A buyout letter that almost died over one old lawsuit

The situation

The letter arrived at the company's London office addressed to Ishara personally, not to the business. It was from a lawyer representing a former customer who alleged an injury connected to a piece of equipment the company had supplied several years earlier. Ishara had founded the business and still owned it outright, and she had been quietly negotiating its sale to her own management team for months. She had not yet mentioned the claim to anyone, including her own accountant, when Manuel found a copy of it in a shared drive by accident.

Manuel had driven city transit buses for a decade before Ishara hired him off a reference and moved him into operations; Fernanda had spent years teaching in an early childhood classroom before a slow shift into bookkeeping and then finance for the company. Neither had come from money or expected to end up buying a business, but between them they had put together financing to buy the company for a price in the eight to fifteen million dollar range. The deal had been friendly from the start. Ishara wanted to retire and hand the business to people she trusted, and Manuel and Fernanda wanted to keep their jobs and their team intact rather than see the company sold to an outside buyer who might restructure it. Everyone involved liked everyone else, which made what came next harder rather than easier.

When Manuel raised the letter with Ishara, she reacted as though he had accused her of hiding something deliberately, which in a narrow sense he had. She had not disclosed the claim because, in her view, it was meritless and would resolve itself before it mattered to anyone. Manuel and Fernanda saw it differently: an unresolved claim of unknown size sitting inside the company they were about to buy with borrowed money and their own savings, on a deal where a share purchase would have made them responsible for it the moment they signed.

They came to us with the deal nearly frozen. Ishara felt insulted and was talking about walking away rather than have her integrity questioned. Manuel and Fernanda were financially exposed if they proceeded on the terms already discussed, since their financing was already conditional on a closing date that was now in doubt. The legal question, structuring the purchase to keep the claim outside the transaction, was the more straightforward part of the problem. The harder part was that the two sides had stopped being able to talk to each other productively, and every email since the letter surfaced had made the gap wider rather than narrower.

Neither Manuel nor Fernanda had been through an acquisition before. Their instinct, reasonably, was to treat the claim as a red flag serious enough to reconsider the whole purchase, and their lender's counsel had already flagged that a share purchase on these terms would need a much larger holdback than originally discussed. Ishara's instinct, just as reasonably from where she sat, was to treat any request to change the deal terms as evidence that the people she had trained and trusted for years now saw her as someone to be protected against. Both reactions were understandable. Neither one, left alone, was going to get the company sold.

Why this was harder than it looked

On paper, the fix was a known one. In a share purchase, the buyer acquires the corporation itself, with every liability sitting inside it, known or not. In an asset purchase, the buyer instead acquires specific assets, such as equipment, contracts, inventory and goodwill, and generally takes on only the liabilities it agreed to assume, so a claim like the pending one would normally stay behind with the seller's corporation. Not everything stays behind so cleanly: employment obligations follow the business when the buyer takes on the seller's people, union obligations bind a successor employer, and certain tax and environmental exposures attach to what is actually being bought rather than to who signed the original contract. Moving Manuel and Fernanda's deal from a share structure to an asset structure meant the claim would remain Ishara's problem to defend, financially and legally, while the operating business itself transferred clean.

The complication was that Ishara heard the proposed switch not as sound structuring but as a verdict on her honesty. She had built the company over more than two decades, and being asked to personally retain a lawsuit while the business she built moved on without her felt, to her, like being told she was the liability. Several calls between the parties in the days after the letter surfaced went badly, with each side leaving more convinced the other was acting in bad faith. Manuel, who had never negotiated anything of this size, began preparing to walk away entirely rather than keep having the same argument.

An asset structure also carries real costs that a share deal avoids, and those costs needed explaining rather than glossing over. Contracts, leases and permits generally have to be individually assigned or re-issued to the new entity rather than transferring automatically, which takes time and sometimes requires a counterparty's consent. Employees technically need to be re-hired by the purchasing entity rather than simply continuing under existing contracts, which raises questions about continuity of service and benefits that both Manuel and Fernanda's staff and Ishara's remaining obligations needed to address correctly. None of this was insurmountable, but all of it needed to be worked through calmly, and calm was in short supply.

The underlying tension was that the legal fix and the relationship problem were tangled together. Ishara would not agree to retain the claim, even on terms that protected her financially through the purchase price mechanics, while she still felt the request itself was an accusation. Getting the structuring agreed to meant first getting the room back to a place where Ishara could hear the proposal as a business decision rather than a personal one.

