Krishna Holdco Limited v Gowrie Holdings Limited & Ors [2025] EWHC 1542 (Ch)

[2025] EWHC 1542 (Ch)Case No CR-2019-004187
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 20/06/2025
Before
MR JUSTICE ADAM JOHNSON
Between
(1) GOWRIE HOLDINGS LIMITEDRespondents/(2) SAMIT GOVINDJI HATHIDefendants(3) GOVINDJI THAKERSHI HATHIRespondent(4) ALPA HATHIRespondent(5) PORTSIDE NORTH LIMITEDRespondent(6) LAXMICO GROUP FINANCE LIMITEDRespondent(7) SYRI LIMITEDRespondent(8) LAXMI BNS HOLDINGS LIMITEDRespondent
Iain Quirk KC, Edward Batrouney and Robert Winspear (instructed by McCarthy Denning) for Petitioner/ClaimantMark Anderson KC and Samir Amin (instructed by ORJ Law) for Respondents/DefendantsHearing Hearing dates: 5, 6, 10, 11, 12, 13, 14 and 21 March 2025
Approved JudgmentThis judgment was handed down remotely at 10.30am on Friday 20 June 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
[1]This Judgment deals with issues of valuation, following an initial Judgment (“the Liability Judgment”) of June 2023 ([2023] EWHC 1538 (Ch)), pursuant to which I made an order requiring the First Respondent, Gowrie Holdings Limited (“GHL”) to acquire the shares held by the Petitioner, Krishna Holdco Limited (“Krishna”) in their joint venture company, Laxmi BNS Holdings Limited (“LBNS”).[2]The parties are agreed on the valuation date to be applied: it is the date of the Petition, 25 June 2019 (“the Valuation Date”).[3]The detailed background is set out in the Liability Judgment. I can summarise the main points relevant for present purposes as follows.[4]The formation of LBNS in 2010 was designed to give effect to a merger of two pharmaceutical businesses.[5]On the Petitioner’s side, the main protagonists were Arun Patel (“Arun”) and Mahesh Patel (“Mahesh”). They were owners of a business called Colorama Pharmaceuticals Limited (“Colorama”). By early 2010, Colorama was in serious financial difficulties. A scheme was developed under which Colorama’s pharmaceutical assets, together with a property known as Colorama House or “the Perivale Property” were transferred to LBNS. Arun and Mahesh, via their new vehicle Krishna, acquired a 50% interest in LBNS, in the form of new “B Shares”. But that shareholding interest was disguised by means of a set of false documents known as the “Rewind Suite”: so to the outside world it appeared as if GHL was the sole owner of LBNS. This was because of a concern that the creditors of Colorama might seek to attack Arun and Mahesh’s interests in the B Shares.[6]On the side of the First to Seventh Respondents (for convenience, I will where appropriate refer to these parties collectively as “Gowrie” or the “Gowrie Respondents”), the main protagonist was Samit Hathi. The Hathi family also had interests in the pharmaceutical industry. GHL transferred to LBNS its shareholdings in two subsidiaries: Gowrie Laxmico Limited (“GLL”) and Laxmico Limited (“Laxmico”). GLL was a trading subsidiary with a substantial positive net asset value of approximately £11.6m.[7]One feature of the merger arrangements is important for valuation purposes. This is the so-called “Equalisation Amount” or “EqAm”. The point here is that the merger structure prioritised the payment of certain of Colorama’s creditors, including its major lender, Barclays. This left GHL, which had injected a valuable trading asset (GLL) into the joint venture, with only limited prospects of receiving any shareholder distributions for a period of several years. The solution to this problem was an agreement that GHL would receive a form of interest on the value of its initial contribution, to run at a rate of 10% for the first two years of the life of the joint venture, rising to 12% thereafter. The amount on which interest would accumulate was the Equalisation Amount. There was provision in the merger documentation for what was called the “Original Equalisation Amount” to be subject to deductions or, in one instance, additions. One of the important matters resolved in the Liability Judgment is that the Original Equalisation Amount had legitimately been added to over time, since LBNS had made substantial payments to Colorama’s creditors at Krishna’s request, in excess of the value of the consideration made available by Krishna (in effect, the Colorama pharmaceutical assets) in return for its B Shares.[8]Coming to the present issues, the Liability Judgment held that Krishna had been unfairly prejudiced in its capacity as a shareholder in LBNS in a number of respects, principally in that it had been fraudulently misled by Samit into entering into an agreement in 2013 (“the 2013 Agreement”). Among other features, the 2013 Agreement(1) provided that the Perivale Property, which had been transferred to LBNS as part of the merger (see above), would be transferred by LBNS to GHL and then leased back by GHL for an annual rent of £350,000;(2) gave permission to GHL to develop its own profitable “clinicals” business outside the structure of the LBNS joint venture, which it did via a subsidiary company outside the LBNS group called SYRI Ltd (“SYRI”); and(3) recorded that the correct Equalisation Amount outstanding as at 1 April 2013 was some £35,276,000.[9]The Liability Judgment held that the 2013 Agreement was to be rescinded for fraudulent misrepresentation. A major part of the present valuation exercise therefore involves working out what the position between the parties would have been as at the Valuation Date, had the 2013 Agreement not been entered into. That in turn involves(1) treating the Perivale Property as being owned by LBNS, not GHL, and(2) assuming that the clinicals business developed by SYRI was carried out as part of the LBNS group, so that its value is attributed to the value of LBNS as at the Valuation Date. Other misappropriations of value on the Gowrie side also have to be accounted for.[10]The parties are agreed as to the broad methodology for the valuation exercise, although they disagree as to the figures. The broad methodology is to involve the following main steps: i. Determination of the enterprise value of the clinicals business operated by SYRI, as at the Valuation Date. (The enterprise value of a business is its entire value financed by both debt and equity investments). ii. Determination of the enterprise value of LBNS, minus SYRI. iii. Determination of the enterprise value of LBNS assuming it is consolidated with SYRI. iv. Determination of the net debt of the consolidated enterprise – i.e., determination of the adjustments to be made to move from enterprise value to equity value, the latter representing the value only attributable to the equity shareholders. v. Determination of the Equalisation Amount, which then needs to be deducted from the equity value of the consolidated enterprise deduced under steps (i)-(iv), with the remaining equity value after that deduction divided by 2, to give a final value for the B Shares.[11]There are disagreements between the experts as to each of the steps above, save for (iii). Thus, there are differences of view as to the enterprise value of SYRI, as to the enterprise value of LBNS, and as to LBNS’s net debt figure. As to the Equalisation Amount, in the event there was agreement on the important point of principle that any transactions which had had the effect of illegitimately diverting value from LBNS should simply be reversed by means of the same amounts being credited against the Equalisation Amount thus reducing it. Other material matters affecting the Equalisation Amount remain in issue, however, and will need to be addressed below (see at [196] et seq).[12]Finally, there are some issues as to the form of overall relief to be granted, and in particular whether(1) it should include provision for the payment of quasi-interest to Krishna, and(2) whether a buy-out order should be made not only against GHL (which has happened already), but also against the other Gowrie Respondents (excluding Alpa). II. The Trial and the Evidence[13]The trial was principally occupied with the giving of expert evidence. As to the valuation of SYRI, Krishna relied on the evidence of Dr Patrik Frei and the Respondents relied on the evidence of Mr Paul McKeown. As to the valuation of LBNS and the calculation of the Equalisation Amount, Krishna relied on the evidence of Ms Kate Hart (who gave evidence in the liability trial), and the Respondents relied on the evidence of Mr Jim Davies. I was satisfied that the experts sought to assist the Court and were honest in the evidence they gave, but for the reasons given below, I generally preferred the evidence of Mr McKeown as to the valuation of SYRI, and the evidence of Ms Hart as to the valuation of LBNS. I also agree with some, but not all, of Ms Hart’s views as to calculation of the Equalisation Amount.[14]Samit Hathi gave factual evidence for the Gowrie Respondents. In the Liability Judgment I was critical of Samit and concluded that he was an unreliable witness whose evidence could not be trusted and thus needed to be tested against the documentary record and the inherent probabilities (see at [161]).[15]Samit’s evidence at this trial did not reassure me as to his reliability. I would mention two points. First, his manner of answering questions evidenced some of the same shortcomings shown in the Liability Judgment – principally, a tendency to obfuscation and an inability to accept straightforward propositions when put to him. For example, he had the following exchange with Mr Quirk KC about a draft board minute dated 13 March 2019, recording a prospective acquisition of LBNS’s subsidiary companies by GHL:
“Q. Who drafted the meeting note? A. This would have been drafted by the lawyers. Q. On your instructions? A. It would have been drafted – the reason why this was drafted is because of the various notes that were being made at that date, so the various strategies, various things that were going on at that time. This wasn’t a meeting that was held. This wasn’t a document that was ever offered to anybody, yes. It was something that, if we needed to, we could use. Q. So my question: this was drafted on your instructions, wasn’t it? A. Yes. I believe so.”
Q. On your instructions?

Q. So my question: this was drafted on your instructions, wasn’t it?

[16]The draft minute, and the proposed acquisition of the B Shares, were a sensitive topic for Samit, because it appeared to suggest a substantial value for LBNS as at March 2019 (the background is explained in my earlier Judgment at [2025] EWHC 341 (Ch)). His defensiveness about it meant he was unable straightforwardly to acknowledge his own role in its preparation.[17]On other occasions errors in Samit’s written evidence were revealed during his cross-examination. He was forced to accept when questioned that SYRI was in fact manufacturing and selling two products which he had said in his statement that SYRI had never manufactured, namely Aripiprazole (1mg/ml oral solution) and Baclofen (5mg/5ml).[18]I do not say that these mis-statements were deliberate and intended to mislead, but I do consider that, taken in combination with the general manner in which Samit gave his evidence, they endorse the need for special caution. Happily, however, in those areas where Samit’s evidence is important to the outcome, which as I see it is mainly in connection with SYRI and its development potential, there are contemporaneous records which back up the account he gave. III. Some Points of Law[19]Two points deserve emphasis. The Court’s Remedial Function[20]The first is a general one, which is to recognise that the present exercise, although in one sense a matter of valuation, is more fundamentally concerned with reaching a fair outcome between the parties which properly remedies the unfair prejudice found to have occurred. This is not just a matter of applying principles of accountancy and valuation. The parties were agreed about that, and both endorsed (as do I) the following statement of principle by the Jersey Court of Appeal in Financial Technology Ventures II (Q) LP v. ETFS Capital Ltd [2021] JCA at [62]:
“... In fixing the price at which a plaintiff’s shares are to be acquired the court is not conducting a valuation as such. In other words, it is not conducting a mathematical exercise dictated by the expert evidence and by reference to accountancy principles alone. Instead, it is conducting an evaluation. In other words, it is performing a remedial function involving a judgment call which is made in light of all the circumstances of the case and by reference to principles of fairness ...”
.

Hindsight in Valuation

[21]The next point is about the use of hindsight in conducting a valuation exercise. There was a degree of confusion and inconsistency about this in both parties’ presentations of their cases, and a tendency to be critical of the other party using hindsight when there was perceived benefit in doing so, but nonetheless to make reference to matters of hindsight when that course seemed beneficial. So I think it useful to set out some ground rules.[22]Thankfully, there is a very helpful discussion in a judgment of Fancourt J: Estera Trust (Jersey) Limited & Anor v. Jasminder Singh & Ors [2019] EWHC 873 (Ch), at [51] (especially sub-paragraphs (vi)-(viii)). In light of that, the proper approach in my opinion is as follows.[23]The basic rule is that when valuing shares at a particular date, evidence of matters occurring after that date should be ignored.[24]The basic rule however should not be applied slavishly and without thought in all circumstances. Estera Trust provides a good example. The issue there was about how valuers should deal with a developing trend in property values. The relevant valuation date was in June 2014. One of the experts, Mr Craggs, had adopted what the Judge described as a “blinkered, or purist” approach which involved him ignoring other valuations – some of which he himself had conducted – both before and after the valuation date. The Judge was critical of this, and said that although Mr Craggs was no doubt correct to ignore the other valuations in reaching his initial and provisional view of values at the valuation date, he should then “have stood back and considered, in the light of othervaluations available to him, whether he had reached a sound conclusion” (see at [51(vi)]). The Judge went on:
“Mr Craggs reached conclusions that were (generally) the same as or (in aggregate) lower than his 2011 values, lower than CBRE’s 2013 values, and substantially lower than his 2015 values. That is not to say that Mr Craggs’ 2014 values were unreasonable but that, as part of the process of sense-checking his values and standing back from the technicality of the discounted cash flows and the residual valuation, he should have asked himself questions about why his 2014 values did not fit very well into the proven trend of values.”
[25]This seems to me to be saying that although certainly the exercise is directed at finding a reliable value as at the chosen valuation date, it is sometimes permissible to look at data after the valuation date, as a way of cross-checking the reliability of assumptions the expert has made, especially as to developing trends or forecast outcomes. If the developing reality is at variance with the assumptions, that may cause the assumptions to have to be revisited. At any rate, the point of principle is that it is appropriate and proper for an expert in some instances to consider matters occurring after the valuation date. IV. SYRI Enterprise Value

Some relevant background

[26]SYRI was established to pursue the business of developing and manufacturing “clinicals”. These are different to ordinary generic medicines. They are essentially new preparations of existing generic products, for example using a different delivery system (liquid instead of tablet), or a different level of dosing.[27]The marketing and sale of medicines is regulated in the UK by the Medicines and Healthcare products Regulatory Agency (“MHRA”). This includes the sale of clinicals, for which licences are required. At the relevant time, various gateways for obtaining a licence were provided under an EU Directive: Directive 2001/83/EC. So far as SYRI’s business was concerned, these were(1) by means of demonstrating that the new product was a generic possessing bioequivalence with an existing product for which appropriate clinical trials had already been undertaken, referred to as a reference product (Article 10(1));(2) in appropriate cases, through securing a waiver of the requirement to show bioequivalence (also under Article 10(1) – referred to as obtaining a “biowaiver”);(3) in other cases, by relying on appropriate scientific literature to demonstrate that the active substances in the new product had been in “well-established medicinal use” for at least 10 years; or(4) in some limited cases, where it was not possible to show that the proposed new product was a generic of an existing reference produce, by making a hybrid application – which would require limited clinical trials designed to provide a bridge to an existing reference product.[28]It was common ground that if a licence is acquired, then that can provide the licence holder with a period of de facto exclusivity in respect of the new product, because others are not able to market it without their own licence, and that can take time, and cost money, to acquire. During the period of exclusivity profit margins on newly licensed clinicals can be high, relatively speaking, assuming the relevant product is in demand. But that too is a risk, because it might not be, or at least might not be in the way originally expected.[29]This business model obviously requires a degree of investment, and to some extent is speculative. There are risks involved. Among them is the risk that a proposed new product will fail to be granted a licence or, if granted one, will fail to generate commercial returns for one reason or another – perhaps because the perceived demand does not materialise. This is the business model any prospective purchaser of SYRI’s business in June 2019 would have been investing in.[30]SYRI was established in 2014. According to Dr Frei’s analysis, which Gowrie were content to accept on this point, by May 2019 SYRI had accumulated some 62 licenced products, including 5 in the previous 18 months.[31]On top of that there were(1) 7 applications already made but outstanding;(2) 74 products in various stages of development short of the application stage (for example, undergoing bioequivalence studies), but for which SYRI’s management had provided an estimated licence application submission date and approval date; and(3) another 16 products for which management had not provided any estimated submission or approval date.[32]As to SYRI’s financial results, both revenue and profits had shown an upward trend since 2014, as shown in the following table (using data extracted from Mr McKeown’s report, Appendix 12): Y/E March 16 (£000s) Y/E March 17 (£000s) Y/E March 18 (£000s) 15 month period to June 2019 (£000s) Total revenue 5,563 4,443 6,230 14,866 Revenue growth rate n/a -20.1% 40.2% 90.9% Gross profit 5,493 4,389 5,790 14,358[33]During the trial, Krishna also came to place some emphasis on SYRI’s 2019-2020 budget, as reflected in its management accounts prepared in May 2019. The budget shows management having an optimistic outlook for the coming year: it predicted EBITDA growth from £5.058m to £8.815m. Not only that, but as Mr Quirk KC pointed out in submissions, actual performance for April and May 2019, in the period immediately prior to the Valuation Date, was broadly in line with the budget.

