Dive into the complexities of M&A legalities with our latest blog post, exploring buyer remedies in ‘as is where is’ deals and navigating fraud claims. Learn how legal precedents and contractual provisions shape buyer recourse against fraudulent misrepresentations, and discover the importance of comprehensive due diligence in safeguarding against unforeseen liabilities. Explore real-world cases and gain insights into protecting your interests in M&A transactions.
M&A Stories
April 28, 2018
In the fast-paced world of mergers and acquisitions, the allure of an “as is where is” deal can sometimes overshadow the risks lurking beneath the surface. While such agreements may seem like a shortcut to sealing the deal, buyers should proceed with caution, as recent legal precedents illustrate.
Picture this scenario: a buyer, driven by a fervent desire to acquire a particular business, opts for an “as is where is” arrangement, wherein the seller provides minimal or no assurances regarding the business’s condition. In such instances, the onus is squarely on the buyer to conduct thorough due diligence, scrutinizing every aspect of the target company before signing on the dotted line.
However, even in the absence of explicit representations and warranties, buyers are not entirely defenseless against fraudulent practices. A notable case before the Delaware Court of Chancery sheds light on this issue, where a buyer successfully pursued legal action against a seller for concealing critical environmental liabilities.
In this instance, the buyer diligently requested information regarding any environmental concerns associated with the target company’s premises. While the seller disclosed certain documents, including an air emissions permit and past odor complaints, crucial information regarding ongoing regulatory scrutiny and complaints since the seller assumed control remained undisclosed.
Subsequently, the buyer faced enforcement actions from regulatory authorities, leading to substantial operational disruptions and financial losses. Despite the seller’s assertion of non-liability under the “as is where is” clause, the court ruled in favor of the buyer, emphasizing the buyer’s right to recourse against fraudulent practices.
This ruling echoes similar legal principles observed elsewhere, emphasizing that “as is” clauses do not serve as blanket immunity against fraudulent misrepresentations. Courts have consistently upheld the principle that contractual provisions cannot shield sellers from liability arising from intentional deception.
While this legal precedent provides a beacon of hope for aggrieved buyers, it also serves as a cautionary tale. Buyers are reminded of the paramount importance of conducting comprehensive due diligence, irrespective of the deal structure. Investing time and resources into independent investigations can potentially avert costly legal battles and safeguard against unforeseen liabilities.
Furthermore, the applicability of such legal principles transcends geographical boundaries, as evidenced by analogous cases in jurisdictions like California.
In conclusion, while “as is where is” deals may offer expedited pathways to M&A transactions, buyers must remain vigilant and proactive in safeguarding their interests. By leveraging legal frameworks and exercising due diligence, buyers can navigate the complexities of M&A transactions with confidence and mitigate the risks inherent in such agreements.
Case Reference: Gloucester Holding Corp. v. US TAPE (2003) 832 A. 2d 116 and can be found at: https://scholar.google.com/scholar_case?case=1144880945733338861&q=%22asset+purchase+agreement%22+gloucester&hl=en&as_sdt=906000008000001e00c00003c000003c00000000000000000000000010a0e0f2040408082141cb00100000020000002004
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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