Buyer agrees to purchase a collection of assets.
Assets and liabilities must be specifically identified and individually transferred.
SPA address the issue of the timing of the completion of asset acquisition.
Land and premises
Listed in schedule to SPA.
Buyer will assume risk and should take out insurance from exchange date.
License to assign in lease. Seller should request consent as early as possible.
Landlord may require 3rd party guarantors.
If licence to assign not ready by time they are signing the SPA, may make agreement
conditional on the consent of the landlord.
Warranties: including state of premises etc.
Plant and machinery
Schedule of items of P&M attached to SPA.
Warranties: in proper state of repair and condition and satisfactory working order, not
dangerous, obsolete or in need of replacement, properly and regularly maintained, adequate
for the needs of the business.
Other items
Intellectual property.
Leasing, hire purchase and other finance contracts.
Stock and work in progress.
Contracts
Buyer should ensure it receives the benefit of all contracts entered into between seller and
3rd party, important to enable business to keep trading after completion. Eg agency,
distribution agreement, contracts with suppliers/customers.
Assign benefit of contract. S136 Law of Property Act 1925 if legal assignment required, notice
must be given to other party.
Consents required? Continue to completion with both parties to use their reasonable
endeavours to obtain consents of 3rd parties. Buyer undertake to perform contract on seller’s
behalf and indemnify seller against any liability which arises under them.
Buyer should defer entering into SPA in relation to fundamental contracts to business eg
customers/suppliers until consent obtained. Buyer get undertaking from seller not to vary
terms of original contracts during period between exchange and completion without its
consent.
Buyer requires warranties on contracts it is taking over:
(a) that none of the contracts is of an unusual or onerous nature, or was entered into
otherwise than in the ordinary course of business;
(b) that the seller is not in breach of any of the terms of the contracts and has not waived
any rights under the contracts;
(c) that no event has occurred which entitles the other party to the contract to terminate or
rescind the contract;
(d) that the seller has not sold or manufactured products which, in any material respect, are
defective or do not comply with warranties or representations made by the seller.
Debtors and creditors
Sums owed to seller by 3rd parties (debtors) – asset of business.
Sums owed by seller to 3rd parties (creditors) – liability of business.
, Debtors and creditors can be transferred to buyer, should be put in schedule or appendix to
SPA.
S136 LPA 1925 written notice of assignment to be given to each debtor.
Seller liable to creditors unless they agree to release them. Seller should seek indemnity
against buyer against liability.
Difficulty in valuing the book debts. May cause buyer to suffer cash flow disadvantage and
also bear risk of some debts being irrecoverable. Discount on uncertainties of book debts
subject to negotiation between the parties.
Buyer will want to preserve goodwill of business – maintaining good relations with suppliers
and customers so will wish to ensure seller pays off creditors promptly and not too
exuberant in chasing debtors.
- To resolve: retention of purchase price released once creditors paid. Or not issue
proceedings to recover debts for specified period after completion.
Why will buyer want to buy contracts from the seller?
These contracts are important to enable the business to continue trading after completion of
the acquisition. For example, the money gained from contracts with customers.
Debtors are a benefit as they are what is owed to the business, the buyer will want to take
on these, they are customers. You can transfer a benefit of the contract.
Liabilities: burden needs to be dealt with by novation. Without this, seller is legally liable for
creditors.
Debtors:
In what way do debtors arise? – customers of business.
What can the buyer ‘buy’ in respect of debtors? - All debtors can be transferred to the buyer,
full details should be included in the schedule or an appendix to the SPA. S136 Law of
Property Act 1925 – written notice of the assignment must be given to each debtor.
Why book debts may be commercially unattractive? – issue is bad debts. Buyer would want
discount face value of debts. Difficulty in valuing the book debts. May cause cash flow issues.
Some debts may prove irrecoverable. Uncertainties in debts.
Benefit of book debts – they are in control of getting the money so keep goodwill and good
relationships with debtors.
Protection of employees
How the transfer affects employees? Contracts of employment?
TUPE 2006 – employee’s contracts automatically transfer with the undertaking.
Regulation 3: ‘relevant transfer’ = a transfer of an undertaking, business or part of an
undertaking or business situated immediately before the transfer in the United Kingdom to
another person where there is a transfer of an economic entity which retains its identity.
Regulation 4: Regulation 4(1) protects the employees’ employment in the event of a transfer,
and reg 4(2) confirms that all the transferor’s rights, powers and duties under the contracts
of employment transfer to the transferee.
Reg 4(7): employee’s right of rejection, transfer will terminate contract of employment.
Regulation 7(1): provides that the dismissal is automatically unfair where the dismissal was
by reason of the transfer, unless the employer can show that the dismissal was for an
economic, technical or organisational reason (‘ETO reason’) entailing a change in the
workforce.
ETO reason – dismissal will be regarded as being for redundancy: s98(2)(c) ERA. ETO reasons
include:
- (a) a reason relating to the profitability or market performance of the transferee’s business
(ie an economic reason);
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