This is an extract from the 2026 edition of The Asia-Pacific Arbitration Review. The whole publication is available here.
This is an Insight article, written by a selected contributor as part of GAR’s co-published content. Read more on Insight
In summary
Value can mean different things to different people. What is fair therefore depends on the basis of value adopted. The respective interests of the parties involved are considered under an ‘equitable value’ measure but are generally disregarded under a ‘market value’ basis. It is important to bear this distinction in mind when deciding the appropriate basis of value.
This article looks at several examples of the value adopted in various court cases relating to liquidation and shareholder disputes. Ultimately, what is equitable and what is fair in valuation depends on the underlying facts and circumstances of each case.
The words ‘equitable’ and ‘fair’ are often used interchangeably – various dictionaries define equitable as ‘fair or impartial’ or ‘dealing fairly with all concerned’. However, when it comes to valuing an asset or business, do ‘fair value’ and ‘equitable value’ mean the same?
In this article, we explore the concept of ‘fair’ and ‘equitable’ and discuss the bases of value adopted in court judgments.
Different bases of value
The value of an asset or business refers to the judgment of the valuer of the estimated amount against authoritative bases of value such as those set out in the International Valuation Standard (IVS) 102 Bases of Value. In particular, IVS 102 makes a distinction between ‘equitable value’ and ‘market value’.
In this regard, market value: (1) presumes an open and competitive market; (2) reflects highest and best use; and (3) takes no account of attributes that are not available to other buyers in the market (eg, synergies unique to the parties).
On the other hand, equitable value represents the price that is fair between specific parties considering the respective advantages and disadvantages that each will gain from the transaction. As the IVS explains:
Equitable value is a broader concept than market value. Although in many cases the price that is fair between two parties will equate to that obtainable in the market, there will be cases where the assessment of equitable value will involve taking into account matters that have to be disregarded in the assessment of market value, such as certain elements of synergistic value arising because of the combination of the interests.
To illustrate how synergistic value is considered in the two bases of value (equitable value and market value), consider an example where a clothing company is contemplating an acquisition of an apparel manufacturer, who has been supplying finished products to the clothing company (ie, the buyer) and its competitors. In analysing the potential acquisition, the acquirer assumes that:
In this particular example, the equitable value of the target would be between US$120 million and US$150 million, as the transaction took place between identified knowledgeable and willing parties and reflects the respective interests of those parties (ie, it takes into account the synergistic value arising from transportation savings unique to the buyer – the amount of which to be included in the equitable value will depend on the respective negotiating positions of the buyer and seller). Market value, however, requires the valuer to disregard any such synergistic value because it assumes that there is a willing buyer, but not a particular willing buyer.
Table 1: Value of target company on different bases
Note: the allocation of the additional synergistic value from transportation savings between buyer and seller will depend on the respective negotiating positions of the parties.
In either basis of value, the starting point is the same – that is, what is the value of the business as a whole. However, the question of who the buyers and sellers are can have profound implications, particularly in cases that involve the interests of minority shareholders.
An unaffiliated hypothetical buyer in an open market for example, may consider that minority interests are worth less than a pro rata share of the entire business given the lack of a liquid market for the shares. Additionally, the lack of control may restrict it from influencing the company to declare dividends or enact a sale.
On the other hand, an existing shareholder consolidating its majority position would not have the same controlling issues. Acquiring a minority position would simply enlarge the share of their benefits in proportion to the additional stake acquired (ie, the acquisition results in a pro rata increase in their benefits). Under this scenario, the value to this specific shareholder would be equivalent to the pro ratavalue of theshare of the business held by the minority shareholder.
In the following sections, we review the bases of value that have been adopted by the courts involving shares in both private and public companies and their rationales.
Value adopted in court cases: liquidation
SW Trustees Pte Ltd (in compulsory liquidation) v Teodros Ashenafi Tesemma concerned the insolvent company’s sale of a minority interest at a potential undervalue. Under section 224(3)(b) of the Insolvency, Restructuring and Dissolution Act of 2018 (IRDA), a transaction is conducted at an undervalue if the insolvent company enters into a transaction for which it receives an amount less than the value of the asset. In determining their value of the asset, the defendants’ expert adopted ‘market value’ as his basis of value and applied discounts for lack of control and liquidity to his estimated business value. In contrast, the plaintiff’s expert adopted ‘equitable value’ and determined the value of the minority interests to be equivalent to a pro rata stake.
The High Court of Singapore ruled ‘market value’ to be the appropriate benchmark. In its judgment, the Court clarified that the relevant comparison under the IRDA is between the value of the shares against the value of the consideration received, and not the value of the shares as perceived by a particular party (in this case, the insolvent company) against the value of the consideration received.
The Court found the notion of value being dependent on the identity of the relevant party to be problematic if there are multiple counterparties. It may have implications if an insolvent company sold similar assets to two different parties, but only one of the transactions is deemed an undervalue.
