© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Information available
INFORMATION AVAILABLE
- Hypothetical vendor and purchaser not equally well informed about business
""[348] Mr Palmer responded saying that:
"…the way I have approached this, given that in this situation the buyer and seller are related parties, I think the buyer and seller are equally well informed about the business in which it operates…".
[349] We do not accept that that is the correct approach and that for the following reasons.
[350] As we have said, as far as the available information was concerned, Judge Cannan in Netley observed that in re Lynall, the House of Lords had pointed out that a sale in the open market will not involve the release of any confidential information to prospective purchasers." (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
- Open market sale would not involve release of all confidential information
"[279] In the subsequent paragraphs Judge Cannan went on to consider what information would have been available to a prudent purchaser. He observed that in re Lynall, the House of Lords had pointed out that a sale in the open market will not involve the release of any confidential information to prospective purchasers. Mr Henderson exhorted us to read re Lynall; we did and we agree with Judge Cannan as we discuss at paragraphs 350 and 351." (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
- May involve release of some confidential information
"[351] Judge Cannan explained that the test was by reference to what a reasonable board of directors would disclose, and not what the particular board of directors would have disclosed. The question of what a prudent purchaser would reasonably require is essentially a value judgement, informed by the expert evidence. We are a specialist Tribunal and whilst we accept that confidential information should not be disclosed in the world of sales to privately owned companies, in our experience, some degree of confidential information is often made available by the sellers simply to ensue maximisation of the sale price. Therefore, we do accept Mr Palmer's argument that, in a hypothetical situation the hypothetical purchaser would do due diligence and there would be conversations with management. Our caveat is that we also agree with Mr Henderson that such conversations would be likely to be treated with a "healthy degree of scepticism"." (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
- Management accounts and projections would be disclosed in order to optimise sale price
"[293] An obvious point is that, as HMRC have pointed out, some of the Financial Statements upon which Mr Palmer relied were not available at the Valuation Date. They would not have been available to a hypothetical purchaser. Mr Palmer argued that estimates might have been available.
[294] We do accept that a hypothetical vendor would very probably disclose their management accounts and projections in the interests of optimising the sale proceeds.
...
[380] We accept that a hypothetical purchaser would have had access to a limited amount of information. The running and production costs were fixed and so a reasonable projection of profits might have been available but the detail of the allocation of the costs in CPL as 30:70 would not." (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
HINDSIGHT
- Expert witness unduly affect by hindsight bias
"[27] The effect of these two factors was that I was concerned that Mr Shapiro's evidence was unduly affected by hindsight bias. He repeatedly made the point that, "Hindsight has proved me right." Strictly, that is not correct: he made no valuation at the time that was vindicated by subsequent events that were unknown when the valuation was prepared. Rather, he has viewed the question of value through a lens that includes subsequent events. In assessing whether a valuation prepared at the time was reasonable, it seems to me that such a lens would typically only be appropriate if the later events were reasonably foreseeable at the time." (Gordeno v. Irwin Mitchell LLP [2026] EWHC 136 (Ch), Deputy Judge Farnhill)