Corporate transactions usually involve the vendors signing up to a series of warranties in respect of the target business. The purchasers may bring a claim against the vendors where one or more of the warranties have been breached.

RS Forensic advises on liability (determining whether the warranty has been breached) and quantum (calculating the losses arising as a result of a breach) in respect of warranty claims.

Liability

Determining liability can be straightforward, for example in relation to specific warranties about key customers and suppliers. However, determining liability can be more nebulous, where, for example, the claim is in respect of more general warranties about the true and fair view shown by a set of statutory or management accounts or the existence of a material adverse change.

Issues often 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.

Quantum

Losses arising as a result of a breach of warranty 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 warranty breach identified. 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 taking account of the warranty breach.

Forensic accounting team

Typically instructed to provide independent and objective expert witness and advisory services in relation to matters involving owner-managed SME businesses.

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Forensic cases

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.

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