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WARRANTIES AND INDEMNITIES


by Richard Bell Associate, Farleys


There is no automatic protection for a buyer in respect of the acquisition of a company or business.


The only protection a buyer enjoys is such provision as drafted by their lawyers within the sale contract – usually taking the form of warranties and indemnities.


A warranty is a contractual statement from the seller to the buyer as to the condition or state of the company or business being acquired at a particular point in time.


If a buyer can show that a warranty was untrue when given and that the breach caused a reduction in the value of the company at that time (which can prove  claim damages from the seller.


However, the buyer is under a duty to mitigate its loss – failure to do so can reduce


the amount of damages they can claim from the seller.


An indemnity is a contractual promise from the seller to the buyer that it will reimburse the buyer, (usually on a pound for pound basis), in the event of a particular pre- agreed liability arising.


An indemnity places the risk and responsibility entirely with the seller and unlike a warranty, there is no obligation on the buyer to prove a decrease in the company’s value, due to the particular liability event occurring.


A buyer is likely to conduct a due-diligence exercise as part of the purchase process to better  and commercial aspects of the company or business – this will  should thereafter, be covered by warranties or indemnities.


 


 


   


 


 


 


 BUYING A


DISTRESSED BUSINESS by Natalie Hughes


Licensed insolvency practitioner, Simply Corporate


The fact a business is distressed or facing insolvency should not be a reason to discount it.


A business can be distressed for a variety of reasons; debts, loss of contracts or poor management, however that does not mean it is  could be a great opportunity for investors and entrepreneurs.


The two most common options when buying a distressed business are either to buy the assets, often from the insolvency practitioner, or to purchase the shares of the company.


There are advantages and disadvantages to both, it depends on the buyer’s appetite for risk. Asset purchase is often  return and share purchase for a buyer willing to commit to a longer- term involvement in the business.


When buying assets and goodwill of a distressed business, time is of


the essence and often deals are completed in a matter of days. It is unlikely that you will have time to carry out all the due diligence that would normally be conducted. A few key points to consider:


Purpose – are you looking to take the competitor out of market or expand operations?


Budget – biggest opportunities are often pre-insolvency in terms of discounts on valuation


Practicalities – consider the skills gaps if owners leave


As the government’s Covid support for businesses comes to an end, more opportunities will arise but make sure you understand the risk.


Only buy a struggling business if you understand exactly why the business is currently in trouble and you have a clear strategy on how to turn it around. Expert advice is a must.


INSOLVENCY WE


Practical insolvency advice for directors & business owners


01282 222420 www.simplycorporate.co.uk LANCASHIREBUSINESSVIEW.CO.UK


77


BUYING A BUSINESS


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