Extending Time for Indemnification Claims in M&A Deals: “No Harm No Foul”

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Discover how a buyer’s indemnification claim was excused despite missing the time limit in an M&A deal. Learn about the Schillinger Genetics, Inc. v. Benson Hill Seeds, Inc. case and lessons on navigating indemnification claims in mergers and acquisitions.

M&A Stories

February 15, 2021

Introduction:

When buying private companies, the agreements often include promises from the seller that last even after the deal is done. But there’s usually a time limit for the buyer to ask for compensation for any problems they find. Let’s look at a real-life example where this time limit was extended.

The Story:

In this case, a company from St. Louis wanted to buy a business in Iowa that focused on soybean research. They made a deal for $14 million, with certain conditions in place. For instance, they had an amount of money held in an escrow account for one year after the closing to make sure everything went as planned.

Trouble Arises:

After they closed the deal on February 9, 2019, things started to go wrong. The person who used to own the Iowa company now worked for the St. Louis company, but instead of helping, he began competing against them. He even shared the St. Louis company’s secrets. The St. Louis company found out that the Iowa company hadn’t been completely honest about some things before and after the deal. For example, they didn’t mention certain important contracts and debts, and they might have lied about not infringing on any intellectual property rights.

The Lawsuit:

As a result, the buyer made a claim for indemnification against the escrow and this dispute ended up in the Delaware Court of Chancery. The seller asked the court to release the escrow fund to the seller because the buyer failed to make an indemnification claim by the their agreement’s one year anniversary of the closing.

The court agreed with the seller that the buyer’s claim was late, by several days. However, it refused to release the funds because there was language in the acquisition documents that excused the buyer’s tardiness if the seller was not “materially prejudiced” by the delay. The court so held, and thus the funds will remain in escrow pending the resolution of the litigation.

This case is referred to as Schillinger Genetics, Inc. v. Benson Hill Seeds, Inc., C.A. No. 2020-0260-MTZ, Court of Chancery of Delaware, (Submitted: October 5, 2020. Decided: February 1, 2021).  

Lessons Learned:

This story teaches us that in deals like this, it might be a good idea to have a “grace period” in case someone asks for money after the time limit. But even with that, it’s important to follow the rules and deadlines for asking for compensation.

In Conclusion:

Mergers and acquisitions can be complex, and the rules around asking for compensation can be strict. It’s important for both sides to follow the agreements carefully and make sure they meet the deadlines. This helps avoid disputes and keeps the process fair for everyone involved.

By John McCauley: I help people manage M&A legal risks.

Email:             jmccauley@mk-law.com

Profile:            http://www.martindale.com/John-B-McCauley/176725-lawyer.htm

Telephone:      714 273-6291

Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles

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