M&A: Does the buyer have financial standing to replace guarantee?

Linkedin Post

In a sale and purchase of shares, a seller should consider the likelihood the buyer is acceptable to financial institutions as a guarantor to replace the seller, if the target company’s borrowings are secured by substantial guarantees.

It is common for the buyer to provide an undertaking in the sale and purchase agreement to replace the guarantee given by the seller to secure the borrowings of the target company. However, financial institutions may refuse to release the seller from the guarantees if the buyer is financially weaker than the seller.

In such instance, if the guarantee given by the seller is called upon after the sale and purchase of the target company is completed, the seller may want to claim an indemnity from the buyer. At this stage, given that the guarantee has been called upon, the buyer is likely to be in financial distress and unable to honour the indemnity.

#malaysiancorporatelawyer
#mergersandacquisitions

This post was first posted on Linkedin on 12 February 2021.

Due Diligence
Legal Due Diligence on Public Listed Companies in Malaysia

When conducting legal due diligence on public listed companies (PLCs) in Malaysia, the scope of due diligence is limited by the laws of insider trading. Insider trading occurs when someone uses confidential, non-public information about a company to make a profit or avoid a loss in the stock market. Therefore, …

Linkedin Post
Don’t Rush the Disclosure Letter in M&A Transactions

In M&A transactions, a disclosure letter sets out the exceptions to seller’s representations and warranties in a sale and purchase agreement for an M&A transaction (“SPA”). Instead of negotiating heavily on sellers’ representations and warranties in SPAs, it is common to provide in SPAs that sellers’ representations and warranties are …

Lawyering
Is Corporate Practice Less Stressful Than Litigation?

I was asked whether being in corporate practice is less stressful and less hectic than being in litigation practice. I think this kind of generalisation is not particularly helpful. Different law firms have different cultures and expectations of their lawyers. Clients’ demand would also determine whether a particular project or …