Case Study – Duff & Phelps’ Valuation Team Helps Litigators in Landmark Legal Challenge Valuation

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Case Study – Duff & Phelps’ Valuation Team Helps Litigators in Landmark Legal Challenge

Case Study: Duff & Phelps’ valuation team helps litigators in landmark legal challenge

Duff & Phelps helped Ronald Fletcher Baker, a leading UK-based law firm, challenge a decision by the higher education regulator to refuse registration to the Bloomsbury Institute, a college serving disadvantaged students. Duff & Phelps’ Valuation Advisory Services practice provided expert evidence on the loss of marketable goodwill suffered by the college, enabling the legal team to demonstrate the crippling effect of the regulator’s decision, expedite the legal challenge and overturn the refusal in time for the new academic year.

The Situation

Founded in 2002, Bloomsbury Institute is a private college catering to mainly mature and disadvantaged students. It has around 2,000 students, 88% of whom take a foundation year for those without A-levels before beginning their degree proper.

Changes in higher education regulation required Bloomsbury to apply for registration with a new Office for Students (OfS). In May 2019, the OfS informed Bloomsbury that its application had been refused. Bloomsbury retained litigation specialists at Ronald Fletcher Baker LLP to challenge the refusal in a high court judicial review.

The legal arguments centred around the negative impact of the OfS decision on Bloomsbury’s reputation and the resulting loss of marketable goodwill, which required a valuation.

The courts have traditionally described goodwill as the “attractive force” that brings in customers to a business. When it comes to estimating the goodwill of a business, traditional valuation methods analyse the future cash flows that are expected to be generated by the business. However, case law on goodwill valuation stipulates that the present-day value of “future income” does not constitute goodwill. To be relevant to the litigation, the identification and valuation of Bloomsbury’s goodwill had to satisfy both the financial and legal conceptions of goodwill.

The Solution

After struggling to find a valuation practice boasting the necessary flexibility and expertise, Ronald Fletcher Baker turned to Duff & Phelps, the largest independent valuation practice globally, for expert assistance. Working closely and at pace with the legal team, Duff & Phelps’ valuation experts produced bespoke analysis in support of the case.

In order to support the legal team’s arguments, Duff & Phelps produced an expert report clearly explaining and demonstrating how Bloomsbury had, over several years, built a significant level of marketable goodwill by developing a strong reputation through its past efforts and achievements, evidenced by its ability to attract and retain students. The report described how the registration refusal significantly damaged its business goodwill and went on to value the lost goodwill.

The report expertly created a workaround from the OfS argument that using future revenue to assess goodwill was impermissible. Duff & Phelps made it clear that while Bloomsbury’s expected revenues could be used to assess the value of goodwill, that revenue did not itself constitute goodwill. Rather, the college had built up goodwill as a result of its past efforts in the market—a crucial element of the legal definition.

The Duff & Phelps analysis successfully translated accounting and valuation principles into concepts accessible to the courts, while ensuring that it met the relevant legal tests.

The Result

With Bloomsbury’s financial viability in the balance, Ronald Fletcher Baker successfully applied for the case to be fast-tracked through the courts. A high court hearing took place in February 2020 and an appeal was submitted just a few months later. Duff & Phelps’ authoritative and independent assessment of the refusal’s catastrophic impact on Bloomsbury’s ability to attract students and retain staff helped persuade judges to expedite a case that might otherwise have taken years. Without expedition, Bloomsbury could not have stayed in business while the challenge ground its way through the courts.

“Had it not been for the Duff & Phelps report,” explains Jonathan Chan of Ronald Fletcher Baker, “we would have faced a real uphill battle in getting the case expedited.” The litigation came to a successful conclusion in August 2020. In a landmark decision, the Court of Appeal found in Bloomsbury’s favour, overturning the refusal in time for the 2020/21 academic year. This allowed Bloomsbury to continue to support students from diverse and disadvantaged backgrounds who might otherwise not have the opportunity to enter higher education.

The Duff & Phelps Difference

The technical skill deployed on this project was just one reason for its success. Given the tight timelines in which the solicitors had to operate, agility, flexibility and a thorough understanding of what success looked like for the client were crucial factors. The project required close collaboration with legal experts while maintaining the independence of the valuation process.

Ronald Fletcher Baker Partner Rudi Ramdarshan said, “The team at Duff & Phelps are exceptional. The response times, the collaboration and the ability to understand complex legal issues are up there with the very best.”

Duff & Phelps is a market leader in goodwill impairment testing. The Valuation Advisory Services’ team has wide-ranging expertise in valuing businesses in various sectors and financial and other assets including real estate, derivatives and intangible assets such as intellectual property, whether for the purposes of tax, disputes, financial reporting or mergers and acquisitions.

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