Termination of an M&A contract and refusal to close

1. Where the transaction stalls after the contract has been signed

Where the definitive agreement has been signed but the transaction is not completed on the day it was due to be, or the other side gives notice that it will not complete, the first step is to establish the ground on which the other side is refusing. The provisions that fall to be considered differ according to whether the assertion is that a condition precedent has not been satisfied, that an obligation under the contract has been breached, or that circumstances have changed so that the transaction itself should be reconsidered.

The reason is sometimes not stated, and sometimes several reasons are given at once. The reasons the other side puts forward are reorganized by reference to the provision of the contract each corresponds to, and the position on financing and on internal approvals is checked as well.

The dates laid down by the contract are checked at the same time: the scheduled closing date, the deadlines for the procedures on which completion depends, and whether there is a provision allowing termination where the transaction is not completed by a given date, together with that date. Such a provision is commonly referred to as a long-stop date provision. For termination on that basis as well, the party checks whether there is a provision restricting the right to terminate of a party whose own breach of obligation caused the transaction not to be completed. Where that date is close, a decision whether to continue negotiating or to take steps under the contract may be needed at an early stage.

The state of preparations on the party's own side is also checked: whether, as to the conditions precedent that fall to it, the necessary steps have been completed, whether supporting evidence can be produced, and whether the documents to be delivered on the closing date are all in order. Where non-performance by the other side is to be asserted, what may be in issue is not only that preparations had been made but whether performance was actually tendered in the manner the contract lays down and whether the other side refused to accept it. Where, however, the other side has refused acceptance in advance, it may be sufficient to give notice that the preparations have been made and to request acceptance, so the manner of tendering performance, and the response to a refusal to accept it, need to be considered in advance in the light of how the other side is behaving.

Records of the exchanges between the parties are also important. Exchanges that appear to amount to an oral agreement to postpone completion or to vary a condition may later become the issue of whether the contract was amended. Where the contract provides that amendments must be in writing, the relationship with that provision is checked as well.

2. Conditions precedent that have not been satisfied, and the obligations of the parties

In a definitive M&A agreement, the obligation to complete the closing is as a general rule made conditional on certain matters being satisfied. Typical examples are that the representations and warranties are accurate, that the covenants have been performed, that the necessary regulatory approvals and filings have been completed, that the consent of counterparties, financial institutions or other third parties has been obtained, and that no material adverse effect has arisen in relation to the target company.

What calls for attention here is that a provision described in the contract as a condition precedent is not necessarily treated in the same way as a condition in the legal sense. In many cases these provisions are laid down as requirements for calling on the other side to perform its obligation, and the failure of a condition does not of itself deprive the contract of effect. What can be done where a condition is not satisfied varies according to whether the provision is framed as a requirement of the obligation to complete or as a ground giving rise to a right to terminate.

The provisions on waiver of a condition are checked as well. The starting points are whose obligation to complete the condition is attached to, and who is stated to have the power to waive it. A party's waiver of a condition attached to its own obligation to complete does not mean that a different condition attached to the other side's obligation to complete has been satisfied. Nor does the ability to waive a contractual condition make it possible to dispense with a procedure required by law, such as a regulatory approval. Where a condition affects the interests of both parties, it may not be capable of being waived unilaterally.

The treatment of a case in which a regulatory approval or a third party's consent is not obtained in time frequently gives rise to difficulty. Contracts commonly impose an obligation to cooperate towards the satisfaction of the conditions, or an obligation to use efforts to that end, and the content and degree of that obligation becomes the point in issue.

The treatment of a case in which the condition failed because of the conduct of the party refusing to complete also needs to be considered. The question is whether, where that party did not produce the materials required or did not give the cooperation needed for a filing, it may refuse to complete on the ground that the condition has not been satisfied. This is considered after checking whether the provision concerned can be said to amount to a condition in the legal sense, and where the contract lays down an obligation to cooperate, framing the matter as a breach of that obligation is also an option. What has to be done before the obligation can be said to have been performed differs according to the wording of the contract, the nature of the procedure and the cooperation that was asked of the party.

A contract cannot determine the decision of an administrative authority or the timing of that decision, but the parties can agree between themselves how far each will go towards obtaining an approval and who is to bear what if it is not obtained by the deadline. In a transaction that depends on obtaining an approval, what tends to make the practical difference is how the parties have provided in advance for an extension of the timetable where the process takes longer than expected, for the allocation of any additional work required, and for the treatment of the matter if the approval is still not obtained. Because the procedures differ considerably from one sector to another, for transactions in regulated sectors see also the guide on cross-border M&A and regulatory requirements, the guide on M&A involving financial services companies and financial regulation, the guide on M&A involving healthcare institutions under the Medical Care Act and administrative procedure, and the guide on M&A involving pharmaceutical and cosmetics companies and pharmaceutical and medical device regulation.

