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A company that paid more than £17 million too much for another company's shares – due to inaccuracies in the latter's accounts – will get most of that money back from insurers, following a High Court ruling.
Company A had bought the entire share capital of company B for £214.75 million. The seller of the shares had warranted the truth, fairness and accuracy of company B's accounts and that relevant accounting standards had been complied with. Due to their treatment of bad debts, the accounts had in fact significantly overstated company B's revenue and assets.
The seller conceded that the warranties had been breached and reached a settlement with company A. However, as part of the original deal, the seller's liability was capped at £5 million. Company A therefore launched proceedings against excess insurers to recover the balance of its loss.
The insurers disputed the amount of the overpayment; however, the Court accepted that company A had paid £17,635,000 too much for company B's shares. The insurers were therefore ordered to pay company A £12,635,000, that being the amount of the latter's loss less £5 million.