Claim No: CR-2024-004856 - [2025] EWHC 2304 (Ch)

The share of net asset basis

The second basis involves valuing the Company on a net asset basis and then calculating what share of that ought to be attributable to the A ordinary share.

Mr Jones values the Company on the basis of its balance sheet revised to market value at just over £65 million. He accepts however that:

“… The more challenging issue is the valuation rationale behind the “A” share in Koza Ltd, which includes the strategic and legal reasoning, case law, and market practices that support attributing significant value to the “A” share, despite its nominal face value of £1.”

He approaches this “challenging issue” first by considering the possibility of a “special purchaser” to whom the asset concerned may have an “especial value”. This might be the existing ordinary shareholder or a purchaser entering the market in the knowledge that it could make a profit on selling to an existing shareholder desirous of gaining overall control. He speculates that this special purchaser would be prepared to pay a premium over the “normal market value” for the strategic advantage in mind.

It seems a slightly odd approach to determining market value to assume that a purchaser will pay more than market value, but I will assume that by “normal market value” he means a value based on economic rights solely.

He notes that HMRC takes an approach that “voting control” might be worth 25% or 30% of total company value, based on a New Zealand matrimonial law case, Holt v Holt [1990] 3 NZLR where the court concluded that it was obvious that the parties would do a deal which would value the control rights of the A share (which afforded that share majority control of voting at shareholder level).

Mr Jones also referred to Re Burgess Homes Ltd (in liquidation) (1988) 3 BCR 130 which took account of Holt v Holt as a starting point for valuing a control right but then discounted this on the basis that the control right in this case was less than absolute as the share could be acquired for a nominal $1,000 on the death of the holder or as a pre-emption right on sale. With these factors in mind, the court found a value based on 17.5% of shareholders’ funds.

What Mr Jones has failed to address adequately in this analysis, however, is the difference between the rights afforded to the A ordinary share and the management rights attached to the shares that were valued in those two cases.

In both those cases (from the description Mr Jones has given – I was not provided with the judgments in these cases) the shares afforded a “control” value gave majority control at shareholder level. This would allow the holder to pass shareholder resolutions including resolutions to appoint and remove directors and so afforded control both at shareholder and director level.

By contrast, the A ordinary share only provides the ability to veto certain matters, most importantly, changes to the board. It does not allow the holder to change the composition of the board. A special purchaser could not purchase the share and expect, on the basis of owning it, to appoint himself as a director. All he can do is keep Mr Ipek in place as a director and veto any other appointment.

Importantly, Mr Jones ignores the position that the ordinary shareholders have the right to pass special resolutions under Article 4. As I discuss further below, this makes a fundamental difference, Mr Ipek does not have untrammelled control even at board management level.

Thus, unlike the shares with special rights in the cases cited, it cannot be said that the A ordinary share gives control at shareholder level; it does not give an ability to appoint the board, only to veto changes to it; and the board that is kept in place is subject to directions under Article 4.

Mr Jones deals separately with another approach to valuation which he calls “nuisance value”, but it seems to me that once one considers that the rights afforded to the A ordinary shares are limited to the rights of thwarting (to some extent and in some limited circumstances) the wishes of the ordinary shareholders rather than affording rights to manage the Company, these rights cannot be seen as affording management rights – they can only be seen as having a ransom or nuisance value.

Finally, in relation to this method of valuation, Mr Jones speculates that if Koza Altin considered that profitability was not being maximised, the capital structure is not optimal and business opportunities are not being exploited it should be willing to pay a premium above the price currently established by market participants (whoever they may be) and might be willing to pay a control premium of 30 to 40%. This ignores, or at least begs the question of whether in such circumstances just and equitable winding up might be a solution as well as ignoring the points I have already made about the very limited rights of the A ordinary shares and the effect of article 4 of the Model Articles.