DENMARK Law and Practice Contributed by: Dan Moalem, Jakob Skafte-Pedersen, Poul Guo and Thomas Enevoldsen, Moalem Weitemeyer
is increasingly used if this can facilitate a clean exit for the private-equity seller. W&I Insurance and Market Limitations W&I insurance is widely used in Danish private equity exits, particularly in sponsor-to-sponsor and auction processes. In these transactions, the seller’s liability for business warranties is assumed by the insurer, subject to customary exclusions and a policy retention. War - ranties are commonly insured for up to 20–40% of the purchase price, and the liability period for business warranties is typically 24 months, and for fundamen - tal warranties it is 84 months. A recent trend is also that W&I insurers offer to “scrape” certain knowledge and materiality qualifiers from the warranties to gain a competitive edge in the insurance market. In competi - tive processes, the seller will typically not have liability for warranties excluded from W&I coverage nor for claims in excess of the W&I insurance cap (including no liability for claims under fundamental warranties exceeding the cap). Disclosure It is customary in Denmark to allow disclosure of the data room against the warranties. However, specific limitations may apply, such as requiring “fair” disclo - sure and excluding disclosures that are merely general or unspecific. Known issues are excluded from cover - age under W&I insurance and are instead addressed through price adjustments or specific indemnities or transaction-specific insurances, if negotiated. Private Equity Buyer Impact Where both buyer and seller are private equity-backed, there is a strong preference for market-standard allo - cation: nil seller recourse, W&I coverage, and reliance on disclosure and diligence. This creates a predict - able and efficient transaction environment focused on execution certainty. 6.10 Other Protections in Acquisition Documentation Use of W&I Insurance W&I insurance is a commonly used instrument in Dan - ish private equity transactions. It is typically applied in both buy-side and sell-side processes and gener - ally covers business warranties. In most cases, tax matters are also included, subject to standard exclu -
sions. Coverage of fundamental warranties may either be included in the policy or remain with the seller, depending on the transaction structure and negotia - tion outcome. The use of W&I insurance is particularly frequent in auction processes and transactions involving financial sponsors, where limiting residual seller liability is a priority. Transaction documentation is usually aligned with the terms and limitations of the insurance policy. As also stated previously, in competitive processes with a private-equity seller, there will be no residual liability on the seller and all warranties, including tax and fundamental warranties, will be a matter between the buyer and the insurer. Escrow and Retention Arrangements Where W&I insurance is used, escrow, vendor loan notes or other retention arrangements are not com - mon, especially not where the seller is private-equity backed. However, such mechanisms may still be implemented in specific situations, including: • where specific indemnities are negotiated and excluded from insurance coverage; • in bilateral transactions; and • to secure obligations under fundamental warran - ties, particularly in smaller transactions. Other Contractual Protections Additional protections that are often included in Dan - ish private equity transactions comprise the following. • Leakage provisions in locked-box mechanisms, usually backed by contractual remedies such as compensatory interest. • Interim covenants restricting the seller’s conduct between signing and closing. • Anti-sandbagging and no-reliance clauses, addressing the allocation of risk based on pre- closing information. • Liability limitations that reflect the W&I policy terms, including survival periods, caps, and thresh - olds for claims. • Insurers may typically only subrogate liability of the sellers in the event of fraud or wilful misconduct.
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