Earlier this year, Temple Saville unpacked how lawyers can identify red flags early, manage legal exposure, and support directors in meeting their obligations at Director Duties: Duties, Liabilities and Enforcement and the Business Sales Summit: Risks and Strategies.
If you missed the sessions? Click to access the on-demand recordings.
Business Sales & Insolvency: Risk, Regulation, and Resilience
Insolvency events may unfold quickly, and this can be particularly evident in business sales. As lawyers, our role isn’t just to facilitate transactions, it is to critically assess the risks that can linger after a deal is done.
What red flags should lawyers look for when advising on a distressed business sale?
Red flags in these transactions include erratic cash flow, urgent deal timelines, and poor documentation of key decisions. When directors act without fully considering their duties, they can face scrutiny. Insolvent trading and preference claims don’t just derail deals; they often put directors directly in the firing line, with significant personal and reputational consequences.
How can due diligence help reduce exposure to preference claims and voidable transactions?
Due diligence remains the best approach. That means interrogating recent payment patterns, assessing solvency with accuracy, understanding the commercial rationale for key decisions, and preparing for the very real possibility that a transaction might be reviewed or unwound down the track.
What should practitioners keep in mind about directors’ duties during a sale?
Directors’ obligations don’t disappear once a sale is done. In fact, when things unravel, those decisions made during the deal often come under intense scrutiny. Failing to properly assess risks or document decisions can expose directors—and their advisors—to significant litigation risk.
What should lawyers consider when a client may face public examination?
Public examinations are challenging. Poor paperwork, informal arrangements, or unexplained transfers are often where damage is done and where claims are built. Practitioners should ensure that every step of the deal can be justified and backed by clear, reliable records.
When does mediation work best in business sale disputes?
Mediation is proving to be an increasingly valuable tool in resolving these disputes. It gives parties a setting to move beyond firm legal positions and focus on pragmatic outcomes—particularly important when ongoing relationships, reputation, or the cost of litigation is at risk.
What are the emerging concerns for legal advisors in this space?
At the recent Summit, a clear theme emerged: directors and their advisors are grappling with heightened regulatory pressure, increased litigation risk, and the need to make clear-eyed, commercially sound decisions in an everchanging economic and legal landscape.
The challenge is not just getting a deal done, it is ensuring that the deal is done properly. Ensuring the process holds up under scrutiny, and that every decision made can be justified long after the fact.
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