Robert Michael Kirman as joint and several administrators of Tiger Resources Ltd (Subject to Deed of Company Arrangement) v Yingkou Yangzhou Trade Co Ltd [No 2]

The case involves Robert Michael Kirman as joint and several administrators of Tiger Resources Ltd and Yingkou Yangzhou Trade Co Ltd. The dispute centres on the valuation of Tiger Resources Ltd's assets, specifically the Kipoi Project, and the determination of residual equity value in the event of liquidation. The matter was heard in the Supreme Court of New South Wales. The primary legal issue before the court was the appropriate methodology for valuing the residual equity of Tiger Resources Ltd, particularly in light of its insolvency and the associated risks and uncertainties. The court had to decide whether the discounted cash flow method, proposed by KPMG, was suitable given the circumstances of the company, and whether the asset breakup valuation offered a more reliable alternative.

In addressing the valuation issue, the court considered the arguments put forward by both KPMG and Mr Donnelly, a liquidator. KPMG had proposed a valuation based on a distressed business sale using a discounted cash flow method and a sum of the parts/breakup valuation, while Mr Donnelly contended that these methodologies were flawed given Tiger's insolvency and the associated risks. The court ultimately sided with Mr Donnelly's critique, finding that the discounted cash flow method was not appropriate due to Tiger's insolvency and the speculative nature of the assumptions required. The court also noted that the underlying assumptions in the DCF model were highly subjective and sensitive to change, further undermining its reliability. Regarding the asset breakup valuation, the court acknowledged its methodology but questioned the appropriateness of the discount ranges without further detail.

The court concluded that the residual equity value of Tiger Resources Ltd was negative. This conclusion was based on several factors, including the company's complete reliance on funding from Jinji, the lack of commitment for funding to be made available to the liquidators for a sale process, and the outcomes of a previous sale process which yielded insufficient offers. The court determined that the likelihood of equity being available to Tiger's shareholders was slim, given the need for highly optimistic financial outcomes to repay senior lenders and fund the sale process. The court's decision reflects a cautious approach to valuing assets in the context of insolvency, emphasising the need for realistic and substantiated assumptions.