Auditors Pay Price for Incorrect Share Valuation

An ex-director of a company has been awarded substantial damages against the company’s auditors, after he showed that the firm had negligently undervalued his shareholding when he was required to sell the shares back to the company on ceasing to work for it.

When he was an employee, he had purchased the shares at £250 per share. When he left the company, the auditors valued his shares at £128 each. The shares were sold to other shareholders. Later, the director discovered that other employees had been able to dispose of their shares at higher values and the company was sold for a substantial sum.

The man claimed the valuation placed on the shares by the company’s auditors was far below the proper market value at the time and that there were factors which the auditors should have taken into account in their valuation, including likely future outcomes, which they did not.

After hearing expert evidence, the court ruled that the appropriate value to have used was £635 per share, leaving the auditors facing a liability to the former director of £507 per share.

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