The competing positions

[34]This background provides a basis for examining the parties’ competing positions as to the valuation of SYRI. In broad terms, these were as follows.[35]Krishna’s expert, Dr Frei, relied on a combination of the income approach and the market approach, but with a substantial weighting in favour of the former. The income approach to valuation is designed to convert the value of future income or cashflows to a single current value. The market approach compares an asset to identical or comparable assets for which price information is available.[36]It follows that a primary focus of Dr Frei’s analysis was on SYRI’s estimated future income streams, and a critical part of this methodology was his assessment of the performance of SYRI’s existing licenced products and its pipeline of prospective future products.[37]Putting himself in the position of a buyer in June 2019, as part of this exercise Dr Frei sought to predict how many new revenue generating products were likely to be introduced each year from the products in the development pipeline. Critically, he estimated an ongoing average of 13 per year after 2024, although with more variable numbers before that: 3 in 2019, 5 in 2020, 4 in 2021, 16 in 2022 and 40 in 2023.[38]These assumptions were said to be based on SYRI's historical performance, and relied on the fact that at the valuation date there were 74 possible new products in the pipeline for which SYRI’s management had estimated licence application and approval dates, and 7 submitted and outstanding applications (see above). Dr Frei then made further assumptions about likely future revenues from product sales and costs to provide figures for estimated future cashflows, to which he applied a discount rate of 17% to produce an overall valuation on his income approach of £88.7m. His market approach analysis produced a valuation of £59.7m, and using a weighting of 60/40 in favour of his income approach, he arrived at an overall valuation figure of £77.1m.[39]The important point in this, as Krishna emphasised in its submissions, was Dr Frei’s assessment that by June 2019, SYRI was in a period of substantial and rapid growth. He saw the upward trend in revenue and profit which had characterised the period between 2015 and 2019 as continuing, and thought that a purchaser of SYRI would pay a price reflecting the acquisition of a growing and profitable business.[40]Gowrie’s expert Mr McKeown took a different view, and made the market approach, rather than the income approach, his primary valuation method. Mr McKeown assumed a maintainable EBITDA for SYRI of roughly £5.5m prior to adjustments (£5.03m after), and applied to that figure a multiple of between 5.57x and 5.71. This was derived from an examination of publicly listed companies, giving multiples in a range between 7.95x and 8.15x, to which Mr McKeown applied a 30% public to private discount. This gave him a valuation range of between £28m and £28.7m.[41]I should note for completeness that in carrying out the market approach element of his valuation, Dr Frei also applied a public to private discount; and in their joint statement the experts agreed that an appropriate level of discount would in fact be 25%.

Why I am not persuaded of Dr Frei’s basic approach

[42]Of the two approaches, I prefer that of Mr McKeown.[43]That is essentially because I do not have sufficient confidence in Dr Frei’s analysis to be able to rely on it. As explained above, critical to that analysis are the assumptions made as to the likely income-generating potential of products in the SYRI development pipeline: meaning, more specifically, the potential of the 7 products for which applications had been made as at May 2019, and of the 74 products for which applications were expected to be made, both to result in MHRA licences, and then to generate material income.[44]As to this, there were problems with Dr Frei’s reasoning. His analysis of SYRI’s existing roster of products (62 licences: see above at [30]), led him to the conclusion that roughly 20% of them had failed. In calculating that figure Dr Frei noted that of the total of 62 existing products, some 17 had never generated any income. In assessing an overall failure rate, though, Dr Frei excluded 5 of the 17, on the basis that they had only recently been licenced (in the last 18 months), and so might still have revenue generating potential. Removing the 5 meant 12 failed products out of 62, or roughly 20%.[45]That calculation is straightforward enough, but the difficulty is that Dr Frei then applied the same assumed failure rate of 20% to the overall pipeline of products at the Valuation Date (the 7 plus 74 – see above at [31]), for which licences had yet to be granted. This is problematic because the 20% failure rate was the failure rate amongst products which had already been licenced. Dr Frei’s assumptions therefore make no obvious allowance for the likelihood of pending licence applications being refused. It is far from clear however that licence applications will automatically be successful if made, and I do not think the contrary was suggested. Samit’s evidence, which I have no good reason to doubt on this point, and which was supported by the documentary record (spreadsheets called “Liquids Projects Matrix” and “Solids Project Matrix”), was that 58 liquids projects had either failed or been rejected by February 2019, and that 43 solids projects were on hold or rejected. These points were not considered by Dr Frei. It is therefore unclear to me how his methodology makes any appropriate allowance for the possibility of failure in the licence application process itself, rather than in the later process of production, marketing and sale, once a licence is obtained.[46]Faced with this issue Krishna had two related responses. In his submissions, Mr Quirk KC emphasised the fact that the main set of 74 potential products used by Dr Frei in his analysis were products for which SYRI’s management had estimated a licence application date and approval date. Mr Quirk KC made the point that, in addition to the 74 fulfilling those criteria, SYRI’s management accounts also disclosed another 16 potential products of more indefinite status which were not included in Dr Frei’s calculations and thus represented a buffer reflecting the potential for failures in the licence application process itself. Dr Frei during his cross-examination made another point, which is that he had assumed that “products might be exchanged”, meaning that if one or more of the 74 failed in the licensing process, they might be replaced by some of the 16 (Dr Frei said at one point, “There were at least 16 other products which were on hold. So that would be a potential to use, potential product to use”).[47]I find these points lacking in any real rigour and unconvincing.[48]As to the first, there is no getting around the fact that Dr Frei makes the assumption that 74 products, corresponding to the number in the pipeline for which an estimated submission date and approval date had been identified, would obtain licences. But in light of the factual evidence, that was not a safe assumption. The fact that there were another 16 products without estimated submission and approval dates is not an adequate response. That point was not relied on by Dr Frei in his Report as a basis for saying he had made an allowance for failures in the licencing process itself. The only allowance he made was based on his assumed 20% failure rate among products which had already been licenced. The reference to the other 16 products, made in submissions by Mr Quirk KC, had the flavour of a somewhat belated attempt to back-fill a gap in Dr Frei’s reasoning exposed during his cross-examination.[49]As to Dr Frei’s own point, that the 16 products were somehow on hold and might be potential substitutes for any of the 74 which failed during the licencing process, that again does not appear to me to be a safe assumption. The status of the 16 was uncertain and was not examined in the evidence. Samit’s account, backed up by other evidence, was that problems were often encountered in the licensing process. Even if products were on hold rather than abandoned or permanently retired, the evidence was not sufficiently clear to justify the conclusion that such products could always be substituted for failures, and would always (or nearly always) succeed.[50]There is also a point about what actually happened to the pipeline products, and to SYRI’s revenues and EBITDA levels. Here, I agree with the criticism made by Mr Anderson KC during submissions. Although there is evidence in the parties’ correspondence of Dr Frei pressing to know more about the output of the pipeline beyond the Valuation Date (which seems to me to be a legitimate and correct approach – see above at [21]-[25]), in the event he did not consider the fact that his predictions were materially wrong: there were in fact only 9 new licences in 2022, which is difficult to reconcile with his assumption that 16 new revenue generating products would be introduced during that year; and then only 2 new licences in 2023, when he had assumed 40 new revenue generating products would come on stream.[51]Likewise, the actual performance of SYRI after the Valuation Date was as follows (using the adjusted figures produced by Mr McKeown, and referenced by Krishna in its Closing Submissions): Year ended March 2019 (£000s) Sept 2020 (£000s) Sept 2021 (£000s) Sept 2022 (£000s) Sept 2023 (£000s) Revenue 11,351 16,024 13,643 15,255 19,281 EBITDA 5,057 6,359 4,971 5,342 7,986[52]The pattern here is easy enough to see: SYRI’s performance in EBITDA terms was steady in the reporting periods to September 2022, and then there was a strong year in the period 2022-23. Even then, however, EBITDA was roughly £8m. Dr Frei’s projection for the same period was £13m.[53]Careful reflection on such matters would have led Dr Frei to question his basic assumptions. It appears he did not do so, which regrettably means I can have little confidence in his overall methodology, given that this was so reliant on his view as to the likely success of SYRI’s pipeline of new products.

Why I prefer Mr McKeown’s basic approach

[54]Moving on to Mr McKeown, Krishna’s basic criticism of him was that his approach was too conservative, and did not properly or adequately reflect the fact that SYRI was in a phase of substantial growth. This overall criticism had a number of components: for example, it was argued that in calculating a figure for maintainable EBITDA, Mr McKeown paid insufficient regard to the projections made by SYRI’s own management in their 2019-20 budget (see above at [33]); it was argued that in identifying his multiple, Mr McKeown relied on inappropriate comparables which were of standard generics companies not specialist businesses like SYRI; it was argued that Mr McKeown had relied too heavily on Samit for the provision of information, when Samit has been found to be unreliable; and it was argued that Mr McKeown’s approach relied impermissibly on hindsight.[55]A number of these points are linked. I will deal with the main points of principle first in this section of this Judgment, and will then make some comments in the next section below about Mr McKeown’s assessment of SYRI’s maintainable EBITDA.

Was SYRI in a period of substantial growth?

[56]To begin with, Krishna’s argument that SYRI was in a phase of substantial growth depended materially on Dr Frei’s assumptions about new products in the pipeline achieving commercial success. I have already explained why I consider those assumptions to have been too ambitious. Mr McKeown’s approach in his Report was more conservative, and proceeded on the footing that the uncertainties in the business model (the difficulty of obtaining new licences, together with the likelihood of competitors eating away at the profitability of existing licenced products) meant that the sensible assumption was that products in the pipeline would likely replace existing income streams, but not grow profitability in any material way. I prefer that approach to the approach of Dr Frei, and therefore adopt Mr McKeown’s view (although I will need to deal separately below with certain adjustments, which have an impact on his EBITDA figure: see further at [70] et seq).

Selection of comparables (and therefore a multiple)

[57]I am not persuaded there is anything in the point that Mr McKeown’s selection of comparables was inappropriate, or led to identification of an inappropriate multiple. The selection of comparables is hardly ever exact, and the practical limitations of the exercise have to be recognised.[58]Mr McKeown’s basic methodology was to identify publicly listed companies producing generic products as part of their wider offering. Having selected a batch of 15 comparables, Mr McKeown then identified a median forward multiple from those comparables – meaning, he calculated for each of them the ratio between their current enterprise value and projected EBITDA over the coming year, and then calculated the mid-point of all 15, to provide a median ratio or FY+1 multiple of 8.04x (I will explain further below what is meant by an “FY+1” multiple). The overall approach is shown in the following Table, taken from Mr McKeown’s Report at para. 5.3.2:[59]Taking the overall median average FY+1 EV/EBITDA multiple of 8.04x as his starting point, Mr McKeown then estimated a range of between 7.95x and 8.15x to be appropriate in the case of SYRI.[60]This methodology strikes me as entirely sensible and unobjectionable, and in any event, that was not the end of his analysis. Mr McKeown did two further things. First, and as already noted, he applied a public to private discount of 30%, to reflect the fact that his comparables were all publicly listed companies and SYRI was not (the appropriate discount level is now agreed at 25%: see above at [41]). Secondly, Mr McKeown conducted a cross-check using private company transactions. One was an acquisition of Rosemont Pharmaceuticals Limited in 2020. Interestingly, Dr Frei in his Report also identified Rosemont as a comparator, and referenced an earlier transaction in 2013. I take comfort from the fact that both experts thought Rosemont a sensible comparator, and I think it correct – as Mr Anderson KC submitted – to treat it as the closest comparator that either of the experts could find. As Mr Anderson KC pointed out, that reinforces the logic of accepting Mr McKeown’s overall conclusion, because the Rosemont transactions both yielded multiples in the range of 6 to 7x (close to the figures identified by Mr McKeown of 7.95x and 8.15x before discounting, and 5.57x and 5.71x after – in particular allowing for the fact that Rosemont was a long established and much larger company than SYRI, and thus would be expected to attract a higher multiple).

