Irvine v Irvine & Anor

In valuing a minority shareholding under a buy-out order, the court must value the holding as it exists, including the absence of control, unless the order requires a different approach. A substantial shareholding which cannot control the company may properly attract a minority discount. Cash retained in the company is an asset of the company and is subject to the same discount as the underlying business where the valuation order makes no provision for a deemed distribution. The court must give effect to the terms of the consent order governing the valuation, even where another method might appear more principled.

The petitioners held 49.96% of Campbell Irvine (Holdings) Ltd. In an earlier judgment, the court found that Ian Irvine had drawn excessive remuneration and ordered him to purchase, or procure the purchase of, the petitioners’ shares under Companies Act 1985, section 461. The court subsequently directed that the shares be valued as at 10 March 2006, with a minority discount and with the excessive remuneration treated as notionally repaid to the company. The present hearing concerned the appropriate valuation methodology, the discount, and the treatment of notional and actual surplus cash.

1. The court valued the petitioners’ shares in Campbell Irvine (Holdings) Ltd at £2,420,000 as at 10 March 2006.

2. The valuation was to proceed on the basis of a going concern. The appropriate method for valuing the underlying insurance-broking business was a multiplier applied to gross commission income. Although a mixed approach using gross commission and profit before tax was theoretically prudent, the comparable material relied upon for that approach was too limited and insufficiently analysed. A multiplier of 1.1 produced an underlying business value of £2.53 million.

3. The petitioners’ 49.96% holding was a minority holding. It gave no effective control over the conduct of the business, although it could block a special resolution. The fact that Ian would acquire complete control after the sale did not give the holding a premium value, because the valuation assumed a willing third-party purchaser. A minority discount of 30% was therefore appropriate, producing a value of approximately £885,000 for the underlying business interest.

4. The consent order required the whole of the excessive remuneration, with compound interest and after the appropriate corporation tax adjustment, to be treated as notionally retained within the company. The order did not provide for that sum, or for cash generated in 2005 and the first ten weeks of 2006, to be treated as distributed immediately before the valuation date.

5. Both the notional cash surplus of £3,788,470 and the actual cash surplus of £598,585 were therefore assets of the company and subject to the same 30% minority discount. The petitioners’ discounted share of those sums was £1,534,240. Added to the value of the remaining business interest, this produced the rounded valuation of £2,420,000.

This was a first-instance valuation hearing following earlier judgments and orders in the same proceedings. The court’s earlier order required Ian Irvine to purchase, or procure the purchase of, the petitioners’ shares under section 461 of the Companies Act 1985, with the valuation issues left for determination.