Why lawyers should involve a valuation expert early in shareholder disputes
The role of party-appointed experts in navigating complex shareholder valuations
Key takeaways
- Understanding the financial stakes. An early valuation assessment can help lawyers understand the range of possible share values and the assumptions driving them.
- Identifying material disagreements. Not all valuation differences have the same impact. Quantifying the effects of competing assumptions helps identify the issues that matter most.
- Examining the financial evidence. Reviewing financial information and competing forecasts helps assess the assumptions underlying each valuation and identify gaps or inconsistencies.
- Maintaining objectivity. Party-appointed experts should provide credible, evidence-based analysis, recognising the merits and limitations of both parties' assumptions rather than defending a predetermined share value.
- Contributing to the court-appointed valuation process. By clarifying areas of agreement and disagreement, party-appointed experts can help the court-appointed expert and the court focus on the valuation issues requiring closer examination.
When shareholders disagree about the value of the business, the financial stakes can be substantial. Different expectations about future profitability, growth or risk can result in widely differing valuations, even when both parties are looking at the same company.
Since the WAGEVOE took effect on 1 January 2025, shareholder exit and expulsion proceedings in the Netherlands have been brought directly before the Enterprise Chamber (Ondernemingskamer), which may appoint an independent expert to assist in determining the share price.
But this raises an important question for lawyers: if the court appoints an independent expert, why should a shareholder engage one of their own?
This is the third article in our series on valuation in shareholder disputes. Our first article, WAGEVOE puts valuation at the centre of Dutch shareholder disputes, examined the new legal framework. The second, Competing forecasts, conflicting valuations, explored the challenges of assessing opposing financial expectations.
In this article, we turn to the practicqal implications for lawyers and their clients. What can a party-appointed valuation expert contribute, and at what stage does such involvement make the greatest difference?
A party-appointed expert can help:
• Identify the financial issues that truly matter;
• Assess the evidence supporting competing positions;
• Contribute constructively to the valuation process and litigation strategy.
The real value of involving a valuation expert early is not simply obtaining another number. It is understanding which financial assumptions matter, what evidence supports them and how they could affect the outcome.Costas Constantinou, Partner, Oaklins Valuations Advisory
Understanding the financial stakes before proceedings begin
In a shareholder dispute, the legal and financial questions are closely connected, but they are not the same. While lawyers assess whether the circumstances justify a shareholder's exit or expulsion, their clients also need to understand the potential value of the shares and how the dispute may affect it.
Consider a company facing declining profitability. One shareholder sees a temporary setback and expects earnings to recover. Another sees a more serious problem: declining demand or the loss of key customers that could weigh on profitability for years. These contrasting expectations can lead to substantially different valuations.
Assessing which assumptions are reasonable, however, requires more than simply comparing the parties' forecasts. A valuation expert can:
• Review historical performance;
• Evaluate competing forecasts;
• Identify the assumptions that matter most to share value.
Sensitivity and scenario analyses can then quantify how different assumptions affect the valuation. This provides lawyers and their clients with a clearer understanding of the potential financial outcomes before deciding how to proceed.
This analysis can also support settlement discussions. By identifying and quantifying the key valuation differences, parties can better assess the potential outcomes of litigation and whether a negotiated settlement offers a more attractive alternative.
Identifying the evidence that matters most
Shareholder disputes frequently involve disagreements about financial performance, management decision and prospects. They may also involve unequal access to information.
A minority shareholder may question management's financial forecasts but lack access to the underlying assumptions. Allegations of financial misconduct may raise questions about whether historical earnings accurately reflect the company's sustainable profitability.
A party-appointed expert can help lawyers identify the information needed to assess these issues.
This may include financial statements, historical budgets, contemporaneous business plans, customer contracts, management forecasts and records of disputed transactions.
The objective is not to challenge every assumptions or financial decision. It is to establish which disagreements have a material impact on share value.
A dispute over a historical expense, for example, may have relatively little valuation significance if it is non-recurring. By contrast, the loss of a major customer or a change in the company's long-term profitability could materially affect future cash flows and value.
Understanding these differences allows lawyers to focus on the evidence most relevant to the valuation, rather than pursuing financial disagreements that may have limited consequences for the share price.
Supporting a more focused valuation process
When the Enterprise Chamber appoints an independent valuation expert, the court-appointed expert and any party-appointed experts fulfil different roles:
• The court-appointed expert: responsible for providing an independent assessment to assist the court in determining the share price.
• A party-appointed expert: helps parties understand, assess and respond to the valuation analysis. This can be particularly valuable when the parties disagree about important financial assumptions.
Suppose a court-appointed expert expects a company's profit margins to recover over the next three years. One shareholder may argue that the recovery is too potimistic, while the other believes it is achievable. A party-appointed expert can examine these assumptions early, assess the supporting evidence and quantify how alternative forecasts affect share value. The purpose is to ensure that material assumptions are properly substantiated and considered and that differences of opinion are supported by financial analysis.
Where both parties engage valuation experts, clearly identifying areas of agreement and disagreement can be particularly valuable. By explaining the key differences and quantifying their impact on share value, the experts can help the court-appointed expert and the court focus on the issues that matter most.
This additional scrutiny can help bring overlooked assumptions and alternative interpretations to the attention of the court-appointed expert, contributing to a more informed and transparent valuation process.
Why objectivity is essential
Although engaged by one party, a valuation expert's role should not be to produce the highest or lowest possible valuation. An expert who merely supports the client's preferred position risks undermining the credibility of the analysis and potentially increasing the distance between the parties.
Instead, a party-appointed expert should critically assess the assumptions provided by their own client, acknowledge limitations in the available evidence and recognise where the opposing party's arguments have merit. A credible valuation analysis therefore needs to explain why certain assumptionws are more persuasive than others.
The value of an expert's contribution ultimately depends on the strength of the analysis, not on whether the resulting valuation supports the client's preferred outcome.
When should lawyers involve a valuation expert?
A party-appointed expert's role may evolve throughout the proceedings. At an early stage, the focus is on understanding the financial stakes, identifying weaknesses in the available evidence and assessing potential outcomes.
Once a court-appointed expert becomes involved, attention shifts towards examining valuation assumptions, addressing material disagreements and contributing constructively to the valuation process. The precise contribution will depend on the circumstances of the dispute. In some cases, an initial assessment may be sufficient to clarify the financial stakes and principal areas of disagreement. In others, the complexity of the valuation may justify continued involvement throughout the proceedings.
What matters is that valuation considerations are addressed at the appropriate stage, rather than becoming an afterthought once the legal positions have been established.
Better-informed decisions throughout proceedings
Shareholder disputes often concern conduct, control or the future of a business, but their financial consequences may depend heavily on the value of the shares.
Court-appointed and party-appointed experts serve complementary roles. While the former provides an independent assessment for the court, the latter helps lawyers and their clients understand the financial issues, evaluate the evidence and engage constructively throughout the valuation process.
The objective is not simply to introduce another valuation into an already contentious dispute. It is to bring greater clarity to the financial questions that matter most, supporting better-informed decisions for lawyers, their clients and ultimately the court.
Partner Valuation Advisory
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