3.3.11.5 Valuation date

A further issue with respect to the valuation of shares is on what date the shares have to be valued. Since the Companies Act does not prescribe a certain date to be taken, courts are flexible in the selection of a valuation date. In Re London School of Electronics, Nourse J. held:

Similar to other aspects of valuation, the overriding requirement is that the choice of the timing is made from a fürness point of view.2 This means that another date can be more appropriate and that it is in the court's discretion to choose for a certain date.3

In Re a company (No 002612 of 1984), Vinelott J dissented from Nourse J and considered the date of the petition as the correct starting point:

In Profinance Trust SA v Gladstone, the Court of Appeal rejected the view of Vinelott J. and held the aforementioned view of Nourse J. as the point of departure. Walker LJ considered this point to be the "general trend of authority over the last 15 years". Consequently, the point of departure is the date of the buy-out order, the date as close as possible to the actual sale.5

The Court of Appeal also afflrrned the view of Nourse J that the overriding requirement is that the valuation must be für. Thus, the circumstances may require that another valuation date is taken than the date of the buy-out order. Walker LJ gave several examples of circumstances in which the court is required to take another valuation date than the date of the purchase order. Without the intention of giving a limited enumeration, Walker LJ distinguished the following relevant factors:6

For this situation, reference was made to Scottish Co-operative Wholesale Ltd v Meyer, a case decided onder the oppression remedy of S. 210 CA 1948.7 In this case, the Court of Session8 ordered the shares to be valued on the date of the petition. Moreover, the price of the shares was adjusted as if no oppressive conduct had occurred. The House of Lords endorsed the judgment of the Court of Session. Lord Denning considered that the choice for this date and the adjustment of the price of the shares in effect gives the shareholder money compensation for the injury done to him. Nonetheless, that compensation does not bar making the buy-out order.

In Re Cumana, Lawton LJ considered that the fall in value of the shares, deliberately caused by the majority shareholder, was a good reason for the choice of an earlier date:

In his judgment in Profinance Trust SA v Gladstone, Walker LJ refers to Re 0 C (Transport) Services Ltd.10 In this case an earlier valuation date was taken in favour of the petitioner, because the unfürly prejudicial conduct existed in the issue of shares that increased the shares capital with 750%. The judge took the view that, in these circumstances. backdating the valuation would be most für.

The change of the company or its business must be significant, or, in the words of Davies J in Re 0 C (Transport) Services Ltd, it must signify a sea change. The phrase sea change originates from the play The Tempest by William Shakespeare and means transformation. The change can consist of a decrease, but also of an increase of the value of the company.

Another illustration is Re London School of Electronics.11 In this case, Nourse J chose an earlier valuation date in favour of the respondents. The respondents had worked to improve their company's reputation and had been successful in their efforts. The petitioner had contributed nothing to this success and it was doubtful whether he would have added anything to the success if he had remained at the company. Therefore, the judge preferred to take the date of the petition as the valuation date, so that the petitioner would not profit from the improved reputation of the company.

In these circumstances, the fall in value of the shares is not caused by the majority shareholder, but by one or more external factors. A choice for an earlier date can be für when the conduct of the majority shareholder has been "quite unscrupulous", so that the basis on which the shareholder participates in the company is eliminated.12

In Re Elgindata, the value of the company had declined to a great extent. This decline was caused by the unfürly prejudicial conduct of the respondent in a very limited way. Warher J held that the material question is to what extent the decline in the value of the company and, consequently, the decline in the value of the shares can be attributed to the conduct of the respondent. Whereas the decline was primarily caused by external factors, the court chose the date of the buy-out order as the most für valuation date.13

In case the unfürly prejudicial conduct is severe, there is more flexibility to take a certain valuation date. If the unfürly prejudicial conduct is less severe, there is no need to entitle the petitioner to a "one way bet". In the laffer situation, it can be für to have a petitioner run the risk of both any increase in the value of the shares and any decrease in the value of the shares. Thus, the less severe the unfürly prejudicial conduct is, the more the court is required to adhere to a valuation date fixed on the date of the buy-out order.

The above-mentioned matters may be heavily influenced by the conduct of parties with regard to making and accepting reasonable buy-out offers.14