Shareholder Dispute

Graham Ball :: Friday 29th March 2019 :: Latest Blog Posts

I was asked by two shareholders to firstly assist them in valuing their company to facilitate the exit of one party due to irreconcilable differences.

This started as a fairly standard valuation. This was an IFA business with a turnover of about £350,000. It was quite easy to obtain details of renewal income and so I was able to look at comparisons between multiples of renewal income and multiples of maintainable profit.

The company also had freehold properties, which was slightly complicated as one of these was part owned by the SASS belonging to one of the directors.

After some delays, I was able to obtain all of the information that I had requested from the accountant and from the valuer of the freehold properties.

As a result of reviewing the information, it became clear that the company did not own any of the property, which was in fact owned by the SASS. 

Therefore, in my report, I had to make clear what the actual position was and what adjustments needed to be made to get to a maintainable profit.  Communicating this clearly was a challenge, but I believe that I managed this in a way that both parties and their respective legal advisers could understand.

I also identified that both directors had significant overdrawn loan accounts. Again this needed to be reflected in the valuation. However in my report I needed to do more than just advise the current position. I had to point out the consequences to both the company and to the individuals. Neither director was apparently aware of this issue.

The resulting position was that the exiting director/shareholder would effectively owe money to the company. A position that was clearly not acceptable.

I was therefore asked to assist in brokering a settlement between the parties as they were in a position that neither of them had understood or anticipated.

My report had to be clear and concise about how the position should be corrected and the ultimate settlement had to take into account how the overdrawn current accounts were to be dealt with.

I had to report on the tax consequences of the various options available to the directors and guide them in their attempts to reach an amicable resolution.

Although it was only possible for me to get both directors together on one occasion, we were able to apply a logical and methodical approach. Despite the result being significantly different to that anticipated at the outset I was able to add real value in working with the director/shareholders to achieve an amicable settlement.

The outcome was that both parties were fairly unhappy as neither had previously fully understood their business accounts and the true financial position until I made it ridiculously clear and concise in my report.

As a result, both parties have asked me, independently, to act on their behalf with their ongoing business. however I have not acted for either so that my independence is protected should other matters of dispute arise from the case at a later date.