Acquisition financing as a closing condition: financing evidence, withdrawal, further periods and liability between signing and closing.
BRANDAUER Rechtsanwälte
Salzburg law firm for corporate, company and transaction law
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If a business acquisition is to complete only once acquisition financing is secured, the financing needs its own contractual logic. The purchase agreement should show which commitment is sufficient, who provides the evidence and what follows if the evidence is missing.
§ 897 ABGB of the Austrian General Civil Code treats conditions as ancillary provisions of contracts. In an acquisition, the parties can therefore make completion dependent on a financing condition. The condition does not replace clear rules on evidence, deadlines, cooperation and consequences.
This article distinguishes the closing condition from general acquisition financing and from financing that must preserve the target company's assets. The focus is the period between signing and closing and the risk of a failed financing step.
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Review the commitment, evidence, deadline and consequence together. A general indication from a lender does not show when the buyer must or may require completion.
Assign the condition to a responsible party, define the evidence and set a clear date. State whether the condition merely postpones completion or whether its failure gives rise to a withdrawal right.
Describe which binding financing commitment is sufficient, who presents it and when it must be available. Link the rule to the rest of the SPA so that an open financing risk does not become a dispute about completion.
A closing condition links the duty or right to complete to a future event. In acquisition financing, that event may be a binding loan commitment or another financing document defined precisely in the SPA. The legal framework in § 897 ABGB covers such conditions. The contractual wording determines its practical effect.
The clause should distinguish signing the purchase agreement from the transfer of shares or assets. Signing may already have taken place while completion remains pending because financing is open. This makes clear which duties already exist and which action can be required only after the condition is satisfied.
A financing clause is therefore neither a general escape route nor a lender guarantee. It needs an objectively verifiable trigger. The parties should address the minimum amount, permitted financing form, any equity contribution and the date by which evidence must be available.
An informal term sheet may show the direction of the financing but, depending on its terms, it does not prove that a drawdown-ready facility exists. A binding commitment should identify the lender, the available amount, the applicable drawdown conditions and the period for which the commitment remains valid. The SPA should tailor these requirements to the transaction.
The buyer will usually be responsible for obtaining the evidence in time. The seller may still have to cooperate with documents or approvals, for example where target-company security, shareholder resolutions or data-room information are involved. That cooperation should be stated separately rather than inferred from the financing condition.
The closing file should contain a short evidence list. It may cover the financing commitment, proof of available equity, confirmation that lender drawdown conditions have been met and approval of the payment route. The list must reflect the actual facility. A general phrase such as “financing secured” leaves too much room for interpretation.
If the financing condition is not satisfied, the first question is whether completion simply cannot yet be required or whether a party has breached a contractual duty. The answer depends on the wording, the agreed date and the parties' conduct. A failed loan application therefore does not automatically create a withdrawal right in every case.
The rule in § 918 ABGB addresses a situation in which a reciprocal contract is not performed at the agreed time, place or in the agreed manner. The other party may in principle demand performance and damages for delay or, after setting a reasonable further period, declare withdrawal. A financing condition must be coordinated with this rule and the specific completion mechanism in the SPA.
The SPA should state when a further period begins, who may set it and which documents show that the step is outstanding. It should also distinguish missing evidence, a delay attributable to the buyer and a condition that cannot be satisfied. The article on closing conditions places this withdrawal mechanism in the wider signing-to-closing process.
The statute does not allocate the risk of failed acquisition financing generally to the buyer or seller. The agreement controls. The parties may provide, for example, that the buyer obtains financing at its own cost and risk while being required to complete only once objective financing evidence exists.
That allocation needs limits. The buyer should define permitted sources and the reasonable steps expected in the financing process. The seller should know whether cooperation is required with lenders, security and corporate approvals. A financing condition must also be separated from a MAC clause. The MAC clause in an acquisition concerns a material change in the target between signing and closing, not the mere failure of a financing source.
Liability may arise from a separate contractual breach, for example if a party withholds agreed documents or deliberately frustrates the evidence process. The clause should therefore address cooperation, information flow and records so that a later dispute focuses on verifiable conduct.
The financing condition should be linked to the transaction calendar. First, the parties set the date by which the commitment must be available. The drawdown conditions are then checked. Only once the condition is satisfied, or a permitted waiver is given, should the closing date become binding.
For closing day, a sequence of evidence review, confirmation that the condition is satisfied, payment release and transfer is useful. The closing memorandum should record which documents were available and who confirmed satisfaction. A long-stop date limits the period of uncertainty but does not answer whether the condition has been met.
The agenda should also cover a lender commitment that remains subject to one final condition. The parties must know whether that point is still part of the financing condition or already part of the completion steps. Coordinating the SPA, facility agreement and closing memorandum avoids inconsistent evidence.
The condition becomes reliable when evidence, deadline and consequence follow the same transaction logic.
| Element | Concrete rule | Open risk |
|---|---|---|
| Event What must occur? | Binding commitment or defined financing evidence | Condition remains open to interpretation |
| Evidence Which document is enough? | Define lender, amount, term and drawdown conditions | A term sheet is mistaken for a binding commitment |
| Deadline When must it occur? | Align evidence deadline and long-stop date | Signing remains open without a clear path |
| Cooperation Who provides information? | Separate duties of buyer, seller, target and lender contact | Delay is attributed to the wrong party |
| Consequence What if it does not occur? | Separate completion, further period, withdrawal and damages | Withdrawal is treated as automatic |
The suitable clause depends on the financing, acquisition structure, security package and the rest of the SPA. Tax and banking-law questions require separate review.
Do not leave financing as a keyword: A clause stating “closing subject to financing” may leave open which commitment is enough, who proves satisfaction and which deadline applies. Align the financing condition with the SPA, security package and closing agenda.
Only the agreement and the statement's content can answer that question. An oral or non-binding indication usually proves less than a written commitment identifying the amount, lender and drawdown conditions. The SPA should specify the required evidence.
A term sheet may contain important commercial points but is often subject to further review or conditions. Whether it is sufficient depends on its wording and the financing condition. The agreement should define the permitted document and its level of commitment.
An automatic withdrawal right does not follow solely because financing was not obtained. The relevant points are the agreed condition, the satisfaction date, any further period and the legal classification of a breach. These elements should work together in the SPA.
Liability may arise from an expressly assumed procurement duty or another contractual breach. It must be clear which action was owed and to whom the delay is attributable. The clause should document evidence, cooperation and communication channels.
Before closing, the parties present the required documents and confirm that the condition is satisfied. Payment release and transfer then follow the closing agenda. The closing memorandum records which evidence was reviewed.
Financing sources, vendor loans and security in a business acquisition.
Security and target-company assets when financing the purchase price.
Signing, closing, evidence and withdrawal mechanics in the purchase agreement.
Withdrawal risk where the target materially deteriorates between signing and closing.
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