How has the valuation evidence put forward in recent cases helped or hindered a smooth process?
4 1 Identification of the relevant alternative is in itself a function of valuation, as the most likely alternative scenario may well be determined by which of a range of possibilities would be value maximising. Failing to fully explore various possible outcomes – from both a plausibility and a value perspective – can leave a process exposed to challenge and criticism. In deciding not to sanction one recent case, the judgement noted that on “ a balance of probabilities ” the court could not be satisfied that the relevant alternative put forward was the most likely alternative outcome. As no other scenarios had been explored or valued, the court did not have a basis of evidence upon which to sanction the plan. Conversely, in a recently sanctioned case the judgment noted that the evidence had “ considered five possible scenarios likely to occur if the Plan was not to be implemented and two possible scenarios in an administration ”, with the judge being “ firmly of the view that the Plan should be sanctioned. ” 2 3 Whilst a degree of subjectivity is often inevitable in valuation, supporting key value-driving assumptions with meaningful evidence is a central discipline and key in providing a well-supported position. Of the recent RP’s that have been rejected or seen valuation evidence heavily challenged, a key issue noted in the judgments, has been around the reliance on high-level assumptions. In respect of valuation evidence, recent judgements have referenced “ professional judgment with very little to go on ”; noted that “ slight variations [in high-level assumptions] could lead to brutal differences ”; and identified “ insufficient allowance for what appear to be obvious sensitivities [meaning it is] legitimate to question its overall robustness. ” Utilising compelling research and benchmarking to support subjective assumptions, and conducting informative sensitivity analysis, is vital to providing a supportable opinion of value and strengthening the company’s proposal. The valuation of privately held companies is complex and subjective – particularly so when a company is facing operational or financial distress. With the burden of evidence firmly on the company proposing the plan, it is essential that the valuation evidence is clear, robust and supportable without needing to rely on extensive verbal evidence. Exploring the alternative The challenge of subjectivity Navigating a fast- track process
With such a brief window for the hearing of evidence and cross-examination of experts, it is crucial that the documentary valuation evidence provides enough detail and explanation to be compelling on a standalone basis. A recent judgment highlighted the “ tight timeline ” as a difficulty for the court, as valuation evidence that was considered in a short timeframe “ could easily have taken three days of expert evidence ”. The judgement noted another issue being that one valuation expert was not called to give evidence, hampering the court’s ability to compare his evidence with that of the opposing expert.
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