Completion accounts: cash free debt free adjustment: share purchase agreement

by Practical Law Corporate , with thanks to Kathryn Cearns OBE, a non-executive director and expert in financial reporting, audit and governance

Standard clauses for use in a share purchase agreement (SPA) to implement a post-completion purchase price adjustment based on completion accounts. The clauses are designed for transactions structured on a cash-free/debt-free basis, where the price is adjusted by reference to the target's actual debt, cash, and working capital at completion. These clauses establish a detailed framework for the preparation, review and agreement of the completion accounts, including the hierarchy of accounting principles and policies that must be followed when drawing up the completion accounts. The framework also addresses key definitions for the relevant financial components such as Cash, Indebtedness, and Working Capital, and contains specific accounting policies for subjective balance sheet items, offering a structured approach to valuing assets and liabilities for the purpose of the price adjustment mechanism.