In the previous parts of this series, we have discussed the structuring of the transaction and important provisions of the transfer documentation. The focus of this post is to clarify what the difference between "Signing" and "Closing" is and what should and should not happen between the two milestones.
"Signing" usually refers to the point at which the Sale and Purchase Agreement is executed (see also M&A Basics: Do you want to sell your company? Part 5 - What to look out for in a Sale and Purchase Agreement). In contrast, "Closing" tends to refer to the point at which the business interests or shares are effectively transferred from the seller to the buyer. In the case of shares, a Share Transfer Agreement is entered into and in the case of shares, a share transfer is effected by way of a share transfer (certificated shares) or the entry of transfer orders (book-entry shares). Alongside this, other agreements, declarations and acts are usually signed which either settle the past and/or set up new relationships for the future, e.g. new management contracts, contracts with related parties, etc.
If the transfer is not prevented by other conditions, Signing and Closing can be combined in one moment. This is usually the preferred option for all parties as it simplifies the whole process.
However, if there is to be a contingency between the transfer agreement and the transfer itself, Signing and Closing should be split. Such an event may be the need for the approval of the Antitrust Authority, the conclusion of agreements with a bank regarding an acquisition loan, the drawing of funds into an escrow account, the settlement of certain rights and obligations, and the like.
If the Signing and Closing is split, the Sale and Purchase Agreement will govern what should and should not happen in the interim period. In very simplified terms, actions are to be taken to comply with the conditions (e.g. filing with the Antitrust Authority) and actions are not to be taken that would result in a negative change in the status of the company or the shares/stocks being purchased from the status that the buyer accepted at the Signing (e.g. unscheduled lending, creation of a lien on the shares, etc.).
It is also customary to provide that the representations and warranties made by the sellers at the Signing shall survive the Closing Date. Thus, a careful seller should have his representations at hand in the interim period and should inform the buyer of such change in the event that something objectively changes. Failure to do so risks liability for breach of representations.
The whole transaction process may seem complicated at first glance, but once you go through it, it opens up a whole new world of possibilities (whether you are the seller or the buyer). However, nothing should be underestimated. If you decide to take the plunge, we'll be happy to help.