How Warranty and Indemnity Claims Work in UK M&A: The Complete Guide

The M&A Transaction Framework

How do warranty claims work in UK M&A? In every transaction, the seller provides warranties: statements of fact about the business being sold. The sale and purchase agreement sets out the mechanism for resolving disputes: completion accounts, earn-out calculations, or direct warranty claim. The forensic accountant is central to all three.

A buoyant deals market means more post-transaction disputes are emerging. Completion accounts remain to be agreed, earn-out calculations are in play, and deferred considerations are up for grabs. Warranty and indemnity insurance has not eliminated disputes. It has changed who brings them, with insurers rather than sellers often driving litigation.

The Four Dispute Mechanisms

The Diminution in Value: How It Is Calculated

The primary measure of loss in a warranty claim is the diminution in value. The expert follows a structured approach:

1. Establish the warranted position: what the accounts showed at completion
2. Establish the true position: what the accounts should have shown
3. Value the business under each scenario using appropriate methodology
4. Calculate the difference: the diminution in value caused by the breach

Accounting Standards in Warranty Claims

The applicable accounting standard depends on the SPA, typically the agreed accounting basis references IFRS or UK GAAP and the specific policies of the target company. Common disputed areas include IAS 37 provisions, IFRS 15 revenue recognition, IFRS 16 leases, deferred revenue, and net debt definitions.

Expert Determination vs Litigation

The Inspired Education v Crombie [2025] Warning

In Inspired Education Online Ltd v Crombie [2025] EWHC 1236 (Ch), the claimant's valuation expert evidence was fatally undermined. The court identified three failures that instructing solicitors and experts must avoid:

1. Instructions must be consistent with standard market value definitions
2. The expert must approach evidence rigorously, not selectively citing supporting materials only
3. The expert must be genuinely independent. A partial approach is fatal to the evidence

Read our full case analysis

W&I Insurance: The Changed Landscape

Warranty and indemnity insurance has become market standard in UK M&A. Insurers now commonly fund and drive warranty claim litigation through subrogation rights. Expert evidence in W&I claims faces heightened scrutiny. Read our W&I insurance guide.

Warranty Claim Limitation Periods

SPA limitation periods for warranty claims are typically 12 to 24 months from completion, shorter than statutory limitation. The clock is always running. Early instruction of forensic accountant expert evidence is essential. Learn how to instruct an expert.

Explore Each M&A Dispute Mechanism

Each post-acquisition dispute mechanism has a dedicated expert witness page with FAQs, accounting analysis, and conversion guidance for instructing solicitors.