Guarantor and warranty & indemnity (W&I) insurance
Austria, Czech Republic, Poland and Hungary
The buyer will require some or all of the shareholders to give warranties (factual statements about the company and its business) in the transaction agreements. If these are untrue or inaccurate the buyer may be able to claim damages from the persons giving the warranties. Typically, warranties are given by management and other shareholders with intimate knowledge of how the business is run (or at least certain aspects of it). One way of removing or limiting risk for the warrantors for any claim for a breach of warranty is to arrange W&I insurance. If it is available, then a claim can be made under the policy rather than against the warrantors. If W&I insurance is not available or if there are categories of excluded claim (e.g., known issues identified during due diligence) that the buyer still requires cover for, will it just be management left on the hook financially for any claim for a breach of warranty or will all shareholders contribute proportionately? It is worth having that conversation with shareholders early on to establish what level of support you can expect and how that might be achieved (e.g., an escrow or retained amount as between the shareholders for a period of time so that claims can be paid out of the transaction proceeds).
Slovakia
In addition to understanding how your key investors will view a potential deal if you have a larger cap table and/or a long tail of smaller shareholders, consider the content and timing of communications with that wider audience. It will be key to find the right balance of maintaining confidentiality around the sale process and keeping shareholders in the loop to avoid bottlenecks later in the process. In particular:
- check that the contact information you are holding for shareholders is up to date (including e-mail addresses for any documents to be sent for signature via DocuSign)
- consider how smaller shareholders will be engaged in the sales process (e.g., are powers of attorney appropriate and meet all legal requirements so that you or members of the management team can sign documents on their behalf)
- consider how best to deal with any potentially hostile shareholders (e.g., disgruntled former employees). Is there the ability to drag any dissenting or non-responsive shareholder, and if so, is your drag-along mechanism fit for purpose for the type of deal you are anticipating)