The value of a business can change from year to year, month to month or even week to week. Sales trends go up and down. New products take off or flame out. Major contracts are gained or lost. Industry-wide prospects wax and wane. 

When an oppressed minority shareholder petitions for judicial dissolution underBusiness Corporation Law (BCL) 1104-a, and the controlling shareholders or corporation elect to avoid dissolution by purchasing the petitioner’s shares for fair value under BCL 1118, the latter statute requires the court to determine fair value "as of the day prior to the date on which such petition was filed."

The statute’s language leaves no wiggle room. The few reported attempts by parties to vary the valuation date uniformly have met defeat under the courts’ strict construction of the statute. See, e.g., Matter of Vetco, 260 AD2d 642 (2d Dept 1999); Matter of Davis (Shayne-Levy Associates, Inc.), 174 AD2d 449 (1st Dept 1991).

But that didn’t stop the purchaser from taking a valiant run at the statute in Matter of Kurins (SilverSeal Corp.), 2008 NY Slip Op 33328(U) (Sup Ct NY County Dec. 2, 2008).  And little wonder that it didn’t:  at stake was a $1,000,000 increase in the value of the parties’ investigative and security business as of the statutory valuation date versus the valuation date three months earlier proposed by the purchaser.

Andris Kurins and John Silverman were the 49% and 51% shareholders, respectively, of SilverSeal.  On July 31, 2007, Kurins filed a demand for arbitration including a claim for dissolution of SilverSeal under BCL 1104-a.  SilverSeal (controlled by Silverman) contested arbitrability and succeeded in obtaining a court order staying the arbitration.  On October 26, 2007, Kurins filed a dissolution petition with the court.  On November 28, 2007, SilverSeal filed an election to purchase Kurins’ shares.

The parties then filed a joint application seeking a determination of the correct date for valuing Kurins’ shares.  SilverSeal contended that July 30, 2007, being the day before the date on which Kurins filed his arbitration demand, was the correct valuation date.  Kurins contended that October 25, 2007, being the day before the date on which Kurins filed his court petition, was the correct valuation date.  Kurins also pointed out that the November 28, 2007, election to purchase was outside the statutory 90-day period to elect to purchase if measured from the date of the arbitration demand.  Both sides agreed that the difference in dates was significant because in the interim, SilverSeal increased its assets by an excess of $1,000,000 in cash.

Kurins prevailed.  The decision by New York County Commercial Division Justice Herman Cahn concludes that

the statute is clear that the relevant date for determining the valuation of Kurins’ shares is the day prior to his filing the Petition. . . . Moreover, when Respondents elected to purchase Petitioner’s interest in SilverSeal, it did so over a month from the Court filing, well within its time to elect — but only if measured from the date of the Court filing.  If, however, Respondents’ election to purchase is looked at from the date the demand for arbitration was filed, the election was significantly outside the time limit. . . . It therefore strains credulity to view the election to purchase as a response to any filing other than that in this Court.

Moral of the story: Be careful what you wish for.  Had SilverSeal not objected to the arbitration demand, presumably the valuation date in the arbitration proceeding would have been July 30, 2007, and the subsequent $1,000,000 cash receipt would have been off the balance sheet for valuation purposes.