Nelson business owner Thomas Green had difficulty convincing the Court of Appeal that his company now known as Roofpower Installations Ltd was worthless when assessing a buyout valuation after he had previously sold a 49 per cent stake to intended joint venture partner Nathan Gillette for $98,000 and then after the two later fell out sold Roofpower’s assets to a third party for $120,000.
This chemistry of moving business valuations followed a 2019 High Court hearing which saw Mr Gillette awarded damages of $60,000 for his 49 per cent interest. Evidence was given that Mr Gillette came to New Zealand from Singapore in 2016 on a visa backed by an employment contract with Roofpower. The business installed domestic solar power systems. Part of the deal saw Mr Gillette paying $98,000 to buy a 49 per cent stake in Roofpower. Plans for him to take a management role came to nothing. Mr Green alleged Mr Gillette had lied in his CV, lacked the specialist expertise he claimed to have and was incompetent. Mr Gillette sued. A claim in the Employment Relations Authority saw Mr Green ordered to pay $20,600 damages; the High Court awarded Mr Gillette $60,000 damages for his minority stake in Roofpower. Company law rules allow a court to order compulsory purchase of minority interests in closely-held companies where owners have fallen out and their company is deadlocked.
In the Court of Appeal, Mr Green said the trial judge had hopelessly overvalued Roofpower when deciding a 49 per cent stake was worth $60,000. He produced accounting evidence that at the time of the dispute Roofpower was trading at a loss (valued on an earnings basis it was worthless) and its net assets at that time amounted to a mere $10,900. The figure to buy out Mr Gillette should have been 49 per cent of nothing, he said.
The Court of Appeal left the buy-out figure at $60,000. Net assets valued at $10,900 did not take into account intangible assets owned by Roofpower such as continuing work flowing from its existing reputation and the benefit of its supply lines. The fact Roofpower’s assets were sold months later for $120,000 confirmed this point, the court said. Mr Green’s claim that these intangible assets were not owned by Roofpower but were his own personal property were dismissed. The price demanded from Mr Gillette to buy into the company and the price paid for subsequent sale of Roofpower’s assets proved the contrary, the court ruled. In addition, the shareholder agreement between Mr Green and Mr Gillette signed when he joined Roofpower recorded that these intangible assets were part of goodwill owned by the company.
Green v. Gillette – Court of Appeal (29.08.22)
22.153