Acquisitions workshop 1

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Acquisitions workshop 1
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2010-06-04 08:46:29
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Acquisitions workshop
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acquisitions workshop 1 - reading and test and feedback
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  1. What are the two pre-requisites to information being covered by the law of confidential information?
    • - It must have the necessary quality of confidence (confidential in nature) and
    • - It must be disclosed in circumstances importing and obligation of confidence
  2. Who can the rights of the law of confidential information be enforced upon?
    The recipient or a third party recipient, even if the third party had no knowledge of its confidential nature when it was received
  3. Define what "the necessary quality of confidence" means for the purposes of the law of confidential information
    "have the necessary quality of confidence about it, namely, it must not be something which is public property and public knowledge." (Saltman Engineering v Campbell Engineering)

    • - Can be easily recognisable
    • - Normally someone must have added some thought and effort to existing public domain materials to create something that deserves protection (CoCo v AN Clark)
    • -Merely describing a document as confidential will not of itself turn information that is not inherently confidential into confidential information.
    • Encrypting information, if the encrypted version is available to the public and can be decrypted, will not make that information confidential as "anyone with the skills to de-crypt has access to the information" (Mars v Teknowledge [2000] FSR 138).
  4. For the purposes of the law of confidential information - when does "an obligation of confidentiality arise".

    Give 3 examples
    • -Imposed by contract - this is the BEST method (see notes on confidentiality agreements)
    • - Implied because of the circumstances of disclosure - whether "a reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence" (Coco v A N Clark)
    • - Implied because of the special relationship between the parties concerned(for example,that of employer and employee).

    If no express requirement of confidentiality is imposed, there is doubt as to whether or not the recipient is placed under any obligation of confidence. The holder should be careful not to imply it is not confidential (discussing it as if common knowledge/in a public place etc)
  5. How many people can confidential information be disclosed to before it stops being confidential?
    • Confidential information can be disclosed to a large number of people without losing its confidential character, provided each of them receives it on terms of confidentiality.
    • E.g. Advisors, officials

    • Where disclosure is for a specific, limited purpose, confidentiality may be preserved for all other purposes.
    • E.g. negotiations
  6. Is information which is semi-hidden confidential?
    Where someone discloses information to the world at large, the circumstances of the disclosure remain significant. Even where information may have been disclosed at source, if public access to that information is in fact limited, a recipient of the information "should not get a start over others by using the information which he received in confidence. At any rate, he should not get a start without paying for it" (Seager Limited v Copydex Limited [1967] RPC 349, at 368).

    -E.g. Technical drawings are confidential even though they could be re-created by dismantling a sample (Terrapin v Builders Supply) and unencrypted information remained confidential, even though it could be lawfully reconstituted by someone decrypting the encrypted version of the information (Mars v Tecknowledge)

    If, on the other hand, the information publicly available suffices so that no additional work is needed by other interested parties, then the recipient of the confidential information gets no springboard and so will not be restrained from using it.
  7. How long can confidential information be protected by the law of confidential information?
    - For as long as it remains confidential.

    • No longer confidential if:
    • - Ceased to have commercial value
    • - Time limit is over
  8. Name 4 situations where the law of confidential information will not protect you?
    • - Confidential information that is provided properly and necessarily to the European Commission may become available to third parties who intervene in proceedings challenging the Commission’s blocking of a proposed merger (see Gencor Ltd v EC Commission (Case T-102/96) [1999] ECR II-753).
    • -The English courts will not prevent disclosure of information solely because the partieshad entered into a confidentiality agreement in respect of it (see SmithKline Beecham Biologicals SA v Connaught Laboratories Inc [1999] 4 All ER 498).
    • Foreign law issues where, for example, one of the parties or the subject matter of the agreement is not wholly within the UK (such as US tax shelter rules, where the confidentiality obligation restricts disclosure of the tax treatment of an arrangement), may override confidentiality obligations
    • .• Confidentiality can be outweighed by the public interest in the disclosure of certain materials or information, for example, where it reveals details of crime or torts committed by the provider of the information (Lion Laboratories Limited v Evans [1984] 2 All ER 417).
  9. What types of information can be protected by the law of confidential information?
    Almost any type, including information that cannot be patented etc.
  10. When does a breach of confidence occur?
    • An obligation of confidentiality can be breached by either:
    • • Disclosing it to others.
    • • Using the information for an unauthorised purpose.

