With the downturn in the economy, a lot of opportunities exist for the purchase of existing businesses which operate under various structures whether sole trader, companies, partnerships, joint ventures or trusts.

When parties start talking about an acquisition it is sensible for a Confidentiality Agreement to be executed by the parties which in effect will quarantine the information which has been handed over for the purposes of the negotiations. This means that one party can with some confidence hand over what may be sensitive commercial information to another party. If there is a breach of the obligation of confidence then action can be taken to seek urgent injunctive relief from a court to prevent the dissemination of the confidential information and in other cases where damage has been caused the innocent party may be compensated.

Often parties will undertake a program of due diligence under the protection of a Confidentiality Agreement or, they may enter into a formal agreement which gives effect to the precise timeframe and topics which will be reviewed in due diligence between the parties and their respective financial, accounting and legal advisors.

If due diligence appears to be favourable then often parties will then move to the next stage. This stage often will see parties entering into documents or handing over documents called "letters of intent" or, signing up to "heads of agreement" or "term sheets". The legal position in relation to these types of agreements is complex. The documents by their nature are not intended to represent the final binding agreement between the parties as they are intended to set out a process or a map to which the parties will follow to achieve a final agreement normally in the form of a Deed.

Complications often arise however when drafting Letters of Intent, Heads of Agreement or term sheet where clauses which are not intended to be binding are drafted as being binding and significant care and attention needs to be taken in this process. For any party who is contemplating either selling or buying a business or, shares in a company or units in a trust then, we recommend that you meet with us as early as possible so that we can set out with you the steps that will need to be taken and, provide you with some preliminary documents.

Last year, Tom Ellicott the Director of the Business and Commercial Law Group prepared a paper for a Legal Wise conference in November which reviewed this particular topic. That paper is available in our publication section and by clicking on the link below.

We cannot emphasize enough that you need to obtain advice in relation to an acquisition or sale at a very early stage to ensure that your interests are properly protected, particularly when it comes to confidentiality. Please contact us if you have any questions.

Documenting Pre-Contract Intentions

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