Legacy debts are one of the hidden costs which bedevil companies in transitional situations (mergers, acquisitions, business transitions). Legacy debts refer to debt obligations incurred by a target company and its predecessors in title, which are inherited by the acquiring company. These debts are usually difficult to identify during transactional due diligence, as they are sometimes concealed within obscure transaction documentation.

The concept of odious debt refers to the particular set of equitable considerations that have often been raised to adjust or sever debt obligations in the context of political transitions based on the purported odiousness of the previous regime and the notion that the debt is incurred did not benefit, or was used to repress the objects for which the loan is taken.

It should be noted that the legal obligation to repay a debt has never been accepted as absolute and has been frequently limited or qualified by a range of equitable considerations, some of which may be regrouped under the concept of “odiousness” which may be invoked in order to invalidate debt obligations. In determining whether to assume the legacy debt, regard is often had to the purpose for which the debt was incurred. If the legacy debt was incurred for an illegal purpose or a purpose which is profligate or inconsistent with the objects of the company, the acquiring company may apply to the court to adjust or sever the legal obligations arising from the transaction.

Debts that may be viewed within this spectrum include debts undertaken by a board in order to prevent a takeover attempt, debts undertaken to subsidize personal expenses of managerial staff, as well as debts incurred to finance criminal activities. A problem may however arise where the purported odious debt conferred some tangible benefit in whole or in part upon the corporate entity and its successors in title. This implies balancing the concept of sanctity of contract against the reality of protecting the funds of the company from embezzlement or wastage.

Generally speaking, when corporate succession occurs, whether through dismemberment, acquisition or some other change that alters the nature of the corporate entity itself, legal obligations are not thought to be automatically transferred to the new corporate entity because as a formal matter the identity of the corporate entity has changed and the new company has not expressed its will to be bound by the debts incurred by its predecessors. The question thus arises whether to commence business on a clean slate, thereby reducing the incentives of companies to enter binding contracts or enshrine financial stability by inheriting the debts incurred prior to its existence.

There is a rich case law concerning the limits of contractual freedom, whereby contractual obligations have been found unenforceable or partly enforceable without substantially preventing the growth of sophisticated financial markets. Some scholars are of the view that contracts made by a predecessor that are of no advantage to the company should not be honoured, in particular where the funds have been applied to purposes that are harmful to the company. Other authors suggest that the total repudiation of the debt would cause substantial injustice and in order to equitably invoke this principle the debtor would have to partially repay the debt. This position places emphasis on equitable arguments to do what is right and just in the circumstances.

In general, the law of contract provides ample room for a judge or adjudicator to balance the equities in a case involving illegal or immoral behavior of one or more parties to the transaction. The treatment of odious debt should therefore be based on the equitable considerations underlying the transaction and the after effects of the legacy debt on the affairs of the company. Consequently, a legacy debt which enhances the book value of the firm over the long term is easier inherited than a legacy debt which leads to long run reduction on the book value of the firm. In the event of the former, the principle of promissory estoppels may apply to prevent the successor company from repudiating the debt.

Milton and Cross offers investment advisory and due diligence services to individual and corporate organizations engaging in merger and acquisitions as well as related transactions. We may be contacted directly on +2348036258312, or by email on :



The paramount objective of investment is profit, and the imperative for return on investment is no more relevant than when you have invested in a company and the company has declared a profit. The management of the company is however faced with the vexing question of determining whether to apply the profits towards issuing dividends to shareholders or to embark upon a stock buyback programme. Companies which retain substantial amounts of cash on their balance sheet make attractive targets for takeover, especially as they imply that the management of the company are incapable of effectively applying the retained earnings towards the generation of further profits for the company.


When a company repurchases its shares, it reduces the number of shares held by the public, thereby increasing the company’s subsequent earnings per share. This in turn increases the value of the outstanding shares. This option best obtains where the shares of the company are undervalued and shareholders are relatively unsophisticated. The repurchased shares may later be resold to new investors at a substantial profit to the company.


The repurchase programme has the added advantage of making the outstanding shares more expensive, reducing the attractiveness of the company as a takeover target. Moreover, buybacks reduce the assets on the balance sheet, thus increasing the company’s return on assets and return on equity without any substantial increase in the performance of the company. This cosmetic effect often impresses positively on the investment community, especially investment analysts and retail investors.


A further benefit of stock buybacks is the reduction of shareholder tax liability, making it a tax efficient form of earnings distribution. When a company makes a profit, it is statutorily obligated to pay Companies Income Tax on its profits before dividends are issued. Upon the issuance of dividends, the shareholder pays the government a withholding tax, meaning that the profits have been subjected to double taxation. Stock buybacks thus rewards the shareholder financially, without the tax liabilities inherent in dividend issuance.


Typically, buybacks are carried out in one of two ways:


  1. Tender Offer:


the company may present the company with an offer to submit, or tender, a portion or all of their shares within a certain time frame. The tender offer will stipulate both the company is looking to repurchase and price they are willing to pay, which is almost always at a premium to the market price of the shares. Shareholders who accept the offer will state the number of shares they intend to tender and the price which they are willing to accept. Once the company has received all the offers, it will find the right mix to buy the right mix to buy the shares at the lowest cost.


A variant of the tender offer is the fixed price tender offer. Whereby the company stipulates a price at which it is willing to repurchase the shares and gives the shareholders the option to accept the offer as stated. This is the method currently utilized by Unilever Plc in its recently concluded tender offer.


  1. Open Market Buyback:


This involves the purchase of the shares by the company on the open market in a manner similar to open market transactions commonly undertaken by any other party. It is important to note, however that the Investment and Securities Act (2012) requires companies to announce the commencement of a stock buyback scheme and the announcement of a buyback commonly results in a rise in the share price of the company.

There is no definite answer to the question as to whether stock buybacks are a beneficial option, as this depends upon the circumstances surrounding the tender offer.


Milton and Cross offers investment advisory and due diligence services to individual and corporate shareholders who require legal advice on the issuance or acceptance of tender offers and the elements of share repurchase transactions generally. We may be contacted directly on +2348036258312, or by email on :