One of the purposes of a buyer requiring the seller to warrant various aspects of the target business is to provide the buyer with a more detailed understanding of the business and its value.
However, unless the warranties are limited to key issues such as legal ownership and the ability of the seller to enter into the transaction, it is likely that a seller may need to make it known to the buyer that not all the warranties are true.
This can be achieved by way of qualifying the warranties in the share purchase agreement or, as is more common, the seller setting out its disclosures in a disclosure letter. The reason a seller will want to do this is to avoid a breach of a warranty claim in relation to the matters disclosed.
When making a disclosure against a warranty, it is important to provide full information whilst keeping the disclosure as specific as possible. This helps to ensure that the disclosure is held to be a fair disclosure and so achieve the desired effect of limiting the seller’s liability.
There are some general disclosures that are usually deemed to have been made by the seller, which is information that is publicly available to a buyer. This includes information held at Companies House, information held at HM Land Registry in relation to the properties of the business and matters disclosed or referred to in the accounts of a company.
