CHAPTER ELEVEN
THE DUE DATE FOR PAYMENT
4.1 The due date for the making of payments under this Deed shall be the date falling 5 Business Days after the Buyer has served a written notice on the Covenantors setting out the relevant details of the Tax Liability and demanding that payment or, if later:
Executive Summary
A The due date for payment is normally set so as to match the cash outflows of the Company, allowing a few days for payments to be cleared.
B If the Tax Liability relates to the loss of a Deferred Tax Relief, there may be a series of payment dates, possibly stretching beyond the normal 7 year period of the tax covenant. An alternative, of assuming for this purpose that the Company has sufficient profits to utilise the whole of the lost relief, may provide a cash benefit to the Buyer. It is also moving the tax covenant away from the strict cash flow approach. C If the Tax Liability in question is a Post-Completion Relief or a Buyer’s Group Relief, then it is possible that the Buyer will gain a cash flow benefit as he may be turning tax losses into cash rather earlier than would otherwise be the case. This is very often a modest windfall and it is gained at no cost to the Sellers. It is therefore difficult to see whey the Sellers should object. D It is important to make sure that the clauses relating to interest are drafted so that the Covenantors do not have to pay interest twice - once as part of the definition of Tax Liability and secondly under the interest clause of this part of the Deed. E Sometimes tax covenants are worded so as to refer to the earlier of two dates, rather than the later of these dates. This form of wording can result in the Covenantors being liable to make payment some considerable time before the actual payment has to be made. It is difficult to see, either from the perspective of the Buyer or the Seller, why the Covenantors should be required to make payment more than a few days before the tax is payable.
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