M&A Disputes: Where Deals Go Wrong After Closing

Representations survive for a stated period - frequently eighteen to twenty-four months for general reps, longer for fundamental ones such as title, capacity and tax. After that they are simply gone, however serious the breach.

Notice is the trap. Agreements typically require written notice in a prescribed form, within a set time of discovery, describing the claim with specified particularity. A late or defective notice is generally not curable, and it defeats claims that would otherwise succeed. Then the **basket** (a threshold before you can claim) and the **cap** (a ceiling on recovery) can make a real breach commercially unrecoverable.

An earnout defers part of the price against future performance, converting a valuation disagreement into a future dispute. Two questions dominate: whether the calculation followed the agreement's definitions, and whether the buyer ran the business in a way that made the target unachievable.

Well-drafted earnouts address the second expressly - a covenant to operate consistently with past practice, to maintain the sales function, not to divert business to affiliates. Where no covenant exists, sellers argue an implied duty of good faith, and its scope varies by jurisdiction. Objection windows are short, often weeks, and missing one commonly makes the buyer's figure final.

Working capital and net debt adjustments are settled through completion accounts, and most agreements refer disagreements to an independent accountant whose determination is final on the items referred to them.

That finality is the point to understand before you start. The accountant decides accounting items, not questions of interpretation, and courts rarely disturb the determination. Framing an issue as interpretation rather than accounting - or the reverse - is frequently the most consequential strategic decision in the dispute.

A **special indemnity** for an identified risk - a known tax exposure, pending litigation, an environmental condition - often sits outside the basket and cap and survives longer. That is why they are negotiated line by line.

Escrow or holdback funds are the practical source of recovery, and release usually requires joint direction or a determination under the agreement. Where escrow has been released, the seller's covenant strength becomes the real question. **Representation and warranty insurance** may respond, but policy notice provisions are strict and often shorter than the contractual claim period - notify before the claim is fully formulated.

Many purchase agreements require arbitration, sometimes seated outside the province and under institutional rules. Others route accounting items to an expert and everything else to court. Filing in the wrong forum costs months and sometimes costs the claim.

Where court applies, the superior court of the province hears it, and larger centres operate commercial lists for complex corporate matters - Toronto's Commercial List among them.