Article / 9 Jun 2026
In this month’s update we:
In the recent High Court decision of Hoffman v Finalto Group Ltd [2026] EWHC 921 (Comm) the Court provided an update on a perennial issue in M&A transactions: whether statements labelled as “warranties” in a transaction document can also constitute actionable “representations”, leaving open the possibility of additional remedies and the avoidance of contractual limitations.
English law draws a clear distinction between a warranty and a representation:
In most M&A transactions, parties deliberately structure statements as warranties (not representations) to control liability and avoid misrepresentation claims. The courts have previously confirmed that a warranty does not, without more, amount to a representation. But they have also left open the possibility, in specific circumstances, of a warranty being construed as a representation depending on the context.
The dispute in this case arose out of an investor-backed acquisition of a company operating an online brokerage platform. Two of the senior managers involved in the transaction entered into various documents including a management warranty deed in which those managers gave various warranties to the investor-buyer.
After completion, the relationship between the managers and the investor broke down and the managers were dismissed. When they brought claims against the investor relating to their equity entitlements, the investor counterclaimed alleging that the managers had made fraudulent misrepresentations in the warranty deed. The investor sought rescission of the equity terms and damages in deceit, arguing that the “warranties” in the deed were actually actionable representations. The managers argued that the statements were warranties only and no representations had been made.
The Court confirmed the accepted position that warranties are contractual promises, not statements of fact for reliance purposes, and there is no misrepresentation simply because a warranty proves to be untrue.
However, the Court went on to confirm that, on the facts, some of the statements in the warranty deed and disclosure letter could also constitute representations. The Judge identified four key factors in this decision:
Despite finding that warranties could amount to representations in principle, the Court ultimately held that the statements were not actually false and that the managers had acted honestly, following a “cumbersome and long” verification process by the investor. Accordingly, the investor’s counterclaim failed and no rescission or damages for misrepresentation were awarded.
The decision does not change the law, but it reinforces a practical truth: in M&A transactions, warranties can become actionable representations if they are used as a vehicle for conveying information on which the buyer relies. Sellers need to use very clear wording to ensure that their potential exposure is limited only to contractual damages subject to agreed limitations. For buyers, in the absence of such wording, claims beyond the scope of those limitations may be possible.
A further lesson for sellers is the benefit of a robust disclosure and verification process. The managers in this case were saved by the “impeccable” verification process they followed. Maintaining a clear trail of how each statement has been verified will support sellers in defeating allegations of recklessness or fraud in any misrepresentation claim.
In Veranova Bidco LP v Johnson Matthey plc & Ors (Rev2) [2026] EWHC 1021 (Comm), the Court dismissed a buyer’s claim for fraudulent breach of warranty despite finding that one of the warranties in the share purchase agreement had been breached and that disclosure against the warranty had been inadequate.
The claim failed because the buyer had not established fraud against the corporate seller. Conscious dishonesty by at least one of the seller’s attributable executives was required, and this threshold could not be met by aggregating the knowledge of several different individuals.
The case highlights the difficulty of proving fraud in a corporate context and illustrates the risks to a buyer when fraud is a precondition to a successful warranty claim.
The dispute arose from the £325m sale by Johnson Matthey group (the Sellers) of its health business to Veranova Bidco (the Buyer).
During negotiations, one of the target company’s most important customers (Alvogen) triggered a price review mechanism allowing it to switch suppliers for a pharmaceutical product if the target failed to match a competing price offer. A few days after the Sale and Purchase Agreement (SPA) was signed, the target company matched the competing third party offer, but at a significantly lower price than it had previously charged.
The Buyer claimed that the Sellers’ failure to adequately disclose the Alvogen price review meant that they had breached a “Key Contracts” warranty under the SPA.
However, due to a fraud limitation in the SPA, the Buyer could only succeed if it proved that the warranty claim arose from the fraud or wilful misconduct of the Sellers. For this purpose, the Buyer advanced what might be described as a “composite fraud” case – aggregating knowledge and conduct across four senior individuals within the Sellers’ group. It argued that once a warranty was shown to be false, it was sufficient to show that any of the four individuals knew the underlying facts, without needing to prove that the same individual realised that those facts resulted in the warranty being false.
Despite finding that the Key Contracts warranty had been breached and that disclosure of the Alvogen price review had been inadequate to qualify the warranty, the Court dismissed the Buyer’s claim. The Buyer had failed to establish fraud on the part of the corporate Sellers and was, therefore, contractually barred from recovering for breach of warranty.
In reaching its decision, the Court rejected the Buyer’s “composite fraud” approach and confirmed that dishonesty must be proved at the level of the relevant individual decision-maker, not constructed from fragments of corporate knowledge.
