Legal Alerts

U.S. Sanctions on Russia and Post-Closing Obligations in M&A Transactions: “Dust-Off” Your Closing Binder

Washington D.C. (May 13, 2022) - The imposition of U.S. sanctions against Russia may impact the obligations of the parties following the closing of an agreement for the purchase and sale of equity interests or assets under circumstances that may not be anticipated. Typical obligations that survive and remain effective for a period of time following closing include (i) the obligation of a party to indemnify the other for losses arising from breaches of representations, warranties, and covenants under the purchase agreement, and (ii) the contractual obligation of a buyer to make earnout payments to a seller.

While parties may not have violated any sanctions prior to or at closing, things may have changed after the closing – such as the imposition of new sanctions. Circumstances that could trigger a sanctions violation in such an eventuality include: (i) one or more of the original parties may be deemed to be a blocked person or blocked entity, (ii) the transaction may be deemed to be a blocked transaction, (iii) the purchaser may be unable to effect payment in the agreed upon currency, or (iv) a party may be unable to draw on funds held in escrow with certain third-party financial institutionsSee also our May 5, 2022 alert.

In the event of a sanctions violation following the closing, the parties have limited legal recourse or options because courts in the District of Columbia and Delaware defer on matters related to foreign policy when the parties jointly attempt to enforce contractual provisions. Alternatives that may offer the parties some benefit (or relief) include application for a license that allows an exception to the sanctions to (i) carry on the post-closing obligations as contemplated by the purchase agreement or as modified by the license, or (ii) allow the parties to wind down the transaction. See generallyThe Economic Impact of U.S. Sanctions With Respect to Cuba70 CAIL Annual Institute on Oil & Gas Law § 6.02 (2021), (where U.S. entities were given a period of time to wind down the remaining obligations under the purchase agreement).

Because of the risk of drastic consequences arising from the subsequent imposition of sanctions, parties to a purchase agreement containing post-closing obligations that remain in effect should consider seeking experienced assistance with a due diligence review of asset or equity interest agreements to verify that the parties remain in compliance with applicable sanctions and are providing as much protection as possible against unexpected developments in the current volatile environment.

For more information on this topic, contact the authors of this alert or other members of our Ukraine Conflict Response Practice team. Visit our Ukraine Conflict Response Practic page for additional alerts in this area.


J. Mario Fontes Jr., Partner

Cheneise V. Wright, Associate

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