Big Six drops limited liability cap under BVCA pressure
Venture capitalists have forced the Big Six to abandon demands for limited liability on nine out of every ten due diligence contracts, writes Phillip Inman.
The victory, after the two sides struck a deal this week, follows a year-long battle between the British Venture Capital Association (BVCA) and representatives of the Big Six over whether accountants could impose proportional liability and a #25m liability cap should a dispute arise over a failed deal.
The Big Six, which was accused of acting in a cartel, refused to carry out due diligence work from October 1996 for venture capital companies unless they signed capping agreements.
In January last year BVCA members started issuing ‘side letters’ declaring they signed the agreement under duress.
Accountants agreed to abandon limited liability on deals worth less than #10m. They also agreed to a non-binding framework capping liability on a sliding scale on deals worth between #10m and #55m. The #25m cap remains on deals over #55m.
BVCA negotiator Martin Gagen, said: ‘We estimate 90% of venture capital deals have a total transaction size under #10m and their associated liabilities will simply be capped.’