Indemnities and warranties in M&A transactions

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A purchaser typically requires a seller to give indemnities and warranties to safeguard the purchaser’s interest in a share or asset purchase agreement.

From the purchaser’s perspective, there are some advantages of having indemnities over warranties, including the following:

1. The seller may be able to avoid liability under warranties by disclosing circumstances that would otherwise constitute a breach of warranty. For a claim under an indemnity, the purchaser’s actual knowledge of the relevant circumstances would not defeat the claim.

2. The general contractual principles of remoteness and foreseeability of loss will not apply to an indemnity clause that is drafted sufficiently wide. Therefore, for a claim under an indemnity, a purchaser may be able to claim losses which are difficult to foresee that a court would usually not allow under a claim for breach of contract.

3. There is English caselaw which suggests that a claim for indemnity is a claim for a debt instead of a claim for a breach of contract. If a court construes an indemnity as giving rise to a claim for a debt, there is no duty to mitigate loss.


This post was first posted on Linkedin on 20 April 2022.

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