Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/3.3.11.4:3.3.11.4 Going concern basis or net assets basis

Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/3.3.11.4

3.3.11.4 Going concern basis or net assets basis

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When shares are valued pro rata parte to the total value of the company, a choice has to be made on which basis the company has to be valued. If the company is still a going concern after the buy-out of the minority shareholder, it will be für to value the company on a going-concern basis.

In Re Bird Precision Bellows, Nourse J rejected the submission of the respondent that, whereas the unfür prejudice remedy is an alternative to the winding-up remedy, the shares must be valued pro rata parte to the surplus after the notional liquidation of the company, or, in other words, on a net assets basis.1 Nourse J held that usually a net assets basis leads to an even lower price than a price based on a going-concern valuation involving a minority discount. Nourse J pointed out that, as an exception, a net assets basis might be appropriate for the valuation of property and investment companies.2

In CVC/Opportunity Partners v Demarco Almeida, Millett J asserted that is hard to justify the use of the net assets basis where the intention of the purchaser of the shares is to carry on with the company.3 Millet J held:

"(...) it is difficult to see any justification for adopting the break up or liquidation basis of valuation where the purchaser intends to continue to carry on the business of the company as a going concern. This would give the purchaser a windfall at the expense of the seller."4

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