Private companies need to ensure they have clear terms on share valuation in the event of a sale. Michael Budd explains the mechanics
- The recent Court of Appeal case involving the cosmetic brand Lush shows how important it is for a private company to have clear terms on share valuation in the event of a sale.
A recent Court of Appeal case, Cosmetic Warriors Limited and Lush Cosmetics Limited v Gerrie [2017] EWCA Civ 324, exposed the consequences of omitting from provisions on share transfers (usually called pre-emption rights on transfer) typical wording specifying how a valuer is to value shares.
There is no requirement for a company to be subject to pre-emption rights on transfer, but many companies believe it is sensible to include these. In their simplest form, they provide that a selling shareholder must first offer their shares to existing shareholders before offering them to a third party buyer.
Andrew Gerrie and his wife were minority shareholders in two companies, following a restructuring in 2001. One owned intellectual property rights in the Lush brand, while the other
