A Going-Concern Clause and the Gift Cards Nobody Priced In

The situation

Neil's offer to buy his largest local competitor's four-location home design retail chain sat at roughly 3.2 million dollars, and as the deal moved into its final weeks a second, unresolved number threatened to eat into it. The seller, Winston, had built the chain over two decades and run an aggressive gift card and loyalty program for most of that time, selling gift cards at a discount around the holidays and crediting loyal customers with store credit worth a percentage of what they spent. Nobody, including Winston, had a confident figure for how much of that credit was still outstanding and redeemable.

Neil, an architect by training who had left design practice years earlier to build his own chain of kitchen and lighting showrooms, saw the acquisition as a way to roughly double his footprint across the region in one step. The two businesses served the same customers, carried overlapping product lines, and combining them made obvious commercial sense. The asset purchase agreement Neil's team drafted was structured to buy the stores, the inventory, the leases and the customer list, while leaving behind the seller's existing liabilities, including whatever was owed on outstanding gift cards and loyalty credits.

Winston's sales director, Craig, ran point on the sale for the seller's side and pushed hard, early in the negotiation, to have the purchase agreement describe the transaction as a sale of the going concern rather than a narrower asset purchase, arguing it would look cleaner to the chain's landlords and suppliers. Neil's team agreed to the language without fully appreciating, at the time, what it might later be read to imply about which obligations travelled with the business and which did not.

As the deal approached closing, customers who held gift cards and loyalty credits from Winston's stores began asking, at the counter and through the chain's customer service line, whether those balances would still be honoured once the sale closed. Winston's estimate of the outstanding balance, when he finally produced one, came in far higher than either side had planned for, deep into six figures across four locations and years of an unmetered program. Neil had not agreed to take that liability on, and neither the letter of intent nor his understanding of the deal suggested he should have to.

The problem

The purchase agreement Neil's team had drafted excluded liabilities not expressly assumed, which on its face meant Winston's outstanding gift card and loyalty balances stayed with him after closing. In practice, retail customer goodwill does not respect the fine print of an asset purchase agreement. If Neil's stores stopped honouring gift cards the moment the sale closed, the customers holding them would not distinguish between the old ownership and the new one; they would simply conclude that the store they had trusted with their money had stopped keeping its word, and that reputational cost would land on Neil's business, not Winston's, regardless of what the contract said.

At the same time, Neil had never agreed to assume Winston's prepaid liabilities, and there was no reliable number attached to them. Winston's own bookkeeping had tracked gift card sales inconsistently for years, meaning any estimate of the outstanding balance carried real uncertainty. Simply accepting Winston's late, high estimate risked overpaying for a liability that might turn out to be smaller in practice, once expired cards, unclaimed balances and lapsed customers were accounted for. Simply rejecting it outright risked a public dispute playing out at the cash registers of stores Neil was about to own.

The going-concern language Craig had pushed into the agreement early in the negotiation became the central legal question. Describing a transaction that way can, depending on how the rest of the agreement is written, suggest an intention to carry forward more of the business's ordinary operations, including customer-facing obligations, than a plain asset purchase would. Winston's side later leaned on that language to argue Neil had effectively agreed to stand behind the loyalty program as part of buying the business rather than just its stores and inventory.

The commercial clock made this worse. Neil needed the deal to close on schedule to hit financing and lease assignment deadlines with the chain's landlords, and a fight over gift card liability threatened to stall the whole transaction just as it was ready to complete. Whatever answer emerged had to work within days, not months, and had to leave Neil owning stores his new customers still trusted.

There was also a harder question underneath the numbers: even if Neil and Winston agreed on a figure, who would actually administer the redemptions once the stores changed hands. Winston's staff knew the loyalty program's quirks, including which older cards still worked and which had already been reissued; Neil's team did not. Any resolution needed to account for that operational handoff as much as the dollar figure, or the stores could end up honouring the same credit twice, or refusing a valid one, in the first weeks under new ownership.

