Company acquisitions often raise questions about the fate of existing contracts — especially commercial agency agreements, where one party (the agent) represents or distributes for the other (the principal). Key concerns include whether the acquiring company must honor the acquired company’s contracts and how “successor” obligations are handled when no explicit change-of-control clause exists. This article addresses these issues under UK contract law and international business norms, examines common interpretations of successor obligations, and outlines strategies (with case examples) to ensure continuity of agency agreements post-acquisition. Cross-border considerations, including the interaction of Kuwaiti law with UK law in agency relationships, are also discussed.
Acquirer’s Duty to Honor Existing Contracts (UK Law & International Standards)
UK Contract Law — Share vs. Asset Purchase
Under UK law, the effect of an acquisition on contracts depends on the transaction structure. In a share purchase (acquiring the company’s shares), the target company remains the same legal entity — only its ownership changes. Therefore, its contracts continue uninterrupted as the company carries on business under new ownership (SlaterHeelis.co.uk). The acquiring company, as the new shareholder, indirectly benefits from and controls the company that is party to the contract, but the contracting party itself has not changed. As a result, the acquired company (now under new control) remains bound by its pre-existing agency agreements, and the new parent should cause it to honor those obligations. In other words, a share sale does not itself alter contractual continuity (SlaterHeelis.co.uk).
By contrast, in an asset purchase, the buyer purchases specific assets (which may include contracts) from the target. The target’s contracts do not automatically transfer to the buyer because the original contracting party remains the target company. To carry those contracts over, they must be assigned or novated to the buyer with any required consents (FoxWilliams.com). If key agency contracts are not successfully assigned in an asset sale, the acquiring company would not be bound by them, and the selling company would technically remain liable — even if it no longer has the business. In the UK, many contracts require the counterparty’s consent to assignment (via anti-assignment clauses), so these need attention during the deal. In summary, a share acquisition leaves contracts intact with the original company, whereas an asset acquisition requires formal transfer of contracts (or re-signing) for the buyer to be bound (FoxWilliams.com).
“International Standards” and Business Practice
Internationally, it is widely accepted that valid contracts cannot be unilaterally discarded due to a change in company ownership. Most jurisdictions view the corporate entity as distinct from its shareholders; thus, a change in shareholders (merger or stock acquisition) does not typically excuse contractual performance. In practice, buyers expect to inherit the benefits and burdens of the target’s contracts. Often, one motivation for an acquisition is to acquire the target’s ongoing business relationships (Feldman.Law). Standard M&A practice is to account for all material contracts in the deal. The buyer will perform due diligence to ensure that agency or customer contracts remain in force post-acquisition (FoxWilliams.com). If consent is needed due to anti-assignment clauses, the buyer will seek it or structure the deal (perhaps as a share purchase) to avoid losing the contract. Generally, contracts are presumed assignable or transferable as part of business continuity unless the contract itself prohibits it. The default rule in many legal systems — including English law — is that contractual rights can be assigned and duties delegated to a successor absent a contractual restriction or a highly personal element to the contract (Feldman.Law).
Successor Obligations in Agency Agreements (No Change-of-Control Clause)
Commercial agency agreements often include clauses addressing assignment or changes in ownership. A typical “successors and assigns” clause states that the agreement’s rights and duties bind the parties and their successors or permitted assignees (Fynk.com). Such a clause makes clear that if a party undergoes corporate changes (e.g., merger or consolidation), the contract continues to bind the surviving entity. It provides contractual assurance of continuity and enforceability even if the principal company is taken over by a new owner (Fynk.com).
However, many agency contracts might not explicitly mention change of control or successors. In cases with no explicit change-of-control clause, the general rule is that no special right to terminate or alter the contract is triggered by the mere fact of an acquisition. That is, the contract continues as originally drafted, and the new ownership does not, by itself, discharge that party’s obligations. A change-of-control clause, when present, typically gives the counterparty a right to terminate or demand some action if the other party’s ownership changes (FoxWilliams.com). Without such a clause, neither party can automatically exit the contract solely due to a change in ownership, and the agency agreement remains in force on its original terms (FoxWilliams.com).
Under common law principles, if a company amalgamates or merges into another entity such that one company assumes all rights and liabilities of the other, the resulting entity is treated as the successor in interest to the contract (DLAPiper.com). Notably, a share acquisition is not considered an assignment at all since the contracting party remains the same legal entity (DLAPiper.com). Thus, if the acquired company is absorbed and ceases to exist as a separate entity, the acquiring company (as the merger survivor) would generally assume the agency contract as a successor. In the absence of an explicit change-of-control clause, the obligations bind the successor entity regardless, ensuring the continuity of the agency relationship.
Legal Strategies and Case Law Supporting Contract Continuity Post-Acquisition
Strategies to Ensure Continuity
Both buyers and sellers have legal tools to maintain contract continuity in acquisitions. On the buy side, a purchaser typically engages in thorough due diligence to identify important agency contracts and check for any clauses that might affect them (FoxWilliams.com). If a contract has a change-of-control clause requiring consent or allowing termination, the buyer may seek the agent’s agreement not to exercise that right or negotiate a waiver as part of the deal. In asset sales, where the agency agreement is critical, the buyer will ensure an assignment or novation is executed at closing, often obtaining the agent’s prior written consent. An assignment transfers the contract to the buyer while keeping the original terms intact, and a novation involves all parties executing a new contract that releases the seller. Proactive strategies like insisting the buyer expressly assume the seller’s contracts help avoid disputes later.
