June 7, 2024

Disclosure Schedules: What Are They All About?

A few weeks ago, I mentioned that I was drawn to cases addressing M&A disclosure schedules, and that probably resulted in some perverse way from how much I hated working on them when I was a junior associate.  Well, if you’re a junior lawyer – or if you work with one who needs to understand what disclosure schedules are all about – check out this Pillsbury blog on what disclosure schedules are and how they fit into the deal you’re working on.  This excerpt describes the purpose of disclosure schedules to an acquisition agreement from the seller’s perspective:

For the target company and its owners, the disclosure schedules play an important role in the company’s or owner’s liability after the closing of the transaction. If the company or an owner makes a representation or warranty and, after the closing, the investor or buyer finds that representation was not true and suffers damages as a result, depending on how your agreement is structured, the investor or buyer can come after the company or the owners for a portion of the purchase price to cover their losses.

If the company or owners list an exception to a representation on the disclosure schedules, they would not be in breach of the representation because the disclosure will modify the representation, so they would not be liable to the investor or buyer. For example, a seller in an M&A transaction could represent in a purchase agreement that it did not have any outstanding tax liabilities. If this representation were untrue and the buyer was damaged by a tax liability post-closing, the buyer could potentially recover from the seller for the amount of the tax liability due. However, if the seller properly disclosed all tax liabilities on the disclosure schedule, the seller would not be in breach of the representation and the risk of loss would have shifted to the buyer.

The blog also points out that disclosure schedules are an important part of the buyer’s due diligence process and also provide the buyer with detailed information about the company that couldn’t practically be included in the acquisition agreement.

John Jenkins