Third party agreements – customer and supplier contracts

When negotiating the sale and purchase of a business it is imperative to appreciate that the buyer must assess how they will contend with third party agreements. The seller’s agreements with third parties can be extremely important to the financial health of the business.

Regarding long term customer or supplier contracts, the buyer should certainly try to contact the relevant parties and solidify their business relationship. After a successful purchase, the buyer will not want the business to stop trading with its top customers or suppliers. Moreover, they would want to ensure that any contractual formalities e.g. assignments or novations are satisfied with little or no delay.

However, if an insolvency practitioner has been appointed, the buyer will need the former’s consent and assistance when seeking the abovementioned. The insolvency practitioner would only agree to the buyer’s request if they felt the contracts are vital to the business. If the pertinent contracts are not assigned or novated at completion, the insolvency practitioner could let the buyer operate as their agent or subcontractor for a specific time period. It is worth noting that in such circumstances the buyer will be obliged to provide the insolvency practitioner with a wide-ranging indemnity as the contracts would still be in the seller’s name.

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