Purchasing Company Assets? Do You Know What You Are Buying?

When purchasing a company’s assets, professional advice and careful drafting are needed to avoid subsequent dispute about what exactly has been bought. In one case, a High Court resolution was required after two companies both claimed to have acquired another’s valuable intellectual property rights.

After company A hit financial difficulties and went into liquidation, certain of its assets were bought by company B. The latter argued that the assets acquired included the right to sell certain industrial powder processing machines and to use trade names associated with them. Company C, which had also purchased some of company A’s assets, claimed to have acquired those very same rights.

Company B argued that there had been a common assumption that it was acquiring the relevant rights and that, whatever the subsequent sale agreement with company C stated, those rights were no longer company A’s to sell. Company C submitted that, on a true interpretation of company B’s sale agreement, the rights were not amongst those assets transferred.

Due to oddities in the drafting of the two sale agreements, the Court could not be sure as to whether company B or C had acquired the rights in question. However, the Court noted that, for a number of years, company C had agreed to be bound by an agreement by which company B granted it an exclusive licence to assemble and sell the machines.

Ruling in favour of company B, the Court noted that, by signing the licensing agreement, company C had expressly acknowledged that company B owned all the relevant rights. The latter had relied upon that acknowledgement in its dealings and it would not be fair to permit company C to go back on that position.