LUXEMBOURG Law and Practice Contributed by: Johan Terblanche, Baptiste Aubry and Michelle Barry, Maples Group
resulting from the content of the data room provided to the buyer. 6.9 Warranty and Indemnity Protection Warranties from a private equity seller to a buyer upon exit are typically limited to the accuracy, complete - ness and veracity of the information provided to the buyer, and are usually limited in their duration (typically one to two years). The exception, as mentioned in 6.8 Allocation of Risk , can be tax matters, where the war - ranties are often extended up to the expiration of the relevant limitation period. Warranties are also usually capped to between approximately 25% and 100% of the acquisition price. It is unusual for a management team to provide war - ranties. Instead, earn-out mechanisms and similar contractual provisions typically provide some level of comfort in terms of the management team’s sin - cerity and commitment by aligning the management team’s interests with those of the buyer. Any warran - ties provided by the management team are likely to be heavily limited and/or capped; after all, in most circumstances, it will not be possible to require the management team to become parties to the acquisi - tion contract, and such participation would need to be carefully negotiated. Whether or not the buyer is also a private equity fund would typically not change the above-described situ - ation. Full disclosure of the data room is usually allowed against the warranties. 6.10 Other Protections in Acquisition Documentation Indemnities from a private equity seller are not com - mon, and even less so from the management team, although, as mentioned in 6.1 Types of Considera- tion Mechanisms , earn-out and price adjustment mechanisms may be included in the deal structure if the management team stays on post-transaction or if future revenue is to be taken into account. Warranty and indemnity insurance is becoming increasingly common in Luxembourg, following the trend in most European jurisdictions. This is perhaps
not surprising as the majority of targets – as opposed to the holding structure – are located outside of Lux - embourg. Payment retentions and escrow accounts are utilised much more frequently, with escrow amounts some - times being held back for more than a year if neces - sary – eg, until certain post-completion conditions, such as business, tax or any other warranties to back the obligations of a private equity seller, have been met. 6.11 Commonly Litigated Provisions Litigation in connection with private