The seller confirms in Section 6.1 that he/it will comply with the contractual agreements of the purchase contract and that he/it will not jeopardise the performance of the contract for the purchase and sale of the company. Such assurances are uncustomary in German practice. In addition, such a general assurance of compliance with the contract would not give the other party a right to challenge the contract in the event of any non-compliance with the assurances. The assurance in Section 6.1 is too general and all-embracing for this purpose.
The seller confirms in Section 6.2 that he/it will obtain all the licenses, approvals and any other documents required for the execution of the agreement for the purchase and sale of the company. This includes making applications and submitting statements and reports to higher authorities. The seller undertakes to obtain all the necessary licenses and approvals and to transfer these, or an adequate replacement, to the buyer.
The above obligations of the seller are also customary and meaningful in German practice. The obligation of the seller to carry out the above acts and actions prior to the so-called "closing date" in not agreed in German practice, however. As mentioned above, a commitment transaction has to be effected first of all under German law and then a performance transaction. Unlike other legal systems in which the obligation and performance transaction coincide on the closing date, both have to be agreed and effected separately under German law in accordance with the abstraction principle which prevails in Germany. For this reason, the above commitments of the seller are only meaningful with German agreements for the purchase and sale of companies if they are agreed for the period between the conclusion of the commitment and the performance transaction.
In Section 6.3 (a), the seller undertakes to continue the business of the company in the proper and customary manner until the closing date.
This type of obligation is also usual in German practice whereby, as mentioned above, it is not the closing date which is important but more the date of the performance transaction.
A catalogue of transactions is agreed in Section 6.3 (b) which the seller may only perform between the commitment and the performance transaction with the consent of the buyer. all the clauses contained in this catalogue are meaningful and customers in German practice.
In Section 6.3 (c), the seller undertakes to maintain proper and adequate accounting records, to continue to conclude and maintain insurances and to enable the agreement for the purchase and sale of the company to be performed by complying with all the relevant laws.
If the commitment transaction and the performance transaction coincide with each other time-wise, it is also customary in German practice that the seller undertakes to maintain proper and adequate accounting records of the company and to continue to conclude and maintain insurances for the period between the commitment transaction and the performance transaction.
In Section 6.4, the seller undertakes to grant the buyer access to numerous items of information and various premises.
This type of obligation is only meaningful and customary in German practice if the commitment transaction and the performance transaction do not coincide with each other time-wise and if further information is required by the buyer in the meantime. In German practice, access to information and premises is normally granted prior to the conclusion of the commitment transaction. The seller seldom commits himself/itself to grant access to the buyer in most cases. In his/its own interest in the sale of the company, the seller will provide the buyer with the information and access to the relevant premises which the buyer needs for the decision on whether to conclude an agreement for the purchase and sale of the company.
The seller confirms in Section 6.5 that he/it has not sold the object of purchase to a third party and that he will ensure that the object of purchase is transferred to the buyer free of any third party encumbrances.
The above ruling is customary and meaningful in German practice. The assurance of the freedom from encumbrances of the purchased object opens up guarantee and /or compensation claims for the buyer against the seller if the object of purchase is encumbered with third party rights contrary to the assurance following the conclusion of the commitment transaction.
In Section 6.6, the seller warrants that no tax considerations oppose the agreement for the purchase and sale of the company.
This form of assurance is not customary in Germany. In most cases, the buyer will already have discussed the tax consequences of the purchase agreement with his/its tax advisor prior to the conclusion of the commitment transaction.
When reference is made to "bulk sales" in Section 6.6, attention is once again drawn to the fact that a "bulk sale" is not possible under German law. It would contravene the definitiveness principle applicable under German law.
Seller undertakes in Section 6.7 to provide the buyer with certain supplementary information.
Such a ruling is meaningful and recommended if the commitment transaction and the performance transaction do not coincide time-wise. It is also customary in German practice. The buyer is therefore entitled to be regularly informed during the period between the commitment transaction and the performance transaction.
Section 6.8 is particularly important. A competition ban on the seller is agreed in this section down to the last detail.
This type of specific competition ban is customary and meaningful in German practice. The agreement of a competition ban in accordance with Section 6.8 of the master contract in this level of detail is also to be recommended as a cogent integral part of German agreements for the purchase and sale of companies therefore.
The other commitments of the seller included in Section 6 are to be recommended for such purchase and sale agreements under German law. Even though the additional commitments of the seller included in Section 6 emanate from the law to a very large extent, the separate commitments of the seller to perform a certain action or to refrain from a certain action represents a better basis for the buyer to take action against the seller with contractual claims in the event of a breach of contract.
For further information please contact Dr Erich Michel, Wessing Berenberg-Gossler Zimmermann Lange, Freiherr-Vom-Stein-Strasse 24-26, Frankfurt am Maim 60323, Frankfurt, Germany- Tel: +496 997 1300, Fax: +496 997 130100.
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