Free Consultation
Book a Free Consultation
A certified valuer will listen to your situation and answer any questions you may have, at no cost.
When two directors of a Dandenong South engineering business or three partners of a Southbank consultancy can no longer work together, the exit price is the whole argument. We set it out so it withstands the other side's expert.
Indicative valuations from A$799. Certified Summary and Detailed reports from seven business days.
In a Melbourne shareholder or partnership dispute the argument nearly always ends in a buy-out, and a buy-out needs a defensible price. We value the company with and without a minority discount, at each date the case calls for, quantify what any oppressive conduct removed, and write the reasoning to withstand the Commercial Court of the Supreme Court of Victoria.
Two directors of a Dandenong South engineering business who no longer speak, three partners of a Southbank consultancy where one wants out, a family company in Doncaster where the siblings who run it have stopped paying dividends to the one who does not: disputes like these very rarely end with the company wound up. They end with one side buying the other out at a price. Sections 232 and 233 of the Corporations Act 2001 give the Court that power where a company's affairs have been conducted oppressively or unfairly, and the order made most often is that a member's shares be purchased by the other members or by the company.
That order needs a number, and the number is not arithmetic. The basis of value, the date at which the shares are valued and whether a minority discount applies all depend on the conduct the Court finds, not on valuation habit. A report that would satisfy a bank or an auditor can fall apart in cross-examination if it assumed answers to questions that were still open.
The same applies before anyone files. Buy-outs under a shareholders agreement, partnership dissolutions and expert determinations all come down to a contested value between people who can no longer work together. Many Melbourne matters of this kind go through mediation first, including at the Victorian Small Business Commission where a small business or a retail lease is involved, and a valuation from someone neither side controls is often what turns an expensive fight into a negotiated exit. When it does not, it becomes the central evidence in the Commercial Court.
We prepare these valuations for shareholders, partners and their solicitors across Melbourne, from two-director companies in the western industrial suburbs to professional partnerships in the legal precinct around William Street, acting for one side, as a jointly appointed expert, or as the determining expert both parties have agreed to be bound by.
A certified valuer will listen to your situation and answer any questions you may have, at no cost.
Whether the conduct was oppressive is for the lawyers and the Court to decide. What the valuer has to grasp is how each answer changes the valuation, because the changes are large.
Section 232 applies where the conduct of a company's affairs, an act or omission, or a resolution of members is contrary to the interests of the members as a whole, or is oppressive to, unfairly prejudicial to or unfairly discriminatory against a member. The test is commercial unfairness judged objectively, and the majority need not have acted dishonestly. The usual complaints are exclusion from management, business diverted to a related entity, director salaries far above market, years without a dividend, refusal to hand over financial information, dilutive share issues and related-party dealings on soft terms.
Away from litigation, a non-controlling parcel in a private company is worth less per share than the whole, because its holder can neither direct the company nor readily sell. In oppression cases courts have often declined to apply that discount, reasoning that a member pushed out by the majority's conduct should not hand the majority a windfall as well. Whether the company was run as a quasi-partnership, how the member came to hold the shares and whether the conduct caused the exit all bear on the answer. We value on both bases and state the gap between them.
The default is the hearing, or the date of the Court's order. Where the conduct has eroded the company's value, that date rewards the party responsible, so an earlier date, such as the day the member was excluded or the day proceedings were issued, may be argued instead. The alternative is to value today and add back what the conduct removed. Either way the valuer is usually instructed to work at more than one date.
Where value has been taken out, the valuation may have to put it back: director remuneration above the market rate for the role, proved by salary benchmarking rather than assertion; revenue and margin diverted to another entity; rent, management fees and loans restated to arm's length terms; personal spending run through the company's accounts. More value usually rides on these adjustments than on the choice of method, and each one is attacked on its own.
Where the constitution or a shareholders agreement contains a pricing formula, pre-emptive rights or a compulsory transfer clause, it governs a contractual buy-out, and the first job is to read precisely what it requires: fair value or market value, at which date, decided by whom. In oppression proceedings the Court's discretion under section 233 is not confined by the agreement, so the formula becomes evidence rather than the answer, especially where the minority says the formula itself was part of the unfairness.
The methods are those used in any private company valuation; what differs in a dispute is that nothing is accepted on trust. For a trading company the income approach usually leads: maintainable earnings after normalisation, capitalised at a rate or multiple taken from comparable evidence. The majority will argue that the earnings are lower and the multiple should be lower, and the minority the reverse, so every input has to be sourced rather than judged.
Forecasts prepared by the party in control after the dispute began get the scepticism they have earned; the valuer forms and states a view on them rather than adopting them. The asset approach comes forward when the company owns property or an investment portfolio, when trading is falling away, or when the Court is weighing a winding up order against a buy-out and needs to see which leaves the minority member in the better position. Earlier transactions in the shares, offers received and other members' buy-ins are relevant market evidence, but a transaction between related parties or one priced by an untested formula carries less weight, and a low historical price is often one of the things the minority says was oppressive.
When a Melbourne partnership breaks up, the same valuation questions arise in a different form. Under the Partnership Act 1958 (Vic) the partners' entitlements on dissolution depend on the value of the partnership assets, and in a professional partnership the largest asset is goodwill. Whether that goodwill belongs to the firm or walks out with the departing partner is the issue that decides most accounting, legal, medical and dental partnership splits, from Collins Street practices to Box Hill and Glen Waverley clinics.
When a valuation fails in a shareholder dispute, it usually failed at one of these points, most of them before a single number was calculated.
A dispute report is read by the other side's expert, a mediator at the Victorian Small Business Commission or a judge in the Commercial Court, so the depth is set by that reader, not by the size of the company.
A dispute report states who instructed us and what we were asked, the facts assumed, the documents seen, and then the reasoning from those facts to each conclusion, so that a reader with no prior involvement can follow every step. Where we are asked for more than one basis or date, each figure is set out side by side and the gap between them is reconciled. Limitations, including material one side did not produce, are stated where they can be seen. We write on the assumption that an expert will read the report looking for its weakest point, because in a dispute one will.
In the Supreme Court of Victoria and the County Court the report complies with the expert witness code of conduct in Form 44A under Order 44 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), and in the Federal Court with its expert evidence practice note. The certified valuer who signs it attends conferences of experts, prepares joint reports that record what is agreed and what is not, and gives evidence, including concurrently with the other side's expert where the Commercial Court directs it. We also review opposing reports in a consulting role, identifying the assumptions with nothing behind them and the questions worth putting in cross-examination, and we act as the determining expert where both sides have agreed in advance to be bound by the determination.
Will you give evidence on this report in the Supreme Court of Victoria, including concurrently with the other side's expert, and confer with them first? A valuer who will not be cross-examined on their own opinion is of little use once proceedings are on foot.
Talk your situation through with a certified valuer before you commit to anything, at no cost.