Corporate, Commercial M&A legal services

I want to enter into a merger/acquisition transaction, but I am uncertain given the current climate. What legal issues should I consider given the presence of the COVID-19 pandemic?

There are important issues that should be considered in order to ensure that you are fully protected and equipped to deal with these types of transactions. Increased focus on due diligence, especially on the ability of the target to perform under its supplier/customer contracts and its ability to operate given lockdown measures and bans on travel, will have to be considered in careful detail. Parties will also do well to keep in mind that certain regulatory approvals will be delayed as a result of regulatory bodies limiting their workforce or suspending operations. As such, parties to a transaction should ensure that conditions and closing dates are structured and extended accordingly so that the obligations that arise thereunder are capable of performance. Terms of agreement will have to be considered to provide for more comprehensive and detailed material adverse change/effect clauses as well as particular attention given to the terms which underlie warranties, indemnities and the transitional arrangements which will occur between the dates of signature of agreements and closing.

I have the capital and financial backing available to acquire a new business even though COVID-19 has had a detrimental effect on the economy. Should I consider buying a business that is in distress or insolvent?

Buying a business that is facing financial hardship can be an attractive opportunity to strategically expand your business. The target business may be under pressure to sell assets or shares quickly to raise capital or pay down debt which means that you may have an opportunity to acquire the business at a more favourable price. This of course also means that the target business will come with its own unique, potential issues (some being more complex or exposed to risk than others). It is important to ensure that you have investigated the business thoroughly through an extensive due diligence to uncover problematic areas of concern and to ensure that you have assessed and obtained legal advice which will provide you with enough foresight to ensure that your appetite for risk and the management of your expectations are kept in check.

I feel like my company is in financial distress as a result of COVID-19. Is this just my emotions taking control under the circumstances or is there an actual way to test whether my company is factually 'distressed'?

Yes, there is a test. Your company is financially distressed (in terms of the Companies Act) if it appears that it is:

• reasonably unlikely that the company will be able to pay all of its debts as they fall due and payable within the immediately ensuing six months; or
• reasonably likely that the company will become insolvent within the immediately ensuing six months.

Okay, so now I know my company is in distress. Should I consider liquidation?

Liquidation of a company should only be considered as a last resort once you have considered and ruled out other options such as business rescue and have determined whether the company is unable to pay its debts as they fall due. Business rescue is a process that allows for, amongst others, the temporary supervision of the company, and of the management of its affairs, business and property and a temporary moratorium on the rights of creditors against the company or in respect of property in its possession. The business rescue practitioner will help create a plan that is aimed at restructuring all aspects of the business in order to try to help it continue operating. If this plan fails, the prospect of liquidation should then be explored.