Liability after selling a business

This is an important question and the answer is yes, a buyer can potentially sue you after a business sale, though whether they would succeed depends entirely on the circumstances. Let me walk you through the main areas of risk.

Claims arising from the sale agreement:

The most common source of post-sale claims is the sale and purchase agreement itself. When you sell a business, you will typically give warranties and sometimes indemnities. Warranties are statements of fact about the business, for example that the accounts are accurate, that there are no outstanding legal claims, that key contracts are in place, or that the business complies with relevant regulations. If any of those warranties turn out to be untrue, the buyer can bring a claim for breach of warranty. Indemnities go further and provide a pound-for-pound reimbursement for specific identified risks.

The scope and limitation of these claims will depend heavily on the drafting of the agreement. Well-drafted agreements typically include limitation provisions such as time limits for bringing claims (often 12 to 24 months for general warranties, longer for tax), financial caps on liability, de minimis thresholds below which claims cannot be brought, and disclosure mechanisms that may limit your exposure where you disclosed known issues before completion.

Misrepresentation:

Even outside the warranties in the agreement, a buyer may claim that you made misrepresentations during the sale process, whether fraudulently, negligently, or innocently. Under the Misrepresentation Act 1967, the buyer could seek rescission of the contract or damages. Fraudulent misrepresentation is particularly serious because contractual limitation clauses generally cannot exclude liability for fraud. Many sale agreements include "entire agreement" and "non-reliance" clauses to try to limit exposure to misrepresentation claims, but these do not provide absolute protection, particularly where fraud is alleged.

Hidden liabilities:

If the sale involved a transfer of the company (share sale rather than asset sale), the buyer takes on all the liabilities of the company, including those that were not known at the time. If it turns out you knew about liabilities and failed to disclose them, that could ground a claim for breach of warranty or misrepresentation.

In an asset sale, the position is different because the buyer typically only takes on the liabilities they have agreed to assume, though there are some liabilities that transfer automatically, such as employment liabilities under the Transfer of Undertakings (Protection of Employment) Regulations 2006.

Restrictive covenants and ongoing obligations:

The sale agreement may also contain restrictive covenants preventing you from competing with the business for a period of time or soliciting its customers or employees. If you breach those, the buyer can sue for an injunction and damages.

Post-completion adjustments:

Many agreements include completion accounts mechanisms or earn-out provisions. Disputes about the final price or earn-out payments are a frequent source of post-sale litigation.

Practical considerations for protecting yourself:

1. Make sure the sale agreement includes properly drafted limitation provisions with clear time limits, financial caps, and basket or de minimis thresholds.

2. Ensure a thorough disclosure process takes place before completion. A well-prepared disclosure letter, with supporting documents, is one of the best protections against warranty claims because a buyer generally cannot claim for matters that were fairly disclosed.

3. Keep copies of all documents, correspondence, and records relating to the sale and the disclosure process.

4. Be truthful and complete in all representations made during the sale process. The single biggest risk factor for post-sale litigation is a seller who conceals or misrepresents material information.

5. Consider whether warranty and indemnity insurance might be appropriate. This is increasingly common and can transfer the risk of warranty claims to an insurer.

6. If the agreement includes an earn-out, make sure the terms are clearly defined to reduce the scope for disputes.

If you are at the stage of negotiating a sale, the time to manage these risks is now, through careful drafting and thorough disclosure. If you have already completed a sale and are concerned about a potential claim, the key questions would be what specifically the buyer is alleging, what the sale agreement says about limitations and dispute resolution, and what was disclosed before completion.

If you can share more detail about your situation I can give you more targeted guidance.