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16 Oct 2024
Insight
Asia
Put options are common in investment agreements, offering investors a contractual exit route when specific triggers are met. Here are six considerations when enforcing this right, particularly in a distressed market.
1. Triggers and Conditions
It is crucial to ensure that the put option has been properly triggered and the exercise notice has been correctly issued. Missteps in this area can have significant consequences for investors.
2. Valuation and Mechanics
It is recommended to clearly outline the valuation method and any default mechanisms in the shareholders' agreement.
3. Relief and Enforcement
When drafting a shareholders' agreement and determining a litigation strategy, consider the remedies available and their enforceability.
4. Formulating Effective Litigation Strategies
It is essential to developing a robust litigation strategy; consider the potential legal challenges, the strength of your position, and the most effective approach to achieve a favourable outcome.
5. Strategic Considerations in Triggering Put Options Amid Distress
There may be a race among investors to exercise their put options in distressed situations; evaluate the puts/claims against different actors, their maturity, and the speed of arbitration.
6. Leveraging Insolvency in Exit Disputes
Insolvency can be a powerful leverage tool in disputes. Investors may apply pressure by issuing a statutory demand and seeking to wind up the defaulting debtor. However, an arbitration clause can provide a shield in appropriate circumstances.
For further information or a copy of our Put Options crib sheet, please contact our Asia team.
Key contacts
Simon Chapman KC
Managing Partner, Dispute Resolution and Global Co-Head – International Arbitration, Hong Kong
Kathryn Sanger
Partner, Head of China and Japan, Dispute Resolution, Co-Head of Private Capital, Asia, Hong Kong
Legal Notice
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2024