Disputes on the Rise
According to legal publishers Sweet & Maxwell, the High Court has seen disputes over the sale of businesses increase five-fold in one year.
In 2008, just 42 claims over the sale and purchase of shares and businesses were issued in the High Court, compared to 270 claims in 2009.
One theory is that the weakened economy has led buyers to challenge sellers over the stated value of their newly acquired business. It is therefore vital when selling your business that the warranties you give are clear and unambiguous and that your disclosure letter to the buyer contains any information which may be inconsistent with the warranties sought.
As warranties are often drafted in wide terms it is important that the seller documents any exceptions or qualifications to them in a disclosure letter and agrees this with the buyer prior to completion. The effect will be to exclude the seller from being liable under the warranty insofar that it is qualified by the specific matter disclosed. Although the buyer may not want to increase his risk by accepting the specific disclosure and may seek instead to reduce the purchase price by the amount of any perceived risk, this may be preferable to having to deal with a costly dispute further down the line.
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