DEAL OF THE MONTH OCTOBER 2015
Business Purchase – Purchase of 100% of the Share Capital
In October Red Square London team completed a business acquisition- a restaurant in prime London location. Red Square London Team represented the purchaser. The acquisition was structured as a purchase of 100% share capital of the target company – the owner of the business. There are four main stages in any share acquisition: pre-contract due diligence, negotiation and execution of contracts and other transaction documents, completion and post-completion registrations and other matters. During the due diligence process, Red Square London discovered a number of issues requiring further clarifications and action. For example, the target company’s accounts revealed that the target company had a large director’s loan and considerable amount of other trading creditors, as well as debtors. The due diligence process also revealed that there were a number of ongoing disputes with the business suppliers. Some of these issues were dealt with by separate agreements of repayment or waiver. Some of these issues had to be dealt with in the transaction documents. The share purchase contract contained certain warranties and indemnities, each designed to protect our client-the purchaser.
Warranties are contractual promises that certain facts about the target company are true. If a warranty proves to be untrue, the damages our client would be able to claim would be limited to the amount by which the value of the company’s shares was reduced. We included a warranty in the share purchase agreement that there were not any pending disputes or investigations involving either the target company or any of its directors. This forced the seller to disclose all ongoing disputes, which allowed both parties to agree on a mutually beneficial resolution of this matter prior to completion.
Indemnities are the seller’s undertakings to meet a specific potential legal liability of our client- the purchaser. If an indemnity event occurs, our client would be able to recover the full amount of the indemnified sum. It would not be necessary to show any reduction in the shares’ value. We included an indemnity in the share purchase that the seller shall reimburse our client- the purchase in respect of loss or damage arising from the bad debts as set out in the accounts. In other word, the seller undertook to repay our client a specific sum relating to bad debt if the same were not paid within a certain agreed time.
Red Square London was instructed on this purchase at the beginning of September and closed this deal at the end of October. This was a property sale that involved a company registered in one of the British dependant territories. Red Square London acted for the company.