Managing Indirect Parent Entity Change of Control Triggers in Supply Contracts
Managing indirect parent entity change of control triggers involves mapping beneficial ownership, negotiating affiliate carve-outs, and placing price holdbacks.
Non-Assignment Clause
Meaning
Restrictive provision in a contract preventing the transfer of rights or obligations to a third party ensures that the original participants remain the only ones involved in the bargain. The non-assignment clause protects a company from having its contract sold to a competitor or an unreliable partner. It is a control term found in almost every commercial agreement.
Transfer Restriction
Most of these clauses require the written consent of the other party before any change can happen. The non-assignment clause might allow for exceptions, such as a transfer to a subsidiary or a merger. Without this language, a party could sell its right to receive payment to anyone.
Breach Consequence
Attempting to move a contract in violation of this rule usually makes the transfer void. The non-assignment clause gives the non-breaching party the right to cancel the agreement immediately. This provides leverage during negotiations when one company is being sold to another.
Because the contract cannot be moved without permission, the buyer must often negotiate with all the target’s partners.
Negotiation Point
Buyers of businesses want these clauses to be as flexible as possible to allow for future growth. The non-assignment clause is often a point of contention during the due diligence phase of an acquisition. If a key supplier has a strict rule against transfers, the buyer might demand a lower price.