What Happens if the Buyer Doesn’t Deliver Working Capital Adjustments Statements Within the Required Time?

We’ve seen a lot of deals lately in which the working capital section is something along the lines of the following:

1. At closing, seller shall deliver its working capital statement.
2. As soon as possible following closing, but within 30 days thereof, buyer shall deliver notice of any adjustments to that statement.
3. The shareholder rep shall then have 20 days to dispute any of the adjustments.
4. Once there is a final agreed-upon figure, appropriate purchase price or escrow adjustments will be made.

One wrinkle to this that is often left unclear is what happens if the buyer fails to deliver the notice of adjustments within the required time frame? Have they forfeited their right to do so? If they have, does that mean the working capital statement delivered by seller at closing is the final statement and buyer has no right to object to it? Most buyers will vigorously object to that formulation.

To avoid this issue, try to add a sentence to the merger agreement that specifically says something along the lines of “If Buyer fails to deliver notice of any adjustments within such __ day period, the Working Capital Statement delivered by the Seller at Closing shall be deemed for all purposes hereunder to be the final statement for purposes of calculating the [Closing Working Capital Balance] and Buyer shall have no further rights to object or require adjustments thereto; provided, however, that the [Stockholder Representative] shall have the right, at its sole election, to compel the buyer to deliver such notice of adjustments following the expiration of such __ day period.”

This seems fair to us because the rep loses its ability to object to the adjustments if a notice of dispute isn’t delivered within the designated period, so why shouldn’t the same rules apply to buyer? If a sentence like this is not included, the rep likely will not have the ability to preclude the buyer from delivering a late statement. Instead, the available remedies to the rep may be limited to any damages resulting from such late delivery, which likely will be nothing.