SGS 6 (Draft AA)

Question 1

Disclosure definition?

Answer 1

Insert wording
‘fairly disclosed (with sufficient details to identify nature and scope of matter disclosed)

Infiniteland - adequacy of disclosure in any case must be assess according to wording in sale documentation.

Question 2

What does sale with full title guarantee pertain to?

Answer 2

implies covenants under LP(MP)A 1994
Seller has right to dispose of shares
shares free from all charges, encumbrances and third party rights other than those seller is unaware of and could not reasonably be expected to know about.

Question 3

Joint and several liability for warranties?

Answer 3

Buyer will require this where there are multiple sellers to ensure the buyer can sue any one of them for the whole loss arising from the breach of the warranty or sue them all together.

Question 4

Seller agreeing not to make any claims against any employee of any Group Company in respect of any warranties?

Answer 4

Buyer friendly as prevents the situation whereby Buyer sues Seller for breach of warranty and seller counterclaims against an employee of Target / subsidiaries who have assisted or acted for the seller in connection with notations for sale of company or preparing info in connection with purchase.

Question 5

Buyer not aware of grounds upon which it has a right to claim for breach of Warranties against the Seller

Answer 5

Buyer will be ok giving this as if it were aware of any circumstance giving rise to a claim, it should have dealt with it by seeking a reduction in consideration or by way of indemnity. Do not advise Buyer to complete knowing of the breach.

Question 6

Rescission for breach of warranties?

Answer 6

Clause denying this seems to take rights away from Buyer but in practise rescission unlikely to be available after completion as not possible to put parties back in position they were in before completion (given they are trading after new management)

Question 7

Assigning benefit of warranties?

Answer 7

Buyer will want benefit to be assignable to other companies within the Buyer’s Group.

Deed of Assignment

Question 8

Seller’s knowledge - purpose of clause?

Answer 8

Seller trying to restrict liability and extent to which it has to carry out an investigation into affairs of Target and subsidiaries before deciding what needs to be disclosed to the buyer.

Question 9

Seller’s knowledge - buyer’s perspective?

Answer 9

Wants a wider meaning than just enquiries of directors as there could be person in seller’s organisation who has notice of problem but has not yet passed it on to persons specified in the clause.
Wants more general obligation to make enquiries –> amend to ‘all reasonable and careful enquiries’.

Question 10

Time Limitations for warranties?

Answer 10

2-3 years to allow buyer time to complete two audits.

Question 11

Time Limitations for tax covenant and warranties?

Answer 11

7 years or compromise six years from end of company’s current accounting period - ensuring seller’s liability under the tax are as long as the ability of HMRC to make a determination to tax.

Question 12

De Maximus?

Answer 12

Auction sale = 50-75% of purchase price
Remove claims under tax covenant
Try to get as high a figure as possible (balance of the purchase price)

Question 13

De Minimus?

Answer 13

Aggregate minimum of 1%
Individual minimum of £10,000.
Remove ‘Seller is only liable for excess’.

Question 14

Disclosures are disclosures against?

Answer 14

warranties

Question 15

What will the Buyer want to qualify the Warranties?

Answer 15

only matters fairly disclosed in the disclosure letter.

Question 16

Mitigation of loss

Answer 16

Under common law Buyer need only tale reasonable steps - B should resist using best endeavours as this would go further.
Also no mitigation for tax covenant as no common law duty to mitigate indemnities.

Question 17

Reasonableness of restrictive covenants.

Answer 17

non-compete and non-solicitation should be no longer than 1 to 3 years.
non-solicitation of customers should only apply to those customers 12 months pre-completion.
no time limits for covenants against revealing confidential information
Ensure Seller and subsidiaries enter into.

Question 18

Pension scheme warranties?

Answer 18

Pension scheme only pension scheme in which Target participates

Full details of Pension Scheme supplied with list of employees

HMRC approved

All contributions and expenses paid to date

Complies with all applicable legal and administrative requirements.

Fully funded

Question 19

Completion accounts?

Answer 19

Ensure buyer’s auditors have reviewed the school as they are responsible for reviewing and agreeing them with seller’s auditors.

Question 20

Completion accounts figure?

Answer 20

Make sure Buyer aware of any services carried out as a group function - if not taken into account, current liabilities of company would be understated and so NAV overstated and buyer pays too much.

Question 21

What is the effect of an incomplete entire agreement clause?

Answer 21

Thomas Witter - tortious liability can only be excluded by express agreement.

If an element is missing from EA clause, buyer hopes to rely on Thomas and may have a chance at claiming for misrep.

However Grimstead has obiter comments disapproving of Witter, so the outcome for the buyer is uncertain.

Question 22

When would an indemnity not suffice?

Answer 22

Where there were any criminal offences involved.