My business partner and I recently purchased a small Ltd company. Each of us holds 50% shares each. No changes were made and we simply purchased the business as it is, simply the ownership changed. We have two third party service providers and we want to cancel their services because it’s too costly for us to continue with them, however we cannot cancel this because the previous owner has signed both contracts to run until 2022, and prior to purchasing the business we questioned the previous owner on this and they said we can cancel the contracts once the ownership changes. But this is not the case and the previous owner lied to us and did not disclosed any copies of the contact or documents on this. Is there a way to get the contracts cancelled? We have requested a copy of the contract and it does say it is a binding contract until the end of the term. Are there any laws or general regulations which we can use if the ownerships changes in a company the new owners can cancel the contracts? Or should anything similar to this should be included generally in service contracts?
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Please edit your question to add a tag for the relevant jurisdiction [country/state]. Contract law varies.– Andrew LeachCommented Feb 3, 2020 at 21:58
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@AndrewLeach "Contract law varies". Not really. The principles of contract law are significantly uniform across many countries. I would have suggested the OP to give more specifics about his contract (that is, the language thereof) rather than the jurisdiction.– Iñaki ViggersCommented Feb 3, 2020 at 22:42
1 Answer
Are there any laws or general regulations which we can use if the ownerships changes in a company the new owners can cancel the contracts?
No, or at least it is very doubtful.
Your recourse is to go after the previous owner and recover from him the losses you are incurring as a result of his misrepresentations. Your issue certainly has to do with contract law, although it does not involve the third party service providers. Instead, it involves the previous owner because he is the one who made the false and misleading statements.
I assume you and your business partner signed a contract with the previous owner. If so, you need to ascertain what the contract says regarding the company's liabilities and commitments that are/were in force at the time of the sale.
Absent any clause in that respect, you would need to proceed on the legal theory of fraud notwithstanding its overlap with contract law. In that case, you will need to prove that the owner's misrepresentations induced you to act in a way (namely, by accepting the price you actually paid to the previous owner) that led or is leading to losses. For instance, had the previous owner been honest about his contract(s) with the service providers, it is foreseeable that you would have settled only at a lower cost.
