Covenants (also known as an undertakings) are used in legal documentation to control a target company’s activities and ensure it meets certain standards as part of an acquisition.
A common covenant used, is designed to prevent the seller(s) of a target company or key exiting personnel from working at, investing in or similar, competitors to the target. This is to preserve value for the buyer of their newly acquired asset and such ‘non-compete’ covenants are often in place for a number of years post-completion.
Spill Bidco Ltd v Wishart [2025] EWHC 2513 (Comm)
The recent case of Spill Bidco Ltd v Wishart [2025] EWHC 2513 (Comm) reached its conclusion in the High Court adding to the scope of non-compete covenants. In this case, the seller had agreed to non-compete covenants as part of the share purchase agreement and the investment agreement, whereby he was prohibited from being ‘concerned or interested’ in a competing business for three years after the sale.
It was alleged by the buyer that the seller had been advancing loans and providing assistance to, a rival business of the target company, both in Spain and the UK within the three year period post sale that was covered by the non-compete provisions. Hence, the buyer pursued their claim for damages in the High Court. The seller argued that lending funds could not amount to being ‘concerned’, however the High Court disagreed and found for the buyer.
In reaching this decision, the court took account of the circumstances in which the seller became a competitor’s creditor, his wider conduct and whether the lending was in parallel with other activities supporting rival businesses. Lending money alone was not considered enough to constitute a breach.
The seller was found to have invested in the rival business with a view to personal gain along with providing assistance in sourcing products and pricing advice and hence he was concerned in competing businesses and in breach of their covenants.
Conclusion
This case stands as a warning to both buyers and sellers, to beware the scope and intention on non-compete clauses as part of acquisitions – to ensure they have the desired effect on both sides of a transaction. For buyers, to protect their asset and ensure that competitors do not benefit from the connections and expertise of the sellers in the short to medium term. For sellers, to ensure they are able to pursue their future plans and ambitions post exit, whilst making use of their niche experience.
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