Forward Multiples

[61]One particular aspect of Mr McKeown’s methodology which was the subject of criticism was his use of forward multiples. Mr Quirk KC criticised this technique as artificial and as not making sufficient allowance for the future growth of SYRI. He sought to bolster this argument by making reference to SYRI’s statutory accounts for the financial year 2022-2023.[62]To explain, and as shown above, Mr McKeown’s calculations were of forward multiples: that is to say, in the case of each of his 15 comparator companies, he calculated the ratio between its current enterprise value and its projected future earnings, as estimated by industry analysts contemporaneously with the Valuation Date. Such multiples are typically described as follows: “FY+1” means the ratio of current enterprise value (“EV”) to projected EBITDA over the coming year, and “FY+2” the ratio of current enterprise value to projected earnings over the next 2 years, and so on. The ratio or multiple will decline if the projection is that earnings will grow: if projected FY+2 earnings are higher than those for FY+1, then obviously, since the figure for current enterprise value in the calculation stays the same, the ratio between the two will be lower.[63]I find Krishna’s criticisms of Mr McKeown’s methodology misplaced and wrong. Although different valuation methodologies are available when valuing a company like SYRI, I see nothing inherently objectionable in use of a method which relies on forward multiples. There is some degree of weakness in it of course, in that it relies on estimates of future earnings (which are necessarily uncertain), rather than on data reflecting historic performance. But equally, there are dangers in relying on the latter, because historic performance may not be a reliable guide to what is to happen in the future. No sufficiently clear or compelling reason was advanced before me to call into question the basic logic of Mr McKeown’s approach. On the contrary, it seems to me there is good sense in it, because given its business model, a purchaser of SYRI in 2019 would have been interested principally in its future earning potential, and its historic performance over its short life when it was seeking to establish itself would not have been an attractive basis for valuing its future performance.[64]On the basis of Mr McKeown’s evidence, I also reject the notion that his use of forward multiples made no, or no adequate, allowance for growth. They did make an allowance for growth in future earnings, albeit not at the level suggested by Dr Frei’s analysis.[65]That some level of growth is implied in Mr McKeown’s forward multiples is clear from his calculations. Of the 15 comparators chosen by him, 14 were projected to increase EBITDA over the course of 3 years (FY+1, FY+2 and FY+3). That is illustrated by the fact that in the case of each of those companies, the EV/EBITDA multiple reduces over time (see the Table above at [58]). That is what one would expect from companies whose earnings are growing. The other four companies show negative growth; but the average over the 15 is for growth over a three year period.[66]Taking these figures, Mr McKeown in his Supplemental Report calculated a median compound annual growth rate (“CAGR”) among the 15 companies in his comparables list, over a three-year period. His evidence, which I accept, was that his median FY+1 multiple of 8.4x implied a median CAGR of 7.3%. I therefore reject the submission made by Krishna that Gowrie’s calculations assumed no growth in earnings. They did. As to whether the assumed rate of growth was adequate or not, that raises the same point addressed already, as to the experts’ differing views about the prospective value of SYRI’s product pipeline. I have already explained why I prefer Mr McKeown’s approach to that issue, and I agree with Mr McKeown’s overall assessment that the rate of earnings growth implicit in his multiple was adequate in the circumstances.[67]That conclusion is reinforced by looking at SYRI’s actual earnings in periods after the Valuation Date. These are shown in the Table above at [51], which it will be recalled shows steady performance in periods up to September 2022, but then a stronger performance in the year 2022/23, when EBITDA was £7.986m.[68]Mr McKeown was challenged in cross-examination on the basis that his assumptions about projected growth were not borne out by SYRI’s actual performance in the 2022/23 year. But I agree with the Gowrie Respondents that on analysis that is not correct, because taking Mr McKeown’s unadjusted starting figure of £5.5m EBITDA (see [40] above) and assuming compound annual growth of 7.3% between 2019 and 2023, produces EBITDA of £7.3m in 2023, which is not too far away from the actual out-turn. As I have mentioned, Dr Frei’s calculations arrived at a forecast EBITDA for SYRI of £13m in 2023, very far in excess of the actual figure.[69]Another point of comparison reinforces the conclusion. If you apply a 7.3% growth rate to a starting figure of £5.5m year-on-year over a 4 year period, the cumulative total comes to roughly £28m. That is greater than the cumulative total of SYRI’s actual EBITDA figures for the 2019-2023 period (£24,478k). To put it another way, Mr McKeown’s assumed rate of growth was in fact a generous one, when compared to the actual rate of growth achieved by SYRI over that same period.

Maintainable EBITDA on Mr McKeown’s Approach

[70]In his calculations one of Mr McKeown’s key inputs was his figure for SYRI’s maintainable EBITDA. His starting point was to take an annualised EBITDA figure for 2019 of £5.524m, and then to make deductions reflecting certain expenses, namely(1) director’s remuneration for Samit including NI and pensions contributions and(2) an increased figure for rent on a property at Bradfield Road, Ruislip. Applying these deductions gives Mr McKeown’s adjusted figure of £5.033m mentioned above (see at [40]).[71]By the time of the Closing Submissions, in light of Mr McKeown’s cross-examination as to the basis of his adjustment for rent (point (2) above), Gowrie were not pressing for any adjustment on this basis, so that point falls away.[72]That leaves open the question whether there should be an adjustment to reflect the cost of Samit’s commitment to SYRI. This is part of the more general topic referred to by the parties as “Hathi Family Remuneration”. It is convenient to discuss that topic in this section of this Judgment. Having done so, I will also in this section deal briefly with the point mentioned at [33] above, namely Krishna’s reliance on SYRI’s budget for 2019/20, as reflected in its May 2019 management accounts.

Hathi Family Remuneration

[73]This is one of a number of issues which raise questions about the relationship between the present valuation exercise and matters determined in the Liability Judgment. Both sides, in different ways, have sought to revisit certain issues dealt with in the Liability Judgment where it suits them to do so. That seems to me to be undesirable as a matter of principle.[74]The issue of Hathi Family Remuneration is one such issue. This is of relevance at a number of points in the present context:(1) because remuneration paid to management is a business cost, it is relevant to calculation of the maintainable EBITDA of SYRI;(2) for the same reason it is relevant to calculation of the maintainable EBITDA of LBNS; and(3) it is also relevant to calculation of the Equalisation Amount, because to the extent members of the Hathi family received payments or remuneration in excess of market levels, such amounts should be deducted from the EqAm.[75]The issue of remuneration paid to the Hathi family was debated in some detail at the trial on liability, and is dealt with in the Liability Judgment at paras. [314]-[322], in a section under the general heading, “Other Matters Affecting Value”. At [313] of the Liability Judgment, in introducing that section, I said:
“I turn then to certain other matters affecting value which have been debated in detail and which can be resolved.”
[76]The basic point resolved as regards the question of Hathi Family Remuneration was that the Gowrie side had conceded, in a letter from their solicitors, Blake Morgan, in December 2018 that there had been overpayments of remuneration to a number of family members (by reference to applicable market rates) over a number of years. Among other data points, the figures in the Blake Morgan letter indicated market levels of remuneration for Samit of £180,000 per annum in relation to his work for LBNS, plus (for the year to 31 March 2017), roughly £147,613 in respect of “R&D” – meaning, as regards his work for SYRI.[77]At [322] of the Judgment I said: “In short, on the topic of Hathi family remuneration, I accept that in calculating the value of the B Shares, an allowance will need to be made for excess amounts beyond the market remuneration levels identified in ... the Blake Morgan letter. Calculation of the precise figures can await the quantum stage, but I should say now that the figures put forward by Krishna’s expert Ms Hart (a £3m excess up to 31 March 2018, excluding pension benefits of an additional £1.15m) appear persuasive, and the Court will need good reason to depart from them”.[78]As regards the expert evidence in the present quantum phase, the following points may be noted: i. Mr McKeown, in his calculation of maintainable EBITDA for SYRI, allows for remuneration to Samit (or an equivalent manager) at a market level of £300,000 p.a. in respect of SYRI alone as at the Valuation Date. That takes no account of the Liability Judgment. It is based on Mr McKeown’s own desktop research, and as he himself concedes (Report at 5.2.5), he is not an expert in the field of remuneration. ii. Mr Davies, in a section of his Report headed “Excess Remuneration”, assumes market levels of remuneration for Samit in his two roles (at LBNS and SYRI) up to March 2018, at the levels shown in the Blake Morgan letter and effectively endorsed in the Liability Judgment – so, for example, he takes figures for the period to 31 March 2018 of £180,000 p.a. and £147,613 p.a. (see above). Importantly, though, in calculating the maintainable EBITDA for LBNS, Mr Davies did not go beyond March 2018 and express any view, or propose any adjustment, as regards market remuneration levels as at the Valuation Date in June 2019. That is because he was instructed not to. He said so in the Joint Statement: “JD’s understanding of his instructions is that directors’ remuneration following FY 18 was not brought into question in the liability trial hence JD does not consider it necessary to make this adjustment within his own or [Ms Hart’s] approach.” iii. Mr Davies adopts the same approach in dealing with the Equalisation Amount, and makes no deduction for any overpayments after 31 March 2018. At the same time, in coming to an overall adjustment to the Equalisation Amount, Mr Davies nets off what he effectively treats as underpayments for the years ending March 2011 and March 2012, when the actual remuneration paid to members of the Hathi family was at rates lower than the market levels recorded in the Blake Morgan letter. iv. Ms Hart meanwhile, in calculating maintainable EBITDA for LBNS as at the Valuation Date in June 2019, assumed market rates for LBNS’s management of £380,000 p.a., including for Samit of £180,000 per annum, based on the concessions in the Blake Morgan letter and the findings in the Liability Judgment. These figures were below the amounts recorded by LBNS in its audited accounts, which totalled £600,000 when annualised; and so Ms Hart made an adjustment by way of a £220,000 deduction, which had the effect of increasing LBNS’s maintainable EBITDA by the same amount. Ms Hart took the same approach as regards the Equalisation Amount: she assumed that any remuneration above £380,000 per annum was in excess of market rates for periods between 1 April 2018 and the Valuation Date in June 2019, and thus should be deducted from the Equalisation Amount.[79]Unfortunately, the resulting picture is something of a muddle. I would propose to proceed as follows: i. A fair reading of the Liability Judgment is that I proposed to adopt the figures in the Blake Morgan letter for valuation purposes, unless there was good reason not to. Even at the time of the Liability Judgment, the parties had settled on 25 June 2019 as the Valuation Date: their agreement on it is referenced in the Liability Judgment at [377]. ii. That being so, it seems to me it was up to any party who wished to depart from the approach in the Liability Judgment to produce evidence which would justify such a departure. Ms Hart did not wish to depart from it, and so she assumed that what the Liability Judgment had identified as market levels of remuneration would continue up to the Valuation Date. That was a perfectly sensible and proportionate approach. The purpose of dealing with the issue of remuneration in the Liability Judgment was to resolve matters that would contribute to the valuation exercise: the Liability Judgment said so at [313] (quoted above in this Judgment at [75]). iii. Gowrie have not produced any evidence which persuades me there is good reason to depart from the view expressed in the Liability Judgment. As noted, Mr Davies did not produce any evidence at all as to market rates after March 2018, on the basis of his instructions that directors’ remuneration following FY 18 was not brought into question in the liability trial. I think those instructions were based on a misapprehension. After the Liability Judgment, matters were left on the basis that Ms Hart’s calculations would apply for valuation purposes, unless some good reason was advanced for displacing them. That required Gowrie to take positive action if they wished to do so. Not having done so – and indeed having positively chosen to adopt a passive posture in Mr Davies’ evidence – they cannot complain if the approach suggested in the Liability Judgment is now implemented by the Court adopting Ms Hart’s figures, both in calculating maintainable EBITDA for LBNS, and in calculating the Equalisation Amount. Also to the latter, I agree with Krishna’s submission that it would be wrong in principle to adopt Mr Davies’ netting-off approach, described above: the fact that LBNS may have elected to pay its directors less than market rates in FY11 and FY12 does not mean that the differences should be netted off from the later excessive sums taken. There is no good reason why Krishna should have to pay for that earlier election. iv. What of Mr McKeown’s figures? One problem is that by his own admission Mr McKeown is not an expert in the field of remuneration. As he himself says (Report at para. 5.2.5), the role occupied by Samit was a somewhat bespoke one, and moreover there was plainly overlap between Samit’s function in relation to LBNS and his role in relation to SYRI, which makes the process of assessing remuneration costs that much more difficult. Thus, although generally impressed by Mr McKeown’s evidence, I feel much more cautious in accepting his desktop research as providing a reliable guide. Nonetheless, I do take the point that Ms Hart’s original figures did not make any allowance for the cost of a managing director of the SYRI business. She included an allowance of only £180,000 per annum for Samit in relation to LBNS, and made no allowance for the costs of his function in SYRI - the £147,613 in respect of “R&D” referenced in the Blake Morgan letter. I thus propose to deal with this point as follows. First, I consider that it is legitimate, in calculating a maintainable EBITDA for SYRI, to include an allowance for the cost of a manager performing the functions performed by Samit. But given my doubts over Mr McKeown’s desktop research, I consider that the best and fairest approach is to use the figure Gowrie themselves were happy with, set out in the Blake Morgan letter. Accordingly, I think the calculation of maintainable EBITDA should reflect a salary cost for a senior manager of £147,613 per annum, plus the cost of corresponding NI contributions and pension contributions. There is then though the issue of the Equalisation Amount. What is the proper outcome there? I think the position is different, and in my opinion the proper approach is for any remuneration paid to Samit in respect of SYRI to be treated as an overpayment and deducted from the Equalisation Amount. Assessing maintainable EBITDA has to involve an allowance for the cost of having someone run the business. But equalisation is about an accounting between the parties. I think it entirely fair to deduct from the running account the value of compensation received by Samit for running a business which, as the Court has found, was fraudulently diverted from the parties’ joint enterprise. To do otherwise would not be an appropriate remedial response to the unfair prejudice the Court has found. On the contrary, it would involve rubbing salt into the wound.

