Shortly after entering into the SPA, the Buyer received further documents which had a bearing on the Company’s financial position, most notably, monthly accounts for August 2018 and September 2018, which revealed significant net losses in the Company’s turnover. It became apparent to the Buyers that the actual financial position of the Company did not correspond with the financial prospects initially provided by the Sellers pre-completion. Subsequently, the Buyer issued a claim for breach of warranty against the Sellers alleging that there had been a MAC in the turnover or prospects of the Company at the time the SPA became effective, and that the records of the Company were not accurate. High Court The High Court suggested that the issue between the parties was “relatively straightforward” – the Sellers sold the Company to the Buyer, the Company performed substantially worse than expected in the months after the acquisition, and the Buyer feels that they were misled. To establish if there had been a MAC, the High Court adopted a threefold approach: 1. What was the baseline figure, i.e. the anticipated or projected forecast level when the SPA was entered into between the parties? 2. What was the actual figure, i.e. the accurate and up to date position of the Company as at the date of the SPA? 3. Do the baseline and actual figures vary and, if so, does that variation constitute a difference so great that it amounts to a MAC? The High Court concluded that there had been a change between the baseline figure and the actual figure, and that the change had been both “material” and 28 LAWYER MONTHLY APRIL 2024 The High Court concluded that there had been a change between the baseline figure and the actual figure, and that the change had been both “material” and “adverse”.
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