3. A downturn in performance, material adverse change provisions and breach of covenants

Where the target company's performance deteriorates after signing, a buyer may refuse to complete on the ground that a material adverse effect has arisen. Whether that assertion succeeds turns largely on how the provision in the contract is drafted, and there is no generally settled numerical or temporal standard for how large a downturn is enough.

The first thing to check is the range of events covered: whether the provision is confined to changes in the target company's financial position or results of operations, whether it extends to matters concerning future prospects, and whether there is a provision excluding movements affecting the target company's industry as a whole, or matters outside the parties' control such as economic conditions or changes in the law.

The next question is the assessment of materiality. Some contracts lay down a standard by amount or by period. Where none is laid down, what is checked is whether the matter falls within the events the provision covers, whether it falls within an exclusion, what point in time the provision takes as its reference point, and what effect the event is having on the target company's business and for how long that effect is expected to last. These are matters checked in order to read the provision concerned; they are not put forward as a common standard of assessment established under Japanese law.

The treatment of matters already known, or already disclosed, at the time of signing likewise depends on how the provision is drafted. It does not follow as a matter of course that a matter falls outside the provision merely because it was known or had been disclosed; how the exclusions are worded, and the relationship with the provisions defining the scope of disclosure, have to be checked. Where a matter that had been disclosed then grows beyond what was expected, the outcome may likewise vary with the drafting of the provision.

Breach of a covenant is also sometimes asserted as a ground for refusing to complete. It is usual for the contract to impose, for the period between signing and closing, an obligation to operate the target company in the ordinary course of business, an obligation to obtain the other side's prior consent to certain acts, and an obligation to give notice where a material event occurs. Whether a breach of these allows a party to refuse to complete depends on the nature and degree of the breach and on whether the contract excludes minor breaches.

A provision on material adverse effect may be placed as a condition precedent to completion or as a ground giving rise to a right to terminate, and it may bear on both. What can be asserted varies with where, and in what form, the provision has been placed.

4. Requiring performance, termination and damages

Where the other side is refusing to complete, the steps to be considered are requiring the transaction to be completed in accordance with the contract, terminating the contract, and claiming damages. These are not alternatives from which only one can be chosen. A party may require completion and at the same time claim damages for loss caused by the delay, and there are cases in which the requirements for termination are met but those for damages are not. After checking the requirements for each and whether they can stand together, the approach is decided in the light of whether there is still any practical benefit in completing the transaction, whether the other side has the means to pay, and how far the target company's business is being affected.

Where completion is to be required, a party may, besides the contractual claim to performance, consider applying for a provisional remedy, depending on the circumstances. A provisional remedy is a Japanese court procedure for interim relief pending a decision on the merits. Whether the delivery of shares or the payment of the price can in fact be compelled, however, varies with the content of the obligation and the position of the other side, and it not infrequently takes time.

As to termination, the party first checks whether the matter falls within the grounds for termination laid down by the contract, and considers alongside that whether it is a case in which the contract may be terminated under the law. The law provides both for termination after a demand for performance and for termination without such a demand, and the steps required differ according to which applies. Even where a demand is made, the contract may not be terminated where the non-performance at the time the period expires is minor in the light of the contract and the generally accepted ideas of the transaction concerned, so making a demand does not of itself mean that the contract may be terminated. Where the contract lays down the procedure or the method of notice for termination, that has to be followed.

Termination does not extinguish every obligation under the contract. Provisions on confidentiality, on the bearing of costs, on the method of dispute resolution and on announcements are as a general rule stated to survive termination. Where a deposit or part of the price has already been paid, or where materials or equipment have been delivered in advance, what is to be returned and how, by way of restitution on termination, has to be worked out. Where money is to be returned, interest must be added from the time it was received. Where the contract provides for a penalty or a termination fee, the party checks the amount and whether loss exceeding that amount may be claimed.

The scope of damages is also a point of dispute. Whether the profit that would have been obtained had the transaction been completed may be claimed, or whether recovery is limited to the costs incurred, varies with the provisions of the contract and the circumstances of the matter. Where a buyer refuses to complete on the ground that it was unable to raise the acquisition finance, it does not necessarily follow that it is relieved of liability, and the position is considered by checking how the contract treats the financing.

5. Negotiations, litigation and arbitration

In a dispute of this kind the passage of time itself causes harm. Unease may spread among the target company's employees and counterparties, regulatory procedures may stall, and arrangements with financial institutions may become harder to manage. Even where negotiations are to continue, options such as extending the closing date, varying some of the conditions or adjusting the price are pursued after checking what has to be provided for under the contract. What is agreed is recorded in accordance with the provisions of the contract, including as to whether an amendment in writing is required.

