The determination of statutory fair value in New York is a bit confusing, to say the least. Although several cases have said that the state courts “must” take into account the illiquidity of a closely held company’s shares, others have limited the discount only to the firm’s goodwill value. In trying to translate the mixed messages in one of his earliest blogs, attorney Peter Mahler concluded that the statutory fair value standard in New York “means whatever the court says it means.” More recently, Mahler highlighted Chris Mercer’s (Mercer Capital) comprehensive recap of the state of fair value in New York.
New case adds clarity for asset holding companies. Just last month, a New York appellate court tried to send a clearer message concerning the fair value of a company that held $13.5 million in real property (gross). For purposes of a judicial buyout and appraisal of a 10% shareholder’s interest—and despite prior state precedent—the company was “not entitled to a whopping 25% lack of marketability discount for what is essentially real property placed in a limited liability company package,” the court held, particularly when those assets were so “easily marketable.” Since there was no evidence concerning what (if any) lower discount might be appropriate, the court did not apply any DLOM to the company’s net asset value of just over $10.4 million. (Note: Mercer was the expert for the minority shareholder.)
Read the complete digest of Chiu v. Chiu, Actions No. 21905/07 and 25275/07 (Sup. Ct. N.Y., Aug. 30, 2012) in the November Business Valuation Update; the court’s opinion will soon be posted at BVLaw.
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