After a large manufacturer of photographic supplies went bankrupt, the trustee tried to recover salary and dividend distributions to its executive shareholders as fraudulent conveyances. To refute these claims, the shareholders’ solvency expert valued the company’s goodwill at roughly $12 million at the time of the transfers. To boost this amount, he relied on an intangible asset appraisal by the shareholders’ BV expert, who valued the company’s patents, unpatented know-how, trademarks, customer relationships, and licensing agreements at just over $23 million. The trustee objected, claiming the intangibles valuation was pure speculation—and the bankruptcy court agreed.

“There is no evidence that any specific intangible had any value independent of its value in an ongoing business,” it held, particularly unpatented know-how and customer relations. Further, the debtor’s value was tied into its licensing contracts with Kodak and others. When the business ran into financial troubles and couldn’t make its royalty payments, it risked the loss of these licenses, “which would likely further devalue the business’ intangibles,” the court said. Indeed, when Kodak pulled its license, the company went under. Read the complete digest of Pryor v. Tiffen, 2011 Bankr. LEXIS 4950 (Dec. 6, 2011) in the March 2012 Business Valuation Update; the court’s decision is posted at BVLaw.

The pitfalls and possibilities of bankruptcy engagements: On March 1, join Jeff Risius and Jess Ultz (both Stout Risius Ross) for Business Valuation Issues in Bankruptcy, a 100-minute webinar that will cover what the increasing number and complexity of insolvency cases means for valuation experts.