Cap’s, de minimis and buckets – limiting the liability

In the process of negotiating a M&A transaction, the lawyers are likely to at some point start discussing whether market practise is that “de minimis is ten per cent of the bucket” or what will happen once “the bucket is full”. This M&A lingo refers to the limitations of a seller’s liability in case of a warranty breach.

De Minimis – refers to the minimum amount of an individual loss due to a breach of the warranties. If the de minimis is set to SEK 100,000, this entails that an individual breach of warranty causing a loss for the company of less than SEK 100,000 will not be considered at all.

The Bucket – refers to the total amount of the aggregate losses due to all breaches of the warranties that must have been reached for the buyer to be entitled to compensation. If the bucket is set at SEK 1,000,000 and de minimis at SEK 100,000 there must be losses each amounting to at least SEK 100,000 totalling SEK 1,000,000 before the buyer is entitled to compensation. Whether the bucket shall “fall over” (i.e., the full amount of all aggregated losses shall be payable) or only “spill over” (i.e., only the amount exceeding SEK 1,000,000 shall be payable) is a matter of negotiation.

De minimis and bucket can be compared with the deductible (Sw. självrisk) of an insurance.

The Cap – is the maximum aggregate amount payable due to breaches of warranties. This may for example be the purchase price, or a percentage of the purchase price. Certain fundamental warranties (such as that the seller is the owner of the shares and that these are all shares outstanding in the target company) are often exempted from the cap and other liabilities.

For more information, please contact Oskar Belani.

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