilkus’s loan account provided sufficient funds.
5. Costs and directions. Bilkus was awarded the petition costs up to 22 March 2002, excluding costs relating to the mismanagement issues. King was awarded costs from 23 March 2002 to the hearing, subject to further submissions concerning the final costs order.

First-instance decision. The judgment records earlier specific-performance proceedings before Judge Weeks QC, which were determined in Mr Bilkus’s favour, but no citation for that decision is stated.