Formative MCQs Flashcards
Your client, a private limited company is negotiating with a competitor (‘Seller’) to purchase the
shares in the Seller’s wholly owned subsidiary (‘Target’). Your client would like your advice on
how to ensure that, after completion of the share sale, the Target either owns or has exclusive use
of all the intellectual property rights currently used in its business.
Which one of the following statements is the most appropriate advice to give to your client?
Select one alternative:
If the Target has licensed any of its intellectual property rights to third parties, it can terminate these licences immediately on completion
The terms of any licences granted by third parties to the Target to use intellectual property rights, will have to be checked for a change of control clause
All of the intellectual property rights currently used by the Target in its business will be owned by the Target after completion
All intellectual property rights used by the Target in its business will need to be assigned to the Target on completion
The terms of any licences granted by third parties to the Target to use intellectual property
rights, will have to be checked for a change of control clause
A company (‘Buyer’) is in negotiations to acquire the entire issued share capital in a private
limited company (‘Target’). The Buyer is particularly interested in the Target because the Target
has recently secured a very profitable exclusive distribution agreement (‘Agreement’) with a
leading chain of supermarkets (‘Distributor’). The Agreement contains the following clause:
“14 Termination
Without prejudice to any other rights to which it may be entitled, either party may give notice in
writing to the other party terminating this Agreement with immediate effect if:
14.1 any insolvency proceedings are commenced against the other party;
14.2 either party purports to assign its rights or obligations under this Agreement without the prior
consent of the other party.
”
Which one of the following statements represents the best advice to give to the Buyer in
relation to the Agreement?
Select one alternative:
Following completion of the share sale, the Agreement will automatically be transferred to
the Buyer and the consent of the Distributor will not be necessary.
Following completion of the share sale, the Distributor will be entitled to serve notice under
clause 14 as a consequence of the change in ownership of Target.
Following completion, the Buyer will be able to keep the benefit of the Agreement, as long
as it does not attempt to assign the Agreement at any time without the consent of the
Distributor.
Following completion of the share sale, the Agreement will remain with the Target so the
Distributor will not be entitled to serve notice under clause 14 to terminate the Agreement.
Following completion of the share sale, the Agreement will remain with the Target so the
Distributor will not be entitled to serve notice under clause 14 to terminate the Agreement.
8 months ago your client acquired the entire issued share capital of a private limited company
whose business is automotive research and development (‘Target’). As part of the due diligence
process the seller disclosed to your client ongoing litigation against Target and as a result of
negotiations the seller gave an indemnity to your client in relation to that litigation. The litigation
has recently resulted in a successful claim of £15,000 against Target and as a result your client
has made a successful claim for £15,000 against the seller under the indemnity.
What advice should you give to your client about the most likely tax consequences of the
successful indemnity claim?
Select one alternative:
Target must pay tax on £15,000.
The seller must pay tax on £15,000.
No party must pay tax on £15,000.
Your client must pay tax on £15,000.
No party must pay tax on £15,000.
A private limited company (‘Seller’) is selling its wholly owned subsidiary (‘Target’) to another
company (‘Buyer’).
The Target specialises in the renovation of commercial premises. The executive director
(‘Director’) of the Target has confirmed that they are looking to resign from the Target ahead of
the share sale to start a new renovations business with their brother. The Director’s employment
contract with the Target prevents them from soliciting employees of Target for a period of 36
months from the end of the Director’s employment with the Target.
Which one of the following statements represents the best advice to give to the Buyer?
Select one alternative:
The Buyer should not be concerned about the validity of the restrictive covenants in the
Director’s employment contract and therefore no action needs to be taken in relation to this
by either the Target or the Seller
The Buyer should ensure that the Director enters into a new set of restrictive covenants
following completion of the share sale in order to improve the protection for the Target and
the Buyer
The Buyer should request that the Target negotiates with the Director prior to completion of
the share sale to increase the duration of the restrictive covenants in order to improve the
protection for the Target and the Buyer
The Buyer should request that the Target negotiates with the Director prior to completion of
the share sale to reduce the duration of the restrictive covenants in order to improve the
protection for the Target and the Buyer
The Buyer should request that the Target negotiates with the Director prior to completion of
the share sale to reduce the duration of the restrictive covenants in order to improve the
protection for the Target and the Buyer
A listed company is selling the entire issued share capital in its subsidiary company (‘Target’).
