Sellers’ liability in M&A transaction

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Where there is more than one seller in an M&A transaction, the sale and purchase agreement should set out whether the obligations of the sellers under the SPA are (1) joint and several; or (2) several and not joint.

From a buyer’s perspective, it is better for the sellers’ obligations to be on a joint and several basis. That gives the buyer the flexibility to recover the full amount of claim against the sellers from any one of the sellers, some of the sellers or all of them.

The sellers may be agreeable to accept joint and several liability where they are closely connected such as when the sellers are family members.

Otherwise, a seller typically would not agree to bear the risk that the seller may be held entirely liable for any claim against sellers under the SPA.

If the sellers agree to joint and several liability under the SPA, the sellers may consider entering into another agreement among the sellers under which they agree on how they apportion their liability under the SPA.

A seller should consider whether it would be feasible (or difficult) to recover the agreed apportionment from other sellers, who may have spent all their sale proceeds or become insolvent.

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This post was first posted on Linkedin on 7 March 2022.

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