No proceedings: Overview, definition, and example
What is no proceedings?
No proceedings refers to a contractual provision where one or more parties represent and warrant that there are no ongoing or threatened legal actions, claims, or disputes against them that could impact their ability to fulfill the obligations of the agreement. This clause helps protect the other party from potential risks or liabilities associated with unresolved legal matters.
For example, in a merger agreement, the seller might include a no proceedings clause to assure the buyer that there are no lawsuits or claims that could interfere with the transaction.
Why is no proceedings important?
A no proceedings clause is important because it provides assurance that a party is not involved in legal or regulatory issues that could affect the execution or enforceability of the agreement. This helps establish trust, reduce risks, and ensure transparency in transactions.
For businesses, this clause is critical in agreements where unresolved legal matters could create significant liabilities or delays, such as mergers, acquisitions, or financing arrangements.
Understanding no proceedings through an example
Imagine a company is acquiring another business. The purchase agreement includes a no proceedings clause in which the seller warrants that there are no ongoing or threatened lawsuits against the company. If it is later discovered that a major lawsuit was filed but not disclosed, the buyer could claim a breach of the agreement and seek remedies.
In another example, a loan agreement includes a no proceedings clause, requiring the borrower to confirm that they are not involved in any legal disputes that could jeopardize their ability to repay the loan. This provides assurance to the lender about the borrower’s financial stability.
An example of a no proceedings clause
Here’s how a no proceedings clause might look in a contract:
“The Party represents and warrants that, as of the Effective Date, there are no pending, ongoing, or threatened legal, administrative, or regulatory proceedings, claims, or investigations against the Party that could materially affect its ability to perform its obligations under this Agreement. The Party further agrees to notify the other Party promptly of any such proceedings or claims arising during the term of this Agreement.”
Conclusion
A no proceedings clause ensures that parties disclose any legal or regulatory issues that could impact the agreement, fostering trust and reducing risks. It provides transparency and helps protect against unforeseen liabilities or disruptions.
By including a no proceedings provision in agreements, businesses can safeguard their interests, ensure compliance, and promote accountability and trust in their contractual relationships.
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.