Update on the Temporary Wage Subsidy Scheme

This article first appeared in the Business Post on 5th of April, 2020. 

With businesses continuing to feel the economic impact of Covid-19, the government has brought in a series of measures designed to keep as many people in work as possible. The latest is the Emergency Measures in the Public Interest (Covid-19) Act 2020 which was signed into law on 27 March.

Known as the Temporary Wage Subsidy Scheme, the support payment scheme provides subsidised wage payments to businesses for their employees during the Covid-19 crisis.

The Scheme, which is open to all employers, replaces the previous Covid-19 Refund Scheme and will operate for 12 weeks from 26 March 2020. It aims to encourage employers to maintain links with their employees, facilitating a smoother transition to a normal working environment after the crisis and ensuring employees receive a substantial portion of their normal wage.

Despite the many positive elements of this Scheme, some reservations and concerns have been expressed. For example, the conditions which an employer must satisfy to qualify for the Scheme are somewhat arbitrary and clarification is needed in respect of the potential consequences for employers and employees.

If a business qualifies, it will receive a subsidy of 70% of its employees’ net weekly wage. The maximum subsidy amount is €410 for employees who take home a net weekly wage of up to €586. Where an employee earns between €586 and €960 net per week, the maximum subsidy is capped at €350. The Scheme does not apply to those earning over €960 net per week. While the subsidy is a tax-free payment, employees may be liable for income tax and USC on the subsidy received when Revenue review at the end of the year.

The different rates of payment possibly place higher earners at a disadvantage. Employers may then be less inclined to apply for the subsidy in respect of its higher-paid employees, which could result in them being laid off. Employers are not required to top up their employees’ wage above the subsidy. However, businesses that are in a position to do so will be expected to, which again, is ambiguous.

The employer must make a self-declaration that it will experience at least a 25% reduction in its turnover from 14 March 2020 to 30 June 2020. The employer must also show that, while it is making best efforts to pay employees, it is unable to make these payments due to the  adverse effects of Covid-19 on their business.

Concerns have been expressed as to how an employer is to calculate the 25% reduction in turnover. Some employers may find it difficult to demonstrate a 25% reduction in business for the period specified, as it may be months before some feel the deepest impact from this crisis.

Queries were also raised about the insolvency of an employer where they make a declaration that that they are unable to pay employees. Revenue has now issued guidance stating that an employer doesn’t need to obtain professional advice to prove this 25% reduction and that the declaration will not amount to a declaration of insolvency. Furthermore, they have stated that the publication of a list of employers availing of the subsidy is nothing akin to a tax defaulters list but instead should be considered as a mark of honour of an employer who has tried to do the right thing.

A further difficulty arises regarding seasonal workers as the Scheme precludes employers receiving a subsidy for employees who were not on their books on the specific date of 29 February 2020. This poses a significant challenge for the hospitality sector, who have contracts to employ staff during the upcoming tourism period.

The Scheme is a positive step towards the support required for employers and employees during this crisis. The rate of payment for lower-earning employees is indeed laudable and the recent Revenue guidance in respect of the declaration of turnover is welcomed. However, employers should carefully consider the benefit of the Scheme to their employees and whether they even qualify. Employers should ensure that they are in a position to satisfy the conditions.

Revenue has stated that it will adopt a reasonable, fair and pragmatic approach in considering whether the criteria have been met. However employers should be mindful of the offences which they may be found guilty of where they provide false, incorrect or misleading information.

As stated above further clarifications are being sought by various bodies and Revenue Guidelines may be updated further.

David Pearson, Partner & Head of the Employment Department at J.W. O’Donovan Solicitors, Cork. Contact David at dpearson@jwod.ie.

