Damages lawsuit over off-balance-sheet liabilities discovered after a biotech company's acquisition

After a biotech company acquired a company engaged in pharmaceutical testing and analysis, liabilities not reflected in the target company's books were discovered, and the acquirer sued the seller of the shares and management control for damages.

Attorney Jaehoon Lee represented the acquiring company in the litigation at the first instance and on appeal.

The main issues were the interpretation and application of the damages clause on off-balance-sheet liabilities in the share and management control transfer agreement, whether the liabilities existed as of the valuation date, and the appropriate accounting standards.

In particular, the timing for recognizing revenue and expenses related to pharmaceutical testing services, the accounting principles under corporate accounting standards and the Corporate Tax Act, whether the seller had given prior disclosure, and the scope of liability for damages were at issue.

Attorney Lee analyzed the share and management control transfer agreement, the due diligence report, the target company's accounting records and the related transaction history, and reviewed how the off-balance-sheet liabilities arose and the contractual liability for damages.

In particular, he argued that whether the liabilities should be recognized had to be determined as of the valuation date, and rebutted the opposing party's accounting arguments by analyzing the matching principle for revenue and expenses, the relevant accounting standards and the provisions of the Corporate Tax Act.

He also reviewed individual liability items, such as the cancellation of the target company's service contracts and unpaid expenses, and presented arguments on whether the seller had given prior disclosure and on the scope of the damages clause.