    A person who has received information in confidence must not make use of it to the prejudice of the person who disclosed it without first obtaining his consent (Seager v Copydex)
  11. What remedies is a successful claimant in an action for misuse of confidential information is entitled to?
    • - Account of profits
    • - An inquiry into damages
    • - Injunctions (although this is of little use of information has already been disclosed)
  12. What is the best way of ensuring that information is disclosed in circumstances importing an obligation of confidence?
    Through a written contract, e.g. a confidentiality agreement
  13. Who usually drafts a confidentiality agreement?
    The disclosing party but sometimes the recipient of the information will want to set out the terms on which they receive that information so that they do not find themselves being placed under more onerous obligations of confidence than they want to accept.
  14. Name 5 key provisions in a confidentiality agreement
    • 1. The definition of the confidential information to be protected
    • - Disclosing party will want this as broad as possible, receiving party will want to narrow it
    • 2. The central obligation to keep the information secret and to use it only for the permitted purpose
    • 3. The circumstances in which, and persons to whom, the receiving party is permitted to disclose the information.
    • 4. What happens to information and records if the project or transaction does not proceed.
    • 5. The duration of the agreement
  15. As well as ensuring that recipients sign a confidentiality agreement before releasing confidential information, there are a number of practical steps that holders of confidential information can take to establish and maintain confidentiality.

    Name 5 of these (there are more listed in the PLC article)
    • • Restrict access to confidential information. "need to know basis" and documents marked confidential
    • • Restrict access to areas where confidential processes are conducted, or developments are being made.
    • • Keep a contemporaneous written record of developments.
    • • Stagger disclosure in negotiations
    • • Consider disclosing hard copies of confidential information, which can be numbered and collected when no longer required for the particular project or transaction concerned.
    • • Ensure that employee contracts contain clear and appropriate confidentiality provisions.
    • • Implement firm-wide policies for know-how (and personal data) protection.
    • • Give employees practical guidance about keeping information confidential. Examples might include advising employees not to discuss company business on public transport, in lifts, or at trade shows or conferences, and to take care when using laptops on trains or in cafes.
    • • Provide training to employees about IT issues,such as meta-data
    • • Ensure that security is appropriate: both physical security and electronic security such as firewalls, secure e-mails or encryption.
    • • Keep records that show what projects each employee or consultant has worked on.
    • • Remind departing employees and consultants of their obligations of confidentiality and ask them in writing to confirm that they have returned all company property.
    • • Audit security procedures frequently.
  16. Is this a share purchase of an asset purchase?

    All liabilities of the business will be transferred
    Share purchase
  17. Is this a share purchase of an asset purchase?

    Title to properties occupied for business purposes will have to be transferred.
    Asset purchase
  18. Is this a share purchase of an asset purchase?

    The Buyer will have to pay stamp duty at 1/2% of the purchase price.
    Share purchase
  19. Is this a share purchase or an asset purchase?

    The Buyer may have to pay stamp duty land tax
    Asset purchase
  20. A Buyer is proposing to buy the shares or business of Target Limited ("Target"). The Buyer is
    interested in some contracts that Target has recently concluded with customers, which are Target's most valuable assets.

    The Buyer wishes to move quickly on the transaction and wishes to take the benefit of these
    contracts without allowing the customers to delay the purchase. Name two strategies could achieve the Buyer's aims. Name 2 strategies which would NOT do this and why
    • Would do this:
    • 1. Buy the shares.
    • 2. Buy the business and take an assignment of the contracts.

    • Would not do this:
    • 1. Novation - customers would have to agree to this and sign new contracts
    • 2. Negotiation - customers would be actively involved
  21. In a share purchase agreement is it necessary to consider whether the Target prohibited from assigning the benefit of the contract?

    Why/why not
    No.

    No assignment will be necessary if Target remains as a party to the customer contracts
  22. Buyer Limited is proposing to buy all of the issued ordinary and preference shares in
    Target Limited.

