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I Bought a Company but What I Have Been Sold is Not Quite What I Thought it Was – What Can I Do?

May 17, 2016
Much of the answer to this question will come down to what the documents you signed say. If you purchased the company through a Share Purchase Agreement (SPA), a properly drafted agreement should have warranties in there which you can seek to rely on. Warranties are special contractual promises in which the seller gives you in exchange for giving them the price you paid for it. 

Usually there will be a mechanism and process outlined in any SPA as to how you go about bringing a claim if there is a problem for the warranties. For example, if you purchased a company that had 15 vans and the warranty provided that the vans were all in good working order, if you discover that the vans are actually all inoperable or with inherent faults, it could cost you about £100,000 to replace the fleet, if not more. 

Firstly you need to have any SPA reviewed carefully by a solicitor and follow any procedure in the SPA. This can be as simple as ensuring you have given notice of the faults or issues for a warranty claim in the correct way. A recent case, Tecco UK Ltd v Aircom Jersey 4 Ltd, has shown how important it is to ensure you comply with the notice requirements. In this particular case, that if you do not give notice as soon as was “reasonably practicable” (which was stipulated as a condition of a notice of the warranty claim in the SPA in question), then you have failed to comply with the requirements of the SPA. Similarly, you need to make sure that the claims comply with any other conditions – some conditions will want you to detail as much as possible what the claim is, and a value of the claim. Others will ask for a brief outline. In the Tecco case, the buyer’s warranty claims were thrown out of court simply because the buyer had not acted quickly enough in complying with the notice provisions. Therefore you should always take advice at the earliest opportunity if you think you have grounds for a breach of warranty claim to avoid costly errors and a bar to damages later down the line. 
 

Nicola Lucas

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Nicola Lucas

Nicola is a member of our Business Law Team handling all the commercial requirements of her clients such as shareholder agreements and negotiating on commercial ...

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