The SYRI Budget

[80]I have mentioned this above. Among the documents produced by the Gowrie Respondents is a spreadsheet containing projections for SYRI for 2019/20. This must have been produced in about June 2019, because it shows actual results for April and May. Overall, it predicted EBITDA growth from £5.058m to £8.815m over the coming year, and showed actual performance for April and May 2019, in the period immediately prior to the Valuation Date, as broadly in line with the budget. Krishna placed particular emphasis on these figures in its submissions as providing endorsement for Dr Frei’s assessment of SYRI’s value.[81]I find the budget of limited evidential weight, however, and its existence does not persuade me that I am wrong to prefer the opinion of Mr McKeown over that of Dr Frei.[82]To begin with, Dr Frei did not base his income model directly on the budget figures: he used a figure of £8.2m, not £8.8m, as the EBITDA for 2019-2020. So neither expert treated it as wholly reliable and invited me to accept it without qualification.[83]Further, there are other evidential indicators that the £8.8m budget figure was unreliable, and not safe to adopt without more. As Mr Anderson KC pointed out in submissions, other management information available as at June 2019 showed that sales were dropping as against budget by that stage, which would have been an obvious matter of concern, including to any potential purchaser. Other factors were also in play: for example, Oxybutinin, which had contributed hugely to sales in the calendar year 2018 (£3,996,234 out of £9,567,638 – 41% of all sales) had historically enjoyed exclusivity, but a competitor had finally entered the market in April 2019; and similarly sodium bicarbonate (£1,011,771 or 10% of sales over the same period) saw a competitor enter the market in January 2019.[84]The effect of these points is to raise serious doubts about the reliability of the budget figures as a basis for a reliable valuation. The concern is only increased by the fact that the actual EBITDA figure achieved for 2019/20 was only £6.359m, followed by lower figures for the succeeding two years.[85]It is possible (although I think doubtful) that such concerns might have been addressed by interrogation of the budget figure during the trial, but that did not happen. Neither side having placed it at the centre of their respective cases, Samit did not give evidence about it in his witness statement, he was not cross-examined about it, and neither was Dr Frei asked about it. The background to it, the precise context in which it was prepared and the analyses underlying it therefore remain obscure. As Mr Anderson KC pointed out, there is no evidence that it was ever used for any decision making, we do not know if it was agreed by the non-executive directors, and there is no evidence that it was presented to a bank or other third party. In such circumstances, I do not have sufficient confidence in it to be able to place material reliance on it. Mr Quirk KC said I should, and that it had been put forward by the Respondents as their document, and they should (in effect) be bound by it. Respectfully, that seems to me to be too simplistic a view. A Court is not bound to rely on a document, whatever its source, if there are sensible reasons for questioning its reliability. Here, in my view, there are such reasons.[86]In the event, the only person cross-examined as to the budget figures was Mr McKeown. He said:
“Well, without hindsight, I would have questioned why the number looks so strong, given the number of licences, and with the increasing competition on the existing products they had, I would have expected the margin to reduce, and yet the management accounts were showing this substantial number.”
[87]I accept that evidence, and thus share Mr McKeown’s understandable reservations about reliance on the budget figure.

Conclusion on SYRI enterprise value

[88]I will leave the parties to carry out the calculations, but it follows from what I have said above that in my opinion the valuation of SYRI should include the following steps:(i) take Mr McKeown’s figure for maintainable EBITDA of £5,524,000;(ii) adjust to allow for remuneration at the level indicated in the Blake Morgan letter (£147,613 per annum);(iii) apply Mr McKeown’s FY1 multiple of 8.04x;(iv) apply the 25% public to private discount the experts were agreed on. V. LBNS Enterprise Value

Background

[89]Unlike SYRI, LBNS was an established business in 2019. It was involved in a number of areas, including in particular the purchase and resale of generic medicines, and operation of a parallel imports business – i.e., the importation of pharmaceutical products from abroad and their repacking or rebranding to meet United Kingdom packaging standards.[90]Two particular points should be noted, which featured in the arguments about valuation. Both relate to the fact that LBNS operates in a regulated industry – pharmaceuticals – which generates a certain level of risk.[91]One point is that a competitor company, Bristol Laboratories Ltd (“Bristol Laboratories”), had been subject to a licence suspension by the MHRA. Bristol Laboratories is a major generics supplier. Samit gave evidence that in the financial year 2018/19, LBNS experienced a boost due to the licensing issues affecting Bristol Laboratories. But the licence suspension came to an end in June 2019, and Bristol were to be allowed to resume full manufacturing operations.[92]The second point is that LBNS was itself subject to a licence suspension by the MHRA. According to Samit, there was a surprise inspection of LBNS’s operations on 20 and 21 May 2019. The inspectors identified significant deficiencies in LBNS’s systems. There were communications about resolving matters, but despite that, on the afternoon of 20 June 2019, LBNS received notification that five of its licences were being suspended. The licence suspension was for an initial period of 3 months, to allow time for remedial action to be taken. This was done and in fact the suspension was lifted on 23 August 2019, following a further inspection on 19 August. But there was some disruption in the meantime. This was not the first time LBNS had been subject to a licence suspension: it had also happened in 2016.[93]In his oral evidence, Samit frankly accepted a degree of personal culpability in connection with the licence suspension. One of the issues identified by the MHRA was that so-called “Responsible Persons” did not demonstrate adequate knowledge of the relevant licensed activities. Samit said in cross-examination:
“Yes, so it’s a very specialist role and it requires a full-time person to do it. We made the mistake that we were doing this as a part-time thing. The reality of it is that we needed senior people only concentrated on this.”
[94]Samit was himself one of the Responsible Persons. In the same passage in his cross-examination he accepted: “That was one of the things that I got wrong. I should not – I should have hired other people to do the job, taken on the expense. I didn’t”.[95]As it happens, on the same day as the licence suspension, on the morning of 20 June 2019, Samit had made a presentation to LBNS’s banking syndicate, HSBC, Lloyds and BNP. A set of PowerPoint slides were prepared. These mentioned the possible effects of the Bristol Laboratories licence suspension, but did not mention the possibility of LBNS’s own licences being suspended, which Samit said was a surprise when it occurred on the afternoon of the same day.[96]Among the information presented was a summary of actual performance for the 2018-19 year, and a forecast of expected future performance including for the coming 2019-20 year (this came to be referred to as “the Forecast”). The following table shows the main points: Item 2019 (£’000s) (Actual) 2020 (£’000s) 2021 (£’000s) 2022 (£’000s) Revenues 255,490 258,176 259,835 262,636 Gross profit 32,471 30,241 30,349 30,446 EBITDA 6,433 3,965 3,553 3,425[97]A further forecast was prepared and presented to the banking syndicate in early July (“the Reforecast”). This was after the MHRA licence suspension, and so it presented a gloomier picture. In fact, it assumed a 6 month period of licence suspension, whereas as I have mentioned, LBNS’s licences were in fact restored after about 2 months, in August 2019.

The competing positions

[98]Both experts focused on the market approach. The main issues between them concern identification of an appropriate maintainable EBITDA for LBNS, and identification of an appropriate multiple to generate an enterprise value. In summary: i. Ms Hart assessed maintainable EBITDA at £8.164m (£8.2m rounded up), and applied a multiple of 8.2x, to give an enterprise value of £67.2m in round figures. ii. Mr Davies’ figure for maintainable EBITDA was 5.6m, to which he applied a 7x multiple before further discounting, to produce an overall enterprise value of between £33m and £38.3m.[99]I will deal with these issues in turn.

Maintainable EBITDA for LBNS

[100]Ms Hart in her initial Report identified a number of problems with the financial data made available by LBNS. One concerned LBNS’s management accounts. Although Ms Hart said that she would usually prefer to rely on management accounts as the basis of her analysis, her view was that LBNS’s management accounts had a number of shortcomings and so she was reluctant to place reliance on them without qualification. She also had reservations about using the Forecast (see [96] above). Although she thought the projected revenues in the Forecast reasonable but conservative, based on LBNS’s historic performance, she was much more concerned that the assumptions in the Forecast regarding profit margins did not make sense and appeared to contradict LBNS’s historic performance. She concluded that it was not appropriate to rely on the budgeted profits as a reliable representation of future performance for the purposes of her valuation.[101]Faced with these issues Ms Hart’s initial methodology involved her(i) taking the 2019/20 projected revenue figure from the Forecast of £258,176k, but adding a 2% uplift to take account of its conservatism to give a revised figure of £263,340k; and(ii) calculating EBITDA by reference to LBNS’s September 2019 audited accounts (which involved her making certain adjustments including as to Hathi Family Remuneration), then working out the EBITDA margin from those accounts and applying that margin to the uplifted forecast sales. That methodology produced an overall EBITDA figure of £8.2m.[102]As to Gowrie’s expert Mr Davies, he chose not to rely on the Forecast, but instead on a combination of(i) actual figures for the period April 2018 to June 2019, and(ii) thereafter, projections from the Reforecast for the period July to September 2019. That produced his figure for maintainable EBITDA of £5.6m.[103]There was later a change in Ms Hart’s approach, however. This is explained in the Joint Statement prepared by Ms Hart and Mr Davies. In short Mr Davies, who it seems had had access to contacts on the Gowrie side who had been able to explain matters to him in detail, was able to provide “certain explanations and clarifications” about the management accounts, which meant that Ms Hart developed a higher degree of confidence in them. In light of that Ms Hart reconsidered her position on the management accounts, and in the Joint Statement said:
“KH now considers the management accounts for the year ended 31 March 2018 and the period ended 30 September 2019 to be sufficiently reliable for valuation purposes.”
[104]Taking the management accounts (rather than the Forecast) as a starting point, and after making certain adjustments to them as well (to be considered further below), Ms Hart calculated a further figure for maintainable EBITDA of £8.376m.[105]Matters moved on further during the trial. Gowrie’s main criticisms of Ms Hart were(1) that in her calculation based on the Forecast, her application of a 2% uplift to LBNS’s revenue figures was unwarranted,(2) that neither of her approaches made adequate allowance for the effects on LBNS of the June 2019 licence suspension,(3) that neither did she make adequate allowance for the effects of the Bristol Laboratories licence suspension, and its recent reinstatement, and(4) that a number of her detailed adjustments were unjustified.[106]In his cross-examination of Mr Davies, Mr Quirk KC was particularly critical of Mr Davies’ approach insofar as it was based on the Reforecast, because using the projections in the Reforecast as the basis for calculating maintainable EBITDA meant assuming that the disruptions caused by the June 2019 licence suspension would effectively be replicated year-on-year.[107]An interesting dynamic developed when the parties came to their closing submissions, because unusually, the Gowrie side were somewhat critical of their own expert. To start with, they recognised the force of Krishna’s point that Mr Davies’ reliance on the Reforecast overstated the impact of the 2019 licence suspension. Not only that, but they also expressed reservations about the other component of Mr Davies’ methodology, because by giving three-quarter weighting to LBNS’s actual results to June 2019, they said he failed to take account of the fact that profitability in that period was temporarily enhanced by the Bristol Laboratories licensing issue.[108]One thing which is obviously clear from this is that I should not adopt Mr Davies’ figure for maintainable EBITDA. Not even those instructing him invited me to do so.[109]Faced with this, the submission of Mr Anderson KC for Gowrie was that I should simply adopt the EBITDA projection for 2019/20 in the Forecast of £3.965m (see the Table above at [96]), but make certain upward adjustments to it to give an overall EBITDA figure of £5.6m, which coincidentally was the same as that proposed by Mr Davies. Mr Anderson KC argued that the Forecast was the best contemporaneous evidence of expected profits for the coming year, representing management’s genuine and reliable expectations. He argued in particular that Ms Hart had had no proper basis for adding a 2% uplift to the revenue figure in the Forecast, and that her concerns about profit margins really emanated from the same concerns that had led her to mistrust the management accounts; but those concerns having been assuaged as a result of Ms Hart’s discussions with Mr Davies, one could be confident that the projections in the Forecast – although they appeared low – were reliable.[110]I do not agree with these criticisms of Ms Hart’s analysis, and I accept her view of LBNS’s maintainable EBITDA. My confidence in her calculations is reinforced by the fact that her two approaches resulted in similar figures (£8.2m on her first approach, and £8.376m on her second). I am also unattracted by the idea of adopting an approach which was suggested by neither expert, as a form of rough and ready response to the problem for Gowrie created by the fact that in the end they did not wish to adopt Mr Davies’ methodology.[111]As to Ms Hart’s first approach, based on the revenue figures in the Forecast plus a 2% uplift, together with an adjusted profit margin, my view of it is that Ms Hart’s approach was a justified and sensible one on the available evidence.[112]Taking the 2% uplift on sales first of all, Ms Hart’s explanation was that(i) the Forecast itself stated that it was conservative, and(ii) when she compared the 2018-19 budget with the sales in fact achieved in 2018-19, they were understated (roughly £249.6m forecast as against roughly £255.5m in fact achieved to March 2019). Mr Anderson KC criticised this approach and said that Ms Hart was reading too much into the statement that the Forecast was conservative, but I disagree. She was considering that statement in light of the previous year’s performance. That justified her conclusion, and she did not in my view need to go back further in time to see whether there was a trend of under-budgeting. A one-off underestimate, taken together with the express statement in the Forecast, was enough to justify the assumption made.[113]As to the question of profit margins, there was some evidence of conservatism in forecasting in this respect as well, in the sense that the budgeted profit margin for the previous 2018-19 year (11.8%) had also been exceeded (the management accounts to March showing a gross profit margin of 12.7%). That caused Ms Hart to be cautious about the projected profit margin in the Forecast for 2019/20, which was only 11.7%.[114]More broadly, the question of ongoing profitability was tied up with the matter of the Bristol Laboratories licence suspension. Mr Anderson KC’s submission, made on the basis of Samit’s evidence, was that a more conservative profit margin was justified as at the Valuation Date because of the anticipated effect of the Bristol Laboratories licence suspension coming to an end.[115]There are at least three responses to this, however.[116]First, as I have already noted, Mr Davies’ methodology made no allowance for the effect of Bristol Laboratories recovering their licences. That effectively became a point of criticism against him by his own side. The fact that he did not think it a significant factor is an unpromising start for the submission that it is of such central importance in calculating LBNS’s profitability.[117]The second point is that the evidence of the actual effects of the Bristol Laboratories licence suspension is opaque and somewhat inconsistent. Ms Hart prepared a graph tracking the movement in monthly gross profit margin achieved by LBNS on sales of generics, but no clear picture emerges:[118]As Ms Hart pointed out, her graph shows gross profit margins increasing rapidly in the period prior to suspension of the Bristol Laboratories licences; then rising further after the suspension; then dropping sharply around three months later before rising again; then dropping and rising again before the licences were reinstated. When cross-examined about this, Ms Hart said she could see no clear correlation between the Bristol Laboratories licence suspension and increased profit margins, because if there was a direct impact, she would have expected to see margins increasing, remaining high, and then dropping again on reinstatement. She said there was something strange going on during this period which she could not explain, and she could not say clearly whether it was caused by the Bristol Laboratories licence suspension or not. I agree with that assessment.[119]The third point is that, as Ms Hart also pointed out during her cross-examination, the Bristol Laboratories issue was likely in any event to affect only part of LBNS’s business, namely the generics side, and so would not necessarily affect a valuation of LBNS as a whole. It is true that Ms Hart’s investigations into this issue came late and were somewhat limited, but still she determined that although there was evidence that the margin on sales of generics had fallen somewhat after reinstatement of the Bristol Laboratories licenses, there was also evidence that during the same period the margin on parallel imports had increased, and so as Ms Hart put it, they “kind of offset”. Admittedly, this was not a main part of Ms Hart’s analysis, and neither is it a main part of mine, but it is enough to reinforce the sense of scepticism generated by other factors as to the likely overall impact of the Bristol Laboratories issue.[120]All these matters taken together lead me to consider that Ms Hart was correct to have reservations about the profit margin projected in the Forecast, and to adjust it accordingly.[121]As I have said, in my judgment these conclusions are reinforced by Ms Hart’s further and alternative calculations based on LBNS’s management accounts, which produce an EBITDA figure of £8.376m. To emphasise, however, that figure depends on certain adjustments made by Ms Hart. I will deal with the issue of adjustments in the next section of this Judgment.

