Understanding Sale & Purchase Agreements

18 videos – 4 hours 13 minutes

A “good deal” is a function of both the terms under which an exchange of contracts takes place and the price paid or received on completion of a sale and purchase agreement. A high price is no good to a seller if a large portion of the proceeds of sale needs subsequently to be handed back to a buyer in order to compensate for breaches of warranty. Similarly, a low price is not particularly advantageous to a buyer if the assets acquired prove to be subject to unexpected defects for which no redress is enforceable against the seller.

The drafting of a Sale & Purchase Agreement seeks to ensure that a buyer receives what was anticipated and that a seller can walk away with confidence that its continuing liabilities are both known and quantifiable. As a compromise between these two extremes, the drafting of warranties and indemnities identifies the risks in a deal and decides upon whom they should fall.

Understanding Sale & Purchase Agreements

Full list of videos for this course Outline

  • Video 01: Introduction – Structure of an Agreement
  • Video 02: Transfer & Re-Transfer of Risk – Drafting Objectives
  • Video 03: Transfer & Re-Transfer of Risk – Representations & Warranties
  • Video 04: Transfer & Re-Transfer of Risk – Indemnities
  • Video 05: Completion Meetings – The Deal Must Complete
  • Video 06: The Warrantors – Who Should Give Warranties
  • Video 07: Disclosure Letters – Objectives
  • Video 08: Disclosure Letters – General & Specific Disclosures
  • Video 09: Disclosure Letters – Fair Disclosure & Non-Disclosure
  • Video 10: The Warranties – Seller’s Liabilities & Buyer’s Remedies
  • Video 11: The Warranties – Buyer Extends Remedies
  • Video 12: The Warranties – Seller Limits and Excludes Liability
  • Video 13: The Warranties – Claims Against Third Parties
  • Video 14: The Warranties – Warranty & Indemnity Insurance
  • Video 15: The Warranties – Date of Application
  • Video 16: Property Warranties – Investigation of Title
  • Video 17: Tax Warranties – Objectives & the Tax Deed
  • Video 18: Final Negotiations– Completion Accounts & Locked Box

Understanding Sale & Purchase Agreements

Course Outline

  • Structure of a Sale & Purchase Agreement

    • Letters of Intent & Heads of Agreement – agreements leading up to the SPA
    • Definitions – remove complexity from the body of the document
    • Exchange & Completion – two separate exercises, preferably contemporaneous
      • Pre-Conditions – allow the buyer to slide out of the deal
      • Covenants – negative or positive promises
    • Boilerplate Clauses – non contentious regulation of the contract
    • Schedules – details at the back of the document
    • Comfort Letters & Side Letters – useful to oil the wheels of the deal
  • Representations, Warranties & Indemnities

    • Drafting Objectives – what do the parties wish to achieve?
    • Purpose of Warranties – retrospective alteration of the price & extracting disclosure
      • Transfer & Retransfer of Risk – a game of tennis where the risk is the ball
      • Long & Short Form Warranties – What is the difference, if any?
    • Warranties Given by the Seller – to ensure that the buyer gets what is promised
    • Warranties Given by the Buyer – to underpin the value of consideration shares
    • Indemnities Given by the Seller – to counteract the effect of a buyer’s knowledge
  • Completion Meetings

    • Management of the Meeting – importance of forward planning & a clear agenda
    • Solicitors’ Undertakings – smoothing the Way
    • Timing Problems – remove any sand from the machine before starting the meeting
      • Release of Charges – deed of release & letter of non-crystallisation
      • Money Transfers & Funding the Buyer – are the formalities in place?
      • Consideration to be Paid in Shares – do they exist and are they to be listed?
    • Completion in Escrow – only if completion almost certain with negligible time delay
  • Who Should Give Warranties?

    Dual Purpose of Warranties – to extract information & impose liability

    • Executive Shareholders – should passive shareholders give warranties?
    • Management Buyouts – should selling shareholders give warranties?
    • Receivers & Administrators – vague assurances or something better?
    • Listed Companies – the ultimate caveat emptor deal
  • What is Disclosure?

    • Reasons for Disclosure – limitation of seller’s liability
    • Warrant the Disclosure Letter and/or Due Diligence Reports? – the buyer will ask
    • Defective Disclosure by the Seller’s Management – sue them for negligence?
    • General Disclosures – negotiation surrounding example clauses
    • Fair Disclosure – vague & ambiguous disclosures will be ineffective
    • Deliberate Non-Disclosure – tell the lawyers?
  • Effect of the Warranties

    • Breach of Warranty – if the nature of assets or liabilities doesn’t match expectations
      • Misrepresentation – innocent, non-contractual, negligent or fraudulent?
      • Rescission – when can a buyer tear up the contract?
      • Damages – different quantum under contract and tort
    • Purchaser Extends Vendor’s Liability – casting a wider net over the seller
      • Widening the Definition – extending the meaning of a warranty
      • Management Accounts – will the seller warrant them?
      • Security for Warranties and Joint & Several Liability – aim for the best target
      • Full Title Guarantee – tightening the provisions of the Law of Property Act
    • Seller Limits Liability – reduce the effect of inducements given to the buyer
      • Narrowing the Exposure – the effect of an ‘Entire Agreement’ clause
      • Unexpected Benefits – achieve a level playing field
      • References to Statutes – avoid the impact of retrospective legislation
      • Limitation Periods – seller’s liability does not continue for ever
      • Floors & Ceilings – thresholds, baskets & caps
      • Debt Collection & Pursuit of Debtors – make the buyer behave responsibly
      • Conduct of Claims – different attitude to commercial claims & tax claims
      • Insurance Against Warranty Claims – worthwhile but usually considered too late
    • Date of Application – when do warranties bite?
      • Interregnum Provisions – what happens between exchange and completion?
  • Completion Accounts

    • Comparison to Audited Accounts – contentious rather than consensual
    • Mechanisms – net assets or cash free/debt free normal to actual working capital
    • Limiting Areas of Potential Dispute – cash, debt, stock, WIP, fixed assets, debtors
    • Locked Box Transactions as an Alternative – when and how is the box locked?
    • Which to Choose and why? – differences to be considered