The recent case of Cosmetic Warriors v Gerrie  EWCA Civ 324 has provided useful guidance on the valuation on unquoted minority shares.
In this instance the claimant owned 11% of the shares and his wife owned 10% of the shares with majority shareholders owning 62%. The issue was how to value the shares and whether the shares should be valued (given that they were a minority with no chance of control) at a discount or pro rata basis. The articles required an independent accountant to certify a fair value calculated using a willing buyer and a willing seller, valuing the company on a going concern basis. The majority shareholders wanted to value these at a discount however the Court of Appeal decided that as the articles stated ‘going concern’ this meant the value must be decided with the company being valued as a whole and the minority shares being valued on a pro rata basis.
The judges made the decision because of the importance of the relationship between the key shareholders and decided this to be a quasi-partnership. As this was the case and all the shareholders were fully participating in management and risk of the business, the pro rata valuation of shares was most appropriate.
For advice relating to Company Commercial law contact David Anderson Head of Company Commercial.