    State the conditions for substantial shareholder exemption to apply to the sale of these shares
    • - Seller must be a trading company
    • - Seller must own 10% of target for 12 months consecutively in last 2 yrs
    • - S must be trading co throughout SHing period
  23. Describe the purpose of a letter of intent
    It is a document that sets out the main terms of the contract and which is used by the parties' solicitors as a guide to drafting the sale documents.
  24. Name two provisions in a letter of intent that the buyer would want to bind the seller to
    - An obligation on the Seller to reimburse its costs of due diligence, should the deal collapse.

    -An obligation on the Seller not to discuss the sale with another prospective buyer.
  25. When is an "exclusivity" or "lock-out" clause valid?

    4 parts.
    Walford and Ors v Miles and Ors

    • - Must be consideration under
    • seal:

    • - Must be a specified period of
    • time:

    • - Must be a negative obligation
    • lock-in clauses are not permitted

    • - Costs pre-lock-out costs can be
    • recovered (Radian shipping)
  26. Seller Limited proposes to sell to Buyer Limited all of its shares
    in Target Limited. Seller Limited and Buyer Limited will enter into a
    confidentiality agreement, early in their discussions of the proposed
    transaction, pursuant to which the directors of Target Limited will be
    expected to provide Buyer Limited with confidential information about
    its business.

    The release of confidential information about a
    company by its directors will not usually be within the directors'
    general duties owed to that company.

    In the context of a proposed sale of Target Limited, however, its directors may disregard these general duties. Is this final statement true or false?
    False

    • The directors must satisfy themselves that the purchase of the company
    • would promote the success of the company. This may place the directors
    • in a conflict of duty and personal interest (and may also demonstrate a
    • failure to exercise independent judgment and reasonable care, skill and
    • diligence), as a refusal to release information may result in their
    • removal by the selling shareholders. A sale of the company may, of
    • course, result in their removal by the new shareholders.
  27. A client telephones you and tells you that he wants to sell his business. He is the sole shareholder of G Ltd which runs a distribution and packaging business. He wishes to sell the packaging division by way of an asset sale.

    He is considering approaching current competitors to
    see if they are interested in buying the packaging business.

    You should advise him of the effect of s. 21 of the Financial Services and Markets Act 2000.

    True or false?
    False.

    The statement is false, because s.21 of the Financial Services and Markets Act 2000 only applies to the sale of shares in a company, and not to asset sales.
  28. A client company, X Ltd, wants to sell its wholly-owned subsidiary, R Ltd. The managing director of X Ltd telephones you for advice on how to let potential buyers know that R Ltd is for sale.

    Name 3 courses of action might you advise him to take to ensure that both he and X Ltd comply with s.21 Financial Services and Markets Act 2000.
    • - Ensure that any communication is made by an authorised person, such as an investment bank.
    • - Ensure that the content of any communication is approved by an authorised person before it is made.
    • - Ensure that any communication with prospective purchasers falls
    • within an exemption to the restriction in s. 21 Financial Services and Markets Act 2000.
  29. Name three things that will give rise to a corporation tax charge on an asset sale

    What might this do to the selling company?

    How can they avoid this?

    Name two reliefs which are NOT available.
    • 1. Capital gains on e.g. tangible assets
    • 2. Income profits on the sale of trading stock and intangible fixed assets
    • 3. Balancing charges (an adjustment to the corporation tax relief given on assets such as plant and machinery)

    This could push the selling company into a higher corporation tax band. They can avoid this if they re-invest the proceeds in new business assets (roll-over relief on replacement of business assets) or, if they have trading losses and cease to trade, these profits can be set against those.

    • 1. Carry forward loss (s393 ICTA) because they can only be put against subsequent profits that the trade produces
    • 2. Annual exemption - this is not allowed for capital profits
  30. Name two ways to give cash to shareholders of the seller following an asset sale
    • 1. Voluntary liquidation - however, there is a potential double tax charge here
    • 2. Dividend -
  31. Name 5 tax consequences for the purchaser of a business via an asset sale
    • 1. Capital allowances are available for e.g. plant and machinery acquired from the seller
    • 2. Amount which buyer pays for stock/work in progress is a deductible expense in working out income profits
    • 3. Price paid by the buyer for chargerable assets will form their base cost for CGT/Corporation tax purposes (unlike share ac.)
    • 4. Roll-over relief from CGT/Corp. may be available for replacement of qualifying assets: if qualifying assets disposed of within previous 3 yrs or next 12 months
    • 5. VAT not payable if business transferred as a going concern
    • 6. SDLT is payable

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