M&A buyer’s perspective: Should director and shareholder of seller be a party to the SPA?
- By : Wong Mei Ying
- Category : Article, Mergers and Acquisitions
In a sale and purchase of shares or business, where the seller is a corporation, it is worth considering whether to include the person who has control over the corporate seller (“Person”) as a party to the sale and purchase agreement (“SPA”). The Person would typically be a director and/or controlling shareholder of the corporate seller.
The rationale for including the Person as a party to the SPA is for the Person to ensure due performance of the obligations and assume the liabilities of the corporate seller in the event of any default by the corporate seller under the SPA. The Person may be more financially viable that the corporate seller and the buyer may have a better chance of claiming and enforcing a judgement against the Person than the corporate seller.
Practical consideration
From the buyer’s perspective, the buyer may want to negotiate to include a director and/or controlling shareholder of the corporate seller to be a party to the SPA in the following circumstances:
- when the corporate seller does not have financial credibility, does not have any or much asset or “not worth suing” in the event the corporate seller defaults under the SPA;
- when including a director and/or controlling shareholder of the corporate seller as a party to the SPA makes it more likely that the corporate seller would perform its obligations under the SPA on the pain that an action may be brought against the Person directly or where there is doubt whether the corporate seller would be able to carry out its obligations under the SPA;
- where the corporate seller has continuing obligations under the SPA even after completion of the sale and purchase. For example, the SPA may provide that the buyer may bring an action against the corporate seller even after completion of the sale and purchase for breach of any of the corporate seller’s representations and warranties under the SPA. Perhaps the corporate seller has agreed in the SPA to indemnify the buyer if certain events happen. The buyer would want to be able enforce such provisions under the SPA if it becomes aware of the seller’s default after completion of the sale and purchase and not to find that the corporate seller has been wound up at that point.
The information in this article is intended only to provide general information and does not constitute any legal opinion or professional advice.
