When clients face difficulties involving the division of assets (matrimonial matters) or negotiated exit (stakeholder disputes), the client may require valuation of the subject assets (shares, investments, real estate, and businesses). Generally, they will call upon their trusted advisor for assistance.

There is no doubt that the trusted advisor’s intimate knowledge acquired over many years and access to information may provide time and cost benefits when an ‘independent’ valuation is required. However, this may prove to be a false economy in the long run. Not only is it very difficult to be independent but the trusted advisor can sometimes overstep the role or have preconceived ideas about what is an appropriate outcome.

Assessing Your Independence

If the trusted advisor’s valuation is contested (and many are) the trusted advisor’s relationship and independence are placed under the microscope. There are potentially damaging ramifications including the possibility of the Court giving little, if any, weight to the trusted advisor’s evidence or deeming it inadmissible. In many cases proceedings become protracted, legal and accounting costs quickly escalate. There is also a risk of client dissatisfaction and potentially reputational damage, jeopardising relationships with all parties.

When approached to take on dispute advisory work, it is important the trusted advisor consider the following:

• Do prior, current or future relationships impact on actual or perceived independence? Will written consent of the parties involved overcome any perceived conflicts of interest?
• If the matter reaches Court, will the Court form a view that the trusted advisor has acted independently and objectively at all times?
• Valuations are a specialised area of practice. Errors may result in significant misstatement. Is the scope of the valuation engagement within the trusted advisor’s area of expertise and is it covered by the firm’s professional indemnity policy? Unless explicitly specified, do not assume coverage.

Does advising one of the parties provide additional leverage to the disadvantage of the other party?

The integrity of a valuation is dependent on the completeness and accuracy of the information upon which it is based. Generally, one of the parties will have greater access and control over the financial information. In effect, the ‘controlling’ party has additional leverage such that the other party may be significantly disadvantaged. This is compounded where the trusted advisor acts for, or appears to side with the ‘controlling’ party.

Independent Valuation Experts

If your clients are considering separation or exit, it is in the best interests of the trusted advisor to remain impartial including recommending the use of an independent specialist valuer to undertake the valuation. Engaging an independent valuation expert adds weight to the valuation opinion.

In our experience, parties’ interests are best served where the trusted advisor:

• provides information to and works with the independent valuer to facilitate the valuation
• assists the parties to understand the valuation process and implications
• determines the tax implications associated with the division of assets and or realisation of assets.

Disclaimer: This is not advice. You should not act solely on the basis of the material contained in this post. These are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of these areas.