Article / 5 May 2026
In this month’s update we:
The High Court has overturned an expert determination under a share purchase agreement because the expert treated accounting liabilities as assets that increased the purchase price. The case (Nawaz‑Khan & Ors v UAP Ltd [2026] EWHC 641 (Comm)) highlights the risks of loose drafting in price adjustment mechanisms and the dangers of relying on undefined accounting terminology.
The case concerned the sale of an insurance brokerage business. Under the relevant share purchase agreement, the consideration payable by the buyer was calculated by reference to completion accounts.
In simplified terms, the purchase price was defined as “the Purchase Consideration ... plus the amount of the Claims Provision … plus the amount of the Deferred Fee Income…”. Crucially, the definitions of “Claims Provision” and “Deferred Fee Income” both referred to “the amount held by the Company in relation to…”. However, both items were in fact liabilities, not assets: the Claims Provision (c.£350k) was an accounting provision for potential professional indemnity claims; and the Deferred Fee Income (c.£155k) represented income received in advance but not yet earned.
After completion, a dispute arose between the parties about how these items should be treated in the price calculation, and whether they each represented a real asset for which the buyer was paying extra, or simply accounting entries.
The dispute was referred to an expert under the agreement. He concluded that both the Claims Provision and the Deferred Fee Income should be added to the purchase price. His reasoning was that the relevant defined terms each used the word “held”, and this was a commonly used accounting term meaning a balance appearing on a balance sheet, regardless of whether it was an asset or a liability. Therefore, even if the balance is a liability, it still counts as an amount “held”.
The result was a materially higher purchase price payable by the buyer, who then challenged the expert’s determination.
The High Court set aside the expert’s determination. It emphasised that, while accounting evidence was relevant, the starting point was the proper construction of the share purchase agreement as a commercial contract. The expert had exceeded his remit by adopting an interpretation that was inconsistent with the contractual structure and commercial logic of the transaction.
In particular the Court found that, commercially, the buyer could not sensibly be paying extra money for a contingent liability (the Claims Provision) or unearned revenue that would require work to be done (the Deferred Fee Income). No additional amounts should have been added to the purchase price for these items because there were no corresponding assets. The proper purchase price had to be reduced by the amounts the expert had added.
The expert’s determination was set aside because it contained manifest errors, namely:
The case highlights that misalignments between accounting concepts and legal drafting can lead to expensive disputes. Purchase price mechanisms are not purely technical or accounting exercises, and expert determination does not permit an expert to substitute accounting logic for contractual meaning. The relevant provisions are designed to allocate economic risk, and they must be drafted – and applied – with that principle firmly in mind.
In Secretary of State for Business and Trade v Greensill [2026] EWHC 639 (Ch), the High Court confirmed that for a disqualification order to be made under section 6(1) of the Company Directors Disqualification Act 1986 (CDDA), the Secretary of State does not have to show that the director’s misconduct caused the company’s insolvency.
The CDDA sets out the circumstances in which a court may make an order disqualifying a person from acting as a director of a company.
There are several grounds for disqualification under the CDDA, but the majority of applications relate to the court’s power under section 6 (Section 6). This section requires a court to make a disqualification order against a person where the court is satisfied both that:
The CDDA does not specifically define “unfitness”, but when making its assessment, the court must look at several factors detailed in Schedule 1. These include the director’s responsibility for the causes of insolvency, any breaches of fiduciary duty and the frequency of any misconduct. Whilst the court must consider the extent of the director’s responsibility for the company’s failure, this is just one of many factors that must be taken into consideration.
Alexander Greensill was a director of Greensill Capital UK Limited and Greensill Limited. The Secretary of State brought disqualification proceedings under Section 6 against Mr Greensill in connection with the insolvencies of those companies.
The alleged misconduct included causing transactions that exposed investors to significant losses, dishonest misrepresentations to trade credit insurers, and misleading the companies’ boards about the status and risks relating to key insurance arrangements.
