FINLAND Law and Practice Contributed by: Christoffer Waselius, Jaakko Huhtala and Niko Markkanen, Waselius
distinction is typically made between merger control and foreign investment conditions for the purposes of
well as forward-looking statements, criminal liability and environmental liability, plus certain tax liability. In addition, unless separate new breach coverage has been obtained, warranty breaches that have occurred and become known in the interim period between signing and closing are usually excluded from the W&I insurance coverage. Limitation of Liability Due to Gross Negligence Whether a seller is able to limit its liability in a case of damage caused due to gross negligence (in addition to fraud and intentional misconduct), remains ques - tionable under Finnish law. At the outset, the parties are free to agree on the allo - cation of risk between themselves. With respect to risks identified by the buyer during the due diligence phase, the buyer should seek a specific indemnity, as a buyer is generally not able to make a claim for a breach of warranty if the buyer knew of the breach before entering into the agreement. In an asset deal, only the identified liabilities of the target will transfer from the seller to the buyer (except for certain poten - tial unidentified liabilities, such as liability for envi - ronmental damage, which may transfer to the buyer under mandatory law). In a share deal, on the other hand, all prior liabilities of the target will automatically transfer from the seller to the buyer at the outset. Seller’s liability Transfer of Risk Buyer’s liability The seller’s liability is typically limited to breach of war - ranties, conditions and covenants under the acquisi - tion agreement. 6.9 Warranty and Indemnity Protection As W&I insurance has become more common, deals with very limited warranties or fundamental warran- ties only are increasingly rare; warranties given by the management team only are less frequent for the same reason. Typically, the warranties given cover the following main areas:
such undertakings. 6.6 Break Fees
Break fees are rarely used in the Finnish market but they do appear from time to time, mainly in highly competitive auctions, for instance, in relation to breaches of “hell or high water” undertakings. With respect to public takeover bids, the Helsinki Takeover Code provides that a break fee (or reverse break fee) may be justifiable in some situations if: • the acceptance of the arrangement and receiving the bid is, in the opinion of the board of directors of the target company, in the interests of the share - holders; and • the amount of the break fee is reasonable, taking into consideration the costs incurred by the offeror in preparing the bid, among other things. A break fee to be paid by the target company due to a reason arising from the offeror is, however, not deemed justifiable. 6.7 Termination Rights in Acquisition Documentation The acquisition agreement usually provides very limited possibilities for either party to terminate the agreement. Such termination rights often relate to unsatisfied conditions precedent and/or other closing conditions, such as a party’s failure to fulfil a closing condition by an agreed date. However, termination of the acquisition agreement is usually not automatic in the sense that the parties typically undertake to nego - tiate a new closing date, if relevant. A typical long-stop date is usually a few months from the initially planned closing date, and in most cases conditional on pend - ing merger control/foreign investment processes. 6.8 Allocation of Risk Warranty and Indemnity Insurance It is common for private-equity sellers to use warranty and indemnity (W&I) insurance and thereby exclude their liability under the seller’s warranties. However, customary exclusions from the W&I insurance cover - age include, for instance, warranty breaches caused by intentional misconduct, fraud or known risks, as
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