Fair Valuation of a Share in the Compulsory Resolution of Corporate Conflicts

Abstract

The article is devoted to a comprehensive study of the legal and economic aspects of determining the value of a share in the charter capital of a limited liability company within the framework of the procedure for the compulsory resolution of corporate conflicts (judicial buyout). The necessity for a clear distinction between the categories of “market value” and “fair value” during the compulsory alienation of a share as an autonomous mechanism for protecting the violated rights of a participant is substantiated. Within the judicial buyout procedure, the object of valuation is the share itself, the value of which must reflect the real economic equivalent of the extent of the participant’s corporate rights without its unfair reduction through technical discounts.
The relevant practice of the Grand Chamber of the Supreme Court regarding the application of the “Fair Value” concept and the “equivalent compensation” standard in disputes concerning the compulsory buyout of assets is analyzed. Particular attention is paid to the fiduciary nature of relations between participants, which allows for viewing private companies as “quasi-partnerships” where personal trust prevails over capital. The experience of the courts of common law legal systems (USA, UK) concerning the prohibition of the application of the discount for lack of control (DLOC) and the discount for lack of marketability (DLOM) in such business entities is examined. It is proven that the application of market discounts under judicial compulsion is a form of unjust enrichment and the legalization of the bad faith behavior of an aggressive partner who provoked the dispute to undervalue the opponent’s assets.
The author’s proposals regarding granting the court broad discretion to determine the valuation date retrospectively (at the moment the deadlock situation arose) are formulated, which is critically important for protection against the artificial devaluation of assets and the initiation of strategic bankruptcy. It is substantiated that valuing a business as a going concern at a pre-conflict date ensures compliance with the principle of “fair balance” and contributes to macroeconomic stability through preserving the integrity of business entities and protecting the investment attractiveness of the corporate sector of Ukraine.