Corporate Warranty Claims

When selling a business, the seller usually gives warranties to the buyer about various aspects of the business which is being sold, thereby reducing the inherent risks for the buyer in the acquisition.

On a share sale, the buyer generally acquires an entity along with all its assets, rights and liabilities, whereas if only an asset sale, the buyer will not take on all the liabilities.  Warranties are important for a buyer in both scenarios.

Warranties can extend to numerous important matters including accounts, finances, premises, equipment and machinery, stock, contracts, employees, IT, environmental issues, disputes, litigation and tax.

A buyer’s solicitor will seek to obtain as much protection for the buyer as possible in terms of the nature and scope of the warranties to be provided, whereas a seller’s solicitor will be seeking to restrict them as much as possible.

Warranties given often only apply for a set period of time and there can also be additional time limits for notifying possible or actual warranty claims and for issuing proceedings.  If these requirements are not fully complied with, what would otherwise have been a perfectly valid warranty claim can become contractually barred.     

Where a breach of warranty can be established, it is then necessary to address what loss has been suffered and is potentially recoverable from the Seller as a consequence.  Calculating such loss can be a complicated process especially in share sale cases. 

If you have recently bought a business with the benefit of warranties, which you think have been breached by the seller, or you are a seller of a business and it is now alleged against you that you are in breach of warranty, please contact us if you would like to discuss the merits of the warranty claim in question with a member of our experienced litigation team.