We have been involved in a significant number of matters in relation to disputes arising out of sale and purchase agreements (“SPA”).
These can be broadly categorised into the following areas:
As with many areas of forensic accounting, best value can often be obtained from our early involvement.
We are familiar with the use of a hierarchy of accounting principles to identify which accounting treatment is prescribed within the SPA. On many occasions, there is a conflict between what has been applied consistently and Generally Accepted Accounting Principles (“GAAP”). The argument frequently deployed is to apply consistent principles even when they are incorrect and this often leads to conflict when the new owner applies proper accounting principles to their new acquisition.
We are also familiar with the problems in relation to earn-outs, in particular of ring fencing the acquisition to avoid central overhead costs and management charges being added in or, alternatively, the trade of the acquisition being incorporated into another part of the group.
Our role varies from informal advice in the early stages of drafting an agreement, working alongside the parties trying to resolve matters at mediation through to giving evidence in contested hearings.
Another area of our work which derives from SPA disputes is expert determinations. We are members of the ICAEW Presidential Appointments Scheme and are experienced in both undertaking determinations and assisting the parties making representations to the expert.
If you would like to find out more about how we are able to assist you, please get in touch.
Here are some examples of how we have worked with insurers and their solicitors to assess the reasonableness of the claims presented to them.
We were instructed to assist the Defendant, a public limited company operating in the food and drink sector, in relation to an alleged breach of warranty claim arising from the sale of a subsidiary to another company. We reviewed the allegations and provided advice on the relevant issues and the impact these might have had on the sale and the consideration paid. We assisted the lawyer in a review of thousands of emails disclosed relating to the transaction to fully understand how the price for the business had been agreed. We were also asked to accompany the lawyer to a meeting to speak to the managing director of the Claimant to gain a full understanding of the assertions being made. We attended the mediation and assisted the lawyer and client with the financial consequences of the arguments being made. The matter settled at mediation.
We were instructed as a single joint expert to prepare completion accounts for a business where there were a number of individual contracts and the key matter in dispute was the amount of profit that should be attributed to each of the contracts in progress at completion. Our work was to identify the appropriate level of attributable profit in conjunction both with the previous accounting policies adopted within the business, and also ensuring that these complied with GAAP and met the hierarchical requirements of the SPA itself.
The purchaser acquired a small group of companies and made an initial payment to be followed by an element of deferred consideration. The sale price was related to the group’s asset value but recent accounts were not available. The vendor provided a warranty on the current year’s profitability. Following the sale, it became clear that the group had, in fact, made substantial losses, relating partly to material adjustments required in respect of long-term work in progress and development costs. We were asked to review the accounting treatment, compare that to the appropriate accounting standards at the time and then to express an opinion on the proper accounting treatment of these items. We were also asked to value the Group at the date of sale on two bases. There was then mutual exchange of accountancy evidence and, prior to mediation, we held a joint meeting and prepared a joint statement highlighting the key differences between the experts.