Cobden Investments Ltd v The RWM Purchaser Ltd & Ors

In valuing shares following an unfair-prejudice purchase order, the court must determine a fair value between the parties. A valuation should reflect commercially realistic negotiating prospects, including the chance that an arrangement may be renegotiated, rather than assigning uncertain prospects a nil value. Agreed valuation methodology should generally be used, but distinct income streams may justify different multiples where their risks differ materially. Surplus assets and abnormal working-capital positions must be brought into account. Compensation equivalent to interest may be awarded on the purchase price where the seller has been deprived of both the price and the benefit of the shares.

This was a further hearing in proceedings under the Companies Act 1985 concerning the valuation of shares in Southern Counties Fresh Foods Ltd after the court had ordered their purchase. The court considered outstanding valuation adjustments, including a renegotiation prospect concerning rendering costs, recharges, the EBITDA multiple, an inter-company debt, overdue invoices and capital expenditure.

The petitioner also sought to rely on newly discovered evidence concerning the respondents’ bone-in cow trade and sought compensation equivalent to interest on the unpaid purchase price. The central issues were the fair valuation of the shares and the proper treatment of the new evidence and delayed payment.

1. Valuation methodology. The objective was a fair value as between the parties. The court was not bound to adopt an expert’s conclusion where its application would produce an unfair result. A hypothetical purchaser would attach value to the prospect of renegotiating the rendering-cost arrangements, although the chance of success and the contractual notice period had to be recognised. The court therefore applied a 75 per cent adjustment to the relevant expert figure.
2. Operating profit and assets. Future recharges could not be set off against increased rent and insurance premiums, because those items did not relate to the operating profits of the slaughtering business and such a set-off would undermine the fair-profit basis of the valuation. The SCS debt was a surplus asset and was to be brought into account separately. The working-capital adjustment was based on the overdue invoices, subject to an allowance for capital expenditure of £375,000.
3. Bone-in cow trade. The newly established trade with QK Meats qualified the court’s earlier reasoning but did not show that a broad, profitable cow-trading business was available to the company. The trade continuing at the valuation date was nevertheless to be reflected in maintainable earnings. It was valued as a separate income stream, using a 2.5 times multiplier and appropriate deductions for employment and administration costs. Claims based on all cows killed being available for the company’s trade were refused.
4. Interest-equivalent compensation. Under section 996 of the Companies Act 2006, the court had jurisdiction to award compensation equivalent to interest on the price payable under a section 994 purchase order. Compensation was awarded at 2.5 per cent simple interest from 24 February 2009, when the shares were transferred and the petitioner’s directors resigned.
5. The first two heads of relief concerning the bone-in cow trade were allowed in the stated manner; the third and fourth heads were refused.