Disclosure Letters in Hong Kong Acquisitions – Why They Matter
A disclosure letter is a document given by the seller to the buyer, setting out exceptions to the warranties in the sale agreement. In Hong Kong M&A, it is a critical part of the compliance process, helping protect sellers from liability and ensuring buyers are aware of key risks.
Why Disclosure Letters Matter
- For sellers: A seller disclosure letter limits liability by making clear what issues exist in the business.
- For buyers: It provides transparency and ensures they cannot later claim for matters that were disclosed before completion.
- For both parties: It builds trust and reduces the chance of post-deal disputes.
Without a proper disclosure letter, sellers risk being held in breach of warranty, while buyers may miss critical information about the company.
What Goes Into a Disclosure Letter
A typical disclosure letter M&A Hong Kong will include:
- General disclosures – matters already on public record (e.g. company filings at the Companies Registry).
- Specific disclosures – details of issues that would otherwise breach warranties, such as:
- Pending litigation or disputes.
- Non-standard contracts or financing arrangements.
- Compliance issues under licences or regulations.
- Employment disputes or late MPF contributions.
- Data protection or regulatory investigations.
How the Disclosure Process Works
- The seller prepares the draft letter alongside the main acquisition agreement.
- The buyer and its advisers review disclosures and may seek price adjustments or indemnities.
- Once agreed, the disclosure letter forms part of the binding transaction documents.
This disclosure process in acquisitions HK ensures both sides start the deal on clear, documented terms.
Best Practices for SMEs
- Keep organised records well before starting M&A discussions.
- Ensure disclosures are specific and supported by documents, not vague statements.
- Buyers should cross-check disclosures against due diligence findings.
For a broader overview of how SPAs fit into business acquisitions, see our guide on Key Agreements in Hong Kong M&A Transactions.
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