Understanding and Negotiating Protective Clauses in M&A Transactions – Representations & Warranties, Covenants & Indemnities

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ABSTRACT

Understanding and Negotiating Protective Clauses in M&A Transactions – Representations & Warranties, Covenants & Indemnities

Elias Ayobami Quadri*

Mergers and acquisitions (M&A) are one of Nigeria’s most common corporate restructuring options. Understanding the concepts and the clauses that prove the parties’ intention are essential to navigating the complexities. Thus, this article looks into corporate restructuring in Nigeria, provides an overview of M&A in Nigeria, notes a clear distinction between mergers and acquisitions, highlights the legal framework of M&A in Nigeria and provides insight into the various structures adopted in M&A transactions and the agreements used to give effect to the intention of the parties.

The article further emphasises the existence and importance of protective clauses in M&A transactions and touches on the significance of representations and warranties (R&W), covenants, and indemnities in M&A agreements. Relatedly, the article offers insights into negotiating these clauses effectively and provides practical guidance for navigating and negotiating protective clauses in M&A transactions by examining key considerations such as limitation periods, R&W insurance, specific knowledge, and indemnification caps, etc., and their role in allocating risk and mitigating liability.

Keywords: merger, acquisition, covenants, indemnities, agreements, warranties

INTRODUCTION
The concept of Corporate Legal Personality for incorporated entities is fundamental in corporate law jurisprudence, and while it is not directly linked to the topic under consideration, its inadvertent implication on corporate restructuring forms the basis for being the starting point of this article and the template for successive discussions leading up to corporate restructuring, particularly mergers and acquisition, and the need for protective clauses.

The idea of a Corporate Legal Personality as established in Salomon v Salomon.₁ In its most basic form, it is simply one that breathes life into what would otherwise be an abstract entity incapable of bearing relevance without the persons that constitute the entity (typically shareholders, officers, and members). An incidence of Corporate Legal Personality is that it ensures the company is recognised as a separate legal person, distinct from the persons that formed it. Thus, it becomes an artificial person capable of exercising all the powers of a natural person of total capacity,₂ including the power to hold land, have perpetual succession,₃ enter into contracts, sue, and be sued in its name.

*LL.B, BL. Associate, DealHQ Partners, Nigeria.

1.  [1897] AC 2.
2. Companies and Allied Matters Act 2020, s 43(1).
3. Companies and Allied Matters Act 2020, s 42.

THE GRAVITAS REVIEW OF BUSINESS & PROPERTY LAW Vol.15 No.2