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We acted for 2 buyers, one acting in an individual capacity and the other via his holding company, in relation to the purchase of the entire issued share capital of a company. The acquisition was funded by asset finance secured against the target company’s assets together with joint and several corporate and personal guarantees from the buyers.
Whilst each transaction is different there are issues that will inevitably arise and which will need to be resolved to enable the transaction to proceed. The earlier we can identify those issues and resolve them the better to ensure legal compliance and hopefully avoid the costly and time-consuming need to remedy an issue later in the transaction.
Our approach to meeting our clients objectives involved :-
1. Who will be the clients?
2. Who do we take instructions from and report to?
3. How to secure the assets of the target company in relation to the acquisition finance.
4. How to deal with the buyers’ responsibilities and liabilities to each other.
5. How to deal with due diligence for both the buyers and the funders.
6. Negotiation of the transaction documents with the sellers’ and funders’ solicitors.
How we implemented the solutions
We needed to review and identify whether any potential conflict of interest could arise between the buyers given the use of a separate holding company, wholly owned by one of the individual buyers, and the fact that the other buyer who was acquiring the shares in his personal capacity and also that both individuals were required to give joint and several guarantees to secure the acquisition finance.
We identified at an early stage that because of the potential conflict we could only act for one of the purchasing entities and that it made sense for that entity to be the holding company with both individuals having the opportunity to obtain their own individual advice, in particular in relation to the guarantees.
Because we are acting for the holding company as the purchasing entity, we were able to take instructions from and report to one of the individual purchasers via the holding company.
The primary security for the acquisition finance was by way of a Fixed Charge and Debenture over the target company together with both a corporate and joint and several individual guarantees. We liaised with the funder’s solicitors in relation to the security documentation to limit the potential risk of future non-compliance and with the solicitors providing independent legal advice to the individual purchasers in relation to the personal guarantees.
Because one of the buyers had significantly more exposure to the risk of security enforcement, due to the assets held in the holding company as well as his own individual assets, the likelihood was that any enforcement of the security package by the funder would be aimed at one of the buyers via their shares in the holding company and their own personal assets we prepared cross indemnities between each of the purchasing entities to ensure that any risk and exposure was equalised at least between the parties.
As we were dealing with the funder’s solicitors as well as acting for the buyer, we had to ensure that the due diligence was thorough and complete to provide sufficient comfort for the funders and minimise any duplication of legal work between ourselves and the funder’s solicitors.
We had to ensure that using industry standard wording the transaction documentation contained sufficient protection for both the buyers and the funders, particularly by way of warranties and indemnities, but which was acceptable to the sellers’ solicitors.
Because we had identified and dealt with the potential issues between both the buyers themselves and the funders, we were able to structure the transaction and documentation to ensure that all parties were adequately protected with risk being apportioned and shared and that the transaction was completed both on time and budget.
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Partner - Corporate and commercial law
John qualified as a Solicitor in 1986 and has 35 years’ experience of commercial law. Upon qualification John worked in the Commercial Department at the head office of a major Birmingham firm subsequently returning to the Northwest to work for a leadin...