New financial supports announced for struggling business owners and employees as a result of Covid-19

The Government has announced new measures this week to help businesses and employees who are struggling financially during the Covid-19 emergency. The new measures provide a comprehensive range of supports for businesses who are in a position to retain employees but also for employees who have been laid off as a result of the crisis. The measures introduced (as of the 26th of March 2020) include a Temporary Wage Subsidy Scheme for employers and a social welfare payment known as the ‘Covid-19 Pandemic Unemployment Payment’ for employees who have been laid off.

  1. Temporary Wage Subsidy Scheme:

The Temporary Wage Subsidy Scheme aims to ensure that employers maintain links with their employees which will make it easier for businesses to return to a normal working environment after the crisis. Employers are encouraged to avail of the scheme and retain employees on their books during the crisis.

The scheme will operate from Thursday 26th March 2020 and Revenue will refund employers up to €410 for qualifying employees from this date. Refunds to employers are expected within 2 working days after the payroll submission.

From April, the subsidy will be adjusted to provide a subsidy of 70% of an employee’s weekly wage up to a maximum of €410 for employees earning under €38,000. For employees earning between €38,000 and €76,000 the maximum subsidy will be €350. The scheme will not apply in respect of employees earning over €76,000.

To qualify for the scheme employers must experience significant negative economic disruption to their business due to Covid-19. In particular, employers must demonstrate to Revenue that their business has suffered a minimum of a 25% decline in turnover and that they are unable to pay normal wages and outgoings.

The scheme will automatically replace the Covid-19 Refund Scheme which many employers have already signed up to.

Employers can register for the scheme through ‘MyEnquiries’ on the ROS website.

  1. Covid-19 Pandemic Unemployment Payment:

The Covid-19 Pandemic Unemployment payment is a social welfare payment available to employees who have been laid off work as their employer was unable to retain them due to the Covid-19 crisis.

This new social welfare payment of €350 is available to all employees, self-employed, students and part-time workers aged between 18 and 66, who have lost their jobs or stopped trading as a result of the pandemic.

The original rate of payment was €203 however all recipients will automatically receive the increased rate of €350. The increased rate will also be backdated to the date of the employee’s application.

The easiest way for employees to apply is online at www.MyWelfare.ie or by sending an application form by post.

These two new support measures provide much needed assistance to struggling businesses and employees during these difficult times.

We at J.W. O’Donovan are monitoring the situation very closely and are available to answer any queries that any businesses owners or employees may have at this time.  We strongly advise that a constant review of the Revenue guidelines be undertaken as the applicable rules are frequently changing. If you would like more information on any of the above please contact mail@jwod.ie.

Date of Publication: 26th March 2020

Employment Law Update: Covid-19 Pandemic Unemployment Payment Scheme and Illness Benefit

As employers and employees face into changed circumstances as a result of Covid-19,  the government has introduced new social welfare measures to take effect immediately.

The situation remains fluid, with the guidelines being updated regularly. If you need specific advice around your obligations as an employer, you can get in touch at mail@jwod.ie.

The following is an overview of the current Covid-19 Pandemic Unemployment Payment Scheme and the Illness Benefit.

1 Covid-19 Pandemic Unemployment Payment Scheme

The Government has introduced the Covid-19 Pandemic Unemployment Payment Scheme, which is designed to cover the first six weeks of being out of work. Job-Seekers Allowance is not ordinarily payable for that period.

The €203 payment a week under this new scheme arises where the employed or self-employed become unemployed or have their hours reduced because of the impact of Covid-19. It is payable for six weeks during which time employees must seek the normal Job-Seekers Allowance. Currently, employers will not get Job-Seekers Allowance after the six week period. This will likely be reviewed by Government as matters progress over the coming period.

The scheme applies to those between 18 and 66 years of age and applies provided they have been in work. The claim is made by completion of a short form which should be submitted electronically and not be personal visit to the relevant Intreo office.