Adjustments

[122]Ms Hart in her calculations made adjustments both(1) in her first set of calculations, to LBNS’s statutory accounts for the period ending September 2019; and(2) in her second set of calculations, to LBNS’s management accounts. Certain of the adjustments were unobjectionable and were agreed, but some deserve mention and some were controversial.[123]Those falling within category (1) (adjustments to the statutory accounts) included (i) a reduction to EBITDA by reference to a notional rent for the Perivale Property; (ii) an increase in EBITDA to reflect lost income arising from the June 2019 licence suspension; and (iii) an increase in EBITDA to reflect overpayments of remuneration to the Hathi family at above market rates.[124]These can be dealt with briefly: i. Perivale Rent: This is dealt with below at [169]-[179]. For the reasons set out there, I agree with Ms Hart’s conclusion that LBNS’s maintainable EBITDA should be reduced by a notional market rent in respect of the Perivale Property. ii. Licence suspension: Gowrie in the end accepted that it was appropriate, if calculating EBITDA using trading results which are diminished by the June 2019 licence suspension, to adjust upwards as Ms Hart had done. iii. Hathi family Remuneration: I have set out my position on this topic above at [79]. It follows from what is said there that I accept Ms Hart’s adjustments as correct.[125]The adjustments falling within category (2) (adjustments to the management accounts) are more controversial and difficult and I will need to deal with them in more detail. They are as follows:(i) a reduction to exchange rate losses;(ii) reversal of certain exceptional cost items;(iii) reversal of bad debts; and (iii) reversal of certain professional charges.[126]Taking them in turn, my conclusions are as follows.

Exchange Rate Losses Reduced

[127]The issue here simply expressed is that in the June 2019 management accounts, foreign exchange losses for the period from July 2018 were reported as being £1.227m. Ms Hart considered this figure high by reference to the position historically.[128]To compensate, Mr Hart’s methodology looked at the September 2019 audited accounts, which showed that in fact by then, foreign exchange losses in the period since July 2018 had reduced to £824,000. Ms Hart annualised that figure to arrive at a yearly figure of £550k, and took that as a reasonable estimate of annual forex losses in her overall EBITDA calculation as at June (by adding back some £677,000 – the difference between her annualised figure of £550,000 and the figure of £1.227m shown in the management accounts).[129]In cross-examination and in submissions, Mr Anderson KC criticised this approach. Essentially he said it was artificial, because in adopting it Ms Hart had effectively evened out across the period July 2018 to September 2019 the benefit of forex gains which had in fact all been made after the June 2019 Valuation Date, in the period between July and September: these gains had all arisen from an unusual set of circumstances, including the June licence suspension, which had led LBNS to have a surfeit of Euros to sell at what had turned out to be a profitable time. So Mr Anderson KC said there was no basis for an adjustment which de facto treated the relevant gains as having been made in the period up to June.[130]I see the logic of that point, but it is not enough to persuade me to disregard Ms Hart’s analysis, because that was simply designed to try and identify a reasonable and typical yearly figure for forex losses, and even if the snapshot in the management accounts as at June was correct, it was not a typical figure by historical standards: in fact, it was entirely atypical, because the historic figures were as follows: a £6,719 gain in 2015; a £115,210 loss in 2016; a £230,682 loss in 2017 (the Brexit year); and a £132,356 loss in 2018.[131]Viewed in this light I agree with Mr Quirk KC’s submission that Ms Hart’s assumed figure was a conservative and indeed generous one, because it was in excess of any foreign exchange loss LBNS had ever suffered. Mr Davies proposed a figure of £700,000 per year, but I think that was too pessimistic: as Mr Quirk KC again pointed out, it was three times the losses suffered in the Brexit year of 2017.[132]I will adopt Ms Hart’s figure.

Exceptional Costs Reversed

[133]The issue here is that costs amounting to roughly £0.3m are described in the June 2019 management accounts as “exceptional costs”. The question then arises whether they should be ignored in calculating EBITDA, since they are not recurring costs likely to affect a figure for maintainable earnings.[134]Ms Hart ignores these costs in her calculations; Mr Davies takes them into account.[135]Again on this point I agree with Ms Hart.[136]First of all, the costs are described in the management accounts as exceptional. I accept that that description is not of itself determinative, but there is evidential value in the fact that management at the time thought it to be accurate. It is true (as Mr Anderson KC pointed out in cross-examination) that the same costs are not described as exceptional in LBNS’s statutory accounts, but as Ms Hart explained, it is not unusual for that to happen, because it is entirely possible for cost items not to qualify as exceptional for financial reporting purposes, but still to be regarded by management as unlikely to recur and so legitimately to be regarded as exceptional in terms of the underlying trade of the business.[137]In any event, looking at the substance, the bulk of the costs (about two-thirds) related to re-financing. Ms Hart’s point here was that one would expect to exclude such costs from a calculation of EBITDA – because that calculation is designed to expose the earnings of a business before (inter alia) interest, and she regarded refinancing costs as conceptually in the same bracket as interest: the way she put it was that it was at least possible that a purchaser might wish to finance the business with equity instead of debt, in which case refinancing costs would be an irrelevance. The approach of Mr Anderson KC and of Mr Davies was to say it was quite unrealistic to think that any purchaser would fund the business with equity, without any borrowing.[138]I prefer Ms Hart’s approach. The logic of her position was to try to reveal the underlying value of the business measured by reference to its earnings. I think it legitimate to approach that exercise in a manner which excludes refinancing costs. One might say that reveals a weakness in using the EBITDA measure, but the fact is that both experts agreed that was the correct measure to use: they disagreed only about how the calculation was to be carried out. Further, it seems to me correct to say that refinancing costs are by their nature exceptional and unlikely to occur year-on-year, even if a business is funded with debt, because a refinancing should not be a regular exercise.

Bad Debts Reversed

[139]The short point here is that the June management accounts showed a bad debt provision of £400,000, whereas for the previous three years, LBNS’s bad debt provision had averaged only £21,000 per annum. Ms Hart made an adjustment, removing the provision to the extent of £426,000. Mr Davies made no adjustment.[140]I prefer Ms Hart’s approach. Mr Anderson KC challenged this, and said there was a basis for assuming that although LBNS had had a good debtor record historically, the market was changing, and in particular there was evidence of closures among community pharmacies who were among LBNS’s customers. But I find this a slim basis for challenging Ms Hart’s view: as Mr Quirk KC indicated in his written submissions, there is no contemporaneous evidence (internal emails or debt control letters, for example) suggesting that more debtors were in fact defaulting; and in fact the number of pharmacy closures in FY19 was only a tiny fraction of the 4,000 or so pharmacies LBNS supplied. In light of such factors, I do not think there is good reason to depart from Ms Hart’s view, and indeed I think it would be wrong in principle to include a bad debt provision at such an unusually high level, in light of the historical average.

Professional Charges Reversed

[141]This has two components. I agree with Ms Hart on both of them.(1) Ms Hart deducted from her calculations a £50,000 expense incurred by LBNS in relation to a professional business valuation, on the footing that this was a one-off cost not reflecting normal levels of expenditure. That seems to me to be a reasonable assumption and no principled reason was articulated by Mr Davies as to why it might be wrong.(2) Ms Hart capped LBNS’s recurring costs for professional fees at £400,000, whereas Mr Davies allowed £634,000. I prefer Ms Hart’s approach in circumstances where the figures for the three years prior to the valuation date were £381,000, £64,000 and £388,000 respectively.

What is the appropriate multiple?

[142]The next stage in the analysis, having identified an appropriate figure for maintainable earnings, is to identify a suitable valuation multiple.[143]There are a number of points here.

Comparator Pool: Regression Analysis

[144]It is convenient to start with selection of the comparator pool, and to begin with Mr Davies’ methodology.[145]Mr Davies identified a shortlist of 7 listed companies as comparators. Having done so, a main part of his approach involved him conducting a regression analysis based on 6 of those companies for which relevant data was available. This was designed to compare EBITDA growth with EV/EBITDA multiples, in order to show there is a close correlation between the two. As I understood it, his point was that because there is such a close correlation, one can reliably use figures for EBITDA growth to infer an appropriate multiple.[146]According to Mr Davies’ Report, there was a high degree of correlation between earnings growth and multiples among his 6 comparator companies. In statistical terms correlation is expressed by means of an “R2” number, with a score of 1 indicating perfect correlation, and a score of zero no correlation - the analysis conducted by Mr Davies showed an R2 number of 0.93. Mr Davies’ conclusion on this point, expressed in his Report at para. 7.5.12, was that the regression analysis implied an EV/EBITDA multiple of c. 7x for a company like LBNS with a forecast 3-year EBITDA growth-rate of close to zero. He took that as his starting point, before further discounting.[147]Mr Davies’ regression analysis is reproduced here:[148]I am not persuaded by this approach, however, for the reasons developed by Krishna in its submissions. Its argument was that there is no such direct correlation between a company’s projected earnings growth and its EV/EBITDA multiple. The point is illustrated by an expanded regression analysis conducted by Ms Hart. This takes a larger sample size of 19 companies (the overall 19 originally identified by the experts before filtering), and plots EBITDA growth against EV/EBITDA margin for each of them, as follows:[149]As can be seen, this shows a much looser correlation: it gives rise to an R2 number of only 0.18. This suggests that the close correlation achieved by Mr Davies was really the product of the artificially small sample size used by him, and was not in fact indicative of a strong linear relationship between earnings growth and multiples in all circumstances. Mr Davies in his oral evidence said that the close correlation among his 6 comparators was not surprising and was just what one would expect, because they were similar companies which were all, like LBNS, involved in pharmaceutical distribution. That does not seem to me to answer the point, however. Some of Mr Davies’ 6 were in fact very large companies: Krishna drew attention in particular to McKesson Corporation, which has a market capitalisation of £21.469bn; Cencora Inc., which has a market capitalisation of £15.459bn; and Cardinal Health Inc., which has a market capitalisation of £14.894bn. Moreover, these companies operate across a wide range of areas including practice management, the sale of business solutions, consulting services, data analytics and the operation of pharmacies. Having regard to such points, Krishna’s argument was that it was artificial for Mr Davies to include these companies in his shortlist and to use them to promote his regression analysis, but at the same time to exclude other large pharmaceutical businesses with essentially similar profiles, whose inclusion in the regression analysis would quickly reveal a different picture. I agree with that point. I do not think the regression analysis is sufficiently clear or persuasive for me to adopt it.[150]All this leads me to favour Ms Hart’s approach, which was rather more straightforward, and was not so dependent on one metric (EBITDA growth) as a reference point. Having identified 16 broadly comparable listed companies, she then took the average multiple for entities with(1) EBITDA margins below 6% and(2) with either (a) stable revenues in the last twelve months and/or (b) EBITDA that declined in the last twelve months. This led her initially to identify 3 companies fulfilling these criteria, but she then added a further 2 from the listed companies relied on by Mr Davies. This approach led Ms Hart to identify a multiple of 8.2x based on historic data (last twelve months or “LTM”), or 7.9x based on forecast performance over the next twelve months (“NTM”). I accept those assessments. I prefer this approach because it relies on a wider set of data points to identify appropriate comparators (and therefore multiples), and thus takes account of a wider range of factors than those which feature in Mr Davies’ analysis.

Historic or Forward Multiples?

[151]The next point is about the use of historic (LTM) or forward (NTM) multiples.[152]As noted above, in her original calculations Ms Hart relied in part at least on the Forecast – i.e., she took the figure for projected sales in the Forecast plus a 2% upwards adjustment. That resulted in her EBITDA figure of £8.2m. To that forward looking figure, however, she applied an LTM multiple – i.e., a multiple based on historic last twelve month data for the comparator companies she had identified. The LTM multiple was 8.2x, producing an overall figure for enterprise value of roughly £67.2m.[153]There was arguably an inconsistency here, however: a mismatch arising from application of a multiple based on historic (LTM) data to a forward-looking (FY+1 – see above at [62]) EBITDA figure. Ms Hart felt her approach was justified, given the uncertainty over the figures in the Forecast and the fact that she had therefore effectively produced her own assessment which was not a formal forecast of the type that would be prepared by a listed company. Nonetheless, she accepted in the Joint Report that if, rather than a multiple based on LTM data, one were instead to use a forward (NTM) multiple and apply it to the same EBITDA figure, then one would arrive at a lower overall number. Ms Hart agreed that a forward (NTM) multiple based on her comparators would be 7.9x (not 8.2x), and thus applying this lower multiple to her EBITDA calculation based on the Forecast gives a lower enterprise value for LBNS of £64.8m - a reduction of roughly £2.4m from her original calculation.[154]That is looking at income projections based on the Forecast – Ms Hart’s original methodology. But as I have explained, her view on the limitations of LBNS’s management accounts, which had pushed her in that direction, later changed, and she came to have more confidence in the management accounts. Thus, in the Joint Statement she also put forward a different calculation: this took her adjusted figures from the management accounts as a starting point (£8.376m – or 8.4m rounded), and applied to it the 8.2x multiple Ms Hart had already identified based on LTM data. That was using like with like: the historic management account figures with a multiple reflecting historic data. This produced a higher figure for enterprise value than Ms Hart’s original calculation: £68.9m in round figures, reflecting an increase of roughly £1.7m in round figures on her original assessment of £67.2m.[155]Faced with this, Ms Hart’s approach in the Joint Statement was to say she did not consider that any reduction to her original calculation was required. Ms Hart was questioned about this in cross-examination, but maintained her position. In response to one of Mr Anderson KC’s questions about the Joint Statement, she said:
“ ... what I have set out here is that if I was to apply 7.9 to that forward looking information, the valuation would reduce by 2.4 million. If I took the other method of calculating EBITDA based on the management accounts and I apply that to the last 12 months’ multiple, the valuation would increase by 1.7m. I consider both approaches to calculating EBITDA are equally valid, so I see that one’s saying the valuation would go down a bit, one that’s saying it would go up a bit, so I have stayed in the same place.”
[156]I accept the logic and legitimacy of Ms Hart’s approach to this issue. It is sensible and pragmatic and accepts that there is a degree of subjectivity and imprecision involved in any valuation exercise. Her logic is to take what is roughly a mid-point between the competing figures, corresponding to where she started. I agree with that approach, which gains strength from the fact that each of the competing figures provides a cross-check against the other. One can thus have confidence that one is within an acceptable range.

