Beyond Balance Sheets: The Expert’s Hand In Share Valuation Exercises

Corporate shareholding disputes almost inevitably culminate in the question: what are the shares really worth? Whilst this may seem like a purely accounting and mathematical exercise, ordinarily left to the accountants to deal with, in reality, there is much nuance to this.

Our firm recently acted for a Petitioner in such a case, which resulted in a judgment in excess of RM 9 million being granted in favour of our client, by the High Court [Note: this decision has since been appealed against]. At the close of the case, the High Court accepted the valuation proffered by our client, as opposed to the valuation posed by the opposing party; the values of which differed by more than RM 8.5 million [full judgment available here: [2025] MLJU 3559].

This article discusses the notion that share valuation exercises are more than just a direct accounting exercise. Whilst stemming from the appointment of an expert and putting forth a valuation, there are many other considerations that ought to be considered, grounded upon understanding the:

1. unique role of an expert in a share valuation exercise;
2. importance of setting down and adhering to the strict scope of the expert’s task;
3. interplay between an expert’s opinion and the manner in which Court’s scrutinise the same;
4. significance of the different circumstances in which a share valuation may need to be carried out.

Role of the Expert

The role that of an expert may differ depending on who the expert acts for in the dispute. However, at its crux, the expert must evaluate and provide the Court with a fair value of the subject matter shares.

This involves a determination of the appropriate valuation methodology, be it a Net Asset Value, Discounted Cash Flow Model or a Price-to-Earnings Ratio. It is crucial that experts are able to identify, justify and consequently defend their choice of methodology, for if such methodology is successfully impugned, the credibility of the entire valuation would collapse.

This means, that the role of an expert is not simply to impugn the findings of the opposing expert, but rather, that the expert ought to form its own independent assessment of the what the valuation ought to be. This is invaluable particularly for the responding party to a dispute, where the said litigant may make the grave error of only challenging the opinions of the claimant’s expert, in the absence of presenting a valuation of their own. This principle is discussed in further details below.

A unique feature of share valuation exercises is that in many cases, in entails a certain degree of speculation and assumption on part of the expert, in drawing reasonable hypotheses. Whilst such an exercise may appear largely subjective, the conclusions arrived at are assessed against objective standards of reasonableness. In other words, whilst experts may speculate and hypothesize the existence of certain matters, the conclusions drawn need to be backed logical reasoning, consistent methodologies and accurate foundational data, for it to ultimately withstand the test of cross-examination and Court scrutiny.

Important factors to consider include (1) the factual assumptions on which the opinion is based; (2) the reasoning by which he progresses from facts to a final conclusion; (3) the care with which he has considered the subject matter and presented his evidence; (4) his precision and accuracy of thought as demonstrated by his answers; and (5) the extent to which an expert faces up to and accepts the logic of a proposition put in cross-examination or is prepared to concede to points that are seen to be correct [see: Loveday v Renton and Another [1988] Lexis Citation 1943].

Scope of an Expert’s Opinion

The above considerations are intertwined with the scope upon which an expert is called upon to render his assessment. In the case of Rinota referred to above, the order for a valuation of shares was premised upon findings by the High Court (and affirmed by the Federal Court) that the counter-parties therein had acted in an oppressive manner. Therefore, the Court had ordered for a valuation of shares to be carried out, making the necessary adjustment to the said share value to compensate for the acts of oppression.

The direct consequence of this was that the respective experts of parties were bound to perform their valuation in accordance with the findings of fact made by the High Court. It was no longer open to these experts to re-evaluate the merits of these findings or attempt to proffer an alternative interpretation of these facts.

This strikes directly at the heart of the scope of the expert, the importance of which was addressed by the Court of Appeal in Folin & Brothers Sdn Bhd (in liquidation) & Ors v Folin Food Processing Sdn Bhd & Ors [2011] 6 MLJ 585. In deciding that the expert report was flawed, the Court of Appeal held that an expert cannot set about presenting their valuation, unimpeded and uninhibited by legal or moral constraints. The said experts must adhere to and comply with the express terms of their appointment; the failure to do so being fatal to the evidence of the expert.

Therefore, in presenting a valuation to Court, an expert must be mindful and pay utmost attention to the scope of their appointment and the parameters of their task at hand. For ultimately, such a report needs to sit harmoniously with the approach in which a Court would assess the valuations proffered by the expert.

Approach of Courts

Arguably the most crucial area pertains to understanding the interplay between expert evidence and the Court’s approach in accepting the same; the Courts being the ultimate decision maker.

The starting point is that Courts are not bound by the valuation put forth by the experts. The role of the experts is merely to assist the Courts in arriving at a fair value of the shares. Ultimately, the Court must form its own opinion pertaining to what the value of the shares ought to be, taking into consideration the opinions of the experts.

Quoted from the Federal Court in Dr Shanmuganathan v Periasamy s/o Sithambaran Pillai [1997] 3 MLJ 61, “the principal object of expert evidence is to assist the court to form its own opinion. An expert should give his reasons. The court is the final arbiter, not the experts or witnesses”.

Therefore, the secret would lie in putting forth a report that best guides the Court towards the outcome intended. As stated above, the opinions of the expert are scrutinized against objective standards of reasonableness and logic. Putting forth an expert report that best satisfies the above principles would provide a litigant with the best chance of a favourable outcome.

Circumstances; and their unique impact on the final quantum awarded

Whilst many may assume that the scope of a valuation ends at the expert putting forth a quantum, this may not necessarily be the case. For example, in Rinota, a unique feature was present – the fact that the valuation exercise had taken more than a decade to be completed. Simply stated, whilst the order for payment had been made from as early as 2012, as at 2025, the valuation exercise still remained unresolved.

Here,the original oppression suit was brought pursuant to Section 181 of the Companies Act 1965 (now Section 346 of the Companies Act 016). We then moved the Court to invoke the wide powers under Section 181(2) CA 1965 and take cognizance of the fact that the Petitioner had been kept out of the benefit of the monies for more than a decade. The end goal being that the said value of RM XX in 2012 would need to be enhanced to reflect its appropriate value in 2025, taking into out factors such as return on investment, purchasing power and inflation.

In justifying such an enhancement, reliance was placed on the Singaporean Court of Appeal decision in Yeo Hung Khiang v Dickson Investment (Singapore) Pte Ltd & Ors and Another Appeal [1999] 2 SLR 129 and the Malaysian High Court decision in Edmund Charles Liebenberg v Icb-Griffin Manufacturing Sdn Bhd & Ors [2005] 5 MLJ 259. Both these cases had recognized that in cases of oppression, Courts had the power to enhance the value of the shares to account for the passage of time, where the successful litigant had been kept out of the enjoyment of the monetary value of the shares.

In instances of lengthy and contentious litigation, this passage of time may span years if not decades, and any enhancement in the value of shares may have a significant financial impact on the ultimate value awarded. This area of law, whilst relatively untapped in Malaysia, is of crucial importance and consideration in share valuation cases, specifically those grounded in an action for oppression.

Conclusion

Share valuation in litigation is far more than an accounting exercise. It is a complex interplay of expert methodology, legal scope, judicial scrutiny, and contextual circumstances. Experts must craft reports that not only withstand cross-examination but also persuade the Court to adopt their conclusions. In the end, valuation is not just about numbers; it is about credibility, reasoning, and the ability to guide the Court toward a just outcome.

---

Written by

Amitaesh Thevananthan, Senior Associate
(Corporate and Commercial Dispute Resolution)
amitaesh@azmandavidson.com.my