As part of the evolving Government response, employers are being requested to pay the €203 a week and seek reimbursement from the Government. On Wednesday the 18th March 2020, the Government announced the reimbursement scheme would be operated by Revenue on behalf of the Department of Employment Affairs and Social Protection. The up-to-date Revenue advisory to employers is payments made by employers under this scheme are not subject to tax, USC or PRSI. The amount paid by employers to employees and notified to Revenue will be reimbursed generally on a “next day” basis direct to the employers bank account.

Any refunds of income tax or USC that an employee may be entitled to receive due to being laid off will also be administered by the employer and again the employer will be reimbursed by Revenue through the scheme.

Revenue has issued guidance notes for employers and their ROS agents on its website.

2 ILLNESS BENEFIT 

The Government also introduced a recent change to entitlement to Illness Benefit increasing it to €305 a week for Covid-19- affected people only (normal non-Covid-19 Illness Benefit continues at €203 a week). To obtain Covid-19 Illness Benefit, the employee must satisfy the criteria of being medically certified to self-isolate or having received a medically confirmed diagnosis of Covid-19. If it is a medically approved self-isolation, the employee is paid enhanced Illness Benefit for two weeks and if a diagnosis of Covid-19 follows, then the payment continues for the duration of the illness.

An employee who unilaterally decides not to come to work, where work is available from the employer, does not qualify for the enhanced Illness Benefit of €305.

Article by David Pearson, Partner on J.W O’Donovan Solicitors’ Employment Law team.

Covid-19 JWOD Update

To all our clients and colleagues.

We are constantly monitoring the evolving situation with Covid 19 and are following all advice from the authorities in the best interests of our staff, clients and colleagues. Our office remains open and we are continuing to provide a full service to our clients, while taking all appropriate measures to play our part in containing the spread of the virus.

Our IT systems allow all our solicitors to work remotely so they will do so where feasible and will continue to be available to clients.

We have adopted a policy that face to face client meetings will only take place where absolutely necessary and with all appropriate safeguards.

We are committed to supporting all our clients during this difficult period so you should feel free to contact us as usual. We shall provide further updates as and when required.

What are employer duties around Covid-19?

The outbreak of the coronavirus Covid-19 raises challenging points of Health and Safety Law, Employment Law, Data Protection Law, Immigration and Employment Equality issues. The outbreak is prompting employers and HR Departments to assess the risks, review existing Contracts of Employment and Company Policies, devise a plan and clearly communicate with employees on a continuing basis in light of the evolving spread of Covid-19.

What should employers do? 

Employers should carry out a Risk Assessment of the workplace under Health and Safety legislation. Measures to protect against the spread of Covid-19 entering the workplace and to mitigate or minimise the effects of an outbreak at the workplace should also be adopted. Measures could be minimal such as ensuring sufficient hand sanitisers, hand wipes and increased cleaning of surfaces. Other options include permitting or requiring employees to work from home or remain out of work.

Relevant company policies should be reviewed, including policies such as an existing infectious disease outbreak response plan, sick pay policy, holiday policies, force majeure policies, carers policies and lay-off policies.

Communicate with your employees

Once the initial risk assessment has been carried out and all policies reviewed, strong HR communication with staff is critical to ensuring a full understanding by employees of what is expected of them, particularly if they become symptomatic or in contact with somebody who is symptomatic. Employees should also be informed that if a significant portion of the workforce become infected or are required to remain in “self-isolation” the policies may need to be adapted to changing circumstances.

Obligations around pay and sick leave

One of the main questions for an employer will be whether to pay or not pay an employee who is required to remain out of work but not diagnosed with Covid-19.  If those employees can continue to work from home then they should be paid their normal renumeration. If they’re not able to work from home, the employer needs to apply a consistent policy across the workforce and keep that policy under review.

Where an employee has not contracted Covid-19 but is required to remain out of work and unable to work because of public policy considerations or directions, any sick pay policy will not apply to that employee until such time as the employee has contracted Covid-19.

Additionally, an employer may need to relax normal rules around providing medical certification of sickness in circumstances where medical professionals may not be in a position to provide certification and/or employees may not be in a position to obtain medical certificates in a timely fashion.

