Earlier we discussed how price adjustment clauses in share sale agreements work. Today, we look at the actual legal case where this principle played out.

𝐁𝐚𝐜𝐤𝐠𝐫𝐨𝐮𝐧𝐝 𝐨𝐟 𝐭𝐡𝐞 𝐜𝐚𝐬𝐞 Kenbee Sdn Bhd sold 51 percent of the shares in an oil palm plantation company to Glory Drive Sdn Bhd for over RM100 million. The deal was signed in 2013 but only completed in 2015, so the sale agreement included a price adjustment clause to account for any change in the company's financial position during that gap. The idea behind the clause was simple. If the company's liabilities became smaller between the 2013 baseline and the 2015 completion date, the company had effectively become more valuable while it was still under Kenbee's control, so Kenbee should be paid more for it. Comparing the audited accounts from both years, Kenbee found that liabilities had gone down by RM5,333,285. Since Kenbee had only sold 51 percent of the company, it was entitled to only 51 percent of that improvement, which came up to RM2,719,975.35. Kenbee asked Glory Drive for this additional amount, but Glory Drive refused to pay, and the dispute went to court. The key argument at the heart of the case was whether Glory Drive, having already taken control of the company, could bring in new accounting items that were never part of the original comparison, in order to reduce or wipe out this adjustment.

𝐏𝐨𝐬𝐢𝐭𝐢𝐨𝐧 𝐨𝐟 𝐭𝐡𝐞 𝐀𝐩𝐩𝐞𝐥𝐥𝐚𝐧𝐭 Kenbee Sdn Bhd argued that its calculation, based directly on the audited accounts as they stood, showed a clear and genuine improvement in the company's financial position, and that it was entitled to 51 percent of that improvement under the agreed formula. Kenbee said Glory Drive's attempt to introduce new deductions such as deferred tax and amortisation, which were never part of the original accounting basis used at signing, was an unfair attempt to rewrite the price formula after it had already taken control of the company's books and records.

𝐏𝐨𝐬𝐢𝐭𝐢𝐨𝐧 𝐨𝐟 𝐭𝐡𝐞 𝐑𝐞𝐬𝐩𝐨𝐧𝐝𝐞𝐧𝐭 Glory Drive Sdn Bhd argued that the price adjustment clause should be read more narrowly, and should only capture liabilities strictly tied to the company's operations. It said certain accounting items, namely deferred tax liability and amortisation, had been wrongly left out of Kenbee's calculation, and that once these were properly included, there was no real improvement in the company's financial position at all, meaning nothing further was owed.

𝐃𝐞𝐜𝐢𝐬𝐢𝐨𝐧 𝐨𝐟 𝐭𝐡𝐞 𝐂𝐨𝐮𝐫𝐭 The High Court dismissed Kenbee's claim, but the Court of Appeal overturned that decision. It held that allowing Glory Drive, now the party controlling the company's accounts, to introduce new adjustments after the fact would unfairly let it rewrite the very price formula both parties had agreed to at the time of sale. The Court of Appeal accepted Kenbee's original calculation based on the audited accounts as they stood, and entered judgment in Kenbee's favour for RM2,719,975.35, together with interest and costs of RM100,000.

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