When Should You Involve a Solicitor in an M&A Dispute?

When an M&A dispute arises, timing is critical. Early advice from an experienced M&A solicitor can help you understand your position, respond correctly to notices or allegations, and avoid missteps that could weaken your claim or defence.

In this article, we look at when to involve a solicitor in an M&A dispute, the early warning signs to be aware of, and why taking advice sooner rather than later can make a significant difference.

What types of disputes most commonly arise during or after a merger or acquisition?  

Typically, we see contractual disputes arising post-acquisition between the buyer and seller in relation to the warranties that have been given by the seller, which turn out to be false. We also see claims in relation to deferred consideration including earn out bonus payments, for example where further payment is dependent on the future performance of the business.  

Misrepresentation claims also arise where one party alleges that they relied on statements made during the course of the pre-sale negotiations which subsequently turn out to be untrue. It is also common for disputes to arise where one party has failed to disclose information which, if disclosed during the due diligence stages and pre-contract negotiations the purchasing party would likely not have entered into the transaction. 

On the other hand, disputes can also arise between the shareholders of the company being sold and its directors where the shareholder/s considers that the directors have not complied with their statutory duties owed to the company before entering the deal.

Where tensions develop between shareholders and directors around the transaction, early advice on shareholder disputes can be critical to protecting the company’s position.

At what stage should an M&A lawyer be involved to prevent disputes occurring?  

Solicitors should be involved throughout the M&A process as the drafting of the agreement is key to minimise the risk of disputes arising in the first place.

However, novel situations do arise, and in circumstances where there are early signs of a dispute, it is always best to obtain initial advice as soon as possible as this can often prevent the issue turning into a full-scale dispute, so our advice is to always act early.

What are the early warning signs that an M&A dispute is developing?  

The usual early warning signs include receiving correspondence from the counterparty to the agreement, or their solicitors if they have instructed them at an early stage outlining their concerns.

Alternatively you might be served with a notice of claim as is often required under the terms of the SPA or ASA. Compliance with the notice clause is key and so it’s important to ensure that you follow the terms of the agreement in relation to timings for responding to a notice etc.  

How do disputes typically arise from warranties, indemnities, and completion accounts?  

Often disputes will arise in relation to warranties given by the seller in relation to the financial health of the target business. Where these statements do not align with the reality of the business, a claim may arise. 

What are the risks of delaying legal advice once a dispute has been identified?  

The longer time goes on without resolving the dispute, the less likely settlement will be negotiated without court proceedings being issued. Whilst the dispute is in its early stages, that is the prime time to obtain advice to understand your legal position and what approach/strategy should be taken in order to resolve the dispute. Investing early on can have the potential to save a lot of money further down the line. 

How should businesses approach disputes involving misrepresentation or non-disclosure?  

Engage advisors early to review the documentation and take down a comprehensive statement of events. This will enable your legal advisors to provide clear legal advice on the strength of your claim. 

What options are available for resolving M&A disputes without damaging commercial relationships?  

There are many options available to resolve a dispute without damaging commercial relationships, which include early correspondence setting out the concerns and proposing a strategy for resolving the matter before further action is required. Alternatively, the parties could agree to enter into a mediation to resolve the issues using a neutral third party mediator.

The first thing to do is check your agreement to see whether there is a prescribed form for resolving disputes in the first instance. Generally speaking, a well drafted agreement will make provision for the early resolution of disputes and in the first instance that should be followed.  

What financial and operational consequences can arise if an M&A dispute is not handled effectively?  

Bringing and defending claims of this nature can be very expensive, which will undoubtedly have an impact on the business. Before legal proceedings are contemplated, the party seeking damages will likely be required to serve a notice on the other party to the agreement. Often the agreement will be very specific as to the form, content and time.

Not only will the parties have to pay for their own legal fees, but if the dispute remains unresolved and court proceedings were issued the general rule is that the losing party also pays the winning party’s costs plus whatever financial remedy the court orders. Operationally, dealing with disputes takes up a significant amount of time and resource which is not being channelled into driving the business forward.  

How can businesses protect themselves against future disputes?  

Instruct a solicitor to draft the contractual documentation as careful and specific drafting of the agreement is required to avoid ambiguity and risk of disputes arising. That said, novel situations can and do arise so the best thing to do if that happens is to obtain legal advice as soon as possible, and don’t rely on AI.

How can early legal intervention preserve evidence and strengthen your position?