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Restrictive Covenants In Share Purchase Agreement

One of the difficulties is how to apply this clause. Going to court to get an injunction is a very expensive case, and although the courts are willing to apply fairly long periods of non-competition, no company wants to waste time or money to go to court to get their rights. When a buyer decides not to obtain an injunction, he or she may initiate legal proceedings in the usual way, which is less costly, but then there are difficulties in assessing how much money the buyer has lost because of the seller`s violation of restrictive agreements. In a recently closed case, Cavendish Square Holding BV/ Talal El Makdessi, the court was asked to decide whether the terms of an agreement linking compliance with the seller`s compliance with restrictive agreements with other clauses of the agreement regarding deferred profits or an obligation to sell other shares were sanctions and therefore enforceable. The court has done a test to decide whether a clause is a sanction and therefore unenforceable – that the secondary obligation that imposes the damage (or possibly the penalty) is disproportionate to a legitimate interest suffered by the party that did not breach the agreement. After considering the two clauses at issue, the Tribunal decided that the clauses were not sanctions and were therefore enforceable, given that both parties had been widely advised by their lawyers and that much of the commercial value had been attributed to good-good. The Tribunal recognized that, although the purpose of the clauses is to influence the seller`s actions after the conclusion, the clauses are acceptable, as they do not intend to punish the seller, but have a legitimate purpose of ensuring that the value attributed to the good-corporat is not affected by the seller`s behaviour and that they wish to reduce the price paid for this good-good intabilization. If you are considering buying or selling a business, it is important that you see advice at an early stage, as this consultation may influence the final version of the contract managers and may now contain clauses such as those mentioned in this recent court proceeding. For more information or advice, please contact Nina Wilson.

The Court also found that the 12-month limitation was enforceable. The company had a legitimate interest to protect, the restrictions in a shareholder contract (not in an employment contract of any kind) and 12 months were a reasonable period of withholding, although it ran from the date on which Mr. Shelmerdine would no longer be a shareholder, nor the date of the end of his board. While the transfer of the interest may be delayed, in the context of a small private company, it was very unlikely that a shareholder would be suspended indefinitely.