- Breach of Representations and Warranties The seller made a series of statements in the purchase agreement — about financial statements, contracts, employees, compliance, and more.
- Well-drafted purchase agreements anticipate this and build in a resolution mechanism — an accountant referral for financial disagreements, arbitration for broader disputes — rather than…
- - Go back to the agreement first, not your memory of the negotiation.
Closing day feels like the finish line, but for many Ontario business deals it's really the start of a new phase — one where the purchase agreement's fine print finally gets tested against reality. Most closings never turn into a fight. But when post-closing disputes do happen, they tend to cluster around a fairly predictable set of issues.
Knowing what those issues usually are — and how a well-drafted agreement handles them — helps both buyers and sellers negotiate smarter before closing, and react faster if a problem does surface afterward.
The Usual Suspects
1. Breach of Representations and Warranties
The seller made a series of statements in the purchase agreement — about financial statements, contracts, employees, compliance, and more. If one of those turns out to be false, and the buyer suffers a loss as a result, that's a classic indemnity claim. This is one of the single most common sources of post-closing friction, precisely because reps and warranties cover so much ground.
2. Working Capital and Purchase Price Adjustments
Most purchase agreements price the deal off an estimated closing statement, then true it up against a final statement prepared after closing. When the buyer's and seller's accountants land on different numbers — often because of how inventory, receivables, or accruals were counted — a dispute over the adjustment amount can follow.
3. Earn-Out Calculations
Where part of the price is contingent on the business hitting future performance targets, disagreements often arise over how those targets are measured, whether the buyer ran the business in a way that affected the numbers, or how specific line items should be treated.
4. Undisclosed Liabilities
A debt, lawsuit, or compliance issue the buyer didn't know about at closing surfaces afterward. Whether it's the seller's problem or the buyer's depends heavily on deal structure (asset vs. share sale) and on what the disclosure schedule actually said.
5. Restrictive Covenant Breaches
Where a seller agreed to a non-compete or non-solicitation obligation as part of the deal, disputes can arise if the buyer believes the seller has started competing, poaching staff or customers, or otherwise crossed a line the agreement was meant to prevent.
How These Disputes Are Typically Resolved
| Dispute Type | Common Resolution Path |
|---|---|
| Breach of reps/warranties | Formal indemnity claim under the agreement, subject to any survival period, basket, and cap |
| Working capital / price adjustment | Often referred to an independent accountant for a binding determination, per the agreement's dispute mechanism |
| Earn-out calculation | Depends heavily on how the earn-out clause was drafted; may go to an accountant, an expert, or arbitration |
| Undisclosed liabilities | Indemnity claim if covered by the reps/warranties; otherwise depends on whether the liability was assumed |
| Restrictive covenant breach | Often starts with a demand letter; can escalate to an injunction application or damages claim |
Well-drafted purchase agreements anticipate this and build in a resolution mechanism — an accountant referral for financial disagreements, arbitration for broader disputes — rather than leaving every disagreement to default straight into a lawsuit.
What to Do the Moment a Dispute Surfaces
- Go back to the agreement first, not your memory of the negotiation. What you're entitled to claim, and how, is defined by the document itself.
- Check the timeline. Notice deadlines, survival periods, and objection windows are common in these agreements, and missing one can undermine an otherwise valid position.
- Separate the emotional read from the contractual one. A frustrating outcome isn't automatically a breach or a claim — trace it back to a specific provision before assuming it is.
- Get a lawyer involved early, particularly if real money is at stake. Early advice tends to be far cheaper than advice sought after positions have hardened on both sides.
Reducing the Odds of a Dispute Reaching This Stage
- [ ] Make sure the disclosure schedule is thorough and specific, not generic boilerplate — vague disclosure invites vague disputes.
- [ ] Agree on the accounting methodology for any working capital adjustment before closing, not after the numbers come in.
- [ ] Draft earn-out mechanics with objective, measurable criteria and clear rules about how the buyer must operate the business during the earn-out period.
- [ ] Set indemnity survival periods, baskets, and caps deliberately, rather than accepting boilerplate language neither side has really considered.
- [ ] Keep good records through closing and the post-closing period — most disputes turn on what the numbers or the facts actually were, not just what the contract says.
Frequently asked questions
Do most post-closing disputes end up in court?
No. Many are resolved through the mechanism the agreement itself sets out — direct negotiation, an accountant referral, or arbitration — because most well-drafted agreements are built to avoid a full lawsuit for routine disagreements. Litigation tends to happen when the dispute is large, the relationship has broken down, or the agreement's dispute mechanism doesn't clearly cover the issue.
Can a buyer walk away from the deal after closing if they find a serious problem?
Generally no, not in the sense of unwinding the transaction. Once a deal has closed, the buyer's usual remedy is a claim under the purchase agreement — typically an indemnity claim — rather than rescission. Whether other remedies are available depends heavily on the specific facts and the wording of the agreement.
How long after closing can these disputes still come up?
It varies by the type of claim and what the agreement says. Indemnity claims for breach of representations and warranties are usually subject to a survival period set out in the agreement itself; other issues, like an earn-out dispute, follow their own timeline tied to when the relevant milestone is measured.
Is it worth trying to resolve a dispute without a lawyer first?
Direct conversation between the parties (or their accountants, for a numbers dispute) often resolves smaller issues faster and more cheaply than immediately escalating. But once a real disagreement over money or interpretation of the agreement emerges, involving a lawyer early tends to protect your position better than waiting.
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