VALUATION CASE STUDIES

Business analysis and valuation for legal use in a corporate dispute

Following a long-standing disagreement between the majority and minority shareholder of a sizable, limited liability company, the competent court ordered that the minority shareholder exit the company and receive, in cash, the fair value of the participation held. Under the same decision, the task of the valuation of the company was given to a judicial accounting expert. In the context of this case, we acted as technical advisors to the judicial accounting expert and provided a thorough valuation of the company, employing widely accepted valuation models and techniques, under alternative economic scenarios. In addition, we prepared, following a thorough examination of the valuation report prepared by the judicial accounting expert, a second opinion to rebut the arguments put forward.

Business analysis and lost revenue estimation for filing a lawsuit

Our client, as a result of the Covid-19 pandemic, had suffered significant revenue loss, which was covered under an insurance policy. To assist our client file a valid claim for the damages suffered, we deployed the services of an academic researcher who specializes in forecasting models, so as to make our analysis as robust as possible, in view of the economic magnitude of the case. We examined various variables that the literature and common practice has shown to affect the revenue in the sector of our client. Further, we run various forecasting models, in various versions, including linear regression, autoregressive models, and panel data models. Finally, we conducted various confirmatory / robustness tests. Our report was heavily used in filing and supporting the claim in the courts.
Note: Following the submission of our report, we were invited by a company affiliated with our client, to conduct a similar analysis.

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TAX CASE STUDIES

Interpretation of accounting standards for legal use in a tax dispute

In order to respond to questions raised during a tax audit, a major multinational insurance company requested our opinion regarding the appropriate accounting treatment of certain types of investments. Following an in depth evaluation of the terms of these investments, we concluded that the investments in questions are treated off balance sheet, given that under the relevant terms and conditions, the clients of the insurance company bear substantially all the risk of their investments. In other words, gains and losses arising from the valuation of the investments in question at year end, should not be recognized by the insurance company and that it should only recognize as income the commission(s) earned.

Interpretation of tax rules and related accounting standards for legal use in a tax dispute

Our client, had had signed a pre-agreement in the early 2000s to buy the net assets of a grocery store, under an agreement which gave it the right to cancel the purchase, if certain terms were not met. As these terms were not eventually met, our client formally withdrew from the pre-agreement. Yet, the Tax Authority auditor claimed that the transaction was valid and that our client was liable to pay a very significant amount in taxes and fines on the purchase (over €1,5m). We prepared a detailed report to rebut the arguments of the Tax Authority for use at the Court of Appeal and at the Council of the State (the highest court of appeal).

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STANDARDS CASE STUDIES

ACCOUNTING AND OTHER LEGISLATION

Accounting and tax treatment, management use

Our client, a financial institution had sold a number of pieces of industrial land under the term that the sale shall be revoked, if the buyer was unable to use it for the agreed purpose within a specified period of time. We embarked on a thorough examination of the terms of the sale contracts and related accounting standards and legislation, with a view to recommending the appropriate treatment of the transaction (reversal of sale), from both the accounting and tax perspective. Based on our analysis of relevant provisions and the terms of the initial contract(s), we recommended a solution fully compatible with applicable accounting framework (IFRSs) which also ensured the recognition of tax losses carried forward.

Recognition of brand – Correction of error

Our client, a prominent sports club, operates under the legal form of a limited liability company. By law, it has the right to use, for a given period, the emblem (brand) of the society sports club. In return for the use of its asset (the emblem), the society sports club holds shares in the sports club company and enjoys other privileges. Yet, the value of the brand had not been recognized by the sports club company since its inception. Following an examination of applicable (often confusing, contradicting and incomplete) legislation and related accounting standards, we concluded that under the true and fair override criterion in preparing corporate financial statement, the sports club company should recognize the value to the brand in its financial statements as a retrospective correction of error. Τhe value of the brand as determined using an appropriate, in the circumstances, method.

Interpretation of accounting standards in a corporate restructuring

A leading services company, after years of financial and liquidity challenges, reached a creditor agreement under Greek bankruptcy law. Following corporate restructuring, a new majority shareholder emerged. Subsequently, the former majority shareholder initiated a legal dispute aiming to overturn annual shareholder meeting decisions approving the financial statements. Our client (the new majority shareholder) sought our advice on various aspects of preparing separate and consolidated financial statements under Greek law (4308/2014) and IFRSs, and the implications of a disclaimer of opinion by the company’s auditor.

Interpretation of accounting standards in a complex transaction, for management use

Our client has invested in two entities over which it initially exercised significant influence but not control (investment in associates). At a later time, it increased its participation in one of the two investees to a percent that gives control (over 50%). However, under law, the exercise of control is suspended until the ratification of the purchase by the Greek Competition Committee. Our client raised questions regarding the relationship, under IAS 24, between the two investees as well as vis a vis the investor, in the special circumstances given. Following a thorough examination of related provisions and the details of the transaction, we prepared a convincing report with recommended action, in conformity with legislation.

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LEGAL DISPUTES CASE STUDIES

Legal use in an arbitration tribunal

Following the 2008 financial crisis’s outbreak, both the lessor and lessee of a large property faced severe economic challenges. The lessor struggled with high debt repayments, while the lessee faced difficulties fulfilling lease obligations due to the economic downturn. The case was presented to a three-party arbitration tribunal. At the Judges’ request, we conducted an independent evaluation of the financial statements and solvency of both parties to ascertain their ability to meet the lease terms and maintain solvency under various scenarios.

Legal use to reclaim damages

A systemic bank incurred significant losses from loans granted without adhering to the bank’s lending criteria, a result of employee fraud. The incurred losses were insured against fraud with a major insurance company. Upon the bank’s request, using a dataset provided to us and employing a computer programmer, we validated the bank’s claim as fully justifiable. We estimated the average accrued interest rate per loan and loan period, confirming that these rates were comparable with the prevailing interest rates during the lending period.

Second opinion in a criminal case, in the aftermath of a corporate dispute

In a legal dispute among the beneficiaries of the owner of a family business who had passed away, we were asked to provide a second opinion on an internal audit report that had been prepared by an accounting expert at the request of the group of minority shareholders. The report claimed a series of acts of mismanagement, embezzlement, violation of corporate and tax legislation, on the part of the management of the business representing the majority shareholdings. We were able to refute all claims and demonstrate that the report was based on misunderstanding of a number of provisions of corporate and tax legislation, accounting and financial reporting practices, as well as the realities of the business.

Evaluating matters relating to post-dated checks for legal use in a corporate dispute

Our client, a lawyer in public practice and a non-executive director in a company, issued a post-dated check as a promise for a future loan to that company, adhering to the common practice in Greece at the time. This arrangement was formalized in a written agreement stipulating that the check: a) should not be endorsed to a third party, b) should not be presented to the bank for payment before the expiration date, and c) in any case, should not be presented for payment without prior notification to the issuer. Despite these conditions, the company endorsed the check to one of its suppliers, who had agreed in writing to all the attached terms. Contrary to the agreed terms, the supplier presented the check for payment before the expiration date without notifying either the issuer or the company beforehand. In our report, we detailed the customary and long-standing practice of gentlemen’s agreements in Greece regarding post-dated checks and highlighted other significant aspects of the case relevant to the court.

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