Will Your Lawyer be Available to You After Closing?

Most shareholders of a selling company and reps take for granted that the lawyer who represented them in connection with the merger will be available to represent them again should any disputes arise following closing. Intuitively, that makes sense. The lawyer argued for them against the buyer in connection with the deal, so why shouldn’t he or she be able to represent them against that same buyer on post-closing matters? It seems like the most logical choice, since the lawyer is familiar with the acquired company and the terms of the deal. What many do not realize, however, is that the target company’s former outside counsel, and their firm, will often be disqualified from representing the shareholders due to an actual or perceived conflict of interest.

When one company acquires another, it doesn’t only acquire property and personnel. The acquiring company also takes over the target’s legal rights and obligations as the successor in interest. This means that the target company has essentially been replaced by the acquirer. This is almost always true even if the parent company sets up a subsidiary that the target is merged into.

Lawyers generally are not allowed to switch sides against former clients or to use information received from the former client to its disadvantage. Typically, the acquired corporation was the client of outside counsel, not the former shareholders. As a result, when one company acquirers another or is merged into another, the acquiring company becomes the former or current client of the target’s outside counsel. That firm will often then be disqualified from representing the former shareholders in any matter against the buyer.

The shareholders and the rep should keep this in mind prior to closing when considering how they might want to handle any post-closing disputes that may arise. SRS has language that we suggest putting into many agreements and would be happy to share our thoughts if you are interested. If so, feel free to contact us.