CHAPTER SEVENTEEN
COUNTER COVENANT
10.1 The Buyer hereby covenants with the Covenantors to pay to the Covenantors by way of adjustment to the Consideration, an amount equal to any Tax Liability for which the Company is liable but for which the Covenantors become liable as a result of the failure by the Company to discharge it.
Executive Summary
A The counter-indemnity or undertaking to pay given by the Buyer to the Sellers is now virtually standard.
B There is a growing number of sections in the taxing statutes which may require someone other than the taxpaying entity to settle tax if it is not settled by that entity. These sections create risks for both the Buyer and the Sellers. C Payments made by the Buyer to the Sellers in the form of additional consideration will be likely to crystallise tax charges on the Sellers and a grossing up clause is therefore required. D It is difficult to place any construction on payments made by the Buyer to the Covenantors other than that they represent, for tax purposes, additional consideration for the shares in the Company.
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