Mr Greensill applied to strike-out the disqualification proceedings. He argued that Section 6 requires the Secretary of State to prove that the alleged misconduct was responsible for the companies becoming insolvent. As the Secretary of State had not alleged that Mr Greensill’s conduct caused the companies’ collapse, the disqualification proceedings were legally flawed.
The Court rejected Mr Greensill’s arguments and dismissed his strike out application.
It held that Section 6 does not impose a requirement that the director’s alleged misconduct must have caused the company’s insolvency. Nothing in the CDDA supported that interpretation and, in particular, Section 6 identifies insolvency and unfitness as two separate and freestanding preconditions. The fact that proceedings could be brought against a director of a company that had been dissolved without becoming insolvent, was also inconsistent with Mr Greensill’s argument.
Mr Justice Trower also confirmed that whilst responsibility for insolvency is one of the factors a court should consider when assessing unfitness, it is not a necessary pre-condition for bringing or succeeding in a Section 6 claim.
This decision reinforces that Section 6 is a flexible tool, designed to protect the public from unfit directors, regardless of whether those directors were the direct architects of a company’s failure. The decision also confirms that the “unfit” test is not a tick-box exercise but involves a broad, evaluative assessment of the particular circumstances of the case.
For those facing disqualification proceedings, the message is clear: disqualification cannot be avoided simply by proving that the company would have failed anyway due to external factors. If a director’s conduct falls below the required standard, the fact that a company’s insolvency had other causes will not provide a legal shield. A director’s conduct will be judged on its own merits, with the court’s focus being on conduct and standards and not exclusively on outcomes.
In a recent case, the High Court has refused a company’s application to amend its statement of claim to assert that the company’s auditors had a duty to report suspected fraud directly to individual shareholders.
The Court held that the proposed amendment had no real prospect of success, reinforcing established authority that an auditor’s statutory and common law duties are owed to the company and not to individual shareholders.
The Wine Enterprise Investment Scheme Ltd (the Company), acting by its liquidators, brought an action against its former auditors, alleging negligence in relation to audits from 2012 to 2018.
The background to the claim was that the Company’s directors had allegedly acted fraudulently in relation to the Company’s wine investment scheme (including by diverting funds and misstating cash deposits). The Company claimed that the auditors had been negligent in failing to detect the alleged fraud at an earlier stage, and that if the auditors had acted properly during any of the audit years, the Company would have been put into liquidation at that earlier point, and its losses avoided.
The auditors admitted to various breaches of duty but denied that they had caused the claimed losses. This was because the only individuals able to act for the Company were the allegedly dishonest directors, so even if the auditors had reported their suspicions to the Company or its board, this would not have prevented the loss.
To salvage its claim, the Company attempted to amend its pleadings to assert that competent auditors would have promptly reported the directors’ alleged fraud directly to individual shareholders, and that the auditors should have resigned and included details of the fraud in their resignation statement. This would then have enabled the shareholders to intervene to protect the Company’s assets.
The Court refused permission for the Company to amend its particulars of claim to plead a duty on the auditors to report directly to individual shareholders. It held that the proposed amended case had no real prospect of success and that allowing it would be inconsistent with established law and unfairly prejudicial at such a late stage in proceedings. In particular, the Court held that:
Despite the failings of the auditors, the Court held that it was the directors’ own dishonesty that was “overwhelmingly the most important cause of the Company’s loss” and reduced the Company’s damages by 50% for contributory negligence.
This decision provides some reassurance to auditors in that it confirms that their primary legal obligation is to the company and not to individual shareholders, even where that company’s management has acted fraudulently.
Whilst auditors must report appropriately within the statutory framework and comply with regulatory and criminal reporting obligations, they should not be required to act as direct “whistle-blowers” to a company’s shareholders. Auditors may be well advised, however, to ensure that any engagement letter explicitly limits their responsibility to the “members as a body” (or similar wording) to avoid inadvertently creating wider duties.
First published on Accountancy Daily.
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