Dancing With the Devil
Post acquisition disputes are becoming more frequent and more significant regarding overall deal consideration. The post completion matters that cannot be resolved between the buyer and seller are frequently referred to an Expert Determiner, Special Referee or Independent Accountant, terminology varying depending on which jurisdiction you are from.
Really nothing controversial there, however what about the sleeping giant that no Expert Determiner wants to experience, the issue of Manifest Error. I will leave the law to those suitably qualified, however in my experience manifest error is a very high bar to jump. Often an Expert Determiner must apply experience and form an opinion, and that is not error. We all appreciate that accounting standards often require the application of judgement. Simply, two Senior Partners from two credible firms can have different opinions and neither may be wrong as it’s all down to judgement and application. However, when it all goes wrong it really goes wrong and the high bar for manifest error may be reached. So, where does it go wrong based on examples I have seen:
1. The rules of the SPA aren’t followed, and the SPA Hierarchy isn’t applied. Here, specific account treatment may have been prescribed over and above, Generally Accepted Accounting Practices (GAAP), past practice and polices in the SPA. If that specific accounting treatment isn’t followed; in preference to GAAP, past practice and polices, the Expert Determiner has failed to apply the mandate of the SPA and may have entered manifest error territory
2. Equity & Fairness have no meaning under an SPA – it’s a contract and it prevails
3. Straying outside the Disputes Notice
4. Staying in your Lane - An accounting determination should not intersect Legal determination
The good news is deep experience matters. In my experience, parties can proactively manage the risk of an Expert Determiner straying into Manifest Error by selecting the right Expert Determiner in the first place. Prevention is better than cure and applying the following criteria will ensure you land with the right professional:
· Forensic Specialist rather than a generalist
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· Test the number and size of determinations that have been issued by the contemplated professional - you don’t want their first rodeo to be their last
· Time and focus - timetable and time pressures lead to error. Can they commit to focus and process and do they have the available bench strength within the respective specialist team
· Quality of team – experience counts at all levels across the team
· A Named firm doesn’t mean a Named Specialist - search for specialization by named expert
· Its on the public record – it’s a small field of experienced experts and due diligence will ensure success
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Partner and UK Claims & Disputes Leader at EY | Expert witness input to disputes | Forensic accountant
2wNice article, Cam! And of course no analysis of the concept of manifest error in expert determination could be complete without reference to the judge’s conclusion in Flowgroup v Co-Operative Energy, where our very own Maggie Stilwell’s determination was challenged, with the following outcome: “In conclusion, I reject Seller's case that the Expert made manifest errors on the issues of contractual interpretation which I have adumbrated. It is enough to say that she was not plainly wrong but I would go further because I am of the view that she was plainly right.”