Seller Default

searcher profile

April 02, 2024

by a searcher from University of California, San Diego in Portland, OR, USA

Interesting experience with the seller of a business defaulting on their post-close deal covenants. The individual failed to deliver physical property in a condition as defined in the purchase agreement. Given the nature of the transaction, there was a multi-stage feature that was required to finance and ultimately close the deal.

We find ourselves in a precarious position where we own and operate the assets entirely, yet the seller has a substantial obligation to us and will not assign an agreement to buyer as agreed to. First time experience this type of behavior. Outside of litigation, what tools have people used to get delinquent and non-cooperative person to behave rationally?

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Reply by a professional
from University of Notre Dame in New York, NY, USA
Depends on deal structure - If the seller isn't behaving rationally, indemnification procedures baked into the purchase agreement won't work either.

The only way to accomplish this outside of litigation (or threatened litigation) is to hold money back. How was the deal structured? Was there an escrow? You could hold back any escrows owed. Was there an earn out baked into the purchase price? You could also consider the seller in breach of the purchase agreement and hold back any earn out. If the full purchase price was already paid and the seller walked away, litigation is probably the best route. You can do this with a lighter touch through a demand letter. Happy to discuss further redacted
commentor profile
Reply by a searcher
from United States Military Academy in Seattle, WA, USA
Hopefully there is a seller note you could use as leverage?
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