These disputes are document-heavy and time-sensitive: completion accounts mechanisms impose strict deadlines; warranty claims require notification within contractual limits. Early instruction of a dispute accountant familiar with transaction structures prevents procedural defaults and strengthens quantum.
Completion Accounts Disputes
Completion accounts adjust the headline price to reflect the actual financial position at completion, typically net debt and working capital against agreed targets. The SPA defines accounting policies, preparation methodology, and dispute resolution (expert determination or arbitration).
The dispute accountant reviews draft completion accounts, identifies departures from the agreed policy (revenue recognition, capitalisation, provisions, normalisation), and quantifies each adjustment's impact on price. Common battlegrounds include: stock valuation and obsolescence; debtors and bad debt provisions; classification of exceptional items; and timing of recognition around completion date.
| Issue | Expert focus | | --- | --- | | Working capital target | Normalised WC vs actual | | Net debt | Cash, debt-like items, leases | | Accounting policy | GAAP vs SPA-specific rules | | Leakage (locked box) | Permitted vs prohibited distributions |
Warranty and Indemnity Claims
Warranty claims allege that statements in the disclosure letter or warranties were untrue, causing loss. The buyer must prove breach, loss, and mitigation; tax warranties may involve gross-up calculations. Dispute accountants quantify the diminution in value or specific costs flowing from the breach, for example, overstated inventory causing write-downs, or undisclosed liabilities.
Indemnities for known risks operate differently from general warranties; the expert analyses whether the claimed loss falls within the indemnified category and caps. Contingent liabilities discovered post-completion require assessment of probability and timing under applicable accounting standards and SPA definitions.
Earn-Out Disputes
Earn-outs link deferred consideration to post-completion performance. Disputes arise when the seller alleges the buyer manipulated results, stripping resources, changing accounting policies, diverting revenue, or failing to run the business in the ordinary course. The expert constructs a but-for model of what the business would have achieved absent alleged conduct, applying the earn-out formula in the SPA.
Material issues include: definition of EBITDA or revenue; add-backs for synergies and central costs; treatment of new contracts; and whether the buyer complied with operating covenants. Expert determination clauses are common; the accountant may act as determiner or as party expert.
Locked Box Mechanisms
Locked box pricing fixes equity value at a historical accounts date; the buyer receives the economic benefit from that date to completion. Leakage, value transferred from the target to the seller or affiliates between locked box date and completion, reduces the price pound for pound unless permitted.
The dispute accountant reviews dividends, management charges, bonuses, and related-party transactions in the locked box period. Permitted leakage schedules in the SPA must be applied precisely. Unlike completion accounts, there is no true-up for working capital, leakage analysis is the primary forensic focus.
The Accounting Expert's Role and Instruction
Instruct the expert with the SPA, disclosure letter, completion accounts, management accounts, due diligence reports, and all correspondence on disputes. Specific questions should address each pleaded adjustment or warranty head, with clear loss periods and causation.
Many SPAs appoint the expert as determiner on completion accounts, an impartial role requiring independence from both parties. Where acting as party-appointed expert in litigation, the expert addresses the same accounting issues under CPR Part 35. Coordination with corporate lawyers on contractual interpretation is essential; accountants do not construe contracts but apply agreed or determined policies to figures.