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This scenario reflects a common concern for sellers negotiating/agreeing an Asset Purchase Agreement (APA) or Share Purchase Agreement (SPA), in terms of how a seller can protect its interest and right to receive deferred consideration payments. Typically, in an APA or SPA, a seller may protect the goodwill of the business and its right to receive deferred consideration payments by taking a form of security, eg security over all or part of the buyer’s assets which may include the target business assets. Security can take a number of different forms and for more information on the types of security and advantages of taking security, see Practice Note: Types of security.

In the context of the described, a common method of securing the buyer’s obligations in an APA or SPA is for a seller to obtain a guarantee of the buyer’s obligations under the APA or SPA. In this context, a buyer’s guarantee is an appropriate form of security as a buyer’s