Beware the ​‘tail gunner’ — Edmond de Rothschild Securities (UK) Ltd v Exillon Energy plc

The High Court recently upheld a so-called ‘tail gunner’ clause, entitling an adviser to a substantial success fee even though their engagement had been terminated.

It is common market practice for the engagement letters of financial advisers appointed on corporate transactions to provide for a fee to be paid on the successful conclusion of the matter. Given that such engagements can typically be terminated at fairly short notice, however, this leaves the adviser at the risk of a client terminating their engagement before completion in order to avoid paying the success fee. To overcome this, the adviser’s engagement letter will often include a ‘tail gunner’ clause providing that if the transaction completes within a specified period after the engagement has been terminated, then the success fee will still be payable by the client.

In a recent case, a shareholder was causing problems for a company, publicly criticising the board and proposing resolutions at a general meeting that, if passed, would remove the existing chairman and appoint a number of the shareholder’s nominees to the board…

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