In circumstances of share transfers, the date when the share purchase agreement (SPA) is signed, and the actual transfer date frequently differ. The 'closing date,' marking the legal and actual transfer of shares and the finalisation of all SPA transactions, is when the transfer is completed. Therefore, the time between signing the SPA and the closing date is known as the interim period.

When parties sign the SPA, they commit to fulfilling the obligations outlined in the agreement. However, simply signing the agreement may not always be enough to complete the finalisation. Certain conditions may need to be met by one or more parties for the closing to occur. These conditions could pertain to operational matters, like obtaining a company permit or settling debts with third parties, or they might be legal requirements, such as securing approval from competition authorities or other regulatory bodies. These conditions are known as 'conditions precedent.' The interim period is the duration needed to satisfy these conditions precedent.

To avoid prolonging the interim period, during which the seller faces various restrictions, indefinitely because of unmet or delayed closing conditions, the parties establish a maximum timeframe for fulfilling these conditions in the agreement. This timeframe is known as the 'long stop date'.

Conditions Precedent

Having outlined the interim period, let's consider the closing, which refers to the acquisition of shares, can only occur once the specified conditions for the closing have been met. These conditions may involve the target company's operations or legal obligations.

Conditions relating to the company's operations:

Some contracts involving the company may include clauses allowing the counterparty to unilaterally terminate the agreement if there's a change in the company's ownership structure, leading to a change in control. These clauses are termed 'change of control clauses.' If the buyer deems these contracts crucial to the company's operations and wishes to mitigate the risk of contract termination by the counterparty, it may demand the seller to secure a letter of consent from relevant parties, confirming they won't exercise their rights under the change of control clause. If obtaining such a letter is a condition for closing, the seller must fulfil this requirement within the interim period.

Regulatory Approvals:

Moving on to another crucial aspect, if the share transfer requires approval by the competition authority as per competition legislation, the parties must seek approval from the competition authority for the transaction during the interim period. The closing can proceed only after the competition authority has authorised the transaction.

The transfer of shares in companies operating within regulated sectors, potentially altering control, necessitates authorisation from relevant authorities. For instance, transferring shares of a company in the energy sector, holding a license, mandates approval from the energy market's regulatory authority. Therefore, this authorisation becomes a closing condition.

Interim Obligations and Restrictions

The interim period restricts the seller's actions regarding their shares and the company. The buyer understandably desires consistency between the company's state at the signing and at the closing. Therefore, the seller is expected to conduct business as usual, following past practices, to maintain the company's status. Consequently, agreements governing the interim period typically impose restrictions and obligations on the seller, including the following:

  • No indebtedness for the company outside the ordinary course of business,
  • Not to terminate important contracts with important customers and suppliers of the company,
  • Not to make the company waive its rights,
  • Not to dispose of or encumber any movable or immovable assets of the company,
  • Not to increase the salaries of the company's executives and not to hire new executives,
  • Not to amend the company's articles of association and not to increase the company's share capital.

The buyer may also seeks updates on the company's activities throughout the interim period. The extent and frequency of this information exchange are determined through negotiation and tailored to the specifics of each transaction's dynamics.

It's crucial to recognise that the buyer aims to maintain business stability, while the seller seeks the freedom to operate as usual. Neither party benefits from overly restrictive measures that impede business operations. Striking a balance between these interests is paramount.

Long Stop Date

As previously discussed, parties often impose a time limit for fulfilling closing conditions to ensure a timely completion of the transaction. If these conditions are not met within the specified timeframe, the Share Purchase Agreement (SPA) can be terminated, relieving the parties of their obligations. Should any closing conditions remain unsatisfied by the termination date, or if the parties haven't waived them, the SPA, and all associated obligations, including those related to the closing, will terminate, unless stated otherwise in the SPA.

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.