Share Purchase Agreement Restrictive Covenants

The Court has decided that the examination of whether a term is a sanction and is therefore not applicable is to determine whether the injuring clause constitutes a secondary obligation which imposes on the injuring party a disadvantage disproportionate to the innocent party`s legitimate interest in enforcing the principal obligation. In accordance with that BSE test and in view of the relevant economic context (including the fact that the BSB had been negotiated in depth between informed and legal parties acting on equal terms, and a large part of the share price constituted goodwill), the General Court found that the penalty rule did not circumvent the provision at issue. In the most recent cases, Cavendish Square Holding BV v El Makdessi and ParkingEye Ltd v Beavis [2015] UKSC 67, the Supreme Court stated that the criminal law was “an old building built arbitrarily and not well damaged”. However, it did reformulate the law, but found that the terms of a share purchase agreement that provided that a seller, if he breached his restrictive obligations, would lose an earn-out, were not generally applicable against penalties. The recent decision of the Millen High Court against Karen Millen Fashions Ltd & Anor [2016] should be a warning to anyone wishing to sell a company with a brand name containing their own name as part of that brand. In this case, the Tribunal carefully considered the restrictive commitments made by the sellers in a share purchase agreement. The judgment of the Court of Justice on the duration highlights an important point that companies and employee shareholders should take into account, given that, even in the case of forcible transfer provisions, there is no guarantee that there will be a buyer for the shares of a former employee, especially in a small private company. If a restrictive agreement continues to apply as long as a former employee remains a shareholder and for a period that will follow, that former employee could, in certain circumstances, remain bound by the restrictive obligations for a significant period. For this reason, shareholder contracts are generally drafted in such a way that the restrictions apply either from the date on which an employee shareholder`s employment relationship ends or, in the case earlier, from the date on which the employment relationship is terminated. Restrictive agreements prevent the seller from competing with the buyer for a limited period of time after the sale is completed. They may include: Mr Shelmerdine retaining his shares, the Court of Appeal found that he was still an employee shareholder when he left GSW in 2019 and that he was therefore subject to restrictive obligations.

Another point to be taken into account was that the sale involved the acquisition of a business that was not in the European Union, so that the restrictive agreements were not examined on the basis of the stricter UK or EU competition rules applicable to trade restrictions, the guidelines of which are similar to that, in general, a limitation of non-competition under a share purchase agreement may be justified for a maximum period of three years, in which good-business and good-business are transferred, but only 2 years during which only goodwill or goodwill is involved. . . .