Share Purchase Agreement Deferred Consideration

In this article, we describe in detail some of the main issues that sellers may face when trying to protect themselves from the negative consequences that can occur under a deferred counterparty structure. The Tribunal found that clauses (1) and (2) were not economically viable and did not accept Cavendish`s argument that the clauses were intended to reduce the consideration due to Mr Makdessi in the event of an infringement and was a means of decoupling him from the company. Another alternative would be for a seller to receive a strong corporate guarantee from a financially robust shareholder of the buyer or other related party (including a parent company guarantee if the buyer is a subsidiary of a larger group) or from the objective itself, if appropriate. We also tend to use forms of debt securities with the same effect when working in a UAE context, given the benefits granted to them under current law. If this right is a security right, sellers do not have the absolute right to own the business, but the right of a secured creditor to (re) sell the shares and use the proceeds to settle the amount they owed them, the balance being paid to the buyer. In reality, it can simply give sellers a more advantageous negotiating position with the buyer when it comes to rescheduling the payment. It is clear that sellers will obviously always be very reluctant when it comes to accepting deferred counterparty structures, and it is often this reluctance that can prevent a transaction from continuing. We believe that well-designed safeguards for a seller should be able to address the reasons for this reluctance, whereas if they are balanced and reasonably fair, they should also be acceptable to some buyers. Where a guarantee on the shares of the company (the offeree company as it was) has been created and the sellers have the right to return the shares of the target company or the buying company, this right is usually outside the priority rights of a bank. In the recent case of El Makdessi v Cavendish Square Holdings BV and another[2], the seller, Mr Makdessi, was the majority shareholder of the largest advertising and marketing communication group in the Middle East (the group). The buyer wanted to protect the goodwill and therefore made restrictive commitments on Mr Makdessi`s conduct. The deferred consideration was a considerable sum. If the form of deferred consideration is that of an earn-out, a buyer of course wants to be able to offset with each amount to be paid to a seller, but this should be refined and adapted for each specific transaction.

One of the goals of a particular earn-out may be to encourage a seller to help a buyer meet certain performance criteria for a goal. Therefore, any claim for compensation from a buyer may require the buyer to assert its right of set-off early in an earn-out period, which would naturally negate the original incentive objective. However, if the seller is not involved in a goal after closing, a buyer of course wants to be entitled to compensation with an earn-out payment. This general right can be a real concern for a seller, since it gives a buyer a contractual right to unilaterally withhold payment of deferred consideration, so the seller must resort to the litigation procedure defined in the PPS to recover this payment. This general right can be defined in a particular clause or, as is often the case, probably quite mischievous, as it is an important term for a seller, be buried in the detail of a SPA.. . .

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