Change of Control clauses create a right to terminate a contract, usually with a supplier, after a change in management and/or shareholders during the term of the contract. However, one company may be satisfied with the acquisition or merger (change of control), as this means that the other party becomes larger in the area of quality, from a financial or geographical point of view. When entering into a trade agreement, the parties tend to focus on the main terms and conditions. However, they do not pay much attention to change of control provisions and anti-attribution. Arrangements are often at the end of the agreement and are not taken seriously. This is dangerous, as it will be difficult for future acquisitions if the party tries to sell the business in the future. It will also lead the contracting party to blackmail concessions in exchange for its consent. The above case concerns Barclays Brothers` acquisition of COROIN LTD, the company that owns the Claridge, Connaught and Berkeley hotels. Barclays Brothers did not take control of Coroin Ltd by acquiring shares directly in Coroin Ltd, which would have been a breach of the pre-emption provisions contained in COROIN LTD`s articles of association and a shareholders` agreement, but by acquiring ownership of Misland (Cyprus) Investments Ltd, a shareholder of Coroin Ltd. If the agreement includes a minimum requirement to purchase products for a significant period of time, a change of control provision may ensure that a party is not obliged to fulfil that obligation. A change of control can also be used to deter a competitor from merging with another company that wants to acquire your supplier if purchase volumes represent a significant part of their business and your termination significantly affected the value of the business.
However, some day-to-day transactions can trigger a change of control, including this one: when a company is funded by venture capital, it may be important to include a change of control provision so that the funder, if it does not see the desired growth, has the opportunity to sell by merger or sale. There are current transactions for which a change of control may be triggered, in particular: in the case of a share acquisition transaction, the question of the change of contracting parties does not arise. Thus, contractual clauses that prohibit the assignment of rights arising from contracts do not apply to transactions in shares. Even if the transaction does not change the identity of the parties, the transaction in practice results in a change in control of the target when one capital group sells shares in one subsidiary to another group, which can be very expensive for the other party. These clauses may be necessary because new owners may change the risk profile Systemic risk Systemic risk can be defined as the risk related to the collapse or failure of a business, sector, financial institution or entire economy. This is the risk of a major failure of a financial system, with a crisis when investors lose confidence in the users of the company`s capital and lenders find themselves in a situation where the risk of default of the borrower is greater. Finally, the heart of the clause is the consequences foreseen for a breach of the clause. Most of the time, it is provided that a change of control in violation of the clause entitles the other party to terminate the contract without notice or in the very short term, or that the injuring party may, for example, be liable to a contractual penalty. A change of control provision is an agreement in which a party has certain rights, such as payment, consent, or termination. This is often related to a change in the direction or ownership of the counterparty. . .