Evidence is secured in parallel. Exchanges around the closing date, materials on internal decision-making, materials on the target company's performance, and materials showing the course of the regulatory procedures will be needed later to support the case. They are also the starting point, organized in chronological order, for considering whether the circumstances the other side asserts actually arose and whether they can amount to a ground for refusing to complete.

The choice of procedure follows the dispute resolution provision in the contract. Where arbitration is provided for, the arbitral institution and the seat are commonly fixed in advance, and where an application for a provisional remedy is to be made is considered alongside that. Where the other side is a party outside Japan, how the law applicable to the contract has been provided for, and whether a decision could in fact be given effect, also need to be taken into account.

A resolution in which the transaction is completed and the problems that have come to light are dealt with through indemnification is also possible. The matters to consider in that case are dealt with in the guide on breach of representations and warranties in M&A and indemnity claims. Where the release of a former owner-manager's personal guarantee was made a condition of completion, see also the guide on personal guarantees that remain after an M&A or business succession.

How we assist

For those in dispute over closing or termination

We review the relevant materials and the sequence of events and assist with considering the rights and obligations arising under the contract and the applicable law and the approach to be taken. Depending on the scope of the engagement, we negotiate with the other side, act in court and other proceedings, and work with the professionals the matter requires. When you contact us, please let us know through the inquiry form, so far as you are able, the current situation, whether you have received any notice from the other side, and any deadlines you are aware of. You are welcome to contact us before all the materials are available.

Contact us about termination of an M&A contract or about closing

Whether we are able to accept instructions, and the scope of our support, is confirmed individually after checking for conflicts of interest.

Related pages

Breach of representations and warranties in M&A and indemnity claims — whether and to what extent indemnification may be claimed for problems that come to light after an M&A transaction has been completed, the deadline for giving notice, and set-off and the withholding of payment.

Personal guarantees that remain after an M&A or business succession — the negotiations for release of a personal guarantee that remains after an M&A transaction or a business succession, the response where a demand is made, and recourse after payment.

M&A and business succession (practice area) — our work on structuring M&A transactions, legal due diligence, drafting and negotiating contracts, support at closing, post-merger integration and business succession.

Key legislation and official sources

English translations of legislation are provided for reference. The Japanese texts are authoritative.

Where it appears	Legislation	Source type
Conditions and their effect; interference with the fulfillment of a condition	Civil Code（民法）	Japanese legislation
Tender of performance, including tender by notice where acceptance has been refused in advance; the effect of a refusal to accept performance	Civil Code（民法）	Japanese legislation
Termination after a demand for performance and the exception for minor non-performance; termination without a demand	Civil Code（民法）	Japanese legislation
Effects of termination, restitution, interest from the time money was received, and damages alongside termination; the presumption as to a provision for a penalty	Civil Code（民法）	Japanese legislation
Damages for non-performance of an obligation and the scope of recoverable loss	Civil Code（民法）	Japanese legislation
Compelling performance of an obligation	Civil Code（民法）	Japanese legislation
Enforcement of an obligation to deliver or to pay	Civil Enforcement Act（民事執行法）	Japanese legislation
Applications for a provisional remedy	Civil Provisional Remedies Act（民事保全法）	Japanese legislation
Arbitration agreements and the seat of the arbitration	Arbitration Act（仲裁法）	Japanese legislation
The law applicable to the contract	Act on General Rules for Application of Laws（法の適用に関する通則法）	Japanese legislation

Legal information reviewed: 2026-09-18

Frequently asked questions

Contact

Where closing or termination is in dispute

On termination of an M&A contract and refusal to close, we check the relevant materials and the sequence of events, and assist with considering the rights and obligations arising under the agreements and the applicable legislation and the approach to be taken. To the extent instructed, we conduct negotiations with the other party, act in court and other proceedings, and work with other professionals where needed. When you contact us, please let us know through the inquiry form, so far as you are able, the current situation, whether any notice has been received from the other party, and any deadlines you are aware of. You are welcome to contact us before the documents have been gathered.

Contact us about termination of an M&A contract or closing

Whether we are able to act, and the scope of our work, are confirmed individually after a conflict check.

Related Pages

Related Pages

Breach of representations and warranties in M&A and indemnity claims

A legal guide to problems that come to light after an M&A transaction has been completed, covering whether an indemnity claim can be brought and its scope, the deadline for giving notice, and the consideration of set-off and the withholding of payment.

Personal guarantees that remain after an M&A or business succession

A legal guide to personal guarantees that remain in place after an M&A or business succession, covering discussions about release, what to do where a demand has been received, and reimbursement after payment.

M&A and business succession (practice area)

An overview of our work on structuring M&A transactions, legal due diligence, the preparation and negotiation of contracts, support at closing, post-merger integration, and business succession.

This article is provided for general informational purposes only and does not constitute legal advice on any specific matter. Please consult us regarding your specific situation. The content is based on the laws and regulations in effect as of the date of the last update.