M&A: Fair disclosure?

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Today’s post is about disclosures to the representations and warranties given by a seller in an agreement for sale and purchase of shares or assets (“Seller’s Warranties”).

It is common practice to provide in the sale and purchase agreement that the Seller’s Warranties are qualified by disclosures made by the seller in a disclosure letter.

The disclosure letter sets out information which constitutes exceptions to the Seller’s Warranties.

For example, one of the Seller’s Warranties may state that the seller is not aware of any claim, demand …against the company but in reality, the company has received a letter of demand. It is in the interest of the seller to disclose the details of the letter of demand in the disclosure letter so as not to be in breach of the relevant Seller’s Warranty.

From the buyer’s perspective, the seller’s disclosure in the disclosure letter should have sufficient details in order for the buyer to assess the potential impact of the issue and the risk. It is not enough for the seller to just disclose that the company has received a letter of demand without further details.

To balance the interests of the seller and buyer, the sale and purchase agreement may provide that the Seller’s Warranties are given subject to matters “fairly disclosed”.

Some other variations I have seen include “fairly and accurately disclosed” or “fairly disclosed with sufficient details to identify the nature and impact of the matters disclosed”.


This post was first posted on Linkedin on 30 August 2021.

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