In an uncertain market, the value of a business can fluctuate significantly over time so it’s important to choose a valuation date carefully. Often, the date is prescribed by law or a judge. But sometimes attorneys are allowed to decide between different dates. Here’s a closer look at this fundamental decision.
Matrimonial dispute cases
When divvying up a marital estate, specific provincial laws or a judge may dictate whether it’s appropriate to estimate the value of business interests on the adjudication date, date of last cohabitation, application date, earliest of triggering events, or as agreed between parties. In some provinces, attorneys may request a specific date based on what’s most “fair” to both spouses.
Minority shareholder disputes
In cases involving dissenting or oppressed minority shareholders, the appropriate valuation date is generally the date immediately preceding the wrongdoing that triggered the litigation. But, depending on provincial law, a party sometimes may argue for a different date.
For example, there might not be sufficient financial data to perform a valuation. Or an unrelated external event may have temporarily increased (or decreased) the business’s value around the time of the alleged wrongdoing.
The valuation date serves as a cutoff for the information that can be used to estimate value. In general, valuators can’t consider any events that happen after the valuation date, unless the information was “reasonably known or knowable” on the valuation date.
However, there’s a key distinction between events that affect value and those that are indicators of value. A valuator may consider an arm’s-length sale or bona fide third-party offer that occurs within a reasonable time frame as an objective indication of value, as well as intervening facts and circumstances that have drastically changed the value of the business since the valuation date.
Choosing the appropriate valuation date for your circumstances can be just as important as choosing the appropriate valuation method. Unfortunately, there’s no universally correct answer. Discuss this issue with a trusted valuator, such as the team at MFA Global, to make sure you’re using the appropriate date based on relevant laws, circumstances and information available. Contact us today to learn more.Tags: Valuation, Valuation Timing