SRS Acquiom has seen repeatedly in working capital adjustments that buyers will look to adjust the calculation downward based on accounts receivable that were outstanding at closing and have not yet been collected post-closing. While that may or may not be the correct conclusion based on the terms of a particular deal, if the shareholder representative does ultimately determine to accept the adjustment, a question remains as to what should happen if those receivables are later collected. If the buyer gets the benefit of a downward adjustment in the purchase price while also later collecting the cash, the buyer arguably receives a windfall.
To account for this, the parties may consider a couple of options. First, they may agree to the downward adjustment in the purchase price but simultaneously assign the receivable to the shareholder representative. In connection with this, the parties should consider whether such assignment includes the right to collect, or whether that is retained by buyer with the sellers simply assigned rights to any proceeds.
Second, the parties may elect to extend the working capital adjustment period for a reasonable period of time in which they believe the applicable receivables will be collected, if at all. If at the end of such period the receivables remain outstanding, the shareholder representative agrees that it will accept the working capital adjustment. If, however, all or a portion of such receivables are collected, the buyer agrees to amend the calculation accordingly.