This Management Buy Out Asset Sale Agreement is based on the Asset Sale
Agreement (debtors, creditors and property transferred) without Guarantee.
The principal differences are that the warranties have been substantially
reduced and some optional conditions precedent have been added. It is also
commonly referred to as a Business Sale/Purchase Agreement.
A management buy-out occurs when an existing management team acquires a
business (possibly supported by acquisition finance from a lender and/or
equity finance from a venture capitalist). This Management Buy Out Asset
Sale Agreement is most appropriate for use where a management team buys the
business (known as the assets and undertaking) of a single company or a
group company but not its shares. It is necessary to identify all the
assets and liabilities of the business and for the Buyer to decide which
assets and which liabilities will be transferred. Following this will be
some formalities for transferring title to each and every asset. Novation
of certain liabilities which are also transferred may be necessary.
At clause 1 (interpretation) a definition for Accounts Date should be
inserted. This is the date when the previous accounting period ended. The
definitions of “Accruals”, “Creditors” and “Prepayments” should be tailored
to your circumstances. The wording in square brackets should be chosen so
that either payments in connection with the property are included within
the definitions of “Accruals”, “Creditors” and “Prepayments” respectively
or not. The definitions of “the Bank”, “the Business”, “the Buyer’s
Solicitors”, “the Disclosure Letter”, “Goodwill”, “Life Assurance Scheme”,
“Pension Scheme(s)”, “Personal Pension Scheme(s)”, “Property Conditions”,
“Stakeholder Scheme”, and “the Seller’s Solicitors” should be completed. If
Management Accounts are being provided by the Seller then the date to which
they are made up should be included. There is an optional definition of
“Conditions” if the sale and purchase is conditional.
At clause 2, the words in square brackets allow for the sale and purchase
to be subject to the conditions set out at schedule 10. If a director of
the company selling the business or of its holding company is involved in
the buy-out, then it may be necessary for the prior approval of the
shareholders to be obtained (section 190 of the Companies Act 2006 –
substantial property transactions). Clause 2 further specifies the assets
included in the sale. Book Debts are included in the assets under this
agreement. Other versions of the agreement are available where the Book
Debts are not included in the assets. The assets Plant, Contracts,
Intellectual Property Rights, and Property are detailed in the schedules.
Clause 3 lists the assets which are excluded from the sale. Excluded assets
are shares or other securities held by the Seller, cash in hand or at the
bank, any right to a credit of tax, any amounts owed to other members of
the group, the Seller’s accounting records and the Third Party Assets which
are dealt with in clause 20.
Clause 4 refers to schedule 9 which lays out details of the purchase price.
Under this agreement, the purchase price is entirely in cash. In the
Schedule, there is an option to choose between payment for the transaction
being made by banker’s draft in favour of the Seller or the Seller’s
Solicitors, or by telegraphic transfer to a designated account. Since many
completions tend to take place at uncivilised hours (and thus outside
normal banking hours!) an undertaking should be signed. Please see the
related documents for two examples of undertakings that may be used.
Clause 5 sets out the usual position where the sale and purchase of the
business is a “transfer of a business as a going concern” and thus will not
be regarded as a supply of goods or services for VAT purposes. At clause
5.6, it must be decided whether the Seller and Buyer will make a joint
application to HM Revenue & Customs for the Buyer to be registered for
VAT under the Seller’s VAT number. Clause 5.7 states that the Buyer will
pay the Seller the VAT payable if HM Revenue & Customs determines that
it is due. This area is difficult and technical, and specialist advice
should be taken.
Clause 6 sets out the completion arrangements. These usually take the form
of assignments. A general assignment of the main assets under this
agreement is available to download under the related documents. A Patent
Assignment and a Trade Mark Assignment are also available to download if
required. The transfer or conveyance of the Property and a formal
assignment of the Lease will be required. Most companies will be subject to
fixed or floating charges these will require formal deeds of release which
are also available to download in the related documents. A letter
confirming non-crystallisation of the floating charge may also be required
and can be downloaded from the related documents links. The Seller must
hand over the VAT records to the Buyer unless given permission not to by
the local VAT office.
Clause 8 states that the Buyer will take on the liability for the Creditors
but will only take on the liabilities which it expressly agrees to under
Clause 9 states that the Buyer will be assigned the benefit of the
Contracts. However, the burden of a contract (i.e. the obligations of a
party under a contract) cannot be assigned without the consent of the other
party. One way of achieving this is to execute novation agreements where
the Buyer, the Seller and the other contracting party enter into an
agreement where the Buyer steps into the shoes of the Seller and the Buyer
will usually assume liability for the obligations of the Seller at the
point of novation. Since this process is rather cumbersome and time
consuming, the agreement states that the benefit of the Contracts will be
formally assigned and both parties will agree to use reasonable endeavours
to obtain third party consents to the assignment of the burden of the
Clause 10 states that the Buyer is responsible for satisfying any claims
for defective goods but is entitled to be reimbursed in full by the Seller.
Clause 11 deals with the employees. Due to the operation of TUPE, the
employees of the business transfer automatically to the Buyer. Without an
agreement in place, the Buyer will take on the rights and powers of the
Seller in relation to the employees together with the Seller’s duties and
liabilities towards them. For this reason, the agreement ensures that the
Seller indemnifies the Buyer for all matters that took place before
Completion. In a similar way, the Buyer indemnifies the Seller for any
matters taking place after Completion. At clause 11.5, there is optional
wording depending on whether employees have taken holiday in advance or
have accrued holiday entitlements which they have not taken at Completion.
