Kohli v Lit & Ors

In a share valuation following an unfair-prejudice purchase order, the court must value the profitable businesses and assets realistically at the specified valuation date. Liabilities of loss-making subsidiaries should be included only where the company has a legal obligation to meet them. Historical bank debt which a purchaser must discharge must be deducted, but interest attributable to that eliminated debt should not also reduce maintainable profits. Adjustments to consultancy or directors’ fees require evidence of the relevant market rate. Where valuation evidence is sharply divergent, early appointment of a joint expert is ordinarily desirable.

Following an earlier order requiring the respondents to purchase Geeta Kohli’s shares in Sunrise Radio Limited, the court determined their fair value as at 13 November 2009 without a minority discount. Two experts produced substantially different valuations. The court considered the value of Sunrise and its profitable subsidiaries, the treatment of loss-making subsidiaries, historic bank debt and interest, consultancy fees, property assets, maintainable earnings and the appropriate price-earnings multiple.

1. Valuation basis. The shares were to be valued at fair value as at 13 November 2009 without a minority discount. The court valued the profitable businesses and relevant assets while recognising that loss-making subsidiaries could be liquidated or otherwise shed.
2. Subsidiary liabilities. Liabilities of subsidiaries were to be taken into account only where the parent company had a legal obligation to meet them. The purchaser could exploit profitable businesses without assuming the continuing operation of unprofitable subsidiaries.
3. Historic debt and interest. The purchaser would have to discharge the historical bank facility of approximately £9.539 million. That debt was therefore deducted from the group value. Once eliminated, interest referable to funding that historic debt was not an appropriate deduction from maintainable profits, since allowing both deductions would double count the burden.
4. Maintainable earnings and fees. Four years’ profits were equally weighted, with 2009 treated as nil rather than as the substantial recorded loss. Consultancy fees were left unchanged because there was no reliable evidence of the market rate for replacement services. A proposed hypothetical 2010 profit was not separately included.
5. Overall valuation. The court preferred a price-earnings multiple of 12, reduced by 30 per cent for a private company. The group value, after including Hayes Gate House and deducting the bank facility, was £4,755,446. Applying the agreed 14.78 per cent interest, rounded down, produced a share value of £700,000.
6. The court endorsed early consideration of a jointly instructed expert in comparable valuation disputes, while recognising that a party might later seek permission for its own expert where justified.

First-instance valuation decision following an earlier purchase order made on 25 May 2010 in the same proceedings.