Specific Indemnities in M&A Transactions

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In a Share Purchase Agreement, the warranties shall protect the buyer from losses arising out of circumstances not known by either the seller or the buyer at the time of closing the deal. If the buyer has identified certain circumstances that entail a substantial risk to materialise as a cost for the Company though it may not be possible to know for sure if, when and at what cost the risk will materialise, the buyer may ask for a specific indemnity. Such indemnity is a statement by the seller that he or she will compensate the buyer for any costs arising out of or as a result of certain specified circumstances.

On-going litigation is a classic example of a situation where it may be reasonable that the seller offers a specific indemnity. Identified environmental or tax risks where there is a certain likelihood that they will result in costs for the company at some point in time after closing of the deal, are also often being subject to specific indemnities. Since the identified risks have their roots in the time period when the seller owned the company it is reasonable to argue that he or she shall compensate the buyer krona for krona without any limitation in time or amount. Hence, the buyer usually requests that specific indemnities are not subject to any limitations such as de minimis, basket or cap on liability and that claims can be made also after the time bar set for warranty breaches.

For more information, please contact Oskar Belani.

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