Valuing a business – warts and all
Disputes often arise in family law cases about the value of a business that will form part of the matrimonial property and which will ultimately be under the control of one of the parties after settlement.
Depending on whether the party is retaining or relinquishing their interest in the business, will often effect their perception of the value of that business. To settle this dispute businesses are usually valued by an independent expert. If the parties are not happy with the independent experts value they
can obtain their own valuation and apply to have it considered in court.
The court recently considered a case involving the valuation of a business. The husband owned a health care facility in Sydney, having purchased it in the 1980’s. The parties agreed to have the business independently valued. The wife did not agree with the valuation and employed another expert to critique the ‘jointly instructed’ experts report. The valuations differed widely, with the joint expert (JE) valuing the business at $13 million and the wife’s expert (WE) valuing it at almost $24 million.
In this case both experts agreed that the husband had adopted an unusual business model. The major difference was that the JE accepted the business model as it was whilst the WE sought to base the value on a more commonly adopted business model.
The Judge was extremely critical of the way in which the WE approached the valuation. Her Honour considered it ill-conceived because it was not valuing the business in its current state, and was little more than valuing a theoretical construct divorced from the real situation. The Judge preferred the JE valuation and reminded the parties that the law of valuation in Australia is settled as “the price a willing but not anxious purchaser would be prepared to pay, and a willing but not anxious vendor would be prepared to accept, for that property at the time in question”.