Dispute over Ms Hart’s Approach

[157]Taking this approach resolves another point of dispute which emerged only in the parties’ closing submissions, which is that Krishna pressed me to adopt Ms Hart’s calculations based on the management accounts plus an 8.2x LTM multiple (on the basis that that was Ms Hart’s preferred approach), and Gowrie pressed me to accept Ms Hart’s original calculation utilising the Forecast, but using the lower, NTM multiple of 7.9x.[158]Ms Hart approach was based on neither of these calculations, however. As I understood her evidence, it was to stay with her original figure utilising the Forecast plus an 8.2x multiple, on the basis that although this had some possible shortcomings, it was justified given that it fell within the range identified by the possible alternative calculations described above.[159]As to Krishna’s argument, while it is correct that Ms Hart said that her preferred approach was usually to rely on management accounts, that is not the same as saying that in this case she had somehow abandoned her original approach when she carried out her revised calculations using LBNS’s management accounts. That is not what she said in the Joint Statement, where having referred to her additional calculations her comment was, “... KH does not consider any reduction in the valuation is required”. I understood that to mean any reduction in her original calculation. Neither was it what she said in cross-examination when she commented as follows about her revised methodology based on the management accounts: “... as I said in my report, I would actually prefer to use that information as a basis for calculating EBITDA had it been available to me at the time. I didn’t seek to revisit the entire approach at this stage”.[160]As to Gowrie’s submission, this was based on the argument that Ms Hart’s primary approach remained that based on the Forecast, and that a necessary corollary is application of a lower (NTM) multiple of 7.9 to her figure for maintainable EBITDA, and thus a lower overall figure for enterprise value. I do not agree. Ms Hart’s approach was at neither extreme of the range identified by the competing approaches I have described, but instead at a mid-point, and I agree with it for the reasons already explained above.

Is any further discount justified?

[161]There is a further issue on the appropriate multiple, which is whether any further discount should be applied to the primary figures relied on both by Ms Hart and Mr Davies, which were figures derived from publicly listed companies. This prompted a debate about whether a proper analysis should apply a public to private discount. Ms Hart did not apply one, but Mr Davies did (as did both Dr Frei and Mr McKeown, in their respective analyses of SYRI: see above at [60]). There is a related issue as to whether any reduction is also justified because of the ongoing risk to LBNS of licence suspensions initiated by the MHRA. Mr Davies thought this ongoing risk did justify an adjustment; Ms Hart did not.[162]I prefer Ms Hart’s approach.[163]To begin with, the rationale for her decision not to apply any public/private discount was based on her recent, real-world experience. In developing his argument, Mr Davies had in part relied on a 2018 valuation handbook published by Kroll, which discusses a “size premium” reduction. But Ms Hart’s evidence was based on her practical experience and I found it compelling. She made (broadly) two points. One was that she values well over 100 companies per year, and in each of those transactions she looks at both listed multiples and comparable transactions (i.e., sales of comparable private companies). Ms Hart said that in her experience there was no obvious discount between the two. She said that may have been the experience “many, many years ago”, but “certainly I have seen that they are now quite comparable, the listed and private multiples.” In his submissions, Mr Anderson KC criticised this evidence, and said it was given late and did not appear in Ms Hart’s Report, and she gave no examples and so it was not possible to test it. I do not agree that any of that devalues the quality of the evidence or its reliability for present purposes: Ms Hart was a cautious and careful witness with wide experience in the area of company valuation, and I consider I am entitled to place reliance on her evidence on this point even if generally expressed.[164]Ms Hart’s further point was that there was already, in effect, a degree of discounting baked into her approach, in the sense that her method of selecting comparables (see above at [150]) focused on companies bearing very similar characteristics to LBNS, which generated multiples below the general sector average. To put it another way, Ms Hart thought that although some discounting might perhaps be appropriate if one were to start with “a very general sector multiple”, it was not justified given her more targeted approach. Ms Hart had a similar answer to the point that discounting was required to take account of the risk of licence suspensions: she said that her chosen multiple already takes that risk into account.[165]Again, these points strike me as clear and compelling. In particular, I find highly persuasive the point that a properly identified multiple based on carefully selected comparators from the same regulated sector would necessarily include an allowance for the occupational hazard of intermittent licence suspensions. Mr Anderson KC argued that the issue for LBNS was that after June 2019, it was on the MHRA’s radar and that would increase the risk beyond normal levels. That may be true, at least as regards the period immediately after the August reinstatement. But even if it was, it seems to me I am entitled to weigh in the balance on the other side the fact that the licence suspension was admittedly the result of underinvestment by Samit in LBNS’s compliance activities (see above at [93]), and to assume that on an arms’ length sale the parties would have proceeded on the footing that LBNS’s regulatory and compliance function would be properly resourced in the future.[166]I acknowledge that my preference for Ms Hart’s approach means a departure from the approach of Mr McKeown in relation to SYRI, which included a public to private discount, and which I have endorsed above. Such untidiness, however, is a product of the choices I have been presented with on the evidence the parties have chosen to put forward. As far as LBNS is concerned, my choice is between the approach of Mr Davies and that of Ms Hart, and I prefer Ms Hart’s approach for all the reasons I have given.

Conclusion on LBNS

[167]My overall conclusion is that I prefer Ms Hart’s approach to assessing the enterprise value of LBNS. The parties should consult together on the precise number, but in round figures that means Ms Hart’s calculation of roughly £67.2m, made up by applying her 8.2x multiple to her £8.2m figure for maintainable EBITDA VI. What is the relevant net debt?[168]The movement from enterprise value to equity value involves adjusting for net debt. If the enterprise values of SYRI and LBNS are combined (which here is the agreed approach), that means deducting the net debt of both enterprises. There are a number of issues of remaining controversy between the parties, all of them relating to the net debt position of LBNS rather than SYRI. I will take them in turn, ignoring matters which have now been agreed or conceded or which are no longer relevant.

The Perivale Property

[169]Treatment of the Perivale Property has two aspects, which are inter-related: whether, in calculating EBITDA, an allowance should be made for the payment of market rent, and whether the capital value of the Perivale Property (net of mortgage) should be taken into account as a positive entry in calculating LBNS’s net debt (thus reducing net debt, and increasing the value of LBNS accordingly).[170]The approach of the experts was different.[171]Ms Hart in her management account calculations made a deduction for market rent in arriving at LBNS’s EBITDA, but then gave credit for the value of the Perivale Property in calculating net debt. Mr Davies on the other hand took the view that since the Perivale Property is a working asset which is to be treated as being owned by LBNS, the better approach to valuation is to assume, first, that no rental charge should be deducted in performing the EBITDA calculation, and second, that there should be no credit for the capital value of the Perivale Property in calculating net debt, because to do so would involve assuming that such value could be realised, whereas in practice it cannot be because LBNS is very unlikely to sell the principal premises from which it operates.[172]I have not found this a straightforward question, but have come to the view that of the two approaches I prefer that of Ms Hart.[173]The principal point in favour of Mr Davies’ methodology, as Mr Anderson KC pointed out in submissions, is that it most directly reflects the fact of LBNS’s assumed ownership of its principal operating premises: an owner of premises does not pay rent, and in practice is unlikely to wish to sell if that will involve disruption to its operating activities.[174]All the same, in this case we are not concerned with the practical problems which might arise on a stand-alone sale of a set of operating premises, but instead with what a notional seller and buyer would likely agree by way of purchase price on sale of the overall business.[175]Bearing in mind that is the context, it is useful to explore the point by reference to the underlying principles, and respectfully I consider that approached as a matter of principle, Mr Davies’ approach would produce anomalies and would be unacceptable both to a seller and buyer.[176]The principal issue with it is that it makes no proper allowance for evidence as to the market value of the property asset in question. Indeed the market value is ignored. Instead a financial value is attributed to the property by(1) increasing earnings by the amount of rent saved, and(2) multiplying that saving by whatever multiple is appropriate to the company in question. The problem is that the resulting financial value may vary greatly depending on the multiple applied. This may be arbitrary. As Ms Hart explained in her evidence, multiples can be very different even among companies of similar profitability depending on their market sector. For example, Ms Hart said that companies in the construction sector typically command multiples in the region of 4x earnings, but those in the IT sector multiples of say 15x earnings. Developing those examples, Mr Davies’ approach would lead to the odd result that the same property owned by a construction company would have attributed to it a financial value of 4x the saved rent, whereas the value would be 15x saved rent for the IT company. Neither measure would bear any relationship to the property’s market value, which is likely to be problematic for the seller (if the market value is higher than that derived from the calculation based on saved rent), or for the buyer (if it is lower).[177]Ms Hart put the point pithily in her oral evidence when she said that Mr Davies’ approach “... doesn’t make sense to me where we have people who are property experts valuing the property”. Later she made the same point in a slightly different way, “... it doesn’t make sense from a valuation perspective to just ignore the fact that the company owns a property and value it absent the rent.” Whichever way the point is put, I agree with it. It is true that this approach results in LBNS being assumed to pay rent when in real life it would not have to; but there is nothing objectionable about that – the approach is just a valuation device designed to reveal a reliable figure for maintainable earnings while at the same time recognising the market value of a significant real estate asset which LBNS in fact owns. In my opinion both a hypothetical buyer and a hypothetical seller would be content with it, and would be unhappy with an approach which effectively ignored evidence of the asset’s market value.[178]The result is that the net value of the Perivale Property (after mortgage liabilities) should be treated as an asset and deducted from net debt.[179]This conclusion also has an effect on the calculation of maintainable EBITDA: it follows from what I have said that I endorse Ms Hart’s approach that this should be reduced to reflect a yearly rent for the Perivale Property of £720,000. As I understood it, there was no dispute about this figure. This addresses the point mentioned above at [124(i)].

Colorama Contingent Liability

[180]The issue here is about whether, for present purposes, the value of LBNS as at the Valuation Date should be regarded as having been impaired by estimated liabilities arising from possible claims by creditors of Colorama.[181]I will not attempt here to set out the background in detail: it is discussed at length in the Liability Judgment, and I have described some features above in the Introduction section of this Judgment (see at [5]). In summary, a number of aspects of the Liability Judgment are now used by Gowrie to say that creditors of Colorama may have claims against LBNS (or against Krishna, Arun, Mahesh or Samit who might then seek to make LBNS jointly liable), arising out of the merger in 2010 which resulted in Colorama’s pharmaceutical assets being transferred to LBNS in a manner which arguably disadvantaged Colorama’s creditors; and then a dishonest scheme being devised (the so-called Rewind Suite), by means of which Krishna’s ongoing interest in LBNS was disguised. Such matters may provide a basis for the two settlement agreements eventually entered into with Colorama’s creditors in 2014 (see the Liability Judgment at [90]) being set aside.[182]In light of these risks, Gowrie’s expert Mr Davies said that LBNS faced a potential liability of £8.3m which, together with interest, totalled some £10.1m as at the Valuation Date. Mr Davies proposed making a provision of 50% of this sum by way of contingent liability – i.e., a provision of £5.5m – which, as the experts were agreed, would result in accounting terms in a £ for £ reduction in the value of LBNS, by way of adjustment to its net debt.[183]On the other side of the debate, Ms Hart said that no provision was justified as at the Valuation Date, because as at that point no purchaser of LBNS would have anticipated the risk of a claim by creditors of Colorama. Indeed, not only had the relevant settlements been entered into in 2014, but Colorama itself had been dissolved in 2018. Further and in any event, argued Mr Quirk KC, the Liability Judgment was handed down in June 2023, and since then nothing of substance has happened to suggest there is any real risk of a claim. In making this argument, Mr Quirk KC conceded that Colorama had been restored to the register of companies in April 2024, but made the point that this had been at the instigation of a minor creditor who was assisted on the restoration application by ORJ Law, who are Gowrie’s solicitors in the present proceedings.[184]In my opinion, the answer to this particular conundrum lies in the point made at the beginning of this Judgment, to the effect that the present is not purely a mathematical and accounting exercise, but instead an exercise in remediation following the Court’s findings of unfair prejudice (again, see above at [20]). One must seek to identify a remedial response which is just and fair overall. In my judgment, it would not be fair on the basis of current knowledge to discount the value of LBNS as at the Valuation Date by an amount of roughly £5.5m.[185]This is a situation in which I do not find the approach of either expert compelling. That is not a criticism: only a reflection of the fact that they have approached the matter as experts in valuation and accountancy issues, but in solving this particular problem the valuation and accountancy analysis is in my view inadequate. While I see the logic of Ms Hart’s argument that a potential purchaser would not have foreseen any claim in 2019, that is only because (arguably at any rate) the true position had been disguised. On the other hand, while Mr Davies’ approach makes allowance for what an examination of the underlying truth may eventually reveal, I am concerned that his application of a crude 50% contingency in circumstances where no positive action by creditors has yet been taken, may result in an unfair financial advantage for Gowrie and corresponding financial prejudice to Krishna.[186]In the circumstances, I propose to adopt the course canvassed in the course of submissions with Mr Quirk KC. There will be no discounting of the value of LBNS by way of adjustment to net debt – i.e., I will not adopt Mr Davies’ approach of treating the potential claim as a contingent liability. Instead, what I propose to do is to require this Judgment to be notified to Colorama’s creditors by some appropriate means to be discussed with the parties. I also propose to require those creditors to be notified of the hearing which will need to be fixed following the Judgment to deal with final disposal of the outstanding issues between the parties, including what I anticipate will be heavily contested issues as to costs. At any rate, the aim is to provide an opportunity for such creditors, before the issues between the parties are finally disposed of,(1) to indicate what claims (if any) they say they have and may wish to bring, and(2) to apply (if so advised) for any appropriate interim relief, whether against LBNS and/or Krishna and/or any other party. The detail of the relevant directions will need to be resolved separately, most likely at a preliminary hearing to deal with any immediate consequential matters following hand-down of this Judgment.

