Further Assured by a Power of Attorney

Scenario Introduction

A Hong Kong-based private equity firm acquires a Japanese biotech company under a Share Purchase Agreement (SPA). The seller is the company’s eccentric founder and sole shareholder, who repeatedly signals that once the transaction closes, he plans to vanish into a life of financial independence and silence, with no further involvement and no forwarding address.

Although the deal appears final on paper, several post-completion actions remain pending. These include the assignment of environmental permits, registration of key licenses, and transfer of supplier agreements. However, commercial pressures during negotiations led the buyer to release the full purchase price at closing, with no holdback or escrow to secure the seller’s cooperation.

This raises an immediate concern: what happens if the seller truly disappears and fails to complete the remaining administrative steps?

Legal Oversight and Consequences

The SPA includes a typical further assurance clause requiring the parties to “do all acts and execute all documents necessary” to give effect to the agreement. While this wording reflects good intentions, it offers limited protection if the seller becomes unresponsive or unreachable.

Without the seller’s cooperation, the buyer could face:

• Incomplete license transfers, potentially halting regulated operations

• Contracts and permits still legally tied to the seller

• Costly delays or noncompliance, with limited short-term legal remedies

In founder-led exits, this problem is not uncommon. Once the purchase price is paid and the founder has no further financial interest, the incentive to engage disappears.

Legal Fix: Power of Attorney Executed as a Deed

To mitigate this risk, the buyer should have secured an irrevocable, limited power of attorney (POA), granted as security and executed in the form of a deed, rather than a contract. While not a complete substitute for active cooperation, this is often the only practical tool available when the seller is unwilling or unavailable.

• Irrevocable Power of Attorney (POA)

  ◦ This allows the buyer, or its nominee, to act on behalf of the seller for limited, post-closing administrative matters, such as signing transfer documents or regulatory filings.

  
  

• Execution as a Deed

  ◦ Under Hong Kong law, for a POA to be irrevocable and enforceable as a security interest, it must be executed as a deed. This ensures the POA remains valid even if the seller later becomes incapacitated, disappears, or attempts to withdraw cooperation.

Why It Works Under Hong Kong Law

Section 8 of the Powers of Attorney Ordinance (Cap. 31) provides that a power of attorney is irrevocable if:

• It states clearly that it is irrevocable, and•

It is granted to secure the performance of an obligation or to protect the donee’s interest

This type of “security POA” is highly effective for administrative formalities that do not require commercial discretion. It cannot replace active decision-making, but it enables the buyer to complete pending paperwork without chasing an uncooperative seller.

Improved Drafting Language

SPA Clause: Irrevocable Power of Attorney

“The Seller shall, on Completion, execute and deliver a power of attorney in favour of the Buyer (or its nominee) in the form annexed to this Agreement. The power of attorney shall be irrevocable and granted by way of security for the performance of the Seller’s post-completion obligations, including the execution of documents and actions necessary to effect the transfer or registration of permits, licenses, and contractual rights.”

Deed of Power of Attorney

“This Power of Attorney is made by way of security for the performance of the Seller’s obligations under the Share Purchase Agreement dated [insert date], and shall be irrevocable notwithstanding any incapacity, absence, or unavailability of the Seller.”

Key Takeaway

A standard further assurance clause is no guarantee of post-closing performance, particularly when dealing with sellers who intend to disengage completely. In transactions with no payment holdbacks and uncertain cooperation, an irrevocable power of attorney executed as a deed provides critical protection. It allows buyers to complete essential formalities without delay.

Katherine Chan Law Office regularly advises on transaction structures that go beyond boilerplate protections. With precise drafting and enforceable fallback mechanisms, clients can secure control even when sellers disappear.

Disclaimer

This article is for informational purposes only and does not constitute legal advice. The scenario described is fictional and any resemblance to actual events or entities is purely coincidental. Laws and regulatory requirements vary by jurisdiction, and the analysis above does not cover every possible legal or practical option. For advice tailored to your specific situation, please consult Katherine Chan Law Office or a qualified legal professional. No liability is accepted for reliance on the content herein.