Krishna Holdco Limited v Gowrie Holdings Limited & Ors

In an unfair-prejudice share buy-out, valuation is an evaluative and remedial exercise rather than a purely mathematical calculation. The court may use hindsight after fixing the valuation date to test the reliability of assumptions, particularly concerning developing trends and forecasts.

Expert valuation evidence must be assessed critically. Forward multiples may be appropriate where the purchaser is principally acquiring future earning potential. Property owned by the company may be reflected by deducting a notional market rent from maintainable earnings while separately recognising the property's market value. The court may reject accounting adjustments where they would create an unfair windfall or fail to reflect the commercial and remedial context.

The judgment concerned the quantum phase following the court’s earlier liability judgment, [2023] EWHC 1538 (Ch), which had found unfair prejudice and ordered Gowrie Holdings Limited to acquire Krishna Holdco Limited’s shares in Laxmi BNS Holdings Limited.

The court had to determine the value of the SYRI clinicals business, the enterprise value and net debt of LBNS, the appropriate Equalisation Amount, and whether to award quasi-interest or extend liability for the buy-out order to other respondents. The central issue was the fair remedial valuation of Krishna’s shareholding at 25 June 2019.

1. Remedial valuation. Fixing the price of shares under the unfair-prejudice jurisdiction is an evaluation made in light of all the circumstances and principles of fairness, not a valuation dictated solely by accountancy principles. The court therefore had to fashion a fair remedy reflecting the findings in the liability judgment.
2. Hindsight. The basic rule is to ignore post-valuation-date events. That rule is not absolute. Later data may be used to cross-check the reliability of assumptions made at the valuation date, particularly assumptions concerning developing trends or forecast outcomes. The approach in Estera Trust (Jersey) Limited v Jasminder Singh was adopted.
3. SYRI. The court rejected the income approach based on optimistic assumptions about the licensing success of pipeline products. It preferred a market approach using maintainable EBITDA, a forward multiple of 8.04x and the agreed 25% public-to-private discount, subject to an allowance for market remuneration for the relevant managerial role.
4. LBNS. The court accepted Ms Hart’s maintainable EBITDA and approximately £67.2 million enterprise value. It rejected a regression analysis based on an artificially small comparator pool and accepted a targeted comparator approach. No further public-to-private or regulatory-risk discount was justified because the selected comparators already reflected relevant market characteristics and risks.
5. Net debt and Equalisation Amount. The net value of the Perivale Property was to be recognised as an asset, while maintainable EBITDA was reduced by a notional annual market rent. The court rejected provisions for the Colorama contingent liability and third-party loans because they risked unfair windfalls. Matters determined or agreed in the liability phase were generally not reopened. Relevant excess remuneration and specified creditor payments were deducted from or added to the Equalisation Amount according to the remedial findings.
6. Further relief. Quasi-interest was refused because no proven net shareholder benefit had been lost. A buy-out order against the other Gowrie respondents was refused for the present but left open if GHL’s ability to pay became a real issue. The parties were directed to calculate the final figure, with unresolved minor matters capable of being restored.

The judgment was a first-instance quantum judgment following the liability judgment in the same proceedings, [2023] EWHC 1538 (Ch). The court did not determine an appeal.