Disclosure—asset purchase
Disclosure—asset purchase

The following Corporate guidance note provides comprehensive and up to date legal information covering:

  • Disclosure—asset purchase
  • The purpose of disclosure
  • The disclosure letter
  • Standard of disclosure
  • Buyer's knowledge
  • Drafting considerations

The following provides an overview of the purpose, nature and scope of the disclosure exercise that is carried out by a seller in connection with the acquisition of the assets of a business.

The disclosure process is a fundamental part of the sale transaction and the parties should not underestimate the time and resources that are required to carry out an effective disclosure process. By obtaining appropriate professional advice, the parties can help to avoid or mitigate any potential risks that may arise.

The seller will need to consider each warranty in detail with its advisers, as inadequate disclosures may mean the seller is exposing itself to potential breach of warranty claims.

The seller’s solicitors will co-ordinate the disclosure exercise and will draft the disclosure letter in conjunction with the seller and its management team. This can be a lengthy and time-consuming process. The disclosure exercise is usually started early on in the transaction and is conducted at the same time as the asset purchase agreement is negotiated, given the interdependence between the warranties and the disclosure letter. As the buyer may raise additional queries arising from the disclosures, due diligence and disclosure may continue up until the asset purchase agreement is executed.

The purpose of disclosure

Limiting the seller’s liability

The seller will give warranties to the buyer in the asset purchase