The Court also considered that section 224 protects the creditors of the insolvent company by enabling the court to reverse an undervalue transaction. The Court therefore sought to answer whether the creditors would be better off if the transaction is undone and offered to a wider market – consistent with a ‘market value’ assessment.
The Court therefore agreed with the defendant’s expert’s adoption of ‘market value’ and the application of discounts to his estimated business value.
Value adopted in court cases: shareholder disputes
As discussed earlier, market value assumes that both parties are willing and informed. However, in the context of minority oppression or unfair conduct, the shareholders may not be willing, informed, or both. Courts are generally careful to account for any prejudicial behaviours that suppresses value to avoid rewarding bad behaviour. Equitable value may be better at compensating minority shareholders in these instances.
Redressing the wrong
In Create Environment Pty Ltd (Create) v Renex Founder Hold Co Pty Ltd (Founder) and MSA Renex Corp Pty Ltd (MSA), Create and MSA are both shareholders in Founder. Due to alleged breaches that amounted to oppressive conduct, the parties sought the Court’s order for a buy-out of the other party, or for Founder to be wound up. The Court’s role was to determine the fair price at which any buyout should be ordered, and the manner at which the buy-out should take place.
In this case, the Judge ruled it appropriate for fair price to be based on the equitable value as it specifically considers the parties and their relative positions. This is consistent with the positions of the various experts engaged by the parties jointly and separately for the purpose of this matter. The Judge stated that:
the price to be paid may not reflect the actual or real worth of the shares as it is intended to be ‘compensatory in nature and is aimed at redressing the wrong done (the oppressive conduct)’ and will usually take into account various adjustments to remove the effect of the oppression.
Quasi-partnerships
In a dispute between shareholders, it is important to ascertain the relationship of the parties. If the parties are found to be in a quasi-partnership, minority discounts are not generally applied. Although not formalised in its legal structure, quasi-partnerships share characteristics of partnerships and are built on mutual trust, confidence and an expectation of shared management or decision-making.
In CVC/Opportunity Equity Partners Ltd & Anor v Almeida, the respondent (Mr Demarco), held 1 per cent of CVC/Opportunity Equity Partners Ltd, with the controlling shareholder (Opportunity) owning 96 per cent. Prior to the dispute, Mr Demarco had been employed by the company on a full-time basis. His employment was terminated by the controlling shareholder for alleged bad performance and he was subsequently excluded from any part of the management of the company. In this circumstance, the respondent is not a willing seller. Rather, Opportunity’s exclusion drove Mr Demarco to seek a realisation of his investment.
The minority can only be excluded if the majority offers them a fair price for their minority shares. After multiple failed attempts to negotiate a fair price for his shares, Mr Demarco submitted a winding up petition on grounds that the company’s affairs were conducted in a manner that was oppressive. The court initially awarded an injunction on the wind up petition on the basis that Opportunity had made a bona fide and fair offer and that Mr Demarco was wrong to reject it. On appeal, the court found that Mr Demarco’s rejection of Opportunity’s offer (equivalent to the par value of the shares) was not unreasonable.
The court explained that for quasi-partnerships, the valuation should be on a notional sale of the business as a whole to an outside purchaser.
In order to be free to manage the company’s business without regard to the relationship of trust and confidence which formerly existed between them, they must buy the whole, part from themselves and part from the minority, thereby achieving the same freedom to manage the business as an outside purchaser would enjoy.
Further, the court considered that even though the petition was for the winding up of the business, the business should be valued assuming it is a going concern. The filing of the winding up petition had been the respondent’s last resort for an exit. Adopting the liquidation basis of value in this case benefits the seller.
As such, the court determined the fair price of Mr Demarco’s shares to be a pro rataof the business value on a going concern basis. In other words, the court adopted the ‘equitable value’ in this matter.
Conversely, a non-quasi partnership does not necessarily mean that market value is automatically adopted. There are examples of both market value and equitable value being adopted in shareholder disputes, with many factors considered under the concept of fairness, including the motivations of the prejudicial behaviour.
In the next example, the court adopted a hybrid (ie, it considered both market value and equitable value).
Market value + marriage value
In Financial Technology Ventures II (Q), LP and others v ETFS Capital Limited and others, the court found certain minority shareholders to have been subjected to unfair prejudice by the majority shareholder (Mr Tuckwell). This included misleading the plaintiffs (minority shareholders) regarding the distribution of sale proceeds; removing independent directors who called for shareholders to be treated fairly; changing the business of the company and leaving the plaintiffs locked into a company where it was difficult for them to exit; and making an offer to the plaintiffs for their shares at a deep discount to itspro ratavalue.
In this case, Mr Tuckwell did not in fact have control as special resolutions required two thirds of the shareholder voting, which is greater than his combined 58 per cent direct and indirect holding. In acquiring the minority shareholder’s 35 per cent block, Mr Tuckwell would gain effective control and stands to benefit from a ‘marriage value’ from the enlarged stake.
