Armin Hohenadler

It is always possible that the issue of change of control will not even take place. Therefore, instead of scattering in the attempt to avoid this situation, it may be possible to negotiate certain requirements if this is indeed the case. For example, your company may attempt to include some kind of authorization procedure in which the other party seeks permission to amend and maintain the contract or provides some kind of payment as compensation for the change. Of course, maintaining the right to terminate the treaty offers the greatest protection, but the need to do so really depends on the nature of the agreement in question. Many contracts prohibit an assignment that prevents one or both parties from assigning their rights and obligations under the contract to a new party. This may seem like a change of control, but it is not a particular action that is taking place. Any change to the control clause must focus specifically on how the contract should be handled when, or when the other contracting party undergoes a certain type of change in its structure and/or ownership. A robust contract will contain clear but detailed clauses, both with respect to endowments and control changes. The timing will also be considered, as the parties will not want to disclose the potential purchase of TargetCo to large customers or suppliers too soon (i.e.

if the agreement is not entered into for privacy reasons, etc.). Ideally, third-party consents/renouncements should be obtained as close as possible to the exchange of contracts and after agreement on the other terms of the agreement. The reason for this change in the control regime is to protect the supplier or customer from any unwanted changes to TargetCo`s ownership. Its new owner can install a new and unknown management team, or he can change the way TargetCo runs his business. Alternatively, the new owner may prove to be a competitor to the customer or supplier. What constitutes a change of control ultimately depends on the definition of the provision in that particular contract. There are a number of common changes in control rules that are described below. Where third-party contracts involve a change in the control provision, one possible consequence is that the supplier or customer chooses to terminate the contract after the purchase of TargetCo and is no longer required to meet its obligations under this contract.

This can result in trading interruptions and/or even reduce the value of TargetCo (i.e. when it applies to TargetCo customers that generate sales). Of course, the buyer will be very concerned. However, it is easy to avoid this potential scenario by simply incorporating a provision into a contract that explicitly describes how the contract should be treated in the event of a change in control. For example, a company may cancel the contract if the other contracting party undergoes a change of ownership. This may be an extreme choice, but there must be pre-defined options that will be clearly incorporated into the agreement. Thus, an amendment to the control clause is included in the commercial contracts: in simple terms, a change in the control provision is a clause in a contract that gives the counterparty a right or claim (and sometimes a get-out card of jail-free) in relation to the contract with TargetCo in the event of a change in TargetCo ownership. This may include, for example: during the due diligence phase of the transaction, buyers must closely monitor any changes to the control provisions in contracts between TargetCo and its major customers and suppliers. When changes to control rules are found in contracts with wholesale customers or TargetCo suppliers, it is advisable to obtain the consent of the relevant counterparty for the change of control or to obtain the waiver of the consideration`s right to terminate the contract prior to the purchase of TargetCo.