A buyer may discover in the course of due diligence that there are issues with the assets or shares which the buyer intends to acquire, such as regulatory approvals required to carry out the business are not in order, non-compliance of conditions of licences or breach of terms of contracts.

The buyer may consider the following to get the issues rectified or mitigate the risk:

•  the sale and purchase agreement (SPA) to provide for the issues to be rectified before the SPA becomes unconditional.
• the SPA to provide for the issue to be rectified before the transaction is completed i.e. before the assets/shares are transferred to the buyer and consideration paid to the seller.
• the seller to agree in the SPA to indemnify the buyer if the risk materialises such as fines imposed by regulator for non-compliance.
• the buyer to retain part of the consideration after completion of the transaction and pay the retained sum only after the issues are rectified within an agreed period.

The nature and severity of the issues and the time required for rectification are factors to be considered in deciding how to rectify the issues or mitigate the risk.

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This post was first posted on Linkedin on 22 February 2022.

Image by mohamed Hassan from Pixabay