Hypothetical liquidation KO’d in shareholder dispute

BVWireIssue #261-3
June 19, 2024

shareholder dissent/oppression
fair value, shareholder dispute, shareholder oppression, buyout, discount, liquidation, minority shareholder, minority oppression, dissolution, taxes, shareholders

In an Iowa case, minority owners of a family farm were to be bought out and the experts for both sides agreed that the net asset method was the appropriate way to value the operation. But the expert for the majority owners argued that the value should be reduced by tax consequences and transaction costs that would be incurred in a hypothetical liquidation.

No deal: The trial court disallowed the discount, and an appellate court agreed. The majority owners had provided no evidence of a contemplated sale of the farm. The trial court also pointed to the prevailing expert’s opinion that the company (a C corp) “has ample time to take strategic action to minimize or evade altogether any hypothetical tax consequences,” including “conversion to an S-Corporation five years prior to a sale or a 1031 Election to defer taxes.”

The case is Walker v. Daniels, 2024 Iowa App. LEXIS 396, and a case analysis and full court opinion are on the BVLaw platform.

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