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LPC Law Notes Private Acquisitions Notes

Disclosure Notes

Updated Disclosure Notes

Private Acquisitions Notes

Private Acquisitions

Approximately 339 pages

A collection of the best Mergers and Acquisitions* notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor".

In short, these are what we believe to be the strongest set of Mergers and Acquisitions notes available in the UK this year. This collection is f...

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The following is a more accessible plain text extract of the PDF sample above, taken from our Private Acquisitions Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Disclosure

NATURE AND PURPOSE OF THE DISCLOSURE LETTER

  • Most the info the buyer requests is in the form of disclosures by the seller. Qualifies the warranties.

  • The incentive for seller in making disclosures = avoidance of breach of warranty in relation to the matters disclosed.

  • Is scrutinised by both parties due to its importance in determining seller’s potential liability and buyer’s risk.

  • Seller is advised to make full and early disclosure of potential issues. Late disclosures carry risk that buyer will either:

    • refuse to accept the disclosure as fully limiting the seller’s liability in the relevant area, or

    • that the buyer will withdraw from the deal at a stage when significant professional costs have been incurred.

FORMAT OF THE DISCLOSURE LETTER

  • Will be in the form of a letter from the seller to the buyer.

  • Bundle of docs (the disclosure bundle) will be attached to the letter, comprising all the docs referred to in the letter as providing information which qualifies the warranties (e.g. distribution agreements, pension details etc.)

  • Buyer must consider whether it is prepared to accept every disclosure without further info or contractual protection.

  • If disclosure relates to a matter of significance to the buyer, it may decide to require an indemnity from the seller to:

    • cover any identified potential liability;

    • to reduce the purchase price it is prepared to pay; or,

    • if the matter is very significant, to withdraw from the purchase.

  • On exchange, 2 copies of agreed form of disclosure letter & bundle available; 1 given to buyer & 1 retained by seller.

  • The letters and associated bundles will be initialled by the parties as evidence that they are identical.

    • Thus in the event of claim for a breach of warranty, each party will be able to refer to the agreed disclosure docs.

  • The disclosure letter itself will generally be divided into two sections:

  1. General matters of which the buyer will be deemed to be aware (see below); and

  2. Details of specific disclosures (see p2).

DEEMED DISCLOSURES

  • General disclosures relate to publicly available info which buyer can be expected to find out for itself

  • Can also, occasionally, relate to info that has been made available to the buyer during the DD investigation.

  • Effect of deemed or general disclosure = Limit seller’s liability post-acquisition by making buyer aware of the risks.

TYPE OF INFO IN DEEMED DISCLOSURE
INFO EFFECT
Info on a target’s file at the Companies Registry Buyer generally accepts. May want clarification on date & exclude audited accounts older than 3 years ago (see below)
Apparent property info from deeds, Land Registry, Land Charges Department, searches, local authorities. Likely to qualify many property warranties (e.g. good title, free from encumbrances, planning permission etc.)
Matters which would be disclosed by physical inspection of each property. Buyer should only accept if it has commissioned a survey of all target’s properties (time constraints often prevent this)
Matters which are in the public domain (Wide range) Buyer = try & restrict scope to matters of which buyer could reasonably be expected to be aware as affecting target
Matters disclosed/referred to in target’s audited accounts Usually give time period e.g. last 3 years.
Matters included or referred to in the accountants’ report prepared on behalf of the buyer Often negotiations as to how the report should be treated. Reports often very comprehensive ... reduces buyer’s suing scope for breach of warranty. Buyer may accept if seller warrants report’s accuracy
Matters disclosed or referred to in the replies to the preliminary enquiries & the docs enclosed within those replies (or supplied in a data room) Often negotiations to whether these replies to enquiries should be deemed to be disclosed. Buyer will argue that this info is provided to assist assessment of the proposed acquisition & shouldn’t be used by the seller as a means of limiting its potential liability under the warranties. Parties’ bargaining strengths will determine its inclusion
Info & docs passed to buyer and its advisors in the pre-contract period If buyer accepts in principle, will want copies of all info/docs which it/its advisors have received attached to disclosure letter. Buyer’s advisors check buyer knows/understands what is being disclosed

SPECIFIC DISCLOSURE

  • Specific disclosures draw to buyer’s attention specific info about target which is inconsistent with one or more warranties given by the seller.

  • For ease of reference, the disclosures made will usually refer to specific warranty statements in the SPA.

  • Often a significant degree of overlap between the warranties ... disclosure letter usually provides that each disclosure is deemed to be in respect of all the warranties and not merely the warranty referred to in it.

STANDARD OF DISCLOSURE

  • It is in the interests of the buyer and the seller that all disclosures are fairly made.

    • The buyer will want the highest standard, as accurate a picture as possible when negotiating terms

    • Seller will want the minimum standard to negate the possibility of any later warranty claim.

  • SPA usually specifies standard of disclosure required for disclosure to effectively negate liability under warranties.

ADEQUATE DISCLOSURE

  • SPA will provide that the warranties are given subject to matters disclosed in the disclosure letter.

  • Buyer may insist that disclosures are properly made i.e. they’re accurate & fully disclose matters to which they relate.

  • Buyer won’t want to accept limitations on seller’s potential liability under warranties unless it has full details of the relevant circumstances.

  • Advisable for seller’s to make detailed disclosures to avoid doubt as to whether disclosure has been properly made.

Levison v Farin – (Minimum standard)

  • Facts:

    • Buyers generally aware of rundown condition of business, but still successfully claimed for breach of warranty which said ‘there will...

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