Key issues for breach of warranty claims and the potential impact of Covid-19

In the business world, it caused significant and almost unprecedented disruption to the way that businesses operate and to their turnover and profitability. At that time, some businesses were in the position where they had either recently completed the purchase of another business (whether by share or asset purchase) or were shortly due to complete such a purchase. Those share or asset purchases may have been based on assumptions, forecasts and/or valuations over which there may now be a question mark.

Some intended share or asset purchases may have aborted, but many will have completed with the buyer being left in an uncertain position in terms of whether the shares or assets that they purchased are substantially the same as what they set out to purchase, and whether they are still worth the price paid. In the coming months, these buyers are likely to reflect on the shares or assets that they purchased, and the warranties that were given to them by the seller in the purchase agreement. The question will be - is there a potential claim against the seller for breach of warranty that may recoup any diminution in the value of the purchased shares or assets?

Expert valuer Graham Hain at Ankura contributed to this article. Graham Hain is an accounting and valuations expert witness who regularly advises on both alleged breaches of accounting warranties and their consequential impact on business valuation.