The petitioner was the largest investor in the company. Its main complaints were that, to prevent it from convening an EGM to appoint new directors of the company, the company (i) partially redeemed the petitioner’s shares, and (ii) issued a notice converting the petitioner’s remaining shares to non-voting shares. The Court found that these actions were taken for an improper purpose but considered that an order to buy out the petitioner’s shares would be an appropriate alternative remedy to a winding up order.

In determining the valuation date for the buy-out order, the Court reviewed the relevant principles and authorities at length and acknowledged the overarching principle that the Court’s discretion is to be exercised judicially and on rational principles in such a way that the order is fair and equitable in all the circumstances of the particular case.

The Court concluded that the valuation date should be the first business day of the month following the date of the order, being the date that the company would strike its net asset value in the ordinary course of business. In reaching this conclusion, the Court specifically explained that the date of the petition would have been the fairest date in the circumstances were it not for two offers to redeem made by the company. The Court then went on to consider those offers and provided valuable insights as to how buy-out offers would be evaluated and what would constitute a reasonable offer:

1. The company is a going concern so its shares should prima facie be valued as at the date on which they are ordered to be purchased.
2. The significant fluctuation in share prices is due to market forces and there is no direct nexus between the prejudicial conduct and the share price.
3. The petitioner’s first offer was made in tandem with the conversion notice which the Court found to be prejudicial. It would be difficult as a practical matter to separate the two. As such, the petitioner could hardly be faulted for refusing the first offer which came in together with the removal of its rights.
4. However, the petitioner’s second offer was clear and unequivocal and was made at a time when the share price was at its height. It was for a calculation at net asset value and was reasonable.
5. The petitioner rejected that order out of hand not because of deficiencies with it but because it wanted a winding-up order. In doing so, the petitioner made a choice for a specific reason, ie a one-way bet. In a winding up, the sale would be at current prices, so the historic higher price would not be available.
6. It is not unfair to the petitioner to value the shares at the market value because of its rejection of the second offer. It is however unfair to the company which made the second offer to now have the share price fixed retrospectively at a historical price that was three times higher than the market value.
7. The second offer also constitutes special circumstances which justify an order that the petitioner be entitled to its costs of the petition on the standard basis only.

The decision provides a useful reminder that serious consideration has to be given to any buy-out offer made and the potential implications of rejecting a reasonable offer.