Disclosure Flashcards
(16 cards)
What points should you consider in relation to disclosure when acting on the buy or sell side?
1 - What disclosure applies to
2 - Standard of disclosure
3 - Approach to specific disclosure
4 - Approach to general disclosure
5 - Seller’s knowledge
6 - Buyer’s knowledge
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On the buy side, what approach should you take to what disclosure applies to?
Disclosure should not qualify
- FWs
- any tax deed
- any indemnities
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On the buy side, what approach should you take to the standard of disclosure?
- Require New Hearts standard of disclosure.
- Standard should apply to all disclosure - both general and specific.
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On the sell side, what approach should you take to the standard of disclosure?
Require Infiniteland standard of disclosure
ie “save as set out in the Disclosure Letter”
But note that even if the SPA does not expressly require disclosure to be “fair”, it would still need to be sufficiently precise (Levison v Farin).
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On the buy side, what approach should you take to specific disclosure?
Resist each specific disclosure being made against all warranties (unlikely to win)
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On the sell side, what approach should you take to specific disclosure?
Provide for each specific disclosure to be made against all warranties.
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On the buy side, what approach should you take to general disclosure?
1 - make sure the standard of disclosure applies to general disclosures
2 - narrow the scope of general disclosures - eg resist a general disclosure of information/documents provided to your advisers. Issue re control of information flow.
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On the sell side, what approach should you take to general disclosure?
1 - starting position could be not to apply the standard of disclosure to general disclosures
2 - broaden the scope of general disclosures
—> inc VDD reports[?]
—> all documents/information provided to the buyer’s advisers (on the basis that it’s the buyer’s responsibility to ensure that its advisers advise it of their DD findings)
could concede to general disclosure of the data room and ensure all documents/information provided to the buyer’s advisors is uploaded
Need to be careful as general disclosures must still satisfy the agreed standard of disclosure if that standard applies to general disclosures (New Hearts).
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On the buy side, what approach should you take to the seller’s knowledge?
1 - require the seller to make enquiries of certain named individuals - should ideally include appropriate directors of the target
2 - make sure the list of individuals is appropriate
3 - impose a standard for the enquiries “due and careful enquiries” (could concede to “all reasonable enquiries”)
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On the sell side, what approach should you take to the seller’s knowledge?
Starting position could be to define the seller’s knowledge as the actual knowledge of certain named individuals without having made any enquiries.
If you accept an obligation to make enquiries, you need to include an exhaustive list of named individuals to make clear what the scope of the seller’s knowledge is.
Exclude constructive and imputed knowledge.
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On the buy side, what approach should you take to the buyer’s knowledge?
Starting position could be to provide that the buyer’s knowledge (actual, constructive or imputed) should not prevent the buyer from being able to bring a claim for breach of warranty or reduce the amount of damages recoverable.
Although if the buyer had actual knowledge, it’s unclear if the buyer would be able to bring a successful claim / have suffered any loss (Eurocopy).
SPA should expressly state how the buyer’s actual, constructive and imputed knowledge are to be dealt with to avoid a potential argument that the buyer’s actual knowledge includes imputed knowledge (of the buyer’s agents / advisors).
If concede in limiting to actual knowledge, ensure a list of individuals is included in the SPA whose actual knowledge = buyer’s knowledge, ideally the list should be exhaustive.
Could concede on actual knowledge preventing a claim but not constructive or imputed knowledge.
On the sell side, what approach should you take to the buyer’s knowledge?
Starting position could be to provide that the buyer’s knowledge (actual, constructive or imputed) should PREVENT the buyer from being able to bring a claim for breach of warranty.
Could concede to only the buyer’s actual knowledge preventing a claim.
Try to include a non-exhaustive list of individuals whose actual knowledge the buyer is treated as having
If the buyer has actual knowledge of a matter that breaches a warranty before SPA signing, what approach should it take?
1 - ask for an indemnity
2 - seek upfront reduction in PP
May not be appropriate in competitive auction
Do not rely on the ability (questionable) of being able to bring a claim for breach of warranty after SPA signing.
What considerations would the buyer’s plans to finance the purchase price give rise to?
1 - timing considerations - eg vendor placing
2 - SH consents
Waiver of rights against employees
The buyer will want the SPA to contain a waiver by the seller of any rights it may have to bring a claim against a director etc of the target on which it may have relied in preparing the disclosure letter.
The seller may not include this in a first draft of the SPA.
What are the buyer’s options in relation to a matter disclosed?
1 - upfront purchase price adjustment
2 - indemnity
3 - walk away
