Preemptive Transfer Restrictions in Constitutional Documents
Preemptive transfer restrictions in constitutional documents bind share title movements, requiring exact notice execution and pricing compliance to enforce valid exits.
Independent Accountant Mandate
Meaning
This contractual provision in a shareholder agreement or share purchase agreement appoints an independent chartered accountant to resolve disputes regarding valuations, completion accounts or earn-out calculations. An independent accountant mandate is designed to provide a swift, expert and final resolution to financial disagreements, avoiding the delays and expenses of formal litigation or arbitration. It governs the selection process, the scope of the accountant’s inquiry and the binding nature of their decision, establishing a boundary where the accountant acts as an expert rather than an arbitrator.
This means their decision cannot be appealed unless there is an obvious error or a proven bias in their calculation. It does not apply to non-financial disputes, such as breaches of warranties or restrictive covenants, which remain subject to the courts. In practice, it operates to depoliticize financial adjustments and ensure that transaction closings are completed on objective, audited terms.
Appointment Protocol
Initiating this resolution process requires both parties to follow a structured protocol that is defined in the underlying commercial agreement. Under the independent accountant mandate, if the parties cannot agree on a financial calculation within a specified period, typically twenty business days, either party can trigger the mandate by serving a written notice. The parties must then attempt to agree on the appointment of a suitable independent accountant, who must be a partner at a reputable, non-conflicting firm, often from the top tier of accounting practices.
If they cannot agree on the specific individual or firm within ten days, the contract usually authorizes the President of the Institute of Chartered Accountants in England and Wales to make the appointment. Once appointed, the accountant is provided with the disputed documents, the supporting calculations and written submissions from both sides, setting the stage for their detailed review and calculation.
Determination Standard
Conducting the review requires the accountant to apply the specific accounting standards and valuation methodologies that are set out in the contract, ensuring consistency and fairness. The independent accountant mandate restricts the expert’s review to the specific points of disagreement raised by the parties, preventing them from embarking on a general audit of the company’s accounts. The accountant must act as an expert and not as an arbitrator, which means they are expected to use their own professional judgment and expertise rather than simply choosing between the positions submitted by the parties.
This professional independence is critical for ensuring that the resulting determination is technically sound and reflects the true financial position of the company.
Cost Allocation
Apportioning the costs of the expert determination is designed to encourage both parties to act reasonably and to discourage frivolous disputes. The independent accountant mandate usually specifies that the costs of the accountant will be shared equally between the parties, or, more commonly, that they will be apportioned by the accountant based on the degree to which each party’s position was successful. This means that if one party’s proposed figure was much further from the final determined figure, they will bear a larger share of the costs, providing a strong financial incentive to submit realistic and well-supported calculations.
The accountant’s final determination must be delivered in writing, explaining the reasons for their decision and the resulting financial adjustments, which are then binding on the parties. Therefore, the independent accountant mandate is a highly effective tool for resolving complex financial disputes quickly and efficiently, ensuring that corporate transactions can proceed to a successful conclusion.