Dispute accountants instruct on valuation methodology, forensic review of management accounts, and preparation of CPR Part 35 reports for trial or buy-out orders. This guide addresses when valuation suffices, when investigation is required, and how the expert process unfolds.
S994 and the Accounting Issues
An unfair prejudice petition under s994 requires the petitioner to show that the company's affairs are being conducted in a manner unfairly prejudicial to their interests. Accounting evidence supports both liability and remedy: demonstrating minority exclusion from dividends, excessive remuneration to majority directors, related-party transactions on non-arm's length terms, or diversion of corporate opportunity.
The court's remedy often includes a buy-out of the petitioner's shares at fair value. O'Neill v Phillips [1999] HL establishes that valuation should generally be on a pro rata basis without a minority discount unless the unfairly prejudicial conduct justifies a different approach. The dispute accountant must understand which valuation basis the court is likely to adopt on the pleaded facts.
Valuation vs Investigation
Valuation instructions assume the financial records are materially reliable. The expert applies DCF, earnings multiples, or net asset approaches, normalising directors' remuneration and related-party charges. Investigation is required where the petitioner alleges hidden income, undisclosed assets, or manipulated accounts, common in owner-managed companies.
| Scenario | Primary expert work | | --- | --- | | Clean accounts, buy-out only | Independent valuation | | Alleged diversion / hidden income | Forensic investigation then valuation | | Deadlock, just and equitable winding up | Liquidation basis or going concern valuation | | Breach of SHA dividend policy | Quantification of underpaid distributions |
Investigation may reveal off-book sales, personal expenses through the company, or undervalued disposals to connected parties. Findings feed into a fair value calculation that adds back misappropriated funds or adjusts normalised earnings.
Hidden Transactions and Forensic Review
Forensic review targets related-party transactions, journal entries around year-end, cash withdrawals, and inconsistencies between VAT returns, payroll, and reported revenue. Bank statement analysis remains fundamental where bookkeeping is poor. Experts compare director lifestyle and disclosed remuneration, and review intercompany flows in group structures.
Discovery of hidden transactions may support separate breach of duty claims and criminal referrals, but the immediate litigation priority is quantifying impact on share value. The expert should clearly separate proven adjustments from suspicious items requiring further disclosure.
Expert Meetings and Joint Statements
CPR Part 35 requires experts to discuss issues in dispute and endeavour to reach agreement. In shareholder disputes, joint meetings typically address: valuation date; methodology (earnings vs DCF vs assets); normalisation adjustments; minority discount; and treatment of known forensic adjustments.
The joint statement (JSM) records agreed facts, agreed methodology where possible, and narrow disagreements for trial. Solicitors should agree a agenda with counsel before the meeting. A well-run JSM reduces trial length and can catalyse settlement when both parties see the range of likely outcomes.
Where one expert has conducted forensic investigation and the other has relied on management accounts only, the meeting should first address whether the accounts are reliable enough to value without adjustment.
Practical Instruction Points for Solicitors
Provide: companies house filings; audited and management accounts for five years; shareholders' agreement; board minutes and dividend records; directors' service contracts; and any forensic findings from preliminary investigation. Instruct the expert on the valuation date (often petition date or trial date per case law), whether a minority discount is disputed, and whether a pro rata buy-out is sought.
Early joint instruction of a single joint expert may be appropriate where both parties accept a buy-out in principle and only disagree on value. Adversarial experts are standard where conduct and forensic issues are heavily contested.