Selling your company?
Selling a company can be a fraught process. But once the contract is signed and the money handed over, you may not be totally free of the past. The purchaser will probably want you to indemnify them against any inaccurate information which emerges at a later date.
For example, they may require full indemnity against any liability to pay tax in respect of periods prior to the acquisition - and this could stretch back up to six years. There could be concerns about contracts which formed part of the sale, such as those relating to intellectual property, where you cannot show absolutely clear title.
Other issues may include latent pollution, employment contracts, condition of properties or outstanding litigation.
There is a danger that such warranties and indemnities could come back to haunt you long after the deal has been done.
A purchaser will often require the seller to put part of the price paid for the company into a retention account for up to three years. This guards against something emerging later on that was not revealed by the due diligence procedure. You will not be able to make use of this retention until the expiry period, although it will be invested in an interest-bearing account.
Warranty and indemnity insurance is the safest way of avoiding such problems which may not be apparent when the deal is being done.
Such policies can be tailored to cover each of the areas of liability and protect you against claims. Anyone required to give warranties can insure. This will include corporate bodies, selling shareholders, directors and trustees.
These policies can play a key role in your risk management once the transaction has been completed - and you have the security of knowing that your nest egg cannot be snatched back from you.
Clearly, the expertise of your insurance broker is paramount. They must understand the complexities of the deal, the requirements of the client, and, in association with other professional advisers, collate all appropriate documentation.
This is where we can provide expert support and advice, please contact us on 01440 765200 to discuss any questions further.