The value nobody ever bought

Posted on: 22 September 2026

Yesterday I wrote about gold, and about the difference between owning an asset and being able to convert it when it matters. That piece began with an Italian LinkedIn post which used the Banca d'Italia's reserves in New York as a hook to sell membership of a business club, one that promises to turn a company's reputation and know-how into internal liquidity. I am returning to it because the same confusion between declaring a value and realising one is sold to small companies well beyond Italy, and because in Britain the rules that are supposed to contain it pull in two directions at once.

The pitch rarely varies. Your business is worth more than your accounts show, the difference is trapped in intangibles the balance sheet ignores, and there is a way to release it. It works on owners because it asks them to build nothing and credits them with something they feel, quite reasonably, that they have earned. Thirty years of honest work do produce a reputation and a web of relationships that no ledger records. That part of the pitch is true.

The accounting part is where it stops being true. Section 18 of FRS 102 says in plain terms that internally generated brands, logos, customer lists and items similar in substance are not to be recognised as intangible assets, and IAS 38 says the same at paragraph 63, adding mastheads and publishing titles for good measure. The reasoning in both is that money spent on building a brand cannot be separated from money spent on building the business as a whole, so there is no reliable cost to record and no transaction to anchor a value. On this point British practice is stricter than the Italian standard, which at least lets a company capitalise the documented costs of developing its own trademark. Neither allows anyone to book what the brand would fetch. The prohibition protects the people who read accounts rather than write them, since without it any company could manufacture net assets with a spreadsheet and a confident adviser.

So value has to enter through a transaction, and here company law takes a noticeably more relaxed view than the accounting standards. Section 582 of the Companies Act 2006 allows shares to be paid up in money or money's worth, and the statute names goodwill and know-how as examples, which has always struck me as a small act of optimism on the part of the draftsmen. For a public company, section 593 then requires the non-cash consideration to be independently valued, with the valuer's report made within six months before the allotment and a copy sent to the allottee. For a private company there is no equivalent requirement. The courts have long declined to second-guess the value directors place on non-cash consideration for shares unless it is illusory or the transaction is dishonest, a line that runs back to Re Wragg in 1897. The practical result is that a brand the accounts would not let you recognise while you were building it can be transferred into a company in exchange for shares, at a value fixed by the people on both sides of the transfer, and it then sits in the receiving company's accounts at a cost that is simply the value they chose.

Italy has a version of the same split with a narrower gap. There, a private limited company contributing assets in kind must obtain a valuation from a registered auditor chosen by its members, while a joint-stock company needs an expert appointed by the court. Britain asks the private company for no expert at all. In both countries the space in which the person paying for a valuation also chooses the valuer, or dispenses with one, is the space where this kind of product is sold.

A valuation, where there is one, offers less protection than the people commissioning it tend to assume. In 2024 a court in Venice ruled on a contribution of a business unit in which the court-appointed expert took apart the valuation that had supported it. He objected to a ten-year horizon for discounting goodwill with no stable earnings to justify it, and to cost savings projected without evidence. His most serious finding was that the business plan beneath the whole valuation assumed a substantial inflow of outside finance into a company whose net equity was already negative, and nobody had ever checked whether that money existed. The court adopted his analysis and held the directors liable, because having a valuation did not relieve them of the duty to examine it. A generous report records the risk rather than reducing it.

In Britain the equivalent reckoning tends to arrive later and from a different direction. A liquidator reviewing the accounts of a failed company will read an intangible booked at a directors' valuation with a great deal less sympathy than the board that booked it, and directors who kept trading on the strength of net assets that were never realisable may find those figures quoted back to them in a wrongful trading claim under section 214 of the Insolvency Act 1986. Lenders, meanwhile, have usually protected themselves already. Financial covenants are commonly tested against tangible net worth, which strips intangibles out before anyone looks, and that raises the awkward question of who the uplifted number is actually for.

Follow the money through the arrangement and the answer becomes clearer without any accounting at all. Whoever sells the scheme is paid at the front, through a membership fee and a placement commission. The risk sits at the back, with the director who signs the accounts and with anyone who later relies on them. If the value has to be written down three years on, nobody inside the circuit loses anything.

There is also a selection effect, and it makes things worse without requiring bad faith from anyone. A company that answers an advertisement for capital without banks is typically a company the banks have already declined, or are about to. It is exactly the population in which a generous valuation is most likely to be read, eventually, by an insolvency practitioner. The product concentrates itself where it is most dangerous simply because of who responds.

None of the underlying instruments is illegitimate. Contributing a brand or a business unit to a new company for shares is an ordinary transaction, and so is a club deal among private investors secured on the intellectual property. The trouble starts when the person who values the asset is also the person who is paid when capital is raised against it.

Before signing anything of this kind I would do two things. The first is to read the valuation the way a hostile expert would, looking at the horizon used for goodwill and at the evidence behind each projection, which is an afternoon's work and usually decisive. The second is to ask who signed it and who paid for it. If the name certifying the value reappears among those placing the capital, the conflict is already in the room. I would also never use this lever in a company under financial strain, which is precisely when it looks most useful and precisely when it turns a cash problem into a personal one for the director.

One further question is worth asking in any case, and that is whether there is a single completed transaction, with a named counterparty and a date, that has survived scrutiny by a credit committee. In the public material behind the post that started all this, I could not find one.