Legal Issues Related Representation, Covenants And Disclosure Letters In M&A Deals


Legal Issues Related Representation, Covenants And Disclosure Letters In M&A Deals

In merge and acquisition (M&A) deals in general and deals on transfer and receipt of contributed capital and shares (a share Purchase and Sale Agreement), terms of “Representations”, “Conditions Precedent”, and “Covenants” are some of the essential and specific terms in the Agreement of this type of deal. It is these terms that differentiate the Agreement in the M&A deal from other kinds of Agreements in other transactions. Therefore, in the content of this article, I will present to clarify more about these terms.

1| Representation:

Representations are understood that the parties in the M&A deal will present and confirm the existence of an actual event or information about the actual status of a problem.

In the M&A deal, this is one of the terms to share risks between the parties and is closely related to the terms of condition precedents and reimbursement in the M&A Agreement.

Depending on the content, representations of each party will be more or less, but usually, the seller will be the party showing more representations than the buyer.

2| Covenants:

A covenant is a promise to fulfil or not fulfil an obligation of the parties in the deal. This term is used to adjust the behaviour of parties in the deal from the time of signing the agreement to the completion of the deal or even after the completion of the deal.

Covenants are divided into 02 forms: (1) Covenants to be made before the completion of the deal (Pre-closing covenants); (2) Covenants to be made after the deal is completed (Post-closing covenants).

The covenant may be a commitment to perform or not to perform a specific action. 

Pre-closing covenants are usually covenants of obligations that must be fulfilled during the deal but before the date of completion to prepare, guarantee or meet the requirements of the party for the other party in the deal before completing.

Post-closing covenants are obligations that one of the parties must perform or not perform a specific action after the deal is completed. Some of the post-closing covenants that have been completed may be listed as confidentiality covenants, non-disclosure covenants, covenants not to entice workers and suppliers, covenants on conditions of share purchase and sale, covenants to anti-dilution, etc.

3| Conditions Precedent:

Conditions Precedent are conditions required to complete the M&A deal. The time of completing the deal is usually the time of transferring the ownership of the object of the Agreement from the seller to the buyer in the M&A deal. The parties will set the conditions that the other party itself needs to meet, and when Conditions Precedent are met, the parties must fulfil their obligations to complete the deal.

Conditions Precedent are meant to determine the completion of the deal. Conditions Precedent are usually objective and do not depend on the will of one party or the parties of the deal.                               

Considering the fulfilment of the Conditions Precedent of the deal as stated in the Agreement, if any Condition Precedent is not met, the party that made the condition may decide to waive or not require that Conditions Precedent more. Alternatively, it may result in the termination of the deal if the party providing the condition does not accept the waiver of that Conditions Precedent. The termination due to failure to meet Conditions Precedent depends on the rights of the party, which sets out the conditions and provisions of the Agreement on the rights to terminate the Agreement.

4| Disclosure Letters:

A Disclosure Letter is a type of document prepared by the party of the deal (usually the seller) to accompany the Agreement and may also be a mandatory part of the Agreement. Representation terms often accompany the Disclosure Letter. As stated above, the party making representations wants the other party to confirm the facts and the actual state of the deal, while the disclosure letter is for the other party to present information that does not conform to representations. Thereby, the party making representations shall decide whether to continue the deal or to terminate it. If the party making representation agrees to keep with the deal, it is assumed that the party making representations has accepted such inappropriate information so that the disclosing party will not be held responsible for the false representation.

Through the above discussion, I would like to share and help people better understand the basic concepts of legal provisions related to M&A agreements and deals. Understanding the true nature and spirit of these terms in M&A agreements and deals will help the parties in the deal to conduct the deal more smoothly.


If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.

This article is for general information only and is not a substitute for legal advice.