As the only issue in these valuation disputes is the fair value of the company’s shares, expert evidence on value is central to the dispute.
In a judgment dated 25 April 2017 in Re Shanda Games Limited, Mr Justice Segal found the fair value of the company’s shares to be more than double the amount paid in the merger in November 2015.
The company sought to re-open its case and adduce additional expert evidence, on the basis of the shortcomings in the evidence of its own expert. This was refused by Mr Justice Segal. In a judgment dated 9 March 2018, the Court of Appeal upheld that decision, and refused the company’s application for leave to appeal. However, the company did succeed in persuading the Court that the fair value of a minority holding in the company could be subject to a minority discount, disagreeing on this point not only with Mr Justice Segal, but also Mr Justice Jones in Re Integra [2016] 1 CLR 192.
In another recent decision of the Court of Appeal, it overturned a decision of the Grand Court not to order discovery of documents by the dissenting shareholders. This issue was considered in Re Homeinns Hotel Group (12 August 2016) by Madame Justice Mangatal, where she declined the company’s proposal that discovery be provided by the dissenting shareholders. In Re Qunar Cayman Islands Limited (20 July 2017), Mr Justice Parker said that he would not rule out the possibility of dissenters being ordered to give discovery in an exceptional case, but that he did not consider that material indicating the value that the dissenters thought the company had, could be relevant. However, in a judgment on 10 April 2018 this was reversed by the Court of Appeal, which ruled that the dissenting shareholders should give discovery of some categories of documents. The Court of Appeal determined in particular that valuations prepared by dissenters and details of their trades in the company could be relevant.
Another issue that has given rise to debate is the treatment of meetings directed by the Court between the valuation experts and the company’s management. These management meetings allow the experts to ask questions and obtain a better understanding of the company and its financial statements. However, in a number of cases the companies have resisted this taking place on an open basis and argued that it should take place only on a without prejudice basis. This would protect the company from being quoted on what was said at the meeting.
In a judgment dated 26 March 2018 in Re Xiaodu Life Technology Ltd, Mr Justice Kawaley considered the approach to the management meeting and directed that if the dissenters’ expert proposed to place reliance on any specific statements made on behalf of the company at the meeting, the company should have an opportunity to comment on the statement before the reports of the experts are completed. This appears to strike a middle ground between an open and a without prejudice meeting.
A number of Section 238 cases are continuing to work their way through the courts.
