Shah v Shah & Ors

In determining the price payable for shares ordered to be purchased following unfair prejudice, the court must reach a figure that is fair on the facts. It has a wide discretion and is not confined to ordinary open-market valuation principles. Contingent tax is assessed contextually. A full deduction is generally inappropriate where there is no realistic prospect of an early disposal, but some allowance may be required to reflect the possibility of future crystallisation. The tax rate is the rate applicable at the valuation date, rather than a speculative future rate. Under section 996(1) of the Companies Act 2006, the court may require security for a petitioner’s potential liability connected with the company’s borrowing. Relief is not warranted for liabilities independent of the unfair prejudice.

The judgment determined consequential matters arising from an earlier finding that Dinesh Shah had suffered unfair prejudice in relation to Mister Dee International plc. The remaining issues concerned the value of his 11,334 shares, contingent tax on company properties, interest, the identity of the purchaser, possible liability under a family loan guarantee, and alleged liability connected with tax relief claimed on 175 Commercial Road. The parties had agreed the valuation date and that no minority discount would apply. The court also considered rectification of the Companies Register to reflect that Dinesh remained a director.

1. Share valuation. The overriding requirement was a valuation fair on the particular facts. The court possessed a wide discretion and was not restricted to market value calculated by ordinary valuation principles. Having considered investment and vacant-possession methods, expert evidence and the limitations inherent in property valuation, the court determined the value of 38–40 Commercial Road at £4 million and 165–167 Commercial Road at £515,000. The wholesaling business had no goodwill value and was valued by reference to net asset value at £102,000.
2. Contingent tax. A full deduction for contingent corporation tax was inappropriate. The shares were not being sold on the open market, the proposed purchaser controlled the company, there was no evidence of an intended disposal, and a break-up valuation was inappropriate. The court allowed a 10% reduction for 165–167 Commercial Road and a 20% reduction for 38–40 Commercial Road. Corporation tax was calculated at 28%, the rate applicable at the valuation date. Speculation about later rates was impermissible. Selling costs and purchaser’s stamp duty were also excluded because they were relevant only to a break-up valuation.
3. Purchaser and protection. The parties were left to agree whether the Company or CJ would purchase the shares, using the fiscally most advantageous lawful structure. If no satisfactory arrangement protected Dinesh against any liability as guarantor of the Shah loan, a charge over 38–40 Commercial Road in his favour could be ordered under section 996(1) of the Companies Act 2006.
4. No indemnity was ordered for possible penalties or charges arising from tax relief claimed on 175 Commercial Road, since that potential liability was independent of the unfair prejudice. The Companies Register was to be rectified to show that Dinesh remained a director and had not resigned on 18 November 2005. The parties were directed to recalculate the share price for inclusion in the final order.