In parallel with the application of any sick pay policy, the employer needs to ensure that it has a robust absence policy for employees who may seek to unfairly take advantage of a developing situation. Consideration will need to be given to employees who refuse to come to work,  including those based on reasonable grounds. Flexibility around unpaid leave, annual leave and/or carers leave might need to be considered by the employer.

In extreme cases, an employer may be required to temporarily shut a significant part or all of the workplace.  Employers may be able to temporarily “layoff” staff under existing contracts of employment and the employee handbook.  An infectious disease outbreak response plan would also need to take consideration of employees who have travelled abroad on behalf of the employer, in particular, employees returning from areas that are subject to an outbreak of Covid-19.

Applying an infectious disease outbreak response plan

In implementing any infectious disease outbreak response plan, an employer must have particular regard for individual employees who have contracted Covid-19 or who may be required to remain out of work. Information in relation to individual employees will be personal data under GDPR and will require to be treated with the greatest sensitivity by the employer.

Another challenge for employers applying an infectious disease outbreak response plan is to ensure that its application is not based on race, nationality or ethnicity.  The Employment Equality Acts prohibits discrimination against employees on a number of grounds, including race, with severe consequences for employers who are found to have discriminated against employees.

In summary, an employer’s infectious disease outbreak response plan should be reviewed frequently in light of any developing situation within the workplace and generally and taking into account of advice from appropriate authorities such as the government, HSE and World Health Organisation.

Article by David Pearson, Partner on J.W O’Donovan Solicitors’ Employment Law team. If you would like more information on this topic, contact David at dpearson@jwod.ie  or 021 7300200.

 

JW O’Donovan advises vendors in sale of PE Global to BIL

J.W. O’Donovan recently advised vendors in the sale of significant controlling interests from leading healthcare and technical recruitment specialists, PE Global,  to investment holding company, Bakhchysarai Ireland Limited (BIL).

Ray Shanahan and John Fuller acted for the shareholders in PE Global in relation to their sale of a significant controlling interest in the Company to BIL. David Pearson also provided advices in relation to the employment law aspects of the transaction.

BIL was set up in 2018, to facilitate the management buyout of Brightwater Recruitment Group. PE Global currently employ about 60 people in Dublin,  London and Cork and will continue to operate as an independent business.

Read more here and here.

Ten steps to buying a house

This article first appeared in the Irish Examiner on 18th January 2020.

As 2020 begins and new year’s resolutions are set, there will be many taking the first steps to owning their own home.

The prospect of buying a house, whether you are a first-time buyer, trading up or downsizing can be both daunting and exciting. Many people are uncertain of the details of the process and the order of events.

While each transaction will have its own nuances and peculiarities to be addressed, there are several legal and financial steps that are common to every purchase with a mortgage via private treaty (offers made through an auctioneer and not a purchase at an auction).

  1. Identify and secure the right property at the right price

The first step is, of course, to identify your budget, taking into consideration all your savings and earnings. It’s important to also take into account all possible fees that may come up throughout the entire process.

Once you know how much you have to spend, you can then begin house-hunting for a suitable property.

  1. Pay a refundable booking deposit to the auctioneer

This is a holding deposit only and a gesture of good faith. It should mean the property will not be actively marketed while you carry out due diligence in respect of the legal elements, surveys etc. This agreement will not be binding until the contract is signed by you and the vendor of the property

  1. Instruct a solicitor to act on your behalf

Ensure it is someone you can have confidence in and relate to. Cheapest isn’t always the best! Your solicitor should provide you with a budget for the purchase that includes the fees, costs and outlays (e.g. stamp duty and land registry fees) which you will incur if you proceed with buying this property.

  1. Organise a survey of the property

A survey should be carried out by a suitably qualified engineer with appropriate professional indemnity insurance. The engineer should also be asked to check the boundaries and, in particular, that the boundaries on the ground are accurately reflected in the title map. The engineer should also be asked to carry out a planning search and advise you of any relevant matters before you commit to a contract.