The court considered that a fair basis of valuation would ‘be the price that would be likely to be agreed between commercially-minded but reasonable persons in the actual positions of [the plaintiffs] and [Mr Tuckwell] in notional arm’s-length negotiations, having regard to any marriage value that would be released on such a sale and purchase’.
The Court determined that the parties were not in a quasi-partnership and that in converting their preferred shares into minority common shares, the plaintiffs knew what they were getting into. The Court therefore referenced the market value of the company as its net assets value (NAV) less a 40 per cent discount. In concluding on the discount, the court generally agreed with the approach of the defendant’s expert, which acknowledged that it was unlikely for the plaintiffs to find a buyer that is prepared to pay at or near NAV.
However, the court also recognised that the shares would not be acquired by a hypothetical third-party buyer but Mr Tuckwell (or the company), and that the shares should be valued at their equitable value, taking into account that Mr Tuckwell stands to benefit from the transaction.
A premium was then recognised for the marriage value, which was divided between the parties, pro rata to their respective shareholdings. This reduced the discount to NAV from 40 per cent to 20 per cent.
Statutory appraisals
The examples in the previous section illustrate how market value and equitable value inform decisions on what constitutes a fair price for minority ownerships in private companies. Apart from these two bases of value, specific statutory requirements can have implications on the concept of a ‘fair value’ in public company appraisals relating to mergers. Section 262 of the Delaware General Corporation Law and section 238 of the Companies Law of the Cayman Islands, for example, both entitle shareholders dissenting to a merger or consolidation to a judicial determination of the fair value of their shares, to be paid by the company. However, what constitutes fair value under each jurisdiction is guided by its own respective legislatures and practice.
The Delaware Court of Chancery, for example, has long established that no discounts should be adopted in determining the fair value of a minority stake, which on the surface, appears to follow the equitable value basis of value. In contrast, the Court of the Cayman Islands recently clarified that there is no set rule. The evolving decisions in the matter of Shanda Games Limited (Shanda Games) between 2017 and 2020, provide a good illustration of the different considerations in deciding fair value for a minority interest.
In the initial 2017 judgment on the matter of Shanda Games, the Grand Court of the Cayman Islands ruled that no minority discount should be applied. While acknowledging that Cayman Islands and Delaware legislatures are different, the Court drew guidance from the Delaware court and reasoned that:
the purpose of the fair value standard is to ensure that the dissenting minority is fully protected and that means that they should be compensated for the value of their full interest in the company. Their full interest is their proportionate share in the capital and value of the company.
The Court further likened the fairness requirement under section 238 to the fair and equitable requirement in cases of quasi-partnerships. As discussed earlier, the applicable basis of value for quasi-partnerships is equitable value, wherein no minority discounts apply.
However, this judgment was overturned by the Cayman Islands Court of Appeal in 2018, which ruled that since the dissenter’s shares reflect a minority stake in the company, it follows that a minority discount should have been applied.
If what he possesses is a minority shareholding, it is to be valued as such. If he holds shares to which particular rights or liabilities attach, the shares are to be valued as subject to those rights or liabilities. As a matter of mechanics, this can be done by adjusting the value that the shares would otherwise have as a proportion of the total value of the company; but failing to make such adjustments means that particular rights or liabilities will often be ignored, and the shares will be valued as something they are not.
In 2020, following the dissenter’s appeal of the Cayman Islands Court of Appeal’s ruling, the Privy Council confirmed the application of a minority discount to the dissenter’s shares in Shanda Games. In arriving at this decision in the matter of Shanda Games, members of the Privy Council considered that:
The first two reasons make it clear that a pro ratavaluation would not apply to Shanda Games, deviating from the initial 2017 judgment and practices in the Delaware courts. However, the Privy Council clarified that there is no ‘bright-line’ rule that can be applied in every case and that its ruling on the minority discount applied to the Shanda Games matter only.
In providing reason (3) above, the Privy Council is consistent with section 262(h) of the Delaware General Corporation law, which expressly states that fair value excludes any element of value arising from the accomplishment or expectation of the merger, such as synergies. However, the Privy Council stops short of providing a ruling on synergies, noting that the issue is not relevant to the Shanda Games matter.
In this regard, fair value under the Court of the Cayman Islands and Delaware Court of Chancery more closely resembles a market value assessment. However, the specific rules or practices in statutory appraisals can lead to differences in how fair value is perceived and may not fall neatly under the market value or equitable value bases of value. Further, the definition of ‘fair value’ is not necessarily enshrined in statutory codes. Rather, for both the Cayman Islands and the Delaware courts, the concept of ‘fair value’ develops and evolves over time.
In any event, market value does not automatically mean that a minority discount must be applied or that the absence of one equates to equitable value. In certain instances, equitable value and market value are the same. Ultimately, the value should reflect the specific facts and circumstances surrounding the minority stake being valued.
The views expressed herein are those of the authors and not necessarily the views of FTI Consulting, Inc, its management, its subsidiaries, its affiliates or its other professionals.
FTI Consulting, Inc, including its subsidiaries and affiliates, is a consulting firm and is not a certified public accounting firm or a law firm.
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