Up, Up, And...Not Away - English High Court Faults SPA Target In The Aerospace Industry For Inadequate Financial Projections

The English High Court, in Triumph Controls UK Ltd v Primus International Holding Co [2019] EWHC 565 (TCC), has found that proper, accurate financial projections by the sellers would have resulted in a lower purchase price for three companies which manufactured complex metal components for aircraft.

This case highlights the perils, when selling a business, of failing to take care when warranting in relation to forward-looking projections. Here, the sellers failed to properly or accurately take into account key operational and financial assumptions when producing projection models. The result was a reduction of the purchase price.

The judgment provides a comprehensive review of the degree of care the courts will expect from parties in preparing their forecasts in the context of share sale transactions.

Target companies should be alert to the nature and form of disclosure provided as a defence to potential claims following completion.

The facts

The claimants were subsidiaries of a multinational aerospace and defence manufacturer and service provider. They sought damages for breach of warranty under a share purchase agreement ("SPA").

In March 2013, the claimants agreed to purchase the share capital of three of the defendants' companies, one in Farnborough in the UK and two in Thailand. After completion, the claimants discovered shortfalls in expected revenues arising out of delivery and quality issues at Farnborough.

These issues also caused the Farnborough plant to lose its prized "Nadcap" accreditation (National Aerospace and Defence Contractors Accreditation Program).

Late notification

Clause 9.7 of the SPA excluded liability for claims unless written notice had been served within 18 months of completion. The Court found that the claimants had given adequate notice in the letter of claim and that the quality issues were fairly and clearly identified.

The level of detail provided was such that it was clear that the claimants were alleging that the financial projections presented a false picture of the profitability of the companies.

Faulty disclosure?

According to clause 6.1 of the SPA warranties schedule, the parties warranted they had obtained "all licences, consents, permits...necessary to the carrying on of its business". The claimants argued they would not have been interested in Primus if it did not have accreditation since this was a prerequisite to winning and performing most aerospace business.

The Court found that, whilst there...