Law and Legal Issues
Transaction Law
Transaction law is the most crucial aspect in the purchase and sale of business entities today. The parties in a business transaction must set up the appropriate legal framework to act as a binding tool for the acquisition of the particular business.[1] The transaction solicitors oversee the whole purchasing process providing not only legal advice but also cementing the transaction by filing all the necessary documentation required and formulation of contracts on behalf of the parties. In this discussion, I will focus on how a business entity can be purchased by another, the legal processes involved, and determine whether a transaction can be finalized as a done deal and provide a basis for such conclusions. I will evaluate the necessary documentation provided and as requested by my firm herein provide legal advice to the parties involved. I will critically analyze the case study and base judgments concerning the scenarios in question.
Is due diligence really necessary in the purchase of a business or a company? Due diligence investigations are done to assess the risks and benefits that may be associated with the acquisition of a particular company or business involving huge amounts of money. There could be hidden liabilities that need to be exposed by the buyer’s solicitors. This is done by launching investigations into the proposed purchase property by requesting all the necessary relevant documentations. The documents are then analyzed to determine any history in financial constraints such as bankruptcy, fraud, violations of human rights, criminal history among its employees, and information regarding professional certifications whether they are valid or not[2]. The investigations should also include assets and inventory records and a probe in previous history records. This is will avoid inconveniences and streamline the entire purchase process.
The seller’s cost of hidden liabilities can be transferred to the buyer if they were not initially exposed during the due diligence probe. Contingent liabilities must be established because the future outcome of court proceedings and lawsuits could result in compensation costs that may be incurred by the seller. In this case study, I have examined the due diligence process concerning the documents provided i.e. document A regarding the instructions of the arranged meeting and its outcome. The meeting mentions that due diligence has been initiated by us and that they have already drafted heads of terms letter indicating their proposed intentions to purchase Keep Safe and Clean (KSC). That as a result of the above meeting, our client, Madam Hellen Holmwood, the managing director of Enviro-Safe ltd has requested my firm to conduct due diligence and advise her accordingly.[3] I have done intensive research on the matter examining the documents requested by this firm and presented to me and hereby give advice to my client while replying to the email by my supervising solicitor as follows:
from: [email protected]
re: Legal Advice On Proposed Purchase of Keep Sake Clean
date:
Dear Helen,
Following your request for due diligence over the Keep Safe and Clean (KSC) company and your proposed purchase of the same, we launched initial and thorough investigations on the stipulated aspects that we presume to be vital in this transaction process. I am pleased to inform you that the search is over and our results are as follows:
That we carefully examined the KSC employee’s record documents presented to us by their solicitors and found out that there is a breach of the employment practices and insurance policy by one employee named Luna Gretzky.[4] She was entitled to a promotion for a Senior Chemist role having worked with the company since its establishment (see attached herewith Document C). However, she is passed over for promotion and as clearly stated in her email (Email 2) to the KSC senior management Mr. Rianne Akindele, it is justifiable to assume that she was discriminated against by the KSC management.[5] The position is illegally awarded to her counterpart, Mr. Deven Raise who joined the company recently, he has no notable previous experience in his career. By contrast, Mrs. Luna Gretzy has had verifiable previous experience having worked with other companies since his graduation in 2008. She also has higher qualifications for the job since she has an MSC in environmental chemistry and additionally she attained a 2.1 in her first degree while Mr. Deven had a 2.2.
According to the Email dated 14th April 2021, Mrs. Luna believes she had been denied the promotion due to her age factor, gender, and her recent marriage were among the reasons for the denial. She also claims she had been working outside her contractual hours to facilitate the major success of most of the company products. After scrutinizing the documents presented to us and copies of the email conversation between KSC management and Mrs. Luna and the legal requirements regarding clearance of liabilities before the sale of a business, we have concluded that Mrs. Luna could no doubt be a future liability cost which could be incurred by your company should you purchase KSC.[6] Her denial for promotion is a violation of the employment practices and insurance policy acts that protects the employees against discrimination ranging from sexual harassment at work, failure to promote based on merit, age discrimination, and gender biases to mention but a few. Should she opt to sue the company after purchase, her lawsuit could lead to liability costs on behalf of KSC unless the issue is resolved before purchasing. Consequently, we find KSC in the bridge of the employment practices and insurance policy due to the previous history of employment discrimination in the case of Luna regards to gender, age, and failure to promote.[7] This means your company, Enviro-Safe Ltd will therefore not be liable to the benefits of the employment practices and insurance policy (refer to document A, document C emails 1 and 2, and document B).
