A consideration of the Court’s discretion to determine factors impacting on the value of shares held in a corporation

30 April 2024

This case involved complex arguments about the date that should be adopted for the valuation of a shareholding. It encompasses consideration as to whether fairness and justice required a discount or adjustment to the amount to be paid for the shareholdings, together with consideration of the appropriate multiple.

The Court ultimately found that whilst it is not bound to accept evidence given by a single expert witness to fix a value to the shareholding, it accepted that evidence on the basis of the submissions made by the Applicant.

The relevant facts and findings

There were 12 Respondents in the proceeding, reflective of the complexity of the matter. Nonetheless the complicated history of the proceeding, and the number of parties, is largely irrelevant to the determinations in this Judgment.

Findings had previously been made in the proceeding that the first Applicant, ‘A Pty Ltd’, and the Second Applicant, ‘Mr Storrer’, has been subjected to ‘oppressive’ conduct. That was summarised as including, amongst other things, the following:

  • Withholding $25,000 from dividends payable to A Pty Ltd as a provision for legal fees that might be incurred by N Pty Ltd in Mr Storrer’s family law proceedings.
  • Acting as if A Pty Ltd was obliged to sell its shares in N Pty Ltd.
  • Acting on the basis that A Pty Ltd’s entitlement to dividends was subject to it providing services to N Pty Ltd.
  • Paying dividends to all shareholders other than A Pty Ltd.
  • Paying dividends to remaining shareholders as if A Pty Ltd was no longer a member of N Pty Ltd.

A Pty Ltd as Trustee for the Storrer Family Trust sought court orders for the purchase of A Pty Ltd’s shares in N Pty Ltd, for the purchase of its units in the N Property Trust and for Mr Storrer’s shares in N Investment Pty Ltd.

The Respondents did not oppose the purchase of the shares, however, there was dispute about:

  • The date at which the interest in the shares should be valued.
  • The value of the shares.
  • Whether there should be any discount applied.
  • The quantum of dividends that should be paid (if any).

The key considerations in the Court’s determination in this case included:

  1. The date at which the shares should be valued:
    1. There were negotiations between various parties in 2013 and 2014. This involved offers and discussions around the shareholdings value of A Pty Ltd in N Pty Ltd.
    2. The Respondents sought a valuation in these proceedings of N Pty Ltd as at July 2013. The Applicant submitted that this would perpetuate the oppression found against them.
    3. The Judge agreed with the submissions of the Applicant with respect to the valuation date making comments about the oppression experienced by A Pty Ltd in not receiving dividends, with this continuing despite the findings of oppression previously made by the Court. It was stated that because Mr Storrer ceased providing his services to N Pty Ltd in July 2013, that this did not persuade the Court that was fair to A Pty Ltd to be treated as a non-shareholder.
    4. The Judge determined that the relevant date for the determination of the value was 30 June 2022, concluding that if the Court were to consider the value as at July 20213, it would in effect, sanction the oppressive conduct.
  2. The value to be ascribed to N Pty Ltd:
    1. The Court considered the parties’ disputes about the multiple adopted by the expert.
    2. The Court found that it was not bound to accept the multiple adopted by the expert, however, it did so in circumstances where there was no countervailing expert evidence before the Court.
  3. The underpayment of franked dividends and franking credits:
    1. The Court found that it was fair and that justice would be served between the parties that the price to be paid for the acquisition of A Pty Ltd’s shares in N Pty Ltd incorporate the underpayment of franked dividends and franking credits.
    2. The Court also adjusted in favour of A Pty Ltd with respect to unpaid dividends dating back to 2013 in the amount of $8,860,551.98 and associated franking credits of $3,797,379.42.
  4. Whether fairness and justice persuade a discount or adjustment to the price to be paid for the Applicants’ interest because of the contributions made by the Respondents to N Pty Ltd after 31 July 2013:
    1. The Court was not persuaded that there should be any adjustment or ‘discount’ to the price A Pty Ltd to be paid for its interest in N Pty Ltd, because others continued to work in the business after July 2013.
    2. The Court was not satisfied that the evidence that the others made special contributions to N Pty Ltd’s growth contributed in a quantified way to its growth, which had not otherwise been recognised in determining the price A Pty Ltd is to be paid for its shareholding.

The outcome

The Court determined that A Pty Ltd’s shares in N Pty Ltd were to be purchased for $25,496,305 as well as making other court orders rectifying the distribution of dividends and franking credits to A Pty Ltd.

Key takeaways

  1. The Court has a wide discretion to determine issues relating to the value of shareholdings within the property pool in Family Law proceedings. The Court is reliant upon expert evidence to assist in making those determinations.
  2. It is incredibly important to consider evidence as a whole. Where there may be a vacuum in the evidence (e.g., about the correct multiple as in this case), then careful consideration should be given to seeking to adduce shadow or adversarial evidence.
  3. Financial and legal advisors should be cognisant of the Court’s power to make findings about the various issues relating to corporate interests such as that which occurred in relation to the shares held by A Pty Ltd in N Pty Ltd with respect to the value, the multiple adopted and the payment of dividends and franking credits.
  4. Financial and legal advisors should be cognisant of, and ensure, that meticulous records of financial transactions and decisions are retained which may amount to important evidence in relation to conduct (e.g., oppression as in this case).
  5. It is imperative that financial and legal advisors work closely to ensure that all relevant facts and documents are available for a mutual client’s family law matter.

A Pty Ltd as Trustee for the Storrer Family Trust & N Pty Ltd [2023] FedCFamC1F 1124

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