Lewis v Clarke & Anor

In an unfair-prejudice share purchase, the court must determine a fair value that remedies the prejudice and reflects all the circumstances. The normal starting point is a whole-company valuation based on maintainable earnings or income, with asset valuation used where the evidence indicates a break-up basis. The valuation date is ordinarily near the sale date, but may be adjusted where fairness requires. The court is not bound by a single expert’s opinion, particularly where the opinion is incomplete or rests on assumptions unsupported by adequate evidence. A broad-brush valuation may be appropriate where further expert evidence would be disproportionate. The court may credit lost dividends and add a discounted value for anticipated future dividends, while accounting for risks such as uncertainty over premises.

The petitioner and first respondent were equal shareholders and directors of the second respondent, a garage business. After their relationship broke down, the first respondent transferred the business to a new company which he solely owned. The petitioner presented a petition under section 994 of the Companies Act 2006. The first respondent did not oppose the existence of unfair prejudice, and the court ordered him to purchase the petitioner’s shares under section 996.

The remaining issue was the fair valuation of those shares. An independent expert had produced a valuation based principally on net assets, but the petitioner challenged the assumptions and the absence of up-to-date financial information. The central issue was the appropriate valuation method, valuation date and allowance for past and future dividends.

1. Outcome. The petitioner’s shares were valued at £45,500. The court adopted a proportionate broad-brush approach rather than incurring further valuation costs.
2. The court began with the company as a whole, assuming a hypothetical willing buyer and seller, and then attributed the appropriate percentage to the petitioner’s equal shareholding. For an unquoted going concern, the normal approach is earnings or income valuation based primarily on maintainable profits and the purchaser’s expected yield. An asset-based or break-up valuation may be appropriate where the evidence shows relevant uncertainty, including inadequate financial information, possible decline in profits, low historic profitability or possible closure.
3. The valuation date is ordinarily as near as possible to the actual sale, as explained in Profinance Trust v Gladstone [2002] 1 W.L.R. 1024. The court retained discretion to select another date where the agreed or ordered date would be unfair, but the date must not be chosen merely to secure the most advantageous exit.
4. The court was not bound by the single joint expert’s valuation. It adopted the guidance in Coopers Payen Ltd v Southampton Container Terminal [2003] EWCA Civ 1223, while stressing that valuation evidence is opinion evidence and that the court retains wide freedom to disregard expert views where they do not make commercial or business sense. That approach was supported by Re Planet Organic Ltd [2000] B.C.C. 610 and Chilukuri v RP Explorer Master Fund [2013] EWCA Civ 1307.
5. The evidence showed a continuing business with annual profits in the region of £33,000 and a practice of supplementing modest salaries with dividends. The court therefore rejected the expert’s view that dividend valuation was necessarily inappropriate. It credited the petitioner with dividends for the period from 1 September 2017 to 1 September 2019, using £26,000 as the annual figure, and added £19,500 for anticipated future benefits, reflecting the lease risk and other valuation uncertainties.
6. The court applied the broad discretion to achieve fairness and equity recognised in Re Bird Precision Bellows [1986] Ch. 658. It considered the resulting figure proportionate and consistent with the practical approach described in Re Sunrise Radio [2013] EWCA Civ 667; [2014] 1 BCLC 427. Order accordingly.

not stated in the judgment.