Locked Box vs Completion Accounts: How to Compare Leakage with a True-Up

A locked box gives the buyer the economic benefit from that date, while legal ownership waits until completion. Completion accounts pass economic risk at completion, then adjust cash, debt, and working capital.

The locked-box price can still move, and a true-up is not a one-way discount. Ordinary pay is not, by itself, a reason to stop payroll. A headline that looks frozen is not a reason to delete the true-up. The accountant does not take the whole balance sheet.

Merryn, ops at a fourteen-person wool-pad merchant in Kendal, holds the draft. Kentmere Wool Ltd is buying Whinfell Pads Ltd, a nine-person workshop whose seat pads carry the Whinfell mark. English law applies in the courts of England and Wales. Enterprise value is £1,200,000, cash-free and debt-free, and the working-capital peg is blank.

Schedule 6 is the locked box, dated 30 June 2026. Schedule 7 is the true-up. Both are live, and completion is Friday 27 November 2026. A Slack message on 16 October 2026 said to stop payroll, delete Schedule 7, and let the accountant reopen the balance sheet. The mark is due Friday 24 October 2026. That date is not completion.

Disclaimer: Checkory provides AI support, not legal advice. Consult a qualified lawyer for binding decisions.

Why can economic risk pass on only one date?

Economic risk passes once. Farrer & Co, on 15 September 2026, treats the buyer as having the economic benefit from the locked-box date even though legal title waits until completion. Lewis Silkin put that risk at the locked-box date, or at completion under closing accounts. Two live dates are two prices.

For example, 30 June 2026 is the risk date only if you keep Schedule 6. If you keep Schedule 7, risk passes on completion, targeted for Friday 27 November 2026. ICAEW Guideline 64 records the same split. Farrer wrote for US buyers of UK companies, and this draft is English law. Write one date and delete the other.

When is ordinary salary permitted leakage rather than an indemnity?

Ordinary salary is not automatically leakage, and it is not automatically free. In practice, Farrer says ordinary-course salaries may be permitted leakage, where the arrangement already exists. The typical mistake on the Slack is to stop payroll instead of writing the line.

Leakage and permitted leakage are separate lines. Leakage is value leaving the target for the seller or a connected person between the locked-box date and completion. Dividends, management charges, transaction bonuses, and undervalue transfers are leakage. Rödl & Partner says each permitted item needs its nature, subject matter, amount, and timing, and that only outflows already in the price belong on that list.

Salary is permitted only when the line names the role, the amount, and the period from 30 June 2026 to completion. Anything else is a pound-for-pound indemnity, outside a general warranty cap.

Who keeps profit earned after the locked-box date?

Profit after the locked-box date stays in Whinfell Pads Ltd. Lewis Silkin says that cash flow cannot be distributed to the seller. One value accrual pays the seller. It is not also a dividend.

Cash profits, the usual accrual in Guideline 64, are profit before depreciation and amortisation, after interest and tax, including capital expenditure unless it is already debt-like. The alternative is a ticking fee on the equity value. Grant Thornton Belgium, on 8 June 2026, splits that fee into the gap, the base, and the rate. It does not set an English-law rate, so leave the rate blank and do not use both accruals.

How do cash, debt, and the working-capital peg move the equity price?

The true-up can move the equity price up or down only after the definitions exist. BDO describes equity value as enterprise value plus cash, less debt, plus or minus working capital against the peg. A blank peg is not an agreement.

Free cash and debt adjust pound for pound. Working capital excludes cash and debt, and UK GAAP and IFRS do not define the peg. Specific policies come first, then Whinfell’s named accounts, then the named GAAP and its date.

Which figures may the accountant still decide?

The objection notice is the accountant’s list. Guideline 64 says items not notified as disputed should be deemed final, and the expert should be limited to items still in dispute. Quantuma says each side puts its case once, and the expert decides the unresolved points and nothing more. The whole balance sheet is not the brief.

The notice states each figure, the reason, and the adjustment. The buyer most often prepares. Set a review period and an information cut-off. If the accountant is not named, use the ICAEW President’s Appointment scheme. Completion accounts are the leading cause of disputes in Guideline 64, which is not a forecast for this workshop.

What do you strike once the risk date is chosen?

Choose the risk date, fill the matching column, and strike the other schedule. Guideline 64 gives little reason for a hybrid true-up inside a locked box.

Volatile cash, a moving peg, or a long gap to 27 November 2026 keeps Schedule 7. A stable workshop whose 30 June numbers you can verify can lock Schedule 6 once the permitted list and one accrual are filled. Strike the other before Friday. The Slack is not a signature.

A blank second schedule is not a choice. How an expert determination differs from an arbitration award is a separate comparison. Schedule 7 is cash, debt, and working capital, not a seat true-up.

Farrer & Co, 15 September 2026