Potamianos v Prescott & Anor

In an unfair-prejudice buy-out, the court has a wide discretion to determine a fair price in all the circumstances. A valuation based on a willing buyer and willing seller must nevertheless reflect commercial reality, while avoiding speculation unsupported by evidence.

Subsequent events may be considered where they illuminate the value at the valuation date, particularly for contingent liabilities or assets. The court may disregard expert evidence, but should generally adopt a jointly reasoned valuation unless there is a proper basis for doing so. Quasi-interest may be awarded as part of fair relief, but its award and rate depend on the circumstances and require caution.

The petitioner held 40% of Sprintroom Limited and sought relief under sections 994–996 of the Companies Act 2006. Following an earlier liability judgment and an appeal, the remaining issues concerned the amount of a balancing payment, the price for the petitioner’s shares, and interest or quasi-interest.

The court had to determine the appropriate valuation of the shares as at 28 September 2018, applying the ordered willing-buyer and willing-seller hypothesis, and decide whether later events, alleged source-code problems, business risks, and expert assumptions affected that valuation.

1. Relief and valuation. The court confirmed that sections 994 and 996 of the Companies Act 2006 confer a wide discretion to grant relief and to fix a fair price. Fairness is assessed in all the circumstances, having regard to the purpose of correcting the unfair prejudice.
2. Balancing payment. The payment was intended to restore the parties’ agreed 60:40 distribution of monies received from the company. It therefore included the relevant payment made by Sameaim to Dr Fells before the valuation date, although that invoice was paid shortly afterwards. The balancing payment was treated as an ordinary commercial debt.
3. Quasi-interest on the balancing payment. The court awarded quasi-interest because the payment compensated for money withheld following the petitioner’s unfair exclusion from management. Exercising its discretion broadly and to avoid further disputes, the court awarded interest at 3% from the valuation date.
4. Share valuation. The valuation was conducted on the basis of a sale of the entire share capital between a willing buyer and willing seller at arm’s length. The court accepted the agreed earnings-multiple methodology, but adjusted the replacement-staff assumption. It allowed £37,000 for a software engineer and £45,000 for an additional hardware engineer for each relevant year. It rejected the proposed add-back for the salesperson and accepted surplus cash of £450,000.
5. Commercial reality and alleged defects. The principle of reality required the court to consider what a reasonable buyer would have paid, but the alleged source-code and business problems were not established by sufficient expert or other evidence. The court also considered that potential claims for damages were an asset capable of ameliorating any reduction in value. No deduction was therefore made for those matters.
6. Quasi-interest on the share price. The question was deferred. The court considered that the final outcome of the valuation and related source-code proceedings could affect whether the petitioner had been kept out of the purchase price and what award would be fair.

• Court of Appeal: The earlier liability orders were partly varied on appeal. The petitioner’s appeal concerning the assessment of offers was allowed, while the remaining appeals were dismissed: [2019] EWCA Civ 932.
• High Court: The present judgment determined outstanding quantum and interest issues following the earlier liability judgment.