Most acquisitions run smoothly with buyers feeling satisfied that they have purchased the business they expected. But just occasionally, buyers come to the conclusion that they have paid too much, possibly feel dissatisfied with their purchase and even feel misled.
In such circumstances, we are frequently asked to advise on possible legal remedies including getting cash back and possibly even backing out of the deal altogether.
If the valuation of the business was based wholly or substantially on information or audited accounts provided and verified by the seller, then the starting point is to check the sale agreement to see if any warranties have been given to you in respect of the accuracy of the financial information provided. If they have, and it turns out that the information was not accurate, then you may be able to pursue the seller for compensation on the grounds of breach of warranty.
You may also be able to argue that the price paid was based on written or oral representations made by the seller and on which you relied. In such circumstances, you may be able to pursue the seller for fraudulent, negligent, or innocent misrepresentation.
Fraudulent misrepresentation is likely to have occurred where the seller has made a statement that they knew at the time to be false, or where they were reckless as to the truth of what they were telling you. This is in contrast to negligent misrepresentation, which may have occurred where a false statement has been made carelessly and innocent misrepresentation where a false statement has been made in ignorance of its inaccuracy.
It will be necessary to check the detail of your contract carefully as it is not uncommon for sellers to try to exclude liability for misrepresentation, which is unsurprising given that in some cases a successful claim brought on this basis may lead to the sale being reversed.
Where the business auditors can be shown to have been negligent in the way that they prepared the sale accounts, then it may be possible for the seller or even possibly the business itself to sue the auditors directly for appropriate compensation.
In extreme situations it may be possible to insist that the purchase be set aside and you get your money back. However, in order to do so, it is necessary to act quickly following the sale failing which you may be said to have waived the right to rescind the deal and you would only be entitled to pursue compensation.
Where you have relied on an assessment of the ‘worth’ of a business undertaken by your own professional advisors and this turns out to be wide of the mark (even allowing for a reasonable margin of error), then it may be possible for you to bring a negligence claim against them instead or in addition to any other claim that you may have.
In this scenario, you should check the terms of your retainer letter to determine the exact parameters of what it is your advisors were instructed to do and ensure that there are no restrictions or limitations which may operate to prevent a claim being pursued.
If you have purchased a business which you now suspect was overvalued, then we can review the terms of your deal and the circumstances leading up to the sale in order to determine what action you may be able to take in order to obtain redress.
Where you have grounds for making a claim, whether against the seller, the auditors of the business or even your own advisors, then we will contact them and do what we can to resolve matters amicably and on terms that you find acceptable.
And where settlement cannot be achieved, we can support you in taking matters further and in ultimately issuing a legal claim at court where this becomes necessary.
Ordinarily, the compensation due to you will be the difference between the price you paid and the price you should have paid according to usual valuation principles.
Published on 21 June 2022
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.