Private M&A purchase and sale agreements in Canada follow a
very familiar pattern and typically include what can be
described as the 'usual representations and warranties'. In
sophisticated purchase agreements the usual representations and
warranties are comprehensive and cover everything from
corporate, employment and environmental matters to financial,
tax and intellectual property matters. While the usual
representations and warranties cast a wide net, they
are by no means a one-size-fits all solution for
addressing risk. Each transaction is unique and
requires that clients, their financial advisors
and their legal advisors turn their mind to drafting
representations and warranties that address the specific risks
of the transaction.
In many cases the customized repsentations and
warranties that are required will be apparent based on
the business of the target company. For example, a
technology target will typically require a variety of
additional representations and warranties to minimize the
unique risks and liability exposure associated with the
particular technology business. A transaction that
involves real estate will require additional real estate
and environmental representations and warranties. And so on
based on the business of the target. These are obvious risks
which are easy to identify. It is the less obvious risks
that buyers need to think about carefully
and discuss with their financial and legal advisors.
Take for example a business with a backlog of work that will be
peformed by the target following closing. While
the buyer may view the backlog as an attractive feature and it
may have even influenced pricing, the
business has a lot of moving parts and the
buyer may not be focused on the details of the
backlog. While the usual representations and warranties
regarding financial statements and contracts cover some of the risk
associated with a backlog, they do not squarely cover off
risks around the quality of the backlog. A vendor
wanting to improve the profile of a business prior
to sale may be tempted to bid low for work in order to
create a healthy looking backlog. Following closing the buyer
may discover that the backlog is in fact a liability because
it is comprised of a number of loss-making contracts. If the
purchase agreement did not include specific representations
and warranties regarding the quality of the backlog, the buyer
may not have a remedy for the losses arising from the backlog.
While it is impossible to predict or forsee every possible
risk, buyers and their financial and legal advisors
should take the time to come up with a list of risks
specific to the transaction. If the usual representations and
warranties do not cover off each risk or only partly cover the
risk, then it is time to start drafting and negotiating specific
reprentations and warranties that do cover the risk.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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