Declaration and Undertaking Insurance (M&A)
Mergers and acquisitions are integral parts of the process where businesses seek opportunities to utilise their capital. It can be challenging to understand and manage the risks involved, especially when investing in unfamiliar markets or industries. Declaration and Undertaking Insurance will help you through all these challenges. The buyer can purchase a declaration and undertaking policy against its own losses arising from the seller's breach - intentional or unintentional - or the seller can purchase a declaration and undertaking policy against damage claims that may be brought against it by the buyer.
What is Declaration and Undertaking Insurance?
It is the transfer of possible future liabilities under an insurance contract in return for a fixed cost, also known as an insurance premium..
Declaration and Undertaking Insurance covers the declarations and undertakings made by the seller in the share purchase agreement. It provides coverage for possible financial losses, including legal costs incurred.
The policy can be issued as "buyer party" or "seller party".
A seller-party policy protects the seller against their own unintentional false statements. A buyer-party policy, on the other hand, protects the buyer against the seller's false statements - whether unintentional or intentional.
In addition, the risks are underwritten by the insurance markets.
Why do we need Declaration and Undertaking Insurance?
The compensation that the buyer may claim from the seller may not be received.
The compensation period requested by the buyer may not be provided.
It creates an advantage in a competitive procedure (auction).
In general, it minimises the risk of the procedure.
It provides assurance to the buyer (and financiers) regarding the declarations and undertakings made by the seller.
As it is complementary to due diligence reports, it contributes to the whole process.
It fills the gap between the expectations of the seller and the buyer.
It fills the gap between the expectations of the seller and the buyer.
Since it is not possible to talk about a share transfer agreement in sales made through public offering administration, Declarations and Undertakings Insurance cannot be applicable. However, it is possible to cover the liabilities arising from the prospectus of the company, company managers, selling shareholder or controlling shareholder, or even the financial advisors involved in the public offering process with Public Offering Insurance.