Locked Box Disputes: Expert Witness UK

What Is a Locked Box Mechanism?

In a locked box deal, the purchase price is fixed by reference to a historical balance sheet (the locked box date) rather than the completion date. The seller is compensated by a daily accrual between the locked box date and completion. In exchange, the seller warrants that no leakage has occurred after the locked box date.

What Is Leakage?

Locked box leakage is value extracted from the target between the locked box date and completion that is not permitted under the SPA. It can include dividends, management fees, payments to related parties, and asset transfers. Permitted leakage is defined in the SPA and excludes agreed ordinary course items.

The Expert's Role

1. Identify all transactions between locked box date and completion
2. Apply the SPA leakage definition to each transaction
3. Distinguish permitted from non-permitted leakage
4. Quantify total non-permitted leakage recoverable from the seller

Locked Box vs Completion Accounts: Which Generates More Disputes?

Locked box was introduced partly to reduce completion accounts disputes, but it generates its own disputes around leakage. Expert witnesses in locked box disputes focus entirely on transaction analysis rather than accounting methodology.