The role of a forensic accountant in a warranty claim is often two-fold. Depending on the warranty in question there may be a need for advice on liability (whether the warranty has been breached) and quantum (the amount of losses arising as a result).
Liability can be straightforward, for example in relation to specific warranties about key customers and suppliers, or more nebulous, such as with regard to general warranties about the true and fair view shown by statutory or management accounts.
Issues arise with regard to hindsight, events arising after the completion date and consistency of accounting. There may also be a need to consider how a warranty claim interacts with amounts already claimed through the completion accounts.
Losses suffered under a warranty claim are quantified as being the difference between the value of a business as warranted and the true value of the business in light of the breach of warranty identified. In quantifying losses suffered in respect of a warranty claim we use our extensive business valuations expertise to assess how much the claimant might have been expected to pay for the business given the true position.
Advising on the strengths and weaknesses of a £20 million warranty claim
Appointed to advise the seller of a hair and beauty product retailer in relation to warranty claims brought by both parties following the £20 million sale of the business. We assessed the strengths and weaknesses of both parties’ cases and the financial impact of these. The seller had a strong £3 million claim compared to the buyer’s largely unsubstantiated but significantly higher value claim. We assisted our instructing solicitors and counsel to draft a robust defence to the buyer’s warranty claim and the case ultimately settled on a basis favourable to our client before proceedings were issued.