Evidentiary Admissibility Standards in Cross-Border M&A Accounting Disputes
Admissibility of cross-border accounting evidence depends on forum choice, strict working paper discovery terms, and aligning forensic methodology with contract terms.
Consistent with past Practice
Meaning
Contractual commitments in merger agreements require target companies to maintain ordinary operational routines during the interim period between signing and closing. Compliance consistent with past practice forces a company to execute procurement and payroll actions in direct alignment with its historical operational record. The covenant establishes an objective threshold that prevents pre-closing value extraction.
Historical Baseline
Evidentiary evaluation relies entirely on the target company’s specific historical data rather than broader industry standards. Proving that an action was consistent with past practice requires producing historical financial ledgers and vendor contracts spanning prior fiscal years. Courts evaluate whether the magnitude and frequency of the challenged act fall within normal pre-signing parameters.
Exceptional market disruptions do not automatically grant permission to depart from established internal routines without express buyer consent. If a company’s historical cadence involved annual equipment overhauls every spring, skipping that maintenance cycle during the interim period constitutes a contractual breach regardless of industry trends.
Operational Variance
Unilateral operational shifts during the interim period create exposure to breach claims and purchase price adjustments. When target officers alter inventory management or delay payments to trade creditors to boost cash balances, buyers gain grounds to terminate the agreement or seek post-closing indemnification. Unauthorized deviations expose sellers to damages equal to the resulting depletion of target asset value.
Litigation Defense
Target boards defend contested interim actions by introducing granular evidence of prior operational decisions. Documented authorization histories and historical maintenance logs demonstrate that disputed expenditures match existing managerial patterns. Showing continuous alignment with past operational cadences defeats allegations of interim value stripping.