Employer’s Accountant May Appraise Redeemed Shares
In Barak Inbar v. Productive Human Resources, the Tel Aviv District Labor Court considered the validity of the method of calculating the value of a company and consequently the company’s shares that were redeemed upon termination of employment.
At issue in Barak was the value of the shares for which the plaintiff, the former CEO of the defendant was to be paid. Plaintiff claimed that the valuation report regarding the shares that were redeemed by the defendant, performed by the defendant’s accountant, was not valid because of the account had a conflict of interests due to the connection between the accountant and the company’s founder and the court should appoint another objective accountant to evaluate the value company and that of the plaintiff’s shares. In addition, plaintiff claimed that the accountant’s appraisal was wrong since he based his calculations on misleading figures and information.
In denying the plaintiff’s claims, the court noted that the plaintiff knew of the connection between the accountant and the defendant and also knew that the value of his shares was to be determined by the defendant’s accountant prior to entering into an agreement which stated as such, an agreement which the court held to be valid.
The court went on to state that the accountant was the best person suited to assess the value of the shares, having worked as the defendant’s accountant for several years thereby having intimate knowledge of the defendant’s affairs, as opposed to another accountant appointed by the court that would have no knowledge of the defendant’s business or its practices.
The court cited three different methods of assessment to determine the value of the company (and consequently the value of its shares), and added that using the methods of assessment was to determine the value of the company at a specific point in time based upon a set of data and figures and not to try to assess the company’s value at a future point in time, something which cannot always be accomplished. The court noted that experts can differ greatly in their assessments and regarding the accountant’s final report and assessment, the court held that the plaintiff did not prove that the accountant relied on misleading data or acted in bad faith when preparing the evaluation and there was no reason to invalidate the report. The court added that the plaintiff acted in bad faith when he, as former CEO of the defendant, claimed that compulsory payments that he as CEO failed to pay to the defendant’s employees should not be reduced when calculating the actual value of the defendant.
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