Kelly v Kelly
| Jurisdiction | Ireland |
| Judge | Ms. Justice Laffoy |
| Judgment Date | 19 June 2012 |
| Neutral Citation | [2012] IEHC 330 |
| Court | High Court |
| Date | 19 June 2012 |
BETWEEN
AND
[2012] IEHC 330
THE HIGH COURT
COMPANY LAW
Shares
Fair market valuation of director's shareholding ordered - Previous finding that director exercised powers oppressively and that relationship with petitioner irretrievable - Resignation of director - Minority shareholding - Loss-making company - Valuation of properties - Core properties - Treatment of contingent assets and liabilities - Potential purchaser - Whether valuation of shareholding fair and just - Whether to transfer properties in specie to director as consideration for shares - Whether shareholding should be discounted on basis it was minority shareholding - Whether appropriate to adopt asset approach to valuation - Kelly v Kelly [2011] IEHC 349, (Unrep, Laffoy J, 31/8/2011) and Re Skytours Travel Ltd; Doyle v Bergin [2011] IEHC 517, [2011] 4 IR 651 considered - Companies Act 1963 (No 33), s 205(1) - Valuation adjusted (2008/402COS - Laffoy J - 19/6/2012) [2012] IEHC 330
Kelly v Kelly
Facts: The petitioner and first respondent were major shareholders in a company until court proceedings found that the first respondent had exercised his role as director of the company in an oppressive manner. As such, the two parties refused to work together any longer. To remedy the situation, it was ordered that the shares of the first respondent be purchased by the company at fair market value to be assessed by a third party, and the first respondent resign as director.
A report on the value of shares was drawn up, but the valuation was disputed.
Held by Laffoy J that she was in complete agreement with the findings of the report that the shares of the first respondent should not have a minority discount applied to them, as the parties had effectively acted as a quasi-partnership. Further, the method of valuing the shares could be considered was fair, taking in account the on-going uncertainty in that business sector… The company was valued on an asset approach.
Laffoy J also agreed with the report that a figure be deducted from the valuation price for a level of compensation for future losses. The company had been running at a loss since 2006 and the figure deducted was to reflect a proportion of losses that were expected until the company broke even. There was further agreement that there be no adjustment for contingent assets and contingent liabilities as a buyer might reasonably offset one against the other.
Finally, Laffoy J decided that due to the significant difference in opinion on the property valuation, four non-core properties should be transferred in specie to the first respondent as consideration for his beneficially held shares.
COMPANIES ACT 1963 S205(1)
KELLY v KELLY & CHARLES KELLY LTD UNREP LAFFOY 31.8.2011 2011/30/8160 2011 IEHC 349
SKYTOURS TRAVEL LTD, IN RE; DOYLE v BERGIN UNREP LAFFOY 29.7.2011 2011/15/3506 2011 IEHC 517
COMPANIES ACT 1963 S205
Judgment of Ms. Justice Laffoy delivered on 19th day of June, 2012.
1. Having on 9 th February, 2011 found -
(a) that the first respondent had exercised his powers as a director of the company in a manner oppressive to the petitioner within the meaning of s. 205(1) of the Companies Act 1963 (the Act of 1963), and
(b) that there had been a total breakdown in the relationship of the petitioner and the first respondent, that they were deadlocked to the extent that they were incapable of running Charles Kelly Limited (the Company) properly together and that the situation was irretrievable,
in my judgment of 31 st August, 2011 ( 2010 IEHC 349), I outlined the orders to be made to remedy the situation. These included:
(i) an order that the Company purchase the 3,968 shares of the first respondent in the Company at fair market value and that the share capital of the Company be reduced proportionately and the necessary consequential matters be addressed, for example, the alteration of the memorandum and articles of association of the Company; and
(ii) subject to Deloitte & Touche being willing to take on the appointment, an order that Deloitte & Touche be appointed to carry out a fair market valuation of the said 3,968 shares as at 31 st August, 2011, the remuneration to be paid to Deloitte & Touche for performing the said task to be discharged by the Company; and
(iii) an order that there be set-off against the value of the shareholding of the first respondent in the Company so much of the sum of €180,000 taken by him from the Company to discharge legal fees as has not been reimbursed to the Company, which in the event is the sum of €165,000, so that the purchase price to be paid by the Company for the said shareholding of the first respondent will be the value so determined less the amount of the set-off; and
(iv) an order that the first respondent resign as a director of the Company forthwith, which has occurred.
2. Mr. David O'Flanagan, who is a Fellow of the Institute of the Chartered Accountants in Ireland and a Corporate Finance Partner in Deloitte & Touche, assumed the task of carrying out a fair market valuation of the first respondent's beneficial shareholding as at 31 st August, 2011. He has furnished his report dated 1 st May, 2012 to the Court. Mr. O'Flanagan, before finalising his report, had sent it in draft form to the petitioner and the first respondent on 24 th April, 2012 for their observations on its factual content and both the petitioner and the first respondent responded to him with their observations. Those observations have been made available to the Court.
3. The Court has had the benefit of written submissions on behalf of the petitioner and written submissions on behalf of the first respondent and heard oral submissions on 22 nd May, 2012. In reaching the conclusions hereinafter set out, I have taken account of all of the submissions made by the parties.
4. The following general observations in relation to the overall approach adopted by Mr. O'Flanagan in his report are appropriate:
(a) I consider that Mr. O'Flanagan was correct in not applying a minority discount to the shares beneficially owned by the first respondent. The reality is that the petitioner and the first respondent have had an equal beneficial shareholding in the Company equivalent to 49.99% each of the issued share capital of the Company for approximately twenty years. Further, in effect, as Mr. O'Flanagan pointed out, the business of the Company was operated as a quasi-partnership. I have recently had occasion to consider the law in this jurisdiction in Skytours Ltd. [2011] IEHC 517, in which judgment was delivered on 29 th July, 2011, as to when the value of a minority shareholding should be discounted in the context of an application under s. 205 of the Act of 1963. I am satisfied that, on the basis of the principles outlined in that judgment, as a matter of law, for present purposes the value of the shareholding of the first respondent should not be discounted on the...
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Kelly v Kelly
...between €640,000 (Property Partners) and €339,000 (CBRE). Laffoy J., in her third judgment delivered on 19 June, 2012 and reported at [2012] IEHC 330, decided as follows: “14. However, there is a further major imponderable in this matter, which is more likely to impact on the ultimate fairn......