Absence of certain changes: Overview, definition, and example
What is absence of certain changes?
Absence of certain changes refers to a contractual representation or condition in which one party confirms that no significant or material changes have occurred in their business, financial status, or operations since a specified date. This ensures that the party’s situation has remained stable and consistent, which is particularly important in transactions such as mergers, acquisitions, or financing agreements.
For example, a seller in a business acquisition might represent that there have been no material adverse changes in their financial position since the date of the last audited financial statement.
Why is absence of certain changes important?
The absence of certain changes clause is important because it provides assurance that the state of affairs represented at the time of signing remains accurate up to the closing of the transaction. It protects the parties involved from entering into agreements based on outdated or misleading information.
For buyers or investors, this clause ensures that the value or stability of the asset or business being acquired has not been compromised. For sellers, it demonstrates transparency and builds trust in the transaction.
Understanding absence of certain changes through an example
Imagine a company is in the process of being acquired. The purchase agreement includes a clause stating that there has been no material adverse change in the company’s financial condition or operations since the date of the last financial statements. If, after signing but before closing, the company suffers a significant loss or operational disruption, the buyer may invoke this clause to renegotiate or terminate the deal.
In another example, a business seeking a loan represents that there have been no significant changes in its financial health since submitting its loan application. If the lender discovers a material change, such as a major lawsuit or loss of a key customer, it may decide not to proceed with the loan.
An example of an absence of certain changes clause
Here’s how an absence of certain changes clause might appear in a contract:
“Since [Insert Date], there has not been any material adverse change in the financial condition, results of operations, or business of the Company, and the Company has not taken any action outside the ordinary course of business that would adversely affect its financial condition or operations.”
Conclusion
The absence of certain changes clause provides stability and transparency in transactions, ensuring that the information relied upon by all parties remains accurate and relevant. It protects against unexpected risks and supports informed decision-making.
By including this clause in agreements, businesses can safeguard the integrity of their transactions, maintain trust, and reduce the likelihood of disputes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.