M&A Dispute Glossary
Definitions of key terms used in warranty claims, completion accounts disputes, earn-outs, and locked box litigation.
- Accounts Warranty
- A warranty in the SPA that the financial statements give a true and fair view, comply with applicable accounting standards, and were prepared consistently with prior periods.
- Agreed Accounting Basis
- The accounting framework specified in the SPA for preparing completion accounts or earn-out calculations, typically referencing the target company's accounting policies as applied in the reference accounts.
- Claim Notification Period
- The period within which a warranty claim must be notified to the seller or insurer under the SPA or W&I policy, typically 12 to 24 months from completion.
- Completion Accounts
- Accounts prepared after completion to determine the actual financial position at the completion date, used to adjust the purchase price against an agreed target.
- Completion Date
- The date on which legal ownership of the target company transfers to the buyer, triggering the completion accounts mechanism and warranty periods.
- Consideration
- The total purchase price paid by the buyer for the target, which may include cash, shares, deferred consideration, and earn-out payments.
- CPR Part 35
- Part 35 of the Civil Procedure Rules governing expert evidence in England and Wales court proceedings, including the expert's duty to the court and report requirements.
- Deferred Consideration
- Purchase price payable after completion, often contingent on future performance (earn-out) or subject to completion accounts adjustment.
- Diminution in Value
- The primary measure of loss in a warranty claim: the difference between what the buyer paid (based on the warranted position) and what the business was actually worth (based on the true position).
- Earn-Out
- A mechanism where part of the purchase price depends on the future financial performance of the acquired business over a specified period post-completion.
- Expert Determination
- A contractual dispute resolution mechanism where an independent expert (typically an accountant) makes a binding determination on specified matters, commonly used for completion accounts disputes.
- Financial Warranty
- A warranty relating to the financial position of the target company, including accounts warranties, no undisclosed liabilities warranties, and management accounts warranties.
- ICAEW Expert Determination
- Expert determination administered by the Institute of Chartered Accountants in England and Wales, the most common appointing body for completion accounts disputes in UK SPAs.
- Ikarian Reefer
- The leading authority (National Justice Compania Naviera SA v Prudential Assurance Co Ltd [1993]) on the duties of expert witnesses, requiring independence and objectivity.
- Inspired Education v Crombie [2025]
- Landmark 2025 High Court SPA dispute where the claimant's valuation expert evidence was fatally undermined by improper instructions, lack of rigour, and a partial approach.
- IAS 37 (Provisions)
- International Accounting Standard governing the recognition and measurement of provisions, contingent liabilities, and contingent assets. A frequent source of warranty and completion accounts disputes.
- IFRS 15 (Revenue Recognition)
- International Financial Reporting Standard governing revenue recognition from contracts with customers. Disputes arise over whether revenue was recognised in the correct period.
- IFRS 16 (Leases)
- International Financial Reporting Standard requiring lessees to recognise most leases on the balance sheet. A common disputed item in completion accounts.
- Indemnity
- A contractual promise to compensate the buyer for specific losses, typically provided alongside warranties in the SPA or through a separate tax deed of indemnity.
- Leakage (Locked Box)
- Value extracted from the target by the seller or related parties between the locked box date and completion, contrary to the leakage provisions in the SPA.
- Locked Box
- A pricing mechanism where the purchase price is fixed by reference to a historical balance sheet date, with the seller warranting no leakage after that date.
- Material Adverse Change (MAC)
- A warranty or condition that no material adverse change has occurred in the target's business between signing and completion.
- Net Debt
- The debt minus cash position of the target at completion, used in completion accounts adjustments. The SPA defines what counts as debt and cash.
- No Undisclosed Liabilities
- A warranty that no material liabilities exist that are not reflected in the accounts, one of the most commonly breached financial warranties in M&A.
- Permitted Leakage
- Value extraction expressly allowed under the SPA leakage provisions, such as ordinary course management fees or agreed dividend payments.
- Reference Accounts
- The historical accounts referenced in the SPA as the basis for the agreed accounting basis, typically the most recent audited accounts before completion.
- Representation
- A statement of fact made by one party to another, which may be incorporated as a warranty in the SPA or relied upon separately in a misrepresentation claim.
- Sale and Purchase Agreement (SPA)
- The principal contract governing the sale and purchase of the target company, containing warranties, indemnities, completion accounts provisions, and dispute resolution mechanisms.
- Single Joint Expert (SJE)
- An expert appointed jointly by both parties to provide evidence on a specific issue, as directed by the court under CPR Part 35.
- Subrogation (W&I)
- The insurer's right, after paying a W&I claim, to pursue the seller for the amount paid on the basis that the warranty was breached.
- Tax Deed of Indemnity
- A separate agreement providing pound-for-pound recovery for pre-completion tax liabilities, distinct from the warranty diminution in value measure.
- Warranty and Indemnity Insurance (W&I)
- Insurance covering financial warranty breaches in M&A transactions, allowing the buyer to claim against the insurer rather than directly against the seller.
- Working Capital
- Current assets minus current liabilities at completion, a key metric in completion accounts adjustments. The SPA defines the target and the components.
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