Asset sale AA similar to SPA except:
o No tax indemnities (only relevant for share sale)
o Limited tax warranties – e.g. VAT position of business, PAYE compliance
Must reflect that B is acquiring a collection of assets rather than one asset (i.e. the shares)
o Deal structure can be complex – each asset transferred individually
AA CLAUSES
1. Recitals – the business as a going concern (rather than shares) – define business
2. Interpretation - definitions should list all assets and inc. ‘Excluded Assets’
3. Agreement to Sell and Purchase – if a subsidiary of T, it will be asset sale with a
share sale bolt on. Sets out all of the assets that will be purchased
4. Price/Consideration – assets will be apportioned between the assets
5. Completion
6. Apportionments
7. Contracts – novate, assign or fresh contracts negotiated
8. Employees
9. Book Debts
10. Assets and Liabilities not included
11. Data Protection
12. Restrictions on Seller
13. Name and Registered Office
14. Warranties - less because you don’t need to take on the liabilities unless you want
15. Limitation of Warranty Claims
16. VAT
17. Boilerplate clauses:
entire agreement;
variation;
assignment;
Contracts (Rights of Third Parties) Act 1999;
announcements;
costs;
notices;
governing law;
jurisdiction;
expert and arbitration clauses and alternative dispute resolution; and
counterparts clause (this enables the parties to sign separate but identical
copies of the agreement but the two counterparts constitute the agreement).
FURTHER CONTRACTUAL PROVISIONS
, 1. Description of business being sold
B only acquires assets + liabilities that the agreement specifies as being part of ‘The
business
‘The Business’ must be accurately defined where > 1 business is operated by the selling
company
This definition also has implications for RCs
2. List of assets acquired + liabilities assumed
+ consideration allocated to each category of asset, for CGT calcs (sale proceeds/base
cost + cap allow.) + stamp duty
a. Premises
b. Plant and machinery
c. Stock and work in progress
d. Third party contracts
e. IP
f. Employees; and
g. (possibly) debtors (receivables)
h. (possibly) creditors
3. Assets excluded from sale – for avoidance of doubt
4. Schedule of continuing contracts
Specifying contracts B wants benefit of e.g. distribution, suppliers + customers
fundamental to the business
5. Schedule of employees (TUPE)
6. Apportionments
parties’ agreement re: apportioning outgoings and other payments incurred by the
business (e.g. utility charges / rent) which straddle period before and after completion
o standard position = S responsible up to completion, B thereafter
7. Licences – e.g. IP rights and assigning the lease of any property transferred
8. Debtor + creditor provisions
9. Records of the business
Statutory books remain with S but PAYE + employee records may be required for B to
run business
10. VAT provisions – exemption from paying VAT if business sold as going concern
11. SDLT provisions
12. Completion requirements – obligations on S to: Complete sale of any real property
transferring to B, Give B possession of assets transferring via delivery and Delivery to B in
agreed form executed assignments / novations of assets not transferrable by delivery
SELLING DEBTS – DEBTORS (BOOK DEBTS)
, Balance sheet of co. treats sums owed to business by 3 rd parties i.e. book debts/
receivables = assets B wants to acquire as part of package of assets being sold
o May be worth a lot of money
o + if debtors owing them continue to be customers after completion, B wants to
maintain good relationships with them
If B does not acquire, they remain with S = concern that S could pursue debts too
vigorously = damage to GW of business B just acquired
S will expect payment for debts sold to B who will be tasked with collecting them
o Concern that B may not be able to collect in all debts as some may be bad debts that
are ultimately written off
Addressed by acquiring debts at a discount = profit for B on collection
Debts detailed in schedule to AA + assignment of trade debts between B + S
S advantage = clean break and does not bear the collection risk
B advantage = could make profit on discounted debts when collected
S Disadvantage = likely to have to sell debts below face value
B Disadvantage = effort of collecting debts, some of which may have to be written off
S cannot sell debts arising under a contract which prohibits assignment of the benefit
ALTERNATIVE METHODS OF SELLING DEBT
1. Seller retains ownership
S advantage = keeps everything it collects
B advantage = does not acquire the risk of bad debts
S disadvantage = will need personnel to carry out debt collection, and if all assets sold,
under TUPE it will not have any employees (i.e. will need to engage a third party to do it)
B disadvantage = S may damage ongoing commercial relationship if it is too vigorous in
pursuing the debts
o B may negotiate undertaking from S that it will not issue proceedings to recover
debts for specified period after completion
o + will allow B the option to buy the debts after this period
2. Seller retains ownership of debts but buyer collects them as agent in return for
collection fee / commission
S advantage = gets around issue of having no employees, while keeping what is collected
by B + not having to sell debts at discount
B advantage = may control (through provisions in asset sale agreement) what steps the S
can take to enforce collection, and thus preserve relationship with debtors
B advantage – no need to pay for debts + take risk that debts will be irrecoverable, but may
still benefit from debt collection fee (% of debts recovered)
TRANSFERRING CREDITORS
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller JCBLAW. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £2.99. You're not tied to anything after your purchase.
