Dinglis v Dinglis & Ors

In an unfair-prejudice buy-out, the court’s discretion under Companies Act 2006 sections 994 and 996 is broad and must produce a fair and equitable result on the whole circumstances. Current value at the date of the buy-out order is the usual starting point. An earlier date requires circumstances such as a fundamental change in the company’s business or unfair prejudice connected with the later increase or decrease in value. Delay is relevant only to allegations which succeed and generate the petitioner’s exit remedy. Valuation may include adjustments reflecting loss of opportunity caused by misuse of company funds, including an appropriate compound element. Shares are valued according to their present characteristics; historical ownership arrangements and intangible commercial risks do not automatically justify altering the discount. A notional sale to the majority may recognise any special value of control.

The petitioner held 12% of Dinglis Properties Limited and succeeded in an earlier unfair-prejudice petition based on the respondent director’s use of company funds for personal or connected-company purposes. The court had ordered the petitioner’s shares to be purchased, subject to a minority discount, leaving valuation issues for determination.

This further judgment addressed the valuation date, possible adjustments, and the approach to the minority discount. The parties disputed whether the shares should be valued at a historic date or at the date of the buy-out order, whether various payments and benefits should be reflected, and whether the petitioner’s historical family relationship, guarantees and the majority’s acquisition of control affected the discount.

1. Valuation date. The court’s power under sections 994 and 996 of the Companies Act 2006 is wide. The court must select the order that is fair and equitable in the circumstances. Current value at the date of the buy-out order is the usual starting point, but the court may choose another date where fairness requires it.
2. An increase in value attributable to the majority shareholder’s management is not, by itself, a reason to use an earlier date. The petitioner had been locked into the company and had no practical exit before the unfair-prejudice finding. The company had not undergone a fundamental change of economic identity. The shares were therefore to be valued as at 25 July 2019, the date of the order requiring their purchase.
3. Delay may justify adjusting the valuation date, but only in relation to allegations which succeed and provide the basis for relief. Delay in pursuing unsuccessful allegations concerning exclusion from management could not justify moving the valuation date backwards.
4. Adjustments. In principle, the petitioner could seek adjustments for the lost opportunity to the company caused by advancing funds at only 3.5% interest, including the Personal Loan, Maremonte Loans, Schedule 1 Payments and sums removed by the bank. The relevant loss might include a compound element where necessary to measure the lost investment opportunity. The value of any benefit received by the petitioner through the same payments had also to be considered.
5. The proposed adjustment concerning the Matrimonial Freezing Order was refused because it sought to re-litigate claims advanced and rejected in related proceedings. The proposed dividend adjustment was insufficiently clear. The unresolved possession dispute concerning 21 Makepeace Avenue had to be left for valuation experts to reflect. Other proposed adjustments, including the possible commitment concerning accommodation and the benefit from the Maremonte Loans, were sufficiently arguable for consideration at the valuation trial.
6. Minority discount. The precise discount remained a matter for the valuation trial. The shares were to be valued according to their present characteristics, not the historical circumstances in which they were acquired. The petitioner’s former status within the family business was irrelevant after he had become a minority investor in a business managed by the majority. The financial risks he had undertaken were too intangible to justify an adjustment or a modified discount.
7. The valuation was to proceed on the basis of a notional sale to the majority shareholder or its vehicle, rather than to an independent third party. Any special value arising from acquisition of complete control could thereby be identified and dealt with fairly.