If a shareholder dispute is resolved by one party buying out the other’s shares then the value of those shares must be agreed or, in default of agreement, determined by an expert valuer. The perils of the company’s auditors carrying out this function has been previously noted (see this post) but there is also the risk of the expert simply failing to deliver what they are required to, for good cause or not. What happens then? The matter was considered in the case In the Matter of Minrealm (& ors), Bishlawi & anor -v- Soliman & ors  EWHC 343 (Ch).
In the Minrealm case the expert was instructed to value the shares which were to be transferred under the terms of a consent order that settled a hotly disputed petition.
As part of this process he was required to determine an “adjustment amount”. However, he felt unable to determine this amount in light of a dispute over how certain assets in the company should be treated. This resulted in the parties ending up back before the court to argue about how the report should be treated in light of the failure to complete a key element of it.
The petitioner argued that the failure to do this meant that the expert had assessed the adjustment at zero (which clearly suited the petitioners) and the sale should therefore proceed on this basis. The respondents submitted that determining the adjustment was essential before the sale could proceed but the balance of the expert’s report could be utilised with just a short further report being required on the discrete subject of the adjustment.
The Judge, Mr Christopher Pymont QC, accepted neither argument. His conclusion was that the expert’s report could not be “cherry-picked” or the court used as a surrogate expert to decide disputed matters of fact. As a consequence the parties needed to appoint a new expert, properly instructed, who could devise a mechanism, if necessary, to resolve any disputed matters of fact thus enabling him to deal with the point that the first expert was unable to address.
What this means is that the court will not step in to fill in the gaps in an expert report where the report is intended to be determinative of the price. The parties must enable the expert to reach a conclusion and this may require either concessions on the part of the parties or a mechanism which allows the expert to weigh up the situation and come to a binding decision. In other words, if you agree an expert is to determine something don’t expect the court to do his job for him.
A salutory lesson in making sure that the right expert is chosen for the job and that a collaborative approach is taken. The potential consequences of getting it wrong are considerable expense plus extensive delay in finally resolving a matter.