There was also a real risk that delay itself would become the problem. Financing commitments have expiry dates, and Manuel and Fernanda's lender had made clear that the terms already negotiated were not open-ended. Every week spent on hurt feelings rather than deal terms brought the transaction closer to needing to be re-approved from scratch, on terms that might be less favourable the second time. The claim had to be dealt with quickly, but not so quickly that the relationship damage went unaddressed and resurfaced later in the negotiation over something else.

What we did

1. Separated the legal question from the relationship question by meeting with Ishara alone first, without Manuel or Fernanda present, so she could react to the claim and to the proposed structure without an audience. This let her express the frustration directly rather than through the deal terms, and it meant the next joint conversation started from a calmer place instead of restarting the same argument for a third time.
2. Explained the asset structure as protection for Ishara too, not only for the buyers, since an asset sale meant she would retain control over defending the claim on her own terms rather than handing that fight to new owners who had no history with the customer, the product or the file. Framed this way, the structure stopped reading as an accusation and started reading as the arrangement that actually served her own interests best.
3. Reviewed the claim itself on its merits with input from the company's insurance broker and defence counsel, to assess realistically what exposure it represented rather than letting an unquantified fear dominate the negotiation. This gave both sides a working range for the company's existing insurance coverage and Ishara's likely personal exposure, which turned an abstract fear into a number everyone could plan around.
4. Rebuilt the purchase agreement around an asset structure, itemizing exactly which assets, contracts, equipment and employees would transfer to the new buying entity, and drafting the retained-liability language so it named the claim specifically by reference to the demand letter, rather than relying on a general exclusion that Ishara's own counsel might later argue was ambiguous or that a future dispute could reinterpret narrower than either side intended at signing.
5. Identified every contract and lease requiring third-party consent to assign, including the company's premises lease and its largest supplier agreements, and started those consent requests immediately, since some counterparties took several weeks to respond and one landlord's approval could have delayed closing badly if left until the final stretch. Each was tracked against the closing date so a slow response surfaced as a scheduling risk early, not as a surprise the week of signing.
6. Structured continuity of employment for the transferring staff so that service dates, accrued vacation and benefit entitlements carried forward in substance even though employees were technically being hired by a new entity, which mattered legally for entitlement calculations under an asset sale and mattered just as much for morale on a team that already knew a sale was happening around them.
7. Adjusted the purchase price mechanics to reflect that Ishara was retaining a contingent liability, giving her a modest credit against the price rather than leaving her to absorb the claim with no financial acknowledgment at all. Framing the credit as an offset tied specifically to the claim, rather than a general discount, made the ask easier for her to accept as fair rather than one-sided.
8. Built a closing timeline with scheduled check-ins between Ishara and the buyers, rather than leaving all communication to lawyers exchanging drafts, so that friction points could be caught and addressed while there was still time to fix them instead of surfacing as a crisis in the final week before closing. Each check-in had a short agenda so the conversation stayed on the deal rather than drifting back into the earlier dispute.

The outcome

The deal closed on the schedule Manuel and Fernanda had originally hoped for, on an asset purchase structure that left the pending claim with Ishara's existing corporation. Manuel and Fernanda took ownership of the operating business, its equipment, its contracts and its team, without the claim attached to what they had actually bought. Ishara retained the corporate shell to see the claim through, backed by the company's existing insurance, with the purchase price adjusted modestly to reflect the arrangement rather than leaving her to carry the risk for nothing in return.

The claim itself was still unresolved at closing, and that was always going to be true regardless of how the deal was structured, since litigation timelines do not move to accommodate a transaction on someone else's schedule. What changed was who carried the risk of how it eventually resolved. Manuel and Fernanda closed knowing their exposure was limited to what they had actually agreed to take on, rather than an open-ended liability sitting inside a company they now owned and depended on for their livelihoods.

The relationship between the three of them survived the process, which was not guaranteed at the point the letter first surfaced. Ishara stayed involved for a transition period after closing, training Fernanda's team on supplier relationships she had built over more than two decades, something that would have been far less likely if the dispute over the claim had ended the deal or ended the goodwill between them permanently. The structuring solved the financial problem. The separate, deliberate work of letting Ishara be heard before being asked to sign anything is what kept the deal, and the working relationship behind it, intact through to closing and beyond, in a way a purely technical fix delivered without that step would likely not have managed on its own.

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