Essential Precautions In Guarantee Replacement In M&A Transactions

The importance of reviewing and replacing personal guarantees in mergers and acquisitions to protect sellers' assets and avoid future risks

A relevant aspect common on most mergers and acquisitions (M&A) that is sometimes overlooked is the mapping and replacement of guarantees provided by shareholders in favor of the company.

It is common practice among business owners to provide guarantees on contracts between third parties and the company, often linking their own assets as personal guarantees and mortgages for bank financing agreements, lease agreements and other similar arrangements. In the context of a transfer of corporate control, it is highly advisable to review all such guarantees and focus on establishing an action plan in the definitive documents to replace them, thereby disconnecting the sellers' assets from the risks associated with the sold business.