The purchase agreement required the buyer to provide seller access to the buyer’s books and records in a dispute over the closing working capital calculation. The buyer refused access and a Florida federal court ruled that this did not amount to the buyer waiving its right to resolve the dispute by arbitration.
M&A Stories
December 22, 2022
Introduction
In business acquisitions, it is common to adjust the purchase price based on the actual working capital at the time of closing. Typically, the buyer calculates the working capital, but the seller can dispute the calculation. If the parties cannot reach an agreement, the purchase agreement often requires them to resolve the dispute through arbitration.
The Case
In a recent case, the seller contested the buyer’s calculation of the closing working capital. To assist in their calculation, the seller requested access to the buyer’s books and records, as stipulated in the purchase agreement. However, the buyer refused to grant access.
The Lawsuit
As a result, the seller filed a lawsuit in a federal district court in Ft. Lauderdale. The buyer argued that the dispute should be resolved through arbitration, as required by the purchase agreement. The seller claimed that the buyer had waived its right to arbitration by denying access to its supporting books and records.
The Court’s Decision: The court ruled that the buyer had not waived its right to arbitration by denying access to its books and records. It ordered the parties to resolve the dispute through arbitration.
See Grandis v. BGIS Global Integrated Solutions US LCC, Case No. 22-61477-CIV-SINGHAL, United States District Court, S.D. Florida, (November 30, 2022).
Analysis
In hindsight, the seller could have resolved the dispute earlier if the buyer had provided access to its supporting books and records. To avoid such situations, sellers may consider including a provision in the purchase agreement that waives the buyer’s right to arbitration if they fail to provide access to their books and records.
By John McCauley: I write about recent legal problems of buyer and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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