Is there any way of protecting ourselves against future problems?
It is usual to require warranties which are promises given by the seller on various matters relating to the company’s position. These may be simple ones such as representing that the company has no actual or threatened litigation against it, to complex ones relating to the company’s tax affairs. The warranties are often qualified by reference to a disclosure letter which is a statement signed by the seller setting out the material information disclosed to the buyer. If within the warranty period a liability arises which is covered by a warranty but was not disclosed by the seller then a claim will arise. Warranty claims are often limited by both time and amount. To give more weight to the warranties it is recommended that a buyer negotiate that part of the sale price be retained in an escrow account to meet any claim. As the seller will wish to have the retention monies released to them this will also help in ensuring that the seller co-operates during any handover period.