Case Law Supporting Continuation
Case law reinforces that an acquiring entity must respect existing contracts, though specifics depend on contract terms and the transaction structure. For instance, in Kabab-Ji SAL v Kout Food Group [2021] UKSC 48, a Lebanese company had a franchise/agency agreement with a Kuwaiti company. After a corporate reorganization, the agent attempted to hold the parent company liable under the agreement. The English courts refused enforcement against the parent because the formal requirements for transferring the contract were not met (JDSupra.com). This case illustrates that while contracts continue with the business, proper formalities — such as obtaining consent to assignment — must be observed.
Another supporting framework is the protective legislation for commercial agents. Under the UK Commercial Agents (Council Directive) Regulations 1993, an agent terminated without cause may be entitled to compensation. The European Court of Justice, in Ingmar v. Eaton Leonard, confirmed that such protections override attempts to avoid compensatory liability (AgentLaw.co.uk). Similar statutory protections exist in other jurisdictions, such as Kuwait, where local law requires compensation for the unjustified termination of an agency agreement (Tamimi.com).
Recommendations for Asserting Contractual Continuity
For agents or other contracting parties concerned about an acquisition, the following steps are recommended:
- Review the Contract Thoroughly:
Examine the agency agreement for assignment clauses, change-of-control provisions, and termination terms. - Communicate with the Acquiring Company:
Formally notify the new management in writing that the existing agency agreement remains binding and request written acknowledgment. - Negotiate if Necessary:
Engage in dialogue to resolve any concerns. Emphasize the mutual benefits of continuity and, if needed, indicate that failure to honor the contract may lead to a breach of contract claim. - Obtain a Formal Assumption:
Where the original contracting company is being absorbed, insist on a novation agreement or a written assumption of the contract by the successor. - Preserve Evidence of Performance:
Maintain detailed records demonstrating that both parties have continued to operate under the contract terms post-acquisition. - Legal Actions if Necessary:
Consider legal remedies such as a breach of contract claim, injunctive relief, or arbitration, in accordance with the contract’s dispute resolution provisions. - Leverage Local Legal Avenues:
In cross-border situations, particularly those involving Kuwaiti law, explore local legal channels to enforce contractual rights.
Kuwaiti Law Considerations in Cross-Border Agency Agreements
Cross-border agency relationships introduce additional complexities. If a UK company’s acquisition affects an agency agreement involving a Kuwaiti agent, local laws can impact the contract’s enforceability.
Kuwaiti Mandatory Rules
Kuwaiti law requires that foreign companies doing business locally establish a branch or appoint a registered local agent (Dentons.com). Once an agency is duly registered, the agent is afforded statutory protections that cannot be waived by a choice-of-law clause. Under Kuwait’s Commercial Agency Law (Law №13 of 2016) and related provisions, a principal cannot unilaterally terminate or refuse to renew a registered agency without justification. For example, Article 282 of the Kuwait Commercial Code mandates compensation for unjustified termination (Tamimi.com).
Override of UK Law or Contract Terms
Kuwaiti courts may disregard a foreign governing law clause if it deprives the agent of fundamental statutory rights. Consequently, even if an agency contract is governed by UK law, a Kuwaiti agent might invoke local legal protections if terminated without cause.
Impact of Acquisition
In the context of an acquisition, should the new owner attempt to terminate the Kuwaiti agency or appoint a new agent, Kuwaiti law may treat such actions as a termination of the previous agency. This often triggers compensation requirements and may prevent new agency registrations until the dispute is resolved (Dentons.com). Therefore, both agents and principals must carefully consider local legal advice when handling cross-border acquisitions.
Conclusion
Under UK law and general commercial principles, existing contracts endure and bind the surviving parties or their successors after an acquisition. An acquiring company cannot simply disregard an acquired company’s agency agreements unless the contract expressly provides for termination upon a change in control. The doctrine of successor obligations ensures that, in the absence of a change-of-control clause, the contractual duties pass to the successor entity. Both contractual mechanisms — such as successors clauses and formal assignments — and supportive case law and statutory protections reinforce the continuity of agency agreements post-acquisition.
For agents and other contracting parties, it is imperative to assert these continuity rights by reviewing contracts thoroughly, communicating with the acquiring company, and employing legal or negotiated strategies if necessary. In cross-border scenarios, particularly involving Kuwaiti law, additional statutory protections further ensure that an agency agreement survives an acquisition or is terminated only in accordance with legally mandated procedures. Ultimately, a well-informed and proactive approach maximizes the likelihood that the original business relationships continue under new ownership.
References
AgentLaw.co.uk. (n.d.). Ingmar v. Eaton Leonard [ECJ case]. Retrieved from http://www.agentlaw.co.uk
Dentons.com. (n.d.). GCC agency laws and compensation requirements in Kuwait. Retrieved from http://www.dentons.com
DLAPiper.com. (n.d.). Successor obligations and assignment in mergers and acquisitions. Retrieved from http://www.dlapiper.com
Feldman.Law. (n.d.). Assignment of contractual rights in business transactions. Retrieved from http://www.feldman.law
FoxWilliams.com. (n.d.). Change-of-control provisions and business continuity. Retrieved from http://www.foxwilliams.com
Fynk.com. (n.d.). Successors and assigns clauses in agency agreements. Retrieved from http://www.fynk.com
JDSupra.com. (2021). Kabab-Ji SAL v Kout Food Group [UKSC case]. Retrieved from http://www.jdsupra.com
SlaterHeelis.co.uk. (n.d.). Share purchase vs. asset purchase: Business continuity. Retrieved from http://www.slaterheelis.co.uk
Tamimi.com. (n.d.). Kuwait Commercial Agency Law and Article 282: Compensation for termination. Retrieved from http://www.tamimi.com