The appropriate wording should be chosen and the other option deleted.
Clauses 12 and 13 deal with property arrangements. At clause 12.1, it is
assumed that the standard property conditions are incorporated into the
agreement but there is an option to exclude any inapplicable conditions. At
clause 12.3, the appropriate percentage should be inserted. At clause 12.4,
the correct wording should be chosen depending on whether the property is
to be transferred by a transfer or a conveyance. It is assumed that any
leasehold property will be sold although it is possible to add further
provisions at clause 13.2 and it is possible to assign the Lease under
Clause 14.3.1 specifies that the maximum liability of the seller under this
agreement for all claims aggregated together is the purchase price.
However, there is an exception for breaches of the warranties in paragraph
1 of schedule 7 (which relates to ownership of the assets and authority to
sell) and of breaches of the Tax Warranties. If the Seller is not in a
position to sell, then they should have no limit to their liability.
However, in clause 14.3.2 the Seller is given some protection from claims
being brought for trivial breaches and so it is possible to specify a
minimum value of each claim (at clause 18.104.22.168). If the value falls below
this amount, then the claim is ignored (this is the ‘X’ amount in the form
field). A figure should be inserted in the form field such as £1,000 (the
amount will vary depending on the total value of the transaction).
Furthermore, at clause 22.214.171.124, it states that no claims may be brought
unless all the claims of the ‘X’ amount equal or exceed a threshold (the
‘Y’ amount) such as £10,000. So, in our example, if the buyer has 9
individual claims of £1,000, he will not be able to make a claim because
the threshold of £10,000 has not been reached. However, if he has 10 claims
of £1,000 then he will be able to make a claim. Moreover, the buyer will be
able to claim for the whole amount, not just the excess over the £10,000
Clauses 15 and 16 protect the Buyer by placing restrictions on the use of
confidential information and preventing the Seller from setting up a
competing business or soliciting the Business’s customers.
Clauses 15.3 and 17 also prevent the Seller using the name of the Business
or any name confusingly similar by requiring the Seller to change its name
at Completion. Note that the definition of Goodwill can include the right
to use the name of the Business.
Clause 18 clarifies that title to the Assets will pass to the Buyer at
Clause 19 sets out mutual indemnities for keeping the books and records
held by each party and making them available to the other.
Clause 20 governs what happens to assets that are owned by third parties,
e.g. under a lease, rental, or hire-purchase. Many of these will be
essential to the Business and it will be sensible in most cases to
negotiate with the finance company concerned in advance of completion
otherwise there is a risk that the asset will be repossessed. The agreement
states that the parties will use reasonable endeavours to obtain the
consent of the finance companies as soon as possible after Completion.
Until that happens, the Buyer will comply with the agreements and will
indemnify the Seller for any breach of the agreements. There is a three
month cut-off point where, if no consent has been obtained, the Buyer can
either continue with the present arrangements or return the asset
concerned. The Buyer is not required to pay any “renewal fee” required by
the finance company for the privilege of having the contract transferred to
Clause 21 is an optional clause where the buyer gives an undertaking to
attempt to obtain the release of the Seller from a specified guarantee and
agrees to indemnify the Seller against any liability arising after
Completion. This will often be useful where the transaction is completed in
a short space of time and the Seller has given guarantees to, for example,
its bankers or its landlord.
Clause 22 makes it clear that no third party can enforce any of the
provisions of the agreement.
Clauses 23-33 are “boiler plate” clauses that do not have much impact on
the transaction but which lawyers include for good measure. These should
not be amended unless there are very good reasons for doing so.
Clause 34 is the certificate of value for Stamp Duty Land Tax (SDLT)
purposes. For more information about SDLT thresholds, please consult the HM
Revenue & Customs website.
Schedules 1, 2, 3, 4, 5 and 6 should contain details of Contracts,
Employees, Intellectual Property, Plant, Property and Third Party Assets
respectively. It may not be possible to have a list of all the Contracts
depending on the nature of the business and each transaction will have
A brief set of warranties is included at Schedule 7. The reason for this is
that, in a Management Buy-Out, the management team will have much greater
knowledge of the operation of the business than the Seller(s). The
exception is when the business is being sold by a holding company and
certain matters are dealt with as part of the group. For this reason, the
warranties for Insurance, Pensions and Tax are in square brackets and are
optional. If any or all of these matters are dealt with at group level then
these warranties can be included. By contrast, if any or all of these
matters are dealt with at operating company level, then each warranty can
be deleted as appropriate.
Naturally, every transaction differs from another and discretion should be
used by the advisors to the Seller and Buyer as to which warranties are
Schedule 8 can be used for detailed pension arrangements.
Schedule 9 sets out the details of the purchase price as discussed above.
Schedule 10 contains the optional conditions precedent as discussed above.
The Asset Sale Agreement is not a deed so it can be signed by one person
who is authorised to do so by the Seller and the Buyer respectively.
Optional phrases / clauses are enclosed in square brackets. These should be
read carefully and selected so as to be compatible with one another. Unused
options should be removed from the document.
This agreement is in open format. Either enter the requisite details in the
highlighted fields or adjust the wording to suit your purposes.
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