"Longstop Date" clauses during the coronavirus

What is a Longstop Date?

It is an established practice in M&A transactions that the parties agree on a timeframe in which all the conditions precedent for a transaction need to be fulfilled and the transaction completed. If the transaction remains incomplete at the end of this time, the agreement is either automatically terminated or one of the parties wins the right to withdraw. Such a clause is called a “Longstop Date”.

Implication of current circumstances

The Slovenian Government is daily tightening measures and restricting the work of governmental institutions as well as the economy to combat the coronavirus outbreak. Measures, such as the suspension of procedural deadlines, are also being introduced in administrative fields. Governmental agencies continue to perform their duties, but due to the limited capacities will no longer face implied rejections/approvals for filings if they do not meet the procedural deadlines. This also affects the functioning of the Slovenian Competition Agency and other regulators authorised to issue the approval usually required to complete M&A transactions. Consequently, it is likely that the timeframe initially agreed between parties for a successful completion of the transaction will need to be extended.

Extending the Longstop Date

Given the current situation, we recommend parties agree to extend the mentioned timeframe to mitigate the likelihood that the actions required to complete the transaction are not performed or obtained in time. If one or both parties no longer desire the completion, that is another matter that will be addressed in a later article.

Generally, the transaction document needs to be amended in the same manner as the original document. If it was signed as a notarial deed, the parties may encounter additional difficulties - the public notaries are also working in limited capacity and are only accepting cases that are especially urgent. For this reason, we recommend that the public notaries who were involved in the execution of the current transaction documentation are contacted to find out if they are available to make the amendments.

If the public notary is available, we hope that the existing powers of attorney are still valid – if any of the ancillary documents required to make the amendment are delivered from abroad, an addition complication may be expected: arranging official translation and maybe even legalization of the documents arriving from countries without the apostille system.

If the transaction documents are not signed as a notarial deed, matters are simpler. However, with all the restrictions on travelling and gatherings, it will still be difficult to assemble all the parties and/or counsels in the same room at the same time. Exchanging documentation via the post office will also take more time due to the difficulties the post office is facing (especially with international deliveries).

Debt-financed transactions

When the transaction is debt-financed, the longstop date in the financing agreement should be taken into consideration as well. Such a longstop date should not be longer than the one included in the main transaction agreement. If it is longer, the financing agreement might terminate earlier and credit drawdown would no longer be possible even though the main transaction agreement would still be binding. Consequently, the buy-side would be left without the means to finance the transaction and hence exposed to contractual penalties or liability.

Conclusion

In these extraordinary times, we must not forget that there are several factors that are out of the contracting parties’ hands but should nevertheless be addressed to ensure the successful completion of the transaction. The circumstances change daily, but before things take a turn for the better, we have to expect even more measures and restrictions, which will also have to be taken into consideration.