You are acting for the seller, and you have advised that the sale of the Target will constitute a
Class 1 transaction, meaning that the seller will need to obtain prior shareholder approval by
ordinary resolution. The parties have agreed to a split signing and completion to allow time for the
seller to obtain this approval. The seller would like advice on the implications of a split signing and
completion and what contractual protections, if any, the buyer may seek to ensure it is not
exposed to any additional risk during the period between signing and completion.
The share purchase agreement contains a clause specifying that approval by the seller’s
shareholders is a condition precedent to completion. There are no other conditions precedent.
Which one of the following statements represents the best advice for the seller?
Select one alternative:
The buyer will ask the seller to repeat the warranties contained in the share purchase
agreement on completion. The seller should be given the opportunity to provide an updated
disclosure letter disclosing against the repeated warranties. The seller should be advised to
agree that if any of the repeated warranties are untrue upon completion, the buyer would
have the right to withdraw from the acquisition.
The seller does not need to agree to repeat the warranties contained in the share purchase
agreement on completion. The warranties will be deemed to be repeated on completion in
the absence of an express contractual provision to this effect.
The buyer will ask the seller to repeat the warranties contained in the share purchase
agreement on completion and will resist any request from the seller to provide an updated
disclosure letter disclosing against the repeated warranties. The seller should be prepared
to include, at the buyer’s request, a provision in the share purchase agreement allowing the
buyer to withdraw from the acquisition if there is a breach of warranty in the period between
signing and completion leading to a material adverse change in the value of the Target’s
shares.
The buyer will not seek any additional contractual protections in respect of the split between
signing and completion. The buyer does not need to be concerned by any reduction in the
Target’s value between signing and completion because the buyer will have a right to adjust
the purchase price should this occur.
The buyer will ask the seller to repeat the warranties contained in the share purchase
agreement on completion and will resist any request from the seller to provide an updated
disclosure letter disclosing against the repeated warranties. The seller should be prepared
to include, at the buyer’s request, a provision in the share purchase agreement allowing the
buyer to withdraw from the acquisition if there is a breach of warranty in the period between
signing and completion leading to a material adverse change in the value of the Target’s
shares.
A private limited company (‘Seller’) is selling its wholly owned subsidiary (‘Target’) to a competitor
company (‘Buyer’). The Seller has agreed a number of warranties in the draft share sale
agreement. One warranty given by the Seller is as follows:
“To the best of the Seller’s knowledge, the Target is not engaged in any litigation whether actual,
pending or threatened”
.
Since the draft of the share sale agreement was agreed, a disgruntled customer of the Target has
brought a claim for damages (‘Claim’) in relation to a breach of contract against Target. The
Seller has informally made the Buyer aware of the Claim. The Seller is now in the process of
drafting the disclosure letter ahead of signing and completion scheduled for next week.
Which one of the following statements represents the most appropriate advice to give to
the Seller?
Select one alternative:
The Seller must ensure that it fairly discloses details of the Claim in the disclosure letter
otherwise it cannot ever be effective to qualify the warranty
The Seller does not need to disclose the Claim in the disclosure letter as it only arose after
the warranties in the share sale agreement had been agreed
The Seller must ensure that it discloses details of the Claim in the disclosure letter
otherwise it may have a claim made against it by the Buyer for breach of warranty
The Seller does not need to disclose details of the Claim in the disclosure letter because the
Buyer’s knowledge of the Claim means that the Buyer cannot ever make a successful claim
for breach of warranty
The Seller must ensure that it discloses details of the Claim in the disclosure letter
otherwise it may have a claim made against it by the Buyer for breach of warranty
You are acting for a company which is currently in negotiations to acquire the entire issued share
capital of a private limited company (‘Target’). The Target has a net asset value of £3.5 million.
The Target owns a freehold property which is currently valued at £2.5 million. Your client is keen
to ensure that the Target has good and marketable title to the property.
Which one of the following statements represents the best advice to give to your client?
Select one alternative:
Your client should seek a comprehensive set of warranties in relation to the property from
the Seller
Your client should ask your firm to investigate title to the property on its behalf
Your client should seek a set of indemnities in relation to the property from the Seller
Your client should obtain a certificate of title to the property from the buyer’s solicitors
Your client should ask your firm to investigate title to the property on its behalf
