Wann & Ors v Birkinshaw & Ors

In a share-purchase order made in unfair-prejudice proceedings, the total value of the company ordinarily means the market value of its issued share capital, not the gross value of its underlying assets. A different basis requires clear words in the order. Net borrowings are not automatically ignored or deducted in full. Their effect on the price is a commercial matter requiring evidence of the likely negotiations between a willing buyer and seller. Where the evidence supports negotiation but cannot justify a precise outcome, the court must do the best it can and may adopt an intermediate adjustment.

The respondent was one of four equal shareholders in Quarry Walk Park Ltd. Following a successful petition under section 994 of the Companies Act 2006, the appellants were ordered to purchase his shares at a fair value representing a rateable proportion of the company’s total value, without a minority discount.

At a later valuation hearing, HHJ Kaye QC accepted an earnings-based valuation of £2.85 million without deducting the company’s net borrowings, and fixed the price of the respondent’s shares at £712,500. The appellants appealed, arguing that the order required valuation of the issued share capital and that the net borrowings should be deducted. The central issues were the meaning of the order and the evidential treatment of the company’s borrowings.

The appeal was allowed in part. The price payable for the respondent’s shares was reduced from £712,500 to £537,500. The appeal concerning costs was dismissed.

1. The order required valuation of the respondent’s shares as a rateable proportion of the total value of the company. In context, that meant the market value of the company’s issued share capital. The appellants were purchasing shares, not an interest in the company’s underlying assets. The order’s willing seller and willing purchaser assumption reinforced that conclusion.
2. A court could direct valuation by reference to the business or underlying assets, rather than the issued share capital, but only with clear words. The distinction drawn below between the company and its issued share capital was unsustainable. The instruction to ascertain the price a buyer with knowledge of all material facts would pay for 100% of the issued share capital formed an essential part of the valuation exercise.
3. The profits-based valuation of the lodge park supplied the appropriate starting point, but it did not itself value the company’s shares. There was no a priori rule as to whether net borrowings should affect the share price, or whether they should be deducted in full. Their effect was a commercial matter requiring evidence. The contrasting decisions in Crabtree v Ng [2012] EWCA Civ 333 and Re Sunrise Radio Ltd [2013] EWCA Civ 667, [2014] 1 BCLC 427 were reconcilable because each depended on its circumstances and evidence.
4. The expert evidence showed that a buyer would seek to reduce the earnings-based valuation by reference to the net borrowings, but that the final price would be negotiated. The best assessment on the evidence was an adjustment of half the borrowings, producing a company value of £2.15 million and a 25% share value of £537,500. The alternative case based only on servicing costs was unsupported by the evidence.

Patten LJ agreed with David Richards LJ.

1. Court of Appeal (Civil Division): on [2017] EWCA Civ 84, allowed the appeal in part and substituted £537,500 for £712,500 as the price payable for the respondent’s shares.
2. High Court, Chancery Division, Leeds District Registry: HHJ Kaye QC fixed the share price at £712,500.
3. Leeds County Court: Recorder Holmes found unfairly prejudicial conduct and ordered the appellants to purchase the respondent’s shares at fair value.