Locked Box Leakage Analysis

Identify transactions between locked box date and completion and quantify non-permitted leakage.

In a locked box deal, the purchase price is fixed by reference to a historical balance sheet. The seller warrants that no leakage occurred between the locked box date and completion.

Leakage is value extracted by the seller or related parties contrary to the SPA leakage provisions. The expert identifies all transactions in the locked box period and tests each against the SPA definition.

Locked box disputes focus on transaction analysis rather than accounting methodology. The expert reviews bank statements, management accounts, board minutes, and payment records.

Methodology

Review bank statements and payment records
Apply SPA leakage definition to each transaction
Distinguish permitted from non-permitted leakage
Quantify total recoverable leakage

Frequently Asked Questions

What transactions constitute leakage in a locked box deal?

Typically any payment from the target to the seller or related parties not in the ordinary course: dividends, management fees, bonuses above ordinary course levels, asset transfers, and other value extraction not permitted under the SPA.

How does the expert identify all leakage transactions?

The expert reviews bank statements, management accounts, board minutes, and payment records for the locked box period, identifying all payments involving the seller or related parties and testing each against the SPA leakage definition.

What is permitted leakage?

Permitted leakage is value extraction expressly allowed under the SPA, such as ordinary course management fees or agreed dividend payments. The expert distinguishes permitted from non-permitted leakage before quantifying the recoverable amount.

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