A fully open market is precluded by Company Law and possibly by any restrictions on transfer contained in a company's articles. For the purposes of interpreting the words "open market" in the legislation, a sale must be envisaged on the terms that the purchaser:
So the open market price is not necessarily fixed at what the
Articles may refer to as the "fair value".
This principle was determined for Estate Duty purposes by
the decisions in the following leading cases:
In A-G (Ireland) v Jameson - the fundamental point at issue was
whether the principal value for Estate Duty purposes of a minority
holding was necessarily the same as the "fair value" which was
fixed at the time at par (£100 per share).
It was held on appeal that the open market value was arrived
at on the terms that the purchaser should be entitled to be
registered as the holder of the shares, holding them subject to the
terms of the company Articles. The price was not restricted to the
"fair value".
As Fitzgibbon L J put it:
"In my opinion s.7(5) turns 'value' into price for the purpose of estimating its amount; that price is to be ascertained upon a sale assumed to take place 'in the open market', and that means the price which would be obtainable upon a sale where it was open to everyone...
The price was to be that which a purchaser would pay for the right to stand in Henry Jameson's shoes..."
In Salvesen's Trustees v IRC - the company's Articles contained
transfer restrictions and the members had the right to pre-empt at
par unless the shares were being transferred to either an existing
member or a member of the Salvesen family. There was also a
provision that if a member's holding fell below ten per cent of the
issued capital the other members could acquire his shares at par.
The Jameson principle was applied so that the restrictions were set
to one side to enable a hypothetical sale open to the whole world
and all prospective purchasers although the purchaser, once
registered, held the shares subject to the Articles.
In this case Lord Fleming said:
"....under the circumstances I think that there is no escape from the conclusion that any restrictions which prevent the shares being sold in the open market must be disregarded so far as the assumed sale under s.7(5) of the Finance Act 1894 is concerned."
[1930] SLT p391
In re Crossman - the Jameson principle was reviewed by the House
of Lords for a company which did not allow a sale by any member
until the rights of pre-emption had been exhausted. By a majority
the House of Lords reaffirmed that earlier decision.
In re Lynall - the House of Lords were unanimous in
confirming the Crossman decision that the purchaser was deemed to
be registered as a shareholder and would thereafter hold the shares
subject to the company's Articles.
Not only is the statutory open market open to the world at
large, but the purchaser has the right to stand in the vendor's
shoes. In these circumstances the valuer must consider the rights
as well as the duties contained in the Articles, including:
Clearly however the shares cannot be worth as much as shares which may be freely sold.
| Additional Guidance: SVM150000 |
