Disclosure Letter
A letter from the seller disclosing matters that qualify the warranties given in the sale agreement.
Full Definition
A disclosure letter is a crucial document in UK M&A transactions where the seller formally notifies the buyer of matters that might otherwise constitute a breach of warranty in the sale agreement.
Structure of a disclosure letter: 1. General disclosures: Matters deemed disclosed to all buyers (e.g., publicly available information, data room contents) 2. Specific disclosures: Detailed disclosures against individual warranties
Purpose:
- Limits seller's warranty liability for disclosed matters
- Provides buyer with complete picture of known issues
- Allocates risk for specific matters
- Documents seller's knowledge at completion
Quality of disclosure:
- Disclosures should be "fair" - give buyer enough information to understand the issue
- Bundled disclosure (just referring to data room) may not be sufficient
- Specific disclosures should clearly identify which warranty they relate to
- Supporting documents should be annexed
Negotiation points:
- Scope of general disclosures
- Deemed disclosure of data room contents
- Materiality thresholds
- Timing of disclosure (updated at completion?)
- Buyer's constructive knowledge
The disclosure letter significantly impacts the seller's post-completion warranty exposure.
Related Terms
Warranties
Contractual statements by the seller about the business, breach of which may entitle the buyer to damages.
Indemnities
Contractual promises to compensate the buyer pound-for-pound for specific identified losses or liabilities.
Share Purchase Agreement (SPA)
The definitive legal contract governing the sale and purchase of shares in a company.
Data Room
A secure repository where confidential documents are stored and shared with potential buyers during due diligence.