Best regards
Rafael Ferrante
Breach of contracts is one of the major problems faced by many in business today. Contracts are meant to be binding and adhered to the end by the respective parties. However, this is not the case in many company’s today as contracts have become more vulnerable to terminations failure to accomplishing the set targets and the required work. In this case study, I have carefully examined the contracts awarded to the two contractors by Keep Safe and Clean (KSC) Ltd, namely D & L Construction Ltd and the Braunstone Builders hereafter referred to as (BB contractors). [8]I have analyzed their contract terms and concluded as described hereunder in my memorandum issued to my supervising solicitor.
MEMORANDUM
FROM: Trainee
CLIENT: Enviro-Safe Ltd
SUBJECT: Unpaid Invoices Probe
REF: EFR/KSC/2021/1460
DATE: 17th May 2021
Dear Sir,
Following the completion of our due diligence investigations into KSC and the surfacing of the two unpaid invoices, I have come to a notable conclusion on this matter and therefore state as follows concerning the D &L and BB contractors. To begin with, D &L was awarded a contract worth £100000 to construct a storage unit which was to include a temperature control system as per the specifications of KSC.[9] A closer look at the contract terms shows that the amount was to be paid in two-shift with £10000 payable as deposit three weeks before commencement of the work on the storage facility (refer to document E). This was signed by Ben Burke of KSC in response to the D&L contractors and later the payment was made and construction of the storage unit began as stipulated by their email specifications. They constructed the foundations and the brickwork and brought in the contractors to finish the roofing. According to Ben Burke, this job did not please him so he brought in the BB contractors to finalize the construction at an agreed fee of £60000 which was signed by both parties. (check document E) The work was completed a few weeks afterward with the BB contractors bringing in contractors who installed the thermostatically controlled roof system. However, there was an issue with one of the thermostats and when prompted to repair the same, BB contractors refused to say it was a contractor’s issue.[10] This cost KSC another £5000 to hire another contractor who successfully finished the installation of the roof.
Concerning the above scenario, it is evident that KSC will not be liable for the costs being requested by the D&L in any legal proceedings as contingency liabilities. This is because there was a total bridge of the contract by D & L, on grounds of underperformance and poor quality of work delivered. On the other hand, although BB contractors did not fully complete the construction of the storage unit, they are entitled to compensation of at least £60000 from KSC which they may demand in any proceeding. This is because it was a minor breach of the contract agreement justified by the £5000 extra cost incurred by KSC to finish the installation of the thermostats.[11] According to the law, a breach of contract characterized by minor losses as a result of its termination allows for compensation of the parties involved. By contrast, the contract with D&L leads to a greater loss of about £60000 used to hire BB contractors to complete the construction.
Best regards
Trainee
Does a disclosure letter have any benefits to the buyer in business purchasing? A Disclosure letter is a very vital document requested by the buyer from the seller with relevant information about the business. It involves all information about assets, warrants and disputes, and investigations about previous business dealings. This information is necessary to aid in the due diligence process by the buyer’s solicitors.[12] I have examined the extracts from the sellers’ disclosure letter case study concerning the unpaid invoices and thereby illustrating the importance of this letter and its implication on the relevant warranties in the sale and purchasing agreement. I will also illustrate the measures that should be put in place to protect Enviro-Safe should the builders pursue a successful claim in a proceeding.[13] Additionally, I will discuss the purpose of the sale and purchase agreement and the nature and purpose of warranties.
Rafael Ferrante,
Assessment Law. Ltd
17th May 2021
Helen Holmwood
The Managing Director Enviro-Safe Ltd
Castle Hill Industrial Estate
St Peter’s Road
Huntingdon
Cambridgeshire
PE29 6DE
Dear Madam,
REF: DISCLOSURE LETTER
I wish to inform you that we are in the final stages of our negotiations on the terms of the proposed purchase with the KSC solicitors. Recently we received the draft of the disclosure letter from KSC with relevant information that you may need concerning assets, warranties and disputes, and investigations.[14] I am glad to inform you that the issue with Luna has been resolved and cleared therefore she will not be a future liability to your company anymore. Unfortunately, the issue with the builders is yet to be solved and we are putting up legal measures to ensure that your company will not be liable to any of their legal proceedings that may be chargeable. Additionally, I intend to make final arrangements with KSC solicitors to draft the disclosure letter which will be served before sealing the deal.[15] This letter is very important to you as a buyer and that is why we have put measures in place to ensure that all the relevant information is accurately captured in it. It gives the buyer a second thought regarding the purchase of the said property such as to seek other legal protections or to refuse the purchase of the said property.
