True and fair view. Mergers and acquisitions. Warranties. Accountants.

Macquarie purchased a group of companies (the Group) from Glencore. After the purchase, it had to pay a liability of ?2.4m in respect of a charge which ought to have been paid by one subsidiary.

The parent and subsidiary were unaware of the liability because of a data entry error made by a third party. Group accounts were prepared in early 2006 without reference to, and in ignorance of, the missed charge.

The purchase was completed in September 2006, and the error was not drawn to Glencore's attention until November 2006.

The sale agreement contained various warranties, including warranties that the accounts were "prepared in accordance with Relevant Accounting Standards" and gave "a true and fair view of the assets and liabilities of the Group". Macquarie claimed that the failure to disclose the missed charge amounted to a breach of warranty.

Macquarie argued that, even though the reporting process was carried out in accordance with the relevant accounting standards, the outcome of that process - the draft audited accounts - did not present a true and fair view of the assets of the Group or the subsidiary as there was an undisclosed liability of ?2.4m.

The CA considered that both the management accounts and the draft audited accounts gave a true and fair view. The Group did not know and could not reasonably have discovered the missed charge at the relevant time, and there was no evidence of the missed charge available before the draft audited accounts were signed off which would have enabled the charge to be included in the accounts.

It could not be said that the Group or its accountants made an "error" within the meaning of FRS 3 paragraph 63 (an error of such significance as to destroy a true and fair view) which required or permitted the accounts to be reopened or restated.

Case: Macquarie International Investments Limited v Glencore UK Limited?

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