Apportionment clauses
Apportionment clauses are frequently used in business purchase agreements (whether formulated as share purchase agreements or asset purchase agreements). These clauses allocate parts of the overall agreed purchase price to different parts of the business such as (i) land and buildings; (ii) trade fixtures and fittings; (iii) goodwill: and (iv) other separately identifiable intangible assets.
The apportionment is largely done for tax purposes but what about its effect on a damages claim? For example, if the purchaser has a claim that only relates to one part of the overall business (for which a specific value has been agreed), will that agreed value affect what can be recovered?
This article will briefly look at three key considerations: (i) the terms of the contract; (ii) the state of the current case law; and (iii) the application of an illegality defence.
Terms of the contract
The terms of the specific contract will have a significant impact on the position. For example, the terms themselves may expressly specify what effect the apportionment may have on a damages claim. Many agreements include provisions to the effect that the purchase of the various assets comprised in the business are interdependent and/or that the apportionment will not limit the purchaser’s remedies. However, others do not.
Please click on this link to read the full article by Sarah Walker.