  1. Secure a formal loan sanction

Be aware of the terms under which the bank will lend you the funds to complete your purchase. Usually, conditions include life insurance, fire cover and home insurance valuation.

  1. Due Diligence

Your solicitor will carry out due diligence once they have received the contract from the vendor’s solicitor. The due diligence will include the following and a report is to be provided to you as the purchaser; (a) investigation of the title and whether it is leasehold or freehold and report any relevant consequences; (b)  advice on planning in conjunction with the surveyor’s report; (c) investigation of access and services (i.e. water/sewer) at the property; (d) review of relevant property taxes, including local property tax (LPT) and non-principal private residence charges; (e) review and advice on any special conditions in the contract for sale.

  1. Signing the contract

Only once you are satisfied with all of the above will you be in a position to commit to the contract. This process usually takes around four weeks from the payment of the booking deposit. On signing the contract, a 10% deposit is payable less any booking deposit already paid. The vendor then counter signs the contract at which point it becomes binding and the completion date is agreed, which is usually two to three weeks after.

  1. Drawing down the loan

Your solicitor will attend to the drawdown of loan funds and provide a statement of account for you to provide the balance, including stamp duties, land registry fees and costs.

  1. Getting the keys

On completion, your solicitor pays over the balance of funds in return for the title deeds and the keys. You can then look after the transferring of utilities, e.g. organising your electricity, gas and broadband.

  1. Registering the title

Your solicitor will attend to stamping and registration of title and mortgage. Once the registration process is completed, the deeds will be returned to the bank who will hold the deeds during the term of the loan.

While the above is a simplified guide, we hope that it allays some concerns and queries. Difficulties can arise at any stage of this process. However, if you are organised and have trusted advisors on hand, you can ensure that you purchase your new home with minimal stress and worry.

 

Article by Anne-Marie Linehan, Partner in JW O’Donovan Solicitors’ Property Team. Get in touch at mail@jwod.ie or ring 021 7300200.

Mergers and Acquisitions: Advantages and Disadvantages of using Heads of Terms

In our last blog in this series, we highlighted the key elements of a Heads of Terms including the provisions covered and whether it is legally binding. In this article, we will review the advantages and disadvantages of using Heads of Terms.

Some of the advantages of using Heads of Terms are:

Recording of milestones

Getting to the point of an agreed Heads of Terms can be a major milestone on what might or might not have been a long road of negotiation and discussions between the parties, and can be useful to effectively move onto the next phase.

Binding commitments

If the Heads of Terms are partially binding, parties can introduce binding commitments at an early stage in the transaction e.g. provisions relating to confidentiality (if there is no separate confidentiality agreement), exclusivity or lock-out undertakings and the treatment of costs.

Setting out of key commercial terms

A Heads of Terms can be useful for setting out parties’ understanding, particularly on complex issues such as pricing models and can help focus the negotiations and highlight major issues at an early stage.

Some of the disadvantages of a Heads of Terms are:

Unintentionally binding

If not properly drafted what one party might have considered to be non-binding may end up being used against them as a binding term.  If the parties do not want the Heads of Terms to be binding, this should be expressly stated.

Time and resources

The time taken to negotiate Heads of Terms can be disproportionate to the benefit. If the parties intend to sign a full contract in due course, consider whether the parties have sufficient time and resources to negotiate the Heads of Terms and if so, whether they are prepared to dedicate those resources to work on the Heads of Terms.

Expiry of Heads of Terms and contractual vacuum

If Heads of Terms are binding, there should be clear provisions about what happens when they expire. Failure to agree this will leave a contractual vacuum and cause uncertainty over whether there is a contract in place and, if so, on what terms.