Third Party Loans

[187]The issue here arises from a fund-raising exercise for LBNS carried out by Samit in late 2010 and 2011. Funding was obtained from a number of third parties. This is referenced in the Liability Judgment at [52]-[53]. The additional funding was not properly recorded in LBNS’s books and records. Rather than being recorded as loans, the advances were instead used to show £5.5m of bad debts having been paid rather than written off – essentially an exercise in window-dressing.[188]One loan was from a business associate, Anuj Shah, who made available roughly £3.5m via his vehicle Jumbogate. Other funds were made available by the Hathi family. The details are obscure – necessarily so because the window-dressing exercise required the true position to be hidden – but in dealing with one of Krishna’s arguments on misrepresentation, the Liability Judgment at [233] records that by about 2012, although some of the funding raised by Samit had been repaid, about £4m was still outstanding: the £3.5m from Jumbogate, and about £500,000 received from the Hathi family via their vehicle, IFG International.[189]In his Report, Mr Davies thus made an adjustment in calculating LBNS’s net debt of £4.6m: effectively, the £4m advanced via Jumbogate and IFG, plus interest as at the Valuation Date.[190]Ms Hart meanwhile made no adjustment. Her researches revealed that Jumbogate (then with the changed name of ZABCED Limited) went into liquidation on 5 September 2018. No debt was recorded as being owed from LBNS in its statement of affairs, and it was later dissolved on 9 August 2023. Ms Hart likewise ignored the IFG advance, since she could find no record of it in LBNS’s ledgers.[191]The question is how to reflect these matters in an Order on the present Petition which is fair and which represents an appropriate remedial response to the unfair prejudice which the Court has found.[192]In my judgment the proper approach is to make no adjustment for the Jumbogate and IFG advances in calculating LBNS’s net debt. The high watermark of Gowrie’s case for doing so was Mr Amin’s submission made in closing this part of the case, that these were recognised liabilities of LBNS at the Valuation Date, and there was no evidence that they had ever been repaid. Mr Amin said that was never suggested, and the point had not been put to Samit in cross-examination.[193]That is true, but the fact that funds were advanced as found in the Liability Judgment tells one only half the story. The other half is about what the repayment terms were, and as Mr Amin also conceded, there was no record of either Jumbogate or IFG ever actually demanding repayment of their advances, either before the Valuation Date or after. This casts serious doubt on the status of the loans as active liabilities, and indeed the overall circumstances suggest strongly there was some sort of understanding that they would not need to be repaid at all.[194]Jumbogate has now been dissolved. Making an adjustment as at the Valuation Date for its loan would provide a windfall to the Gowrie side, by reducing the price to be paid to Krishna by reference to a liability which no-one was pressing for in 2019 and which will now never have to be repaid. A similar logic applies to IFG. When pressed, Mr Amin said the Hathi family would ensure, if the contingency is included, that the IFG loan is now repaid. But note the qualified nature of that submission. The suggestion is that the loan will be repaid if there is an adjustment in the present valuation exercise which benefits the Gowrie side and disadvantages Krishna. That tells one nothing about what the loan repayment terms were actually intended to be, and on the contrary gives the impression that the arrangement was an entirely flexible one under which there was no clear agreement about when the loan would in fact need to be repaid, if at all.[195]Once again, I think this is a situation in which one must recognise that the present exercise is about fashioning an appropriate and fair remedy; and whatever the strict accounting or valuation approach, it would not be fair or appropriate to discount the value of LBNS by amounts which no-one was demanding in 2019, which have never appeared as liabilities in its books and records, and which it seems will never in fact have to be repaid. VII. The Equalisation Amount[196]There are a number of points to consider here. Again I deal only with matters which remain controversial, and do not spend time on matters which are agreed or conceded.

Hathi Family Remuneration

[197]It follows from the conclusions already expressed at [79] above that(1) any payments made for work in LBNS in excess of the amounts set out in the Blake Morgan letter should be deducted from the Equalisation Amount, and(2) likewise any remuneration paid to Samit in respect of his work in SYRI should be deducted.

Excess Rent for Bradfield Road and Stonefield Way

[198]Ms Hart in her Report made an adjustment to the Equalisation Amount to reflect overpayments of rent made to the 5th Respondent Portside North Limited (“PSN”) – a Hathi family company - apparently in excess of the contractual amounts provided for under leases of premises at Bradfield Road, Ruislip and Stonefield Way, Ruislip.[199]I do not agree with this point, and do not consider there should be any adjustment to the Equalisation Amount to reflect it. The evidential position is too fragmented and unclear, and there is good reason for that, which is that the issue of excess rental payments in respect of Bradfield Road and Stonefield Way was never clearly flagged as one for consideration in this phase of the proceedings and so has not been properly investigated in a manner that enables any clear conclusion to be drawn about it.[200]An allegation that there were excess rental payments in respect of Bradfield Road was made in the Petition, but was not pursued at the liability trial, and no allegation was made about Stonefield Way. Nothing was said about either in the Liability Judgment. Neither did any question about them find its way into the List of Issues for the present quantum phase.[201]The matter only emerged in the expert reports, first of all it seems in Mr McKeown’s report dealing with SYRI, since in calculating SYRI’s maintainable EBITDA, he made an adjustment to increase the rent payable by SYRI in respect of its part-occupation of 4 Bradfield Road (which appears to be one of the same properties referenced by Ms Hart – Mr McKeown proceeded on the basis that part was also occupied by LBNS). Mr McKeown’s point was that the rental payments recorded by SYRI were below market rates, and so he made an upward adjustment of £291,000. In doing so he relied on an email from an individual called Dipesh Patel at a property agency called Telstar Limited, copied to Samit, which estimated a market rent for 4 Bradfield Road of £15 per sq. foot, based on the rent indicated in a brochure for another property on the same street apparently from 2020.[202]Having been prompted by the references in Mr McKeown’s Report, Ms Hart conducted some researches of her own when she came to try and calculate LBNS’s maintainable EBITDA. These researches, summarised in her Report at A11.42-A11.48, were inconclusive, however. Although there was evidence of sums apparently being paid in excess of contracted for rental amounts, Ms Hart had some doubt about whether she in fact had the correct rental agreements (A11.43-44); there was a lack of clarity about whether the rent for Bradfield Road had in any event increased because of a rent review in August 2017 (A11.46); and she was not able to determine a market rate for either property because as she said at A11.47, this was outside her area of expertise and the property experts had not been instructed to opine on it. At A11.48, she said (my emphasis added): “Given the lack of clarity over which entity is/should be paying rent for the Ruislip property, the size of the property and whether this, and the rent for Stonefield Way, is at a market rate (which I consider to be a matter best addressed by property expert evidence), I am unable to make any adjustment for rent for the Ruislip Property or Stonefield Way”.[203]Ms Hart was here talking about making an adjustment to EBITDA, but in my view, the same basic reservations must also apply when considering adjustments to the Equalisation Amount. Although Ms Hart was “instructed to consider” the question of rental payments in the context of the Equalisation Amount, Mr Davies was not. That is because the matter was not a live issue on the List of Issues. That is not just a formality: the consequence was there was no disclosure about it, Samit was not cross-examined about it, and there was no expert evidence on it. Consequently I have no evidence about what market rates actually were from time to time. Indeed, this was used by Krishna as a basis for cross-examining Mr McKeown: Mr Quirk KC criticised him for relying on the Telstar email mentioned above, in circumstances where there were property experts in the case who could have been, but were not, asked to look at the same issue. I agree that is a valid point of criticism, and so did Gowrie, because this is the point about increased rent which they dropped in their written closing when dealing with the question of SYRI’s maintainable EBITDA – mentioned above at [71]. But the point cuts both ways, and in the absence of reliable evidence about market rates, and given the opacity around the lease arrangements generally, I do not think it would be fair to draw any firm conclusion that such payments as were made involved any illegitimate diversion of value requiring an adjustment to the Equalisation Amount.

Payments to UHY

[204]Ms Hart in her Report makes an adjustment to her previous calculation of the Equalisation Amount. This concerns payments made to Colorama’s liquidators, UHY. It is common ground that payments to the liquidators should be added to the Equalisation Amount, but in her original calculations Ms Hart assumed that LBNS had paid £1.58m to UHY in FY 2014-15, whereas the Liability Judgment at [90] finds that although originally the plan was to pay more, in the end only £1.4m was paid (under a Settlement Agreement dated 22 August 2014). Ms Hart adjusts her figures accordingly.[205]This is challenged by Gowrie, who argue that Ms Hart’s departure from her previous workings is not justified. I consider it is, however, because the proposed departure is intended to conform her calculations with the findings in the Liability Judgment. Gowrie also make the point that the adjustment would lead to an inconsistency with the relevant statutory accounts, which Ms Hart had previously relied on. That may be so, but it seems to me correct in principle to base the present valuation on the findings in the Liability Judgment, none of which have been challenged; and if there is an inconsistency with the statutory accounts, that is perhaps not surprising given the propensity on both sides of the present dispute for the use of opaque accounting techniques.

HMRC Liabilities

[206]One important component of the Equalisation Amount is the so-called Gowrie NAV. This was determined in the Liability Judgment to be £11.6m. That determination reflected the evidence, including expert evidence, produced during the liability trial. Ms Hart now seeks to amend the figure for Gowrie NAV, on the basis that she has now identified that GLL, prior to the merger, was liable to pay an amount of £207,000 in respect of NI contributions relating to a waived loan to Samit.[207]I do not propose to accept this adjustment. The logic I have applied elsewhere in this Judgment, that matters determined in the Liability Judgment should be treated as final for valuation purposes, must be applied consistently and even-handedly. I do not think it right to re-open points like this. The point is entirely clear as regards Gowrie NAV, because by common consent it was treated in the List of Issues as having been “already determined”. I think this point is different to the matter of the payment to UHY addressed in the previous section above, because the adjustment there was to conform Ms Hart’s calculations with the findings in the Liability Judgment, whereas this proposed adjustment is designed to do the opposite and to modify the findings in the Liability Judgment to allow the relevant calculations to be reopened. The former is permissible as a matter of principle, but the latter is not.

Payments to NSL

[208]Necessity Supplies Limited (“NSL”) was a major creditor of Colorama. The parties are agreed on the principle that payments made to NSL should be added to the Equalisation Amount, but there is a dispute as to how much.[209]The matter was understood to be largely agreed, because in the liability phase Ms Hart put forward a figure of £3.657m, which Krishna adopted in its closing submissions, and this was then endorsed in the List of Issues as an agreed number for the period up to March 2018.[210]Ms Hart though now seeks to revisit this figure, on the basis of a spreadsheet put forward as one of the exhibits to Samit’s Witness Statement in the quantum trial. If certain filters are applied to the spreadsheet, it gives details of payments made to NSL which are different to those assumed to be correct by Ms Hart in the liability phase: they show a lower figure of £3.047m in the period to March 2018, and £300,000 in the period from then to June 2019.[211]I agree this is an oddity, but nonetheless I do not consider it justifies a departure from the agreed position. This is a matter of fairness. Samit’s evidence for the quantum trial was put forward expressly on the basis that it was dealing only with the position from March 2018 onwards, and on the footing that amounts referable to prior periods were agreed. His evidence therefore did not deal with question of why there were differences between the spreadsheet and the agreed figure. Neither was he asked anything about this in cross-examination. As Mr Anderson KC said in closing, there might be any number of reasons why the spreadsheet differs from the agreed position, but none of that has been explored, and instead Krishna now invite the Court to proceed on the basis that the unexamined spreadsheet figures represent the true position, and that the previously agreed figure should be ignored.[212]Respectfully I do not think that would be fair or appropriate. There has to be finality in litigation, especially in a case involving as many interlocking and complex matters of detail as this one. Given the way in which matters developed, the Gowrie side in my judgment were entitled to treat the figure for periods up to March 2018 as agreed, and therefore not to have to engage with it. Had it wished to reopen it, Krishna should have engaged in a more direct form of challenge, including via cross-examination of Samit. The course taken leaves the underlying evidential position too uncertain to provide a basis for overriding the position previously agreed on, and it is unfair I think for the Court to be invited to do so without the background having been fully interrogated.[213]In the result I propose to adopt Ms Hart’s previously stated figure of £3.657m for the period up to March 2018, and to that will add a further £280,000 (Ms Hart’s figures suggest £300,000, but this includes some £20,000 invoiced in June 2019 but not in fact paid until November 2019).

