Share purchase agreement disputes – buyer’s remorse, recourse and the ticking clock

Following completion of a share purchase agreement, a buyer can find themselves owning a business which may not be what they were expecting.

The importance of full and frank disclosure is crucial in the pre-completion phase, but disclosure is only as good as the information it contains. It is often the case that until a buyer is actually running a business, the true state of affairs is not known.

Post-completion of a share purchase agreement (“SPA”), the extent of a buyer’s recourse is limited to the contractual provisions in the SPA. There are of course some exceptions, for example, if a seller has made a false or fraudulent representation to induce the sale.

The general presumption is that risk allocates from a seller to a buyer upon completion, but there are occasions when events post-completion can be relevant when calculating a buyer’s loss.

A buyer’s recourse against a seller is dependent on following the terms of the SPA – and I am not talking about complex interpretation debates, but rather compliance with the notification clauses. Really simple, but really easy to get wrong.

Notification clauses are contained in SPAs for a purpose, i.e., to set out the precise requirements of whom must be notified and when.

A common pitfall is when there are multiple sellers or warrantors named in an SPA and notice is only given to one or some of them. The buyers found this out in the case of Zayo Group International Ltd v Ainger (2017). In this case the buyer’s claim was struck out for failure to serve notice on all sellers named as warrantors in the SPA, that clearly stated that the multiple sellers were jointly and severally liable.

It is not just about serving the right person or persons, it’s also about when. Time periods in an SPA run from the date of completion and are mandatory. A common time period for warranty claims is between one and two years post-completion. If a notification provides that notice must be made by a certain date, then this date is non-negotiable.

Top tips for buyers post-completion:

• Know your SPA and carefully follow the notice provisions
• Check time periods for completion accounts, earnout limitations and warranty periods
• If a dispute arises seek legal advice early.

When a buyer is busy running a business, observing the intricacies of notification clauses in an SPA are a low priority. If you are a buyer of a business and have any queries relating to an SPA or a potential claim against a seller, we will be able to help you.

Buyer’s hindsight is inevitable but avenues for recourse can be controlled as long as the terms of the SPA are followed.