Conclusion

Where parties prepare Heads of Terms in an inappropriate manner, and without legal advice, the document prepared has the potential to cause more harm than good.  Any ambiguity can cause uncertainty over the exact nature of the relationship between the parties. There can be doubts over whether or not the parties had intended to be legally bound by the whole document or by particular terms within the document.  Most uncertainties can be eliminated or at least reduced by clear drafting.

If you would like more information on this topic or any other of the topics in our series on Mergers and Acquisitions, contact:

 

The roles of parties involved in Mediation

In our third and final article on the topic, we will look at the roles of some of the parties involved in the Mediation process. For previous articles in the series, click here for our overview on the advantages of Mediation and here for more on why the Mediation Act is welcome.

Role of Mediator  

Section 8 of the Mediation Act 2017 places the following obligations on the Mediator during the Mediation process:

  • Declare any conflict of interest which they become aware of during the course of the Mediation and, unless the parties agree otherwise, cease to act in such circumstances
  • Act with impartiality and integrity and treat the parties fairly
  • Complete the Mediation as expeditiously as is practicable, having regard to the nature of the dispute
  • Ensure that the parties are aware of their rights to obtain advise (including legal advise) prior to signing any Mediation Settlement
  • The Mediator shall not make proposal to the parties to resolve the Dispute as Mediation should be determined by the agreement of the parties, unless otherwise requested

Role of the Court

Part 4 of the Act deals with the role of the Court in Mediation. Section 16 provides that a Court may on the application of a party or on its own motion invite the parties to consider Mediation and provide the parties with information about the benefits of Mediation to settle their dispute.

Following an invitation by the court where the parties to decide to engage in Mediation, the Court may:

  • Adjourn the proceedings
  • Make an Order extending time for compliance by a party with Rules of Court or with any Court Order; or;
  • Make such other Order or direction, as is necessary to facilitate the effective use of Mediation

Section 17 goes on to say that following an invitation by the Court under Section 16(1), the parties to the proceeding do engage in Mediation and, afterwards, then apply to the Court to re-enter the proceedings, the Mediator is obliged to submit a written report to Court setting out:

  • If the Mediation did not take place, the reasons why it did not occur or;
  • Where the Mediation did take place, a statement as to whether or not a settlement has been reached and if so, a statement of terms of this settlement. A copy of this report must be provided to each party at least seven days prior to its submission by the Mediation to the Court.

Whilst the mandatory nature of these provisions may be considered to conflict with the confidential and voluntary nature of Mediation, such reports will likely be drafted in such a manner as not to disclose any confidential material. The Law Reform Commission had recommended that any such report should be limited to a neutral summary of the outcome.

Under Section 21 of the Act, a Court may now have regard to any unreasonable refusal or failure by a party to consider or attend mediation. This means that any party who refuses to mediate are at risk of having to discharge the costs incurred by the other side.

This would appear contradictory, given the voluntary nature of mediation and that parties should not be forced into mediation where they are unwilling to do so. It remains to be seen how the Courts will interpret this part of the Act, particularly in disputes involving debts due and owing. There is also no provision for a party or indeed the Mediator to advise the Court of a party merely attending as a box ticking exercise.

Bullying and harassment claims are now heard since 2018, in the Personal Injuries list in Dublin (as opposed to the non-jury list). The relevant Practice Direction says nothing about Mediation.

However, the Legal Diary now in addition states as follows;

HC76 NOTICE With effect from Trinity Term 2018 the following arrangements will apply to Personal Injuries Actions arising from allegations of bullying and or harassment. Upon application for a trial date before either the Deputy Master or the Judge in charge the case must be identified as one arising from such allegations. No case shall be listed for trial unless and until the parties have been to Mediation save for good reason.”

This does not confirm who should pay the Mediator’s fee (and what happens if one party cannot do so) except that now the Court will not list it for trial “unless and until the parties have been to Mediation save for good reason”. Again, this direction appears to go against the voluntary nature of Mediation.