Professional Fees and Credit Notes

[214]The issue here is that embedded within the calculation of the Equalisation Amount, contained in the 2013 Agreement which has now been rescinded for fraud (Liability Judgment at [87]), were additions representing(1) £1,368,874 in professional fees incurred at the time of the 2010 merger, and(2) £1,082,112 in ledger items and credit notes.[215]The question is what should happen to these items in light of rescission of the 2013 Agreement. Should they be excluded from the calculation of the Equalisation Amount, or added to it? They obviously cannot be included on the basis of the consensus to that effect in the 2013 Agreement, so the question is whether, that Agreement having been set aside, there is nonetheless some independent basis for their inclusion.[216]In short, my opinion is that the professional fees at(1) should not be added to the Equalisation Amount, but some (though not all) of the ledger items and credit notes at(2) should be.[217]As to (1), there is serious doubt as to whether the majority of the payments relied on were payments made for the benefit of either Colorama or Krishna, rather than transaction costs incurred by Gowrie arising from its own involvement in the 2010 merger. The Table of expenses set out at para. 134 of Samit’s witness statement for the quantum phase is at least ambiguous about this, and in fact rather suggests that the payments were for the benefit of Gowrie, rather than Colorama or Krishna.[218]Relatedly, as Mr Quirk KC emphasised in submissions, the process of payments being added to the Equalisation Amount required some form of request that they be incurred on behalf of Colorama (or Krishna). As held in the Liability Judgment, where payments were made to Colorama’s creditors it is easy to see that there must have been some form of request. It is much more difficult to identify any request, even an implied one, in respect of professional fees which on the face of it seem to have been incurred on Gowrie’s behalf.[219]Samit’s evidence has always been somewhat guarded on this topic. In dealing with the matter of professional fees in his witness statement for the liability trial, he effectively accepted that their inclusion in a spreadsheet provided to Arun was something of a try-on. At para. 250 of that statement, he said: “... the additional amounts added to the Goodwill analysis for professional fees might have been challengeable”, and “had they been challenged, I would have been happy to talk about them. But they were never challenged”.[220]It is true that they were not challenged by Arun at the time, but the context was a negotiation about the terms of the 2013 Agreement in which Arun was actively being misled by Samit by means of Samit’s fraudulent statements as to the source of funding to LBNS (Liability Judgment at [230] et seq). So I do not think it fair to hold against Arun at this stage the fact that he raised no objection in 2013: if he had known he was being lied to about other material matters, he might well have done. Certainly, I think any doubt should be resolved in favour of Krishna. Any present problems of assessment arise principally because the payments are very old, and because the need for inquiry was disguised for many years by the very fraud which has now led to the 2013 Agreement being set aside.[221]As to (2), the overall amount identified is £1,082,112, but some £169,806 of that relates to items described in the relevant spreadsheet as “Pre 15 March costs”. Samit himself is candid enough to accept in his quantum witness statement that he has no recollection of what these costs were for. Applying the same logic mentioned above, and giving Krishna the benefit of the doubt where there is uncertainty, I would say that the £169,806 should not be added to the Equalisation Amount.[222]As to the remainder, however, namely a sum of £912,307 described as, “Credit notes raised for pre 15 March invoices”, I think that this should be added to the Equalisation Amount. Samit gives a clear description of what he believes this item covered, which seems consistent with the other available information and indeed with common sense and which I therefore accept: in summary, Colorama would sell its “specials” products at a certain price but then agree a rebate to be credited the following month, and when the merger occurred, the merged business was expected to issue half a month’s worth of such credit notes. I agree with Mr Anderson KC that these are effectively payments to Colorama creditors made by LBNS at Krishna’s request, and thus should be added to the Equalisation Amount in the same manner as the other payments to Colorama creditors analysed in the Liability Judgment at [167] et seq. I can see no logical difference between them, and all along the commercial deal was that when LBNS made payments to Colorama’s creditors above the amount of the Deferred Consideration, the amounts would be added to the Equalisation Amount. I think the evidence is sufficiently clear that that is what happened here. I would thus include the figure of £912,307 as an addition to the Equalisation Amount, notwithstanding the setting aside of the 2013 Agreement.

Miscellaneous Invoices/Annex III Payments

[223]This is a short point. It concerns costs of £65,000 referable to Krishna’s legal fees in respect of the merger, but rendered in the period November 2013 to January 2014 – i.e., after the 2003 Agreement of 27 June 2013. Krishna’s point is simple: because these were invoices for legal fees, and because under clause 22 of the parties’ Shareholders Agreement all amounts for legal fees up to a total of £250,000 for each party were to be paid by LBNS without addition to the Equalisation Amount, there was and is no justification for any amount to be added.[224]Gowrie’s point is a more complex one: in their written closing at para. 280, they say there is an evidential trail suggesting that whatever clause 22 may provide, Arun agreed at the time that these amounts would be added to the Equalisation Amount, and “ ... [t]here is no evidence to suggest that Arun sought to assert the terms of Clause 22 of the Shareholders Agreement”.[225]On this point I agree with Krishna’s submissions. Gowrie’s case again depends on an elaborate analysis designed to try and reveal what may or may not have happened as regards payment of invoices of relatively low value over 12 years ago. Quite apart from the proportionality of such an exercise, there is also (again) an issue about fairness in the context of this case, where one’s view of what was or was not agreed in late 2013 must be conditioned by the fact that part of the immediate background was Samit having lied to Arun in order to mislead him into executing the 2013 Agreement. That is a main part of the unfair prejudice the Court must try to put right by means of its remedial powers. In doing so, it seems to me that once again I should give Krishna the benefit of any doubt, and assume that even if Arun at the time did not insist on Krishna’s strict legal rights under the SHA, he would have done if he had known he was being lied to.

Annex B Payments

[226]This is a small point. It appears that Ms Hart made a minor error in adjusting for two items which the Liability Judgment at [354(ii)] found should not be adjusted for. The calculations should obviously reflect the findings already made. VIII. Additional Matters

Quasi-Interest

[227]Krishna claim a payment in lieu of interest (or quasi-interest) on the purchase price for their shareholding, from the Valuation Date (the date of the Petition in June 2019), to date. It submit that fairness requires this, because it has been waiting a long time for a remedy, and the delays are the responsibility of the Gowrie side, who in the meantime have obfuscated and avoided responsibility for their obvious wrongdoing – for example, by resisting rescission of the 2016 Agreement or any buy-out Order until the very last moment in the liability trial, and even in the present quantum phase by failing to concede obviously unmeritorious points until they had no choice but to do so.[228]I am sympathetic to these points about the delays in the proceedings, and the complications arising from conduct on the Gowrie side, but all the same, I am not persuaded that in this case they warrant an award of quasi-interest.[229]In my opinion, the question to ask is: what is an award of quasi-interest intended to achieve? It is really a form of compensation. What is it compensation for? That is very difficult to see on the present facts, and no clear case has been pleaded or set out in the evidence. That is not just a matter of form, but of substance, because one needs to be clear what the award of quasi-interest is for.[230]The need for clarity in terms of the case advanced has been made a number of times in the authorities, including by Robert Walker LJ in Profinance Trust v. Gladstone [2001] 1 WLR 1024, when he said at [22]:
“ ... If a petitioner seeking an order for the purchase of his shares contends (either as his only claim or in the alternative) that they should be valued at a relatively early stage but then augmented by the equivalent of interest, he must put forward that claim clearly and persuade the court by evidence that it is the only way, or the best way, to a fair result.”
[231]In the same case, at [30], Robert Walker LJ explained the sort of rationale which would justify the payment of quasi-interest. He posited the sort of case where, because of the majority shareholder’s misconduct in stripping the company of customers and goodwill from a certain date so as to render it worthless, it would make good sense to select a valuation date pre-dating the effects of that misconduct (perhaps the date of the Petition), and likewise to award quasi-interest from that date onwards because:
“... in the meantime the petitioner has (in an extreme case of that sort) been receiving no benefit of any sort from his membership of the company, either in the form of dividends, or in the form of director’s remuneration, or otherwise. He has been locked into an investment which has been made worthless as a result of the majority shareholder’s oppression.”
[232]Robert Walker LJ contrasted that with a different sort of case, where the successful Petitioner has continued to receive benefits from his shareholding, notwithstanding the unfair prejudice: “It would be different if he had been continuing to receive a stream of dividends and director’s remuneration and his complaint was limited to excessive remuneration and benefits enjoyed by the majority shareholder. In the latter case there would be obvious force in Jacob J’s observation that he should not be entitled to interest or the equivalent of interest so long as he owns the shares”.[233]This seems to me to be saying that the rationale of awarding quasi-interest is to compensate the Petitioner for the benefits of his shareholding which he has been deprived of because of the Respondent’s unfairly prejudicial conduct, between the early valuation date and the date when the shareholding is eventually transferred under the relevant buy-out order.[234]If that is the right way of looking at things, the question to ask is whether, but for the unfairly prejudicial conduct, the petitioner would have recovered benefits from his membership in the meantime. Quasi-interest is awarded as the only fair way of compensating for the loss of those benefits.[235]On the present facts, no clear case as to the loss of such benefits is made out. As I have said, nothing is pleaded and there is nothing in the evidence. Moreover, there is good reason to think that Krishna would have received no net benefit from its shareholding at all. That is because of the Equalisation Amount. The parties were agreed that any dividends payable by LBNS would be credited against the Equalisation Amount, and indeed carried out calculations (which were agreed) reflecting such credits for periods up to the Valuation Date. But the position as between the Valuation Date and the present date was entirely unexplored.[236]Krishna in their closing submissions went as far as to say that any dividends payable during this period would fall to be applied against the Equalisation Amount. I agree. But there would still be no net benefit flowing to Krishna until a point was reached at which the Equalisation Amount – which meanwhile would have continued to accrue interest at 12% per annum - was fully paid off. No argument was advanced that that would have happened.[237]In such circumstances, I am unpersuaded that any net benefit would have flowed to Krishna as shareholder over the past 6 years, even assuming a world in which there had been no unfair prejudice. Thus, there is no loss of net benefits to be remedied by means of a payment of quasi-interest. That result follows from the commercial bargain made by Arun and Mahesh many years ago, when Colorama was in trouble and they agreed to the 2010 merger. The terms of that commercial bargain included their shareholding interest being encumbered by the obligation to pay the Equalisation Amount. There is no unfairness in holding them to the terms they agreed.

Buy-Out Order against the Gowrie Respondents?

[238]The Liability Judgment resulted in a buy-out Order against GHL, Krishna’s joint venture partner in LBNS. Krishna now seek to bind all the other Gowrie Respondents (with the exception of Alpa Hathi) to the same obligation. As I understand it, that would include Samit, Govindji, Portside North and SYRI. Krishna seek to make all such further Respondents jointly and severally liable for the purchase price which is presently to be paid only by GHL.[239]I am not presently persuaded that such a further order is justified or appropriate.[240]There is no doubt that the jurisdiction under s.994 Companies Act 2006 is a broad one, and can result in orders being made not only against the relevant majority shareholder but also against other persons or entities, if their conduct is so closely connected to the unfairly prejudicial conduct in question as to justify the grant of a remedy against them: see F&C Alternative Investments Ltd v. Barthelemy (No. 2) [2012] Ch 613 at [1096]. Krishna says that that principle is in play here, given the involvement of the various Gowrie Respondents in the conduct complained of and found to constitute unfair prejudice.[241]The same point has been made before, but in somewhat muted form, in a footnote to Krishna’s closing submissions during the liability phase. In para. 214 of its closing, Krishna said its case was that the Court “should make an order (at the end of this liability hearing) for buy-out of its shares, at a fair value and taking account the wrongful conduct of the Gowrie Respondents as set out above ...”. Footnote 188 then said:
“Krishna seeks an order against all of the Gowrie Respondents (i.e. not just Gowrie) ... In particular, Krishna asks for an order that the Gowrie Respondents account to LBNS for all of the assets and monies improperly transferred to them – in line with the relief which would be available in a derivative action.”
[242]In the event the buy-out Order made was against GHL only. The points made in footnote 188 were not specifically addressed in the Liability Judgment, but the valuation methodology proposed plainly contemplated that Krishna’s shareholding in LBNS would be valued as if the matters of unfair prejudice identified in the Judgment had not occurred: thus, para. [378] contemplated that valuation adjustments would need to be made to reflect the findings in the Judgment, which would include, for example, proceeding on the assumption that the SYRI clinicals business had always formed part of LBNS’s balance sheet. That broad principle is reflected in the order made following the Liability Judgment, which requires the valuation of LBNS to “take into account the matters as set out in the [Liability] Judgment”. It is in fact what the parties have done, because their valuations have been prepared to reflect a counterfactual world in which the relevant acts of unfair prejudice had not occurred, but without in fact requiring any of the Gowrie Respondents to account to LBNS in the manner that might have been appropriate in a derivative action.[243]GHL object in principle to the idea of an Order against any other of the Gowrie Respondents. They say simply that Krishna had its chance to press for such relief and failed to take it. They say that at the very latest, and whatever was said or implied by the Liability Judgment, they could have sought at the consequentials stage following the liability trial to broaden the scope of the order they sought, but they appeared entirely happy with the Order in fact made and were content to proceed on the basis described above. The matter is therefore already resolved and should not be reopened. It is, in effect, res judicata.[244]My view of these issues is as follows: i. I am unattracted by the idea of any further order, certainly for now. I find the basis on which the request is made somewhat confusing, and I am not clear that it would have any practical utility. ii. My confusion arises from the fact that the principal purpose sought to be achieved by fn. 188 of Krishna’s liability closing, was the purpose of ensuring that any value illegitimately transferred away from LBNS was transferred back by the wrongdoers. That purpose though is effectively achieved by the buy-out order already made, which requires the present valuation exercise to be carried out as if any value transferred away was reversed. It is not clear to me why any further order is needed against those who were actually responsible for the relevant extractions of value, and it may in practice be a complicated business to identify what they should and should not be responsible for. The submission made by Mr Quirk KC in closing the present trial was in any event a different one: his proposal was that all the Gowrie Respondents should be made jointly and severally liable for the whole of the purchase price payable by GHL, but that is not what fn. 188 of the closing in the liability phase appeared to be asking for. iii. This leads into the question of practical utility. As far as I am aware, GHL does not want Krishna as a fellow shareholder in LBNS. It has its own commercial interest in buying Krishna out and wants that to happen. And as far as I am aware, it has not been said that GHL cannot or will not pay the purchase price. If all that is correct, and the further order sought is only as regards liability for the purchase price, and not as regards ancillary matters, then what is the practical point of it? iv. The submissions on all these issues were rather undeveloped at trial, likely because of the relatively short period allowed for oral closing submissions. It is possible there is more to be said, and that justice and fairness do require some form of further intervention. But I think the situation too unclear to be resolved at present. v. Accordingly, I propose a practical response for now. I will not accede to Krishna’s further request, but I will keep the point open. If there is in fact real doubt about GHL’s ability to pay the purchase price for Krishna’s shares, then depending on how that has come about, there may be a basis for considering relief against other parties as well. If the point arises and needs to be addressed, then the assessment will need to engage with Gowrie’s submission that the matter is res judicata, and has been since the Liability Judgment and the Order flowing from it. I see some force in that submission, but the point is not so obviously correct that I feel happy to accept it without further debate, certainly if the effect of doing so would be to frustrate the purpose of the Order already made and of the valuation exercise now carried out, by leaving Krishna out of pocket as regards the value of its shareholding. IX. Conclusion[245]In broad terms, the outcome of this Judgment is that I accept Mr McKeown’s valuation of SYRI (subject to certain points), and I accept Ms Hart’s valuation of LBNS and (mostly) her assessments in respect of LBNS’s net debt. There are points going both in favour of Krishna and in favour of Gowrie as regards the Equalisation Amount. I do not propose to carry out the detailed calculations myself, but will leave that to the parties in light of the conclusions set out above, and very much hope that a final figure for acquisition of the B Shares can now be agreed. If not, then any remaining (and, I hope, minor) points of disagreement can be restored for further submissions.