Allocating Foreign Investment Risk through Capped Efforts Covenants and Break Fees
Foreign investment risk relies on tying quantitative divestiture caps directly to reverse break fee escrow releases in neutral holding seats.
Reasonable Best Efforts
Meaning
Diligence clauses in commercial contracts set a high bar for performance without demanding the exhaustion of every possible resource. Negotiators use reasonable best efforts to strike a balance between a standard reasonable efforts clause and an absolute best efforts mandate. This requirement forces a party to act with the same urgency as someone seeking to achieve their own commercial goals.
Performance Intensity
The obligated party must seek the objective with a high degree of persistence and creativity. It cannot simply stop after the first obstacle appears but must instead seek alternative paths to success.
Financial Limitation
Unlike an absolute standard, this obligation does not require a party to take actions that would result in a heavy net loss. The duty remains anchored to what is commercially feasible within the context of the agreed transaction.
Evidentiary Proof
Compliance is demonstrated through a documented trail of attempts to clear hurdles and meet milestones. If a regulatory approval is denied, the party must show that it provided all requested information and engaged in active negotiations to reverse the decision. Failure to appeal an adverse ruling might be viewed as a lack of the required diligence.
Detailed logs of communications and internal strategy meetings provide the necessary evidence to defend against claims of breach.