Before a buyer starts spending a significant effort (as well as incurring fees), in pushing the proposed acquisition forward, it should ensure that any third party/shareholder consents will be obtainable.
COMPANY ACQUISITION
A buyer should:
- ensure all shareholders are happy with the proposed sale;
- check whether a shareholder agreement has been entered into. This would normally contain "consent matters" where shareholder/director approvals would be required for the sale of the company and/or key assets;
- check whether there are any "change of control" clauses. These are becoming increasingly common in commercial documents such as banking security documents; leases and supplier contracts. They would normally state that the third party's consent is required prior to any transfer of a controlling interest in a company's share capital. If consent is not obtained, this would not necessarily invalidate the share transfer but there would be consequences e.g. it may constitute a breach of the concerned contract allowing the third party to terminate it; and
- check whether there are any charges registered over the shares.
BUSINESS ACQUISITION
In addition to concerns above, a buyer will need to check whether any of the sale assets are charged. Companies House maintainsa security register for each UK company and security must be registered to be enforceable. A deed of release, or at least consent, of the relevant funder would be needed before the sale could be completed.
If any assets are subject to lease/hire purchase arrangements, the consent of the finance company would normally be obtained before completion.
Under English law, the burden of contracts cannot be transferred without the consent of the other contracting party. Often the benefit of contracts also can not be assigned without consent. You will often see provisions in an asset transfer agreement saying that any purported transfer of contracts is subject to the obtaining of third party consent. If consent is not obtained before completion, both parties will usually agree to co-operate post completion to obtain the same and in the meantime for the buyer to carry on the contract as agent for the seller.
Buyers will also want to be comfortable that key customers will not cease to deal with business once details of the acquisition are disclosed. This normally involves a gradual investigation process as the seller will not be keen to disclose details of the proposed sale at the start of the sale process.