DealLawyers.com Blog

This Freshfields blog discusses an oft-overlooked issue in post-closing M&A disputes — crossover witnesses. Here’s the issue:

A crucial aspect of any M&A deal is the transfer of employees along with the Target company. […] But often those same individuals – whether senior executives of the Target or knowledgeable employees of the Seller – may have been key players at the deal stage, responsible for preparing relevant technical and financial documents constituting the basis of the Purchaser’s due diligence and final decision.

It is therefore no surprise that these employees’ knowledge of the Target and the transaction becomes crucial in resolving any subsequent disputes. […] However, complications arise when these individuals are now employed by the opposing party in the same proceedings. Even if the Seller manages to engage with the witness, there is no guarantee that the witness will cooperate or agree to testify against their new employer.

When a deal provides for the transfer of key personnel or where future employee transfers are foreseeable, the blog suggests sellers take a proactive approach “to ensure a full presentation of the party’s factual and legal case in a subsequent dispute and to preclude disruptive procedural conflicts over access to witnesses.” Here are excerpts from the recommendations:

– Seller should ensure that the key face-to-face negotiations are not led by individuals who are likely to transition to the Purchaser’s side post-Closing – or at least minimise the risk by having two co-leads for crucial workstreams and meetings

– [I]ncorporate appropriate provisions in the deal documents regarding access to transferred employees in case of a dispute. For example, a provision could state that in the event of a dispute, the Seller will not be prevented from having conversations with former employees and potentially presenting them as a witness

– Care should be taken to ensure that documents (or copies thereof) remain with the Seller and are not transferred in their entirety along with the Target. Best practices must be implemented to prepare meeting minutes and handover protocols. All documents in the transferring employee’s possession and control must be archived properly particularly ensuring that relevant transaction documents stored in personal folders or storage devices are handed over to the former employer

– [E]nter into a non-disclosure agreement imposing appropriate confidentiality obligations on the employee. The aim should be to prohibit the employee from discussing or sharing confidential information in relation to any future disputes arising out of the transaction. If the employee transfers after the dispute has arisen, it would be advisable to set out the scope of the confidentiality obligations in more detail

– Meredith Ervine