Source: https://adventvalue.com/author/eonischuk/
Timestamp: 2019-04-21 02:23:29+00:00

Document:
Advent Valuation Advisors, LLC, takes great pleasure in announcing that Lorraine Barton, CPA/ABV/CFF, CIRA, CVA, MAFF, MBA, has been admitted to the partnership.
Lorraine joined Advent, an affiliate of accounting and advisory firm RBT CPAs, LLP, in 2015. She has an extensive and varied accounting, valuation and litigation-support background in private industry and public accounting.
Lorraine has provided bankruptcy-support services since 2002 and business valuation services since 2004. She previously served as interim chief financial officer of a $125 million credit card processing company operating in Chapter 11 bankruptcy, helping to facilitate the sale of the business and saving more than 100 jobs.
At Advent, she and her team provide valuation and litigation-support services to closely held businesses and their advisors for purposes including mergers and acquisitions, buy-sell agreements, divorce, estate and gift-tax planning and corporate reorganizations.
Lorraine has completed a 40-hour divorce mediation training program that meets the requirements of the New York Association of Collaborative Professionals. She and the firm have wide-ranging experience in matrimonial finance, including asset tracing, lifestyle analysis and forensic examination.
Lorraine lives in Fishkill and has two sons. She is a graduate of Leadership Orange and serves on the NYSSCPA Business Valuation Committee.
She is also a member of the American Institute of Certified Public Accountants (AICPA), the National Association of Certified Valuators and Analysts (NACVA), the Association of Insolvency and Restructuring Advisors (AIRA) and the Hudson Valley Collaborative Divorce & Dispute Resolution Association (HVCDDRA).
On March 27, 2018 the New York Court of Appeals applied effective discounts and deductions amounting to 81.22%, or $3,938,928 on a 3.08% minority partnership interest in a partnership wrongful dissolution matter. The partnership, Poughkeepsie Galleria Company, owns, operates and manages a shopping mall, the Poughkeepsie Galleria Mall. We were not provided with any of the valuation reports related to the matter, and you know what they say about assuming. The standard of value utilized by the Court was going concern value, with a reduction for goodwill and discounts for a minority interest and lack of marketability.
In Congel v. Malfitano, the Court of Appeals applied the following deductions and discounts: 15% for goodwill, 35% for DLOM, and 66% for DLOC; resulting in effective deductions of 81.22%. No details were provided regarding how the business value (before deductions) was derived. The Plaintiffs’ valuation expert testified that the value of the Partnership included goodwill of 44%, and that a marketability discount of 35% and a minority discount of 66% applied to the matter. The Defendant’s valuation expert testified that the Partnership, a real estate holding company, did not possess goodwill, that a minority discount was not applicable when determining fair value, and that a 25% marketability discount applied to the matter.
New York Business Corporate Law §623(h)(4), which pertains to the procedure to enforce a shareholder’s right to receive payment for shares (for corporations and not partnerships), states “if the corporation fails to make such offer within such period of fifteen days, or if it makes the offer and any dissenting shareholder or shareholders fail to agree with it within the period of thirty days thereafter upon the price to be paid for their shares…The court shall determine the fair value of the shares without a jury and without referral to an appraiser or referee. Upon application by the corporation or by any shareholder who is a party to the proceeding, the court may, in its discretion, permit pretrial disclosure, including, but not limited to, disclosure of any expert’s reports relating to the fair value of the shares whether or not intended for use at the trial in the proceeding”.
The Appellate Division relied on Anastos v. Sable for guidance on its decision. Anastos v. Sable is a Massachusetts wrongful dissolution of a partnership by a minority shareholder case. The related Company was a real estate holding company located in a jurisdiction possessing a similar regulation excluding the value of the goodwill of the business in the settlement. In the Anastos v. Sable matter, the value of the net assets of the partnership were $2,494,005, indicating utilization of a cost approach in valuing the entity. The judge applied a discount of 40% to obtain what was termed “a minority interest going concern value” for a 33.33% partnership interest, with no mention made of a deduction for goodwill.
Lynda J. Oswald, in her article “Goodwill and Going-Concern Value: Emerging Factors in the Just Compensation Equation” sheds light on the goodwill and going concern topic. Her article originated from eminent domain proceedings and the related recovery of business losses. Oswald identifies goodwill and going concern value as closely-related, but separate, components of business value. With goodwill relating to the value which inheres in the fixed and favorable consideration of customers, rising from an established, well-known, well-conducted business that create an expectancy of earnings in excess of the normal returns on the tangible assets, and going-concern value created by such factors as avoidance of start-up costs, increased operating efficiency, and increased marketing and administration efficiencies. Goodwill reflects the existence or expectation of excess earnings, while going-concern value reflects the ability of an ongoing business to realize a higher rate of return than a newly established one. The Appellate Division decision appears to relate strongly to these concepts.
In addition to the legal foundation previous mentioned, my research on this topic identified that the SBA requires (in specified cases) going concern special purpose property appraisals be obtained from experienced and qualified appraisers. Special purpose properties are limited market properties with unique physical designs, special construction materials, or layouts that restrict their utility to the specific use for which the property was built. Their appraisals allocate separate values to the individual components of the transaction including land, building, equipment and intangible assets. Paul R. Hyde, EA, MCBA, ASA, ASA, MAI has written similarly on the topic in his article “Valuing Real Property Going Concerns”, and Mark T. Kenney, MAI, SRPA, MRICS, MBA in his article “Shopping Mall Valuation: Is There Intangible Value to Extract?” discusses the issue of intangible assets related to shopping mall real estate. If you haven’t guessed it by now, going concern special purpose property and real property going concern appraisals are a complex area of valuation, requiring real estate appraisal as well as business valuation competencies.
Without copies of the Congel v. Malfitano valuation reports, we are unable to determine with certainty whether they were going concern special purpose property or real property going concern appraisals. Based upon the history of the matter, my hypothesis is they were not. The Congel v. Malfitano decision underscores the importance of fully understanding the purpose of a valuation assignment and the applicable laws relating to the matter, as well as in seeking guidance on the appropriate appraisal for your case.
This article was intended to provide commentary on a controversial, recently decided valuation matter and does not constitute legal advice. If you have any questions or comments relating to this topic, please contact me at eonischuk@adventvalue.com.
 Lynda J. Oswald, Goodwill and Going-Concern Value: Emerging Factors in the Just Compensation Equation, 32 B.C.L. Rev. 283 (1991), http://lawdigitalcommons.bc.edu/bclr/vol32/iss2/1.
 SOP 50 10 5(H), SBA, https://www.sba.gov/sites/default/files/sops/SOP_50_10_5_H_FINAL_FINAL_CLEAN_ 5-1-15.pdf.
 Paul R. Hyde, EA, MCBA, ASA, ASA, MAI, Valuing Real Property Going Concerns, American Society of Appraisers, http://www.appraisers.org/docs/default-source/discipline_rp/hyde-valuing-real-property-going-concerns.pdf?sfvrsn=0.
 Mark T. Kenney, MAI, SRPA, MRICS, MBA, Shopping Mall Valuation: Is There Intangible Value to Extract?, American Society of Appraisers, http://www.appraisers.org/docs/default-source/discipline_rp/shopping-mall-valuation-is-there-intangible-value-to-extract-.pdf?sfvrsn=0.

References: v. 
 §623
 v. 
 v. 
 v. 
 v. 
 v.