Reps & Warranties: Legal Proceedings; Governmental Orders
Essential Question:
Are there, or have there been, any legal proceedings or claims against (or by!) the Business?
In Brief:
Pending litigation against or by the business.
Prior litigation against or by the business.
How any previous litigation was handled.
Category: Continued Diligence & Fact-Finding; Risk Allocation
What is it?
A statement that, except as set forth in this schedule, there is no pending litigation nor prior litigation against me over some defined period of time.
When does it matter?
Any legal proceedings against the Business, or any events that could lead to such proceedings, have the potential to seriously damage the health of the Business. Some buyers will shy away if there is even the prospect of a significant legal claim against the Business. Similarly, Governmental Orders can lead to future liability or restrictions that most buyers will not want to contend with, or they may even be directed at preventing the proposed transaction.
What to look out for?
Pay attention to the time period being proposed, as well as to how “material” is being defined, especially if the Business operates in an industry where immaterial claims are common.