What we did

1. Traced the going-concern language back to its source. We pulled the full negotiation record, including the early email exchange in which Craig, Winston's sales director, had pushed for going-concern wording purely to reassure the chain's landlords and suppliers, with no discussion of customer liabilities at all. That record showed the phrase had never been negotiated with gift card obligations in mind, which undercut Winston's later argument that Neil had knowingly agreed to inherit them.
2. Commissioned an independent estimate of the redeemable balance. Rather than accept Winston's late, high figure or dispute it with no alternative number, we retained an accountant to review the store systems' transaction history and produce a defensible estimate of how much gift card and loyalty credit was realistically still redeemable, discounting for expired cards and dormant accounts. That estimate came in meaningfully lower than Winston's figure and gave us a number we could stand behind in negotiation.
3. Used Craig's early framing as the negotiation's turning point. Because Craig had pushed the going-concern language for reasons unrelated to the gift card program, we were able to show Winston, plainly, that his own team had introduced the ambiguity he was now trying to use against Neil. That shifted the negotiation from a dispute about what the contract meant to a conversation about what a reasonable resolution looked like, which moved things considerably faster.
4. Negotiated a capped, seller-funded contribution instead of an open assumption. Rather than Neil assuming the liability outright or refusing it entirely, we negotiated a structure where Winston funded a portion of the estimated redeemable balance into an account Neil's stores would draw on to honour existing cards and credits for a limited period after closing, capped at the independent estimate rather than Winston's higher figure.
5. Built a customer-facing transition plan into the closing documents. We set a clear, disclosed window during which existing gift cards and loyalty credits would continue to be honoured at the acquired stores, communicated to customers through in-store signage and receipts, so the chain's reputation for keeping its word carried through the ownership change instead of becoming a source of complaints.
6. Drafted precise assumption language to replace the going-concern ambiguity. We rewrote the relevant clause of the purchase agreement to state explicitly which liabilities Neil was assuming, in what amount and for how long, closing off the interpretive gap Craig's earlier phrase had left open. Precise language mattered because an ambiguous term reads however each side needs it to read once a dispute starts, and this version left nothing for either side to argue over if a similar question ever resurfaced after closing.
7. Closed the transaction on the original schedule. With the liability capped, funded and clearly documented, the deal closed on the date already agreed with the chain's landlords and lenders, rather than slipping while the gift card dispute dragged on. Meeting that date mattered on its own terms, since a missed closing risked unravelling the lease assignments Neil had already lined up with each location's landlord, and it meant the acquisition delivered the combined footprint Neil had been planning for without added cost on either side.

The outcome

The deal closed on schedule at the original purchase price of roughly 3.2 million dollars, with Winston separately funding an account of about 140,000 dollars, close to the independent estimate rather than his own higher figure, to cover gift card and loyalty redemptions at the acquired stores for the following year. Neil did not have to renegotiate the purchase price itself, and he did not inherit an open-ended obligation tied to a program he had never priced into his offer.

The transition period passed with the gift card program honoured exactly as customers expected, which meant the change of ownership was largely invisible to the people whose loyalty the two chains had spent years building. By the time the funded account was exhausted, redemption volumes had fallen close to what the independent estimate predicted, confirming that Winston's original, higher figure had overstated the real exposure.

Craig's early insistence on going-concern language, meant to reassure landlords, ended up being the detail that gave Neil's team the clearest path through the dispute, because it let the negotiation focus on what had actually been agreed rather than on competing interpretations of ambiguous wording. Winston, for his part, accepted the outcome once the independent numbers were in front of him, and the acquisition closed without the public dispute either side had reason to want.

Neil's stores kept a member of Winston's former staff on for the first two months after closing specifically to help process older gift card and loyalty redemptions, which cut down on the handoff errors that might otherwise have generated the exact customer complaints both sides were trying to avoid. Six months on, the combined four-location chain was operating under one name, one loyalty program, and a customer base that had barely noticed the ownership had changed at all.

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