Asset Purchases – Plant and Machinery

This article looks at the sale of a business by means of an asset purchase and specifically in relation to plant and machinery, which depending on the type of business in question, form part of it.

The usual way to deal with this is to list all the plant and machinery and to have this list form part of the agreement. It is also quite sensible to include a ‘catch all’ clause which states that the buyer is purchasing ‘all the assets used in the business’ in order to insure may seek to safeguard itself by providing that plant and machinery.

Once a list of the plant and machinery has been made, due diligence enquiries need to be made. The enquiries would focus on ownership (any finance outstanding, any lease etc), the maintenance and service records, the stock of parts and service items, any contingency plans relating to the plant and machinery, the replacement costs and lifecycle of the plant and machinery.

In the asset purchase agreement the buyer would then seek specific warranties to address any areas of concern or to seek assurances that the information, material provided which relates to the plant and machinery in question is accurate and correct.

Typically, they sort of warranties one would find in an asset purchase agreement are warranties as that relate to the state of the plant and machinery in question, namely that (a) the seller is not aware of any major defects, (b) they are in good state of repair and condition and in satisfactory working order (c) they are not in need of replacement (d) they have been properly and regularly serviced/ maintained (e) they are adequate for (and not surplus to) the needs of the business as carried on by the seller on/ or before the date of completion.

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