Concerning the unpaid invoices by the D&L Contractors and BB Contractors, we wish to inform you that should they file a proceeding in court and successfully obtain a claim before or after completing the purchase, you could make price adjustments seek extra indemnities or you could retain a part of the purchase price for a required period to cater for the claims which are likely to occur.[16] This measure will protect you from incurring additional costs. Finally, the information I have obtained in the disclosure letter shall be included in the sales and purchase agreement (SPA).[17] This is a legal agreement that will help in dictating the terms of sales and serve as proof of sales for the record. Furthermore, the SPA shows the list of transactions made and can act as a future reference.
Yours faithfully,
Signature
Rafael Ferrante.
In conclusion, transaction laws should be adhered to make legal business decisions. This ensures that we don’t engage in the breach of contracts and termination of businesses for not adhering to the legal frameworks. Measures should be put in place to avoid future liabilities by conducting an appropriate due diligence investigation. Furthermore, business transactions should seek the advice of the legal team to provide appropriate solutions on the company’s behalf to avoid a breach of the transaction law.
References
Bachmair, F.F. and Bogoev, J., 2018. Assessment of contingent liabilities and their impact on debt dynamics in South Africa. World Bank.
Gomes, M. and Marsat, S., 2018. Does CSR impact premiums in M&A transactions?. Finance Research Letters, 26, pp.71-80.
Hadfield, G.K., 2007. Legal barriers to innovation: The growing economic cost of professional control over corporate legal markets. Stan. L. Rev., 60, p.1689.
Howson, P., 2017. The Essentials of M&A Due Diligence. Taylor & Francis.
Kim, H. and Yasuda, Y., 2018. Business risk disclosure and firm risk: Evidence from Japan. Research in International Business and Finance, 45, pp.413-426.
Nimri, R., Kensbock, S., Bailey, J. and Patiar, A., 2021. Management perceptions of sexual harassment of hotel room attendants. Current Issues in Tourism, 24(3), pp.354-366.
O’Connor, M.A., 2019. Promoting economic justice in plant closings: exploring the fiduciary/contract law distinction to enforce implicit employment agreements. In Progressive Corporate Law (pp. 219-245). Routledge.
Porter, G., 2020. Genetic Testing, Insurance and Employment in the UK: Is the Regulatory Regime Fit for Purpose? In Genetic Testing and the Governance of Risk in the Contemporary Economy (pp. 317-330). Springer,
[1] Bachmair, F.F. and Bogoev, J., 2018. Assessment of contingent liabilities and their impact on debt dynamics in South Africa. World Bank
[2] Hadfield, G.K., 2007. Legal barriers to innovation: The growing economic cost of professional control over corporate legal markets. Stan. L. Rev., 60, p.1689.
[3] Ibid
[4] Gomes, M. and Marsat, S., 2018. Does CSR impact premiums in M&A transactions? Finance Research Letters, 26, pp.71-80.
[5] Kim, H. and Yasuda, Y., 2018. Business risk disclosure and firm risk: Evidence from Japan. Research in International Business and Finance, 45, pp.413-426.
[6] Ibid
[7] Howson, P., 2017. The Essentials of M&A Due Diligence. Taylor & Francis.
[8] Nimri, R., Kensbock, S., Bailey, J. and Patiar, A., 2021. Management perceptions of sexual harassment of hotel room attendants. Current Issues in Tourism, 24(3), pp.354-366.
[9] O’Connor, M.A., 2019. Promoting economic justice in plant closings: exploring the fiduciary/contract law distinction to enforce implicit employment agreements. In Progressive Corporate Law (pp. 219-245). Routledge.
[10] O’Connor, M.A., 2019. Promoting economic justice in plant closings: exploring the fiduciary/contract law distinction to enforce implicit employment agreements. In Progressive Corporate Law (pp. 219-245). Routledge.
[11] Ibid
[12] Porter, G., 2020. Genetic Testing, Insurance and Employment in the UK: Is the Regulatory Regime Fit for Purpose? In Genetic Testing and the Governance of Risk in the Contemporary Economy (pp. 317-330). Springer, Cham.
[13] O’Connor, M.A., 2019. Promoting economic justice in plant closings: exploring the fiduciary/contract law distinction to enforce implicit employment agreements. In Progressive Corporate Law (pp. 219-245). Routledge.
[14] O’Connor, M.A., 2019. Promoting economic justice in plant closings: exploring the fiduciary/contract law distinction to enforce implicit employment agreements. In Progressive Corporate Law (pp. 219-245). Routledge.
[15] Kim, H. and Yasuda, Y., 2018. Business risk disclosure and firm risk: Evidence from Japan. Research in International Business and Finance, 45, pp.413-426.
[16] Gomes, M. and Marsat, S., 2018. Does CSR impact premiums in M&A transactions? Finance Research Letters, 26, pp.71-80.
[17] Ibid
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