To establish fraud in this context, it had to be shown that at least one of the four executives:
On the evidence, the Buyer had not shown that any individual whose state of mind could be attributed to the Sellers acted dishonestly when giving the Key Contracts warranty or making the relevant disclosures.
This decision underlines how difficult it can be to prove fraud in a corporate M&A context. It is not enough to show that a warranty was incorrect or that the relevant individuals acted negligently. The claimant must prove conscious dishonesty and do so by reference to individuals whose state of mind can be legally attributed to the seller.
The case is particularly significant in rejecting the concept of “composite fraud”. A buyer cannot construct a fraud case by combining the knowledge of one employee, the actions of another, and the responsibility of a third.
Unless those elements can be tied to a single directing mind (or otherwise attributed under established principles), the claim will fail. This creates a practical evidential difficulty, as knowledge in corporate transactions is often dispersed across teams and functions.
The commercial implication is clear: buyers should avoid structuring claims in a way that makes fraud a necessary condition of recovery. Where a successful claim depends on establishing fraud – whether to bypass contractual limitations or because insurance cover is unavailable – the evidential hurdle may prove insurmountable, even where warranties have plainly been breached.
The High Court has sanctioned the Part 26A restructuring plan of Waldorf Production UK PLC (Waldorf) despite significant opposition from HM Revenue and Customs (HMRC).
A central feature of the decision in Re Waldorf Production UK plc [2026] EWHC 1014 (Ch) is the Court’s firm rejection of the argument that HMRC enjoys a special constitutional status that prevents it from being “crammed down”. Although HMRC’s public function as a tax authority warrants careful judicial scrutiny, it does not give HMRC a veto over restructurings. To hold otherwise would significantly undermine the rescue culture and purpose of Part 26A.
Part 26A of the Companies Act 2006 allows companies in financial distress to propose a “compromise or arrangement” with creditors (or members) to mitigate those difficulties.
A plan will usually require approval from 75% in value of each creditor class. However, the court may impose a “cross-class cram down”, allowing it to sanction the plan even if a class dissents, provided two jurisdictional conditions are met:
If these conditions are satisfied, the court must still exercise its discretion to determine whether the plan is fair. This includes considering whether there has been genuine engagement with creditors and whether the “restructuring surplus” (the benefits preserved by the plan) has been shared appropriately.
This case was Waldorf’s second attempt to implement a restructuring plan under Part 26A.
The Court had refused to sanction the first plan because the company failed to engage meaningfully with unsecured creditors, including HMRC. Following that refusal, Harbour Energy PLC (Harbour) offered to acquire several companies in the Waldorf Group (including Waldorf) for approximately US$205m. Harbour was particularly interested in Waldorf’s substantial tax losses, which could potentially be used to offset future taxable profits.
Crucially, Harbour’s offer was conditional on the sanction of a new restructuring plan (RP2) under which the Waldorf Group’s existing Energy Profits Levy (EPL) liabilities would be compromised. Harbour refused to assume those liabilities, which were owed to HMRC as an unsecured creditor.
RP2 divided creditors into four classes. Three classes approved the plan, leaving HMRC as the only dissenting creditor. HMRC raised a number of objections, including that:
The Court rejected HMRC’s objections and exercised its cross-class cram down power to sanction RP2.
In relation to jurisdiction, the Court held that Part 26A does not contain a carve-out for HMRC. Accepting HMRC’s argument would hand it an impermissible veto, inconsistent with the rescue purpose of the legislation. For these purposes, HMRC is to be treated as a creditor like any other.
The Court also held that the “no worse off” test is confined to the valuation of existing rights being compromised (here, the EPL liabilities). It does not extend to wider or indirect consequences, such as the future use of tax losses by a third-party purchaser. In any event, the evidence indicated that HMRC was likely to be better off under the plan than in the relevant alternative.
As to fairness, the Judge accepted that HMRC, as an involuntary creditor, should not be crammed down without good reason. However, such a reason existed here: the plan represented a fair commercial compromise resulting from extensive negotiations (including a mediation HMRC refused to attend) and represented the only viable deal to prevent a total cessation of business.
The practical significance of this decision is considerable. It confirms that HMRC does not enjoy any special constitutional immunity from Part 26A, nor any automatic priority in the court’s fairness analysis. That does not mean that HMRC can be crammed down lightly: the Court emphasised the need for close scrutiny and a clear justification.
However, it does mean that companies and investors can proceed on the basis that HMRC will be assessed within the same statutory framework as any other dissenting creditor – jurisdiction first, fairness next, and no veto merely because the debt is tax.
The case also reinforces the importance of process. Waldorf succeeded with RP2 because it combined a credible transaction with improved creditor engagement, stronger evidence and a structure the Court could regard as fair in commercial terms.
First published on Accountancy Daily.
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