THE Bribery Act 2010 came into force on July 1, 2011 and has replaced the UK’s previous bribery laws and extended the crime of bribery to cover all private sector transactions.
The potential consequences of being convicted of a bribery offence include criminal penalties for both individuals and companies. Companies can receive an unlimited fine, while individuals face ten years imprisonment and/or an unlimited fine on conviction on indictment.
Commercial organisations need to assess whether they have adequate policies and procedures in place to ensure that they are not involved in bribery and corruption.
Compliance with the Bribery Act is a key area which will need to be taken into account by prospective buyers in the context of acquisitions as there are significant risks for a buyer acquiring a company or business which has potentially been involved in corrupt practices.
It is possible that following the acquisition, the target company could be prosecuted for corrupt acts that took place prior to the acquisition. The future revenues of the target company or business may depend on continued corrupt practices. Contracts and licences obtained through improper payments may be lost, or the target company or business could be prohibited from doing business with public sector bodies. The buyer may also face damage to its own reputation as a result of its association with the target.
It will be important for a buyer to try to identify any corrupt practices during due diligence as they could have a serious impact on the value of the target. Where corruption risks are identified, a prospective buyer may seek a price adjustment, require the seller to resolve identified corrupt practices prior to completion, restructure the transaction as an assets deal to exclude potential liability or in extreme cases of corruption, walk away from the deal.
Most buyers will consider seeking warranty protection from a seller in respect of unidentified risks relating to corruption. Warranties have a dual purpose of forcing the seller to disclose known corruption risks prior to completion and giving the buyer a legal claim against the seller post-completion, if the warranties are breached.
Following completion of an acquisition, a buyer should take steps to remedy any matters relating to corrupt practices identified in due diligence which have not already been remedied. If access to the target was limited prior to completion, the buyer should also carry out further due diligence to assess the existing corruption systems and controls.
:: Craig Swinhoe is in the corporate finance team at Muckle, Newcastle
