SPECIFIC TAX INDEMNITIES IN AN M&A DEAL WHERE SELLER TO BE LIQUIDATED

A buyer in a European property deal valued at EUR200 million was insured for claims arising under tax warranties and eight specific tax indemnities. The seller was a property investment fund which intended to liquidate in the near future.

The claims covered historic tax risks, with a potential amount of EUR10 million, identified by the buyer’s accountants during their due diligence work. A policy with a EUR10 million limit was issued. The eight specific tax risks had to be underwritten, which involved detailed analysis of each risk.

Given the seller’s intention to liquidate, the buyer made the purchase conditional on the insurance policy in its name being in place from the signing of the sale agreement. The seller raised the question of whether these tax matters were insurable and paid the premium to give the buyer the protection it needed to proceed with the acquisition.

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