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  • Writer's pictureRajvin Singh Gill

M&A: Ensuring the Seller compensates for damages/fulfills indemnity obligations

During an M&A transaction, the buyer might discover that even though the seller has provided well-crafted representations, warranties, and indemnities, they may not be very beneficial if the seller lacks the financial capability to compensate for any damages or fulfill the indemnity obligations.

Several ways to avoid this:

  • Organize the payment of the agreed consideration in multiple installments, and grant the purchaser the authority to offset the claimed amount against the subsequent payment tranches.

  • The buyer has the option to withhold a portion of the consideration for an agreed-upon duration to address any potential claims that might arise during that period. After the agreed period concludes, the buyer will release the retained amount, deducting any valid claims brought forth during that time.

  • In the case where the seller is a corporation, the buyer has the option to seek a guarantee from the shareholders of the seller. However, the purchaser must ensure that the financial standing of the guaranteeing parties is satisfactory before accepting the guarantee.

  • The purchaser may request the seller to offer a bank guarantee as a safeguard against any future claims. While this is a highly secure approach for the purchaser, the seller will incur expenses to obtain the bank guarantee. I have observed bank guarantees being utilized to ensure payment from sellers in situations where there is a deficit in profit guarantees.

Let's Chat

Should you have any questions regarding the above or would like to know more on how to secure yourself as a buyer from such a seller, please feel free to contact us to schedule a complementary consultation or just email your question to us!


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