Role of the Mediation Council

Section 12 provides for the potential establishment of a Mediation Council to oversee the development of the Mediation sector. The intention appears to be that the Council would represent the interest of the Mediators and the public interest, and the Minster may declare such body to be the “Mediation Council of Ireland”. This body must be sufficiently representative of the Mediation interests and also meet minimum requirements provided for in the Schedule of the Act. Such a Council would likely become the regulation for the Mediation sector; however, it remains to be seen whether such a Council will be established and how it will be funded.

For more information on the Mediation process, contact: 

Ciara Lehane, Solicitor
clehane@jwod.ie

 

 

Mergers and Acquisitions: Heads of Terms

The third in our series on the practical aspects of running a successful mergers and acquisitions transaction, this article looks to highlight the key elements of a Heads of Terms. Please see our news section here for other publications in the series.

  1. What is a Heads of Terms?

When entered into, in the context of a share sale and purchase, a Heads of Terms (which can also be referred to as a Letter of Intent, Memoranda of Understanding or Term Sheet), is entered into relatively early in the transaction for the purpose of the parties recording:

a) The main terms of a preliminary non-binding understanding, intended to lead to a binding contract or series of contracts for an entire project or transaction.

b) An agreement to set out the key terms of a transaction, which contains some binding terms and some non-binding.

c) The terms of a preliminary binding agreement, again intended to deal with certain preliminary matters prior to the signing of a contract to cover the whole project or transaction.

2. Is it legally binding or not?

Above we mention the fact that a Heads of Terms can be non-binding, partly binding or entirely binding with additional terms. The answer to the question therefore invariably depends on what the parties have agreed to at the outset but in the majority of cases we would find that a heads of terms contains only some provisions which are agreed to be binding by both parties. That brings us to the next question.

  1. What provisions are covered in a Heads of Terms?

A standard heads of terms will generally contain provisions including but not limited to:

a) Commercial Terms

This will set out the overall agreement between the parties. For example Investaco Limited intends to acquire 50% of SellCo Limited for a price of €10m subject to completion of financial, legal and commercial due diligence.

b) Time Limits

A deadline for completion of the transaction and execution of a binding Share Sale and Purchase Agreement would generally be included, as well as confirmation of the timelines relating to completion of due diligence.

c) Pre-Conditions

It might be necessary to set out any pre-conditions to completion such as the approval of the Competition and Consumer Protection Commission, consent of existing customers or secured creditors, or even the conclusion of a commercial agreement by the target company with a new customer without which the deal may not be commercially viable for the purchasing company.

d) Confidentiality

Where a separate Non-Disclosure or Confidentiality Agreement has not been entered into then it is usual for the Heads of Terms to contain a binding confidentiality clause with mutual restrictions on both parties, as in most cases confidential information is likely to be exchanged by both parties.

e) Exclusivity

This is usually a binding provision in the Heads of Terms as the Purchaser will want to ensure that the seller is not at the same time using their bid to attract another buyer at a higher price, potentially wasting the buyers time and resources.  The exclusivity clause would generally be limited to a specified time period so as to ensure the buyer has an incentive to complete their due diligence in as an efficient manner as possible.

f) Transaction Advisor Details

Details of the advisors appointed by each party including financial and legal.

g) Costs

A provision setting out that each party will be liable for its own costs, or where the parties agree that one party would be responsible for the costs of a portion of or all of the other parties costs in particular circumstances.

h) Jurisdiction and Governing Law

This is not an exhaustive list and every heads of terms will be different in its form and content.

Conclusion

This is a just a flavour of the content of a Heads of Terms which can be as simple or as complex as the parties require. As stated above it is generally the pre-cursor to a more complex and biding agreement to follow with care required to ensure that the parties don’t commit to a binding agreement where this was not intended.

In the next article, we will look at the advantages of using heads of terms.

If you would like more information on this topic or any other of the topics in our series on Mergers and Acquisitions, contact: