Natural Duvet & Pillow Company Ltd, Re

In valuing shares ordered to be purchased in an unfair-prejudice petition, fair value may be the value of the holding to the company’s co-owner rather than its open-market value. A discount for a 50% holding is not appropriate where the circumstances require valuation on that basis. Valuation at a specified date must generally exclude subsequent events. Later events may be considered only to assess what forecasts could reasonably have been made at the valuation date. The court should use reliable information available at that date, make justified normalising adjustments, and approach uncertain accounting evidence with caution.

Ivan Ng presented an unfair-prejudice petition concerning the quasi-partnership company, The Natural Duvet and Pillow Company Limited. By consent, Steven Crabtree was to purchase Mr Ng’s shares at their fair value as at 10 March 2005, with the court to determine the value if the parties could not agree.

The company had subsequently entered administration and liquidation, but the issue at trial was confined to the valuation of Mr Ng’s 50% shareholding. No witnesses of fact could be called. The court therefore had to determine the value from admissible expert evidence and undisputed facts, including whether the company should be valued as a going concern, how its maintainable earnings should be calculated, and whether interest should be allowed for its debt to its principal supplier.

1. Fair value. The court held that, in circumstances of this kind, the fair value of the shares was their value to the co-owner rather than an open-market value. There was no discount for the fact that the holding represented 50% of the company: [2011] EWHC 1834 (Ch), [16]. This approach was supported by Parkinson v Eurofinance Group Ltd and CVC/Opportunity Equity Partners Ltd v Demarco Almeida.
2. Valuation date. The basic rule was to exclude evidence of events after the valuation date. Later events could be used only to determine what forecasts could reasonably have been made on that date. The company’s later trading results could not be preferred to results actually known at the valuation date. The court applied the approach in Re Holt and Joiner v George, rather than the broader approach relied on from Buckingham v Francis: [17].
3. Maintainable earnings. The company was to be valued as a going concern. Maintainable earnings were calculated using the expert’s methodology, including annualised 2003 figures and year-specific reallocation of expenses attributable to the related company. The court rejected the use of later accounts and disputed factual material. It accepted reallocation percentages of 15.2% for 2003, 13.3% for 2004 and 20.8% for 2005, producing maintainable earnings of £143,600: [31]-[35], [37]-[38], [44]-[59], [65].
4. Supplier debt and multiplier. The free credit provided by the supplier was an established feature of the business, not an exceptional item requiring a notional commercial interest charge. The risk surrounding the debt justified caution and a rounding down of the final figure, rather than an interest deduction: [60]-[64]. The appropriate price-to-earnings multiple was 7. The resulting value was rounded down to £1 million, making the fair value of Mr Ng’s half share £500,000: [66]-[69].

First-instance decision. No appellate history is stated in the judgment, although the judgment records that the Court of Appeal had dismissed an interlocutory appeal against an evidential order.