Indemnification Purchase Agreement

„Click here to read more articles from our M&A and Corporate Governance newsletter. In the absence of a contractual provision that addresses these concerns, buyers and sellers retain general infringement rights as an exclusive remedy. In order to give both parties greater certainty as to the burden of debts discovered after conclusion, the parties may include in the contract of sale so-called compensation provisions that set the rules of road traffic. Indemnification is a contractual remedy and risk allocation mechanism negotiated by the parties to an M&A transaction to address certain issues and losses after closing. [1] The divergent objectives of the parties and the potential impact that compensation could have on the economic viability of the business as a whole often make the most negotiated indemnification provisions in an acquisition contract. It is worth mentioning here the increasingly popular and important amendments that are increasingly accompanied by co-purchase contracts, i.e. tax dscriptors already mentioned at the beginning of this article. A tax return is a separate document signed by both parties at the same time as the SPA. This document is derived from English law and is a very practical instrument used by the parties to a transaction to indicate the measures to be taken in the event of the appearance of certain circumstances set out therein in tax matters. Since tax matters are currently a very sensitive aspect of transactions due to significant changes in the legislation and practices of tax authorities, a tax return generally provides that the seller is fully responsible for the company`s tax arrears relating to the period prior to the closing date of the transaction.

On the other hand, damages are the alternative remedy available under the Contracts Act. The damages thus awarded, as mentioned above, considerably penalize the buyer, since the law imposes on the plaintiff several conditions that may limit and claim the extent of the damages. In addition, the absence of a ceiling for the damages that can be invoked exposes the seller to uncertain liability. Therefore, this allocation of risks and liabilities constitutes a guarantee for the transaction through a indemnification clause in an ESL, since the risk of one of the parties to the transaction is defined. The law allows for a great deal of flexibility in the negotiation of compensation provisions. The parties may choose to include indemnification as an appeal for all post-closing claims that they deem material having regard to the specific facts and circumstances of the transaction. The parties may also choose to extend the amount of refundable losses beyond what is generally available in disputes (e.g. B attorneys` fees, incidental, special or consequential damages).

Since the exemption is a contractual remedy, the parties have the opportunity to negotiate who is entitled to recovery under the indemnification provisions and from whom they can recover. This allows the parties to entrust certain rights and obligations to natural or legal persons who might not otherwise be parties to the takeover contract. For example, the buyer might want to give its shareholders, employees, senior managers and directors the opportunity to redress against the sellers` shareholders, while the buyer and sellers are the only parties to sign the agreement. It is therefore important that the third-party beneficiary clause of the agreement be explicitly waived so that non-partisan beneficiaries can benefit from the compensation provisions. . . .