Shareholder and business partner dissolutions occur for a multitude of reasons, including disputes. Examples of dispute situations include a shareholder mishandling corporate information, a partner acting inappropriately, or a personality conflict among shareholders.
In business disputes of this kind, a business valuation (BV) is the simplest and most cost-effective way to determine the value of the interests and decide if one will buy out the other owner’s interest in the business. Even when both sides have individual BV appraisers, sharing a machinery and equipment appraiser in a legal conflict is an effective way to reduce costs and discord. Shared experts are common in legal proceedings concerning issues like mergers and collateral lending and also useful for cases regarding the dissolution of a company.
California Corporations Code Section 2000 states that “in any suit for involuntary dissolution, or in any proceeding for voluntary dissolution initiated by the vote of shareholders representing only 50 percent of the voting power … The court shall appoint three disinterested appraisers to appraise the fair value of the shares owned by the moving parties, and shall make an order referring the matter to the appraisers so appointed for the purpose of ascertaining the value.” These three business valuation appraisers can use the same equipment appraiser for values associated with the machinery and equipment of the business: a number that can be critical in determining the business value.
Deciding to share an FF&E appraiser benefits parties on both sides of a disagreement. The right shared equipment appraiser can eliminate the cost of another appraisal, reduce ongoing conflict about values and equipment being valued, and save time in the process. In cases where the parties cannot agree to share appraisal services and only one side hires me, objectivity is still guaranteed. The critical job of a machinery and equipment appraiser is to come up with an unbiased opinion of value – regardless of who is paying for the appraisal.
In cases where both parties are clients, I’m committed to keeping the lines of communication open, keeping everyone – including respective attorneys or others in advisory positions – in the loop. When only one of the parties is named as the client in our equipment appraisal engagement, it’s still important and helpful to keep communication open so that everyone knows what is going on. Either way, the old joke among equipment appraisers holds true: If we’ve done the job well, both sides are equally unhappy with the findings.
I have found one critical step that helps keep both sides of a business shareholder dispute less unhappy – and the equipment appraisal moving along more efficiently. Whenever I’m called about an equipment appraisal pursuant to CA Section 2000 or other situations – both parties must agree on the list of Subject Assets before the valuation research begins.
Compiling a list of Subject Assets seems pretty straightforward, but in more than a few situations, I’ve seen asset lists take months, even years, to sort out. No matter how long it takes, it’s much wiser to work out the list issues before racking up appraisal fees. It would be bad enough to have your shared equipment appraiser present an appraisal report that included items that the parties didn’t agree were to be included; consider how much worse if the parties involved in the business dissolution hired different equipment appraisers and then discovered that the lists of appraised equipment did not agree!
Using a qualified shared expert to appraise machinery and equipment is a common-sense way to save fees, time, and frustration. Whether the equipment appraiser is hired by the parties involved, their counsel, or by the business valuation experts, agreeing on a qualified, experienced appraiser and agreeing on a list of Subject Assets is a straightforward solution to some of the complications in legal conflicts involving equipment and machinery valuation.
Jack Young, ASA—MTS/ARM, CPA
Equipment Appraisal Litigation Support
NorCal Valuation Inc.
Photo image courtesy of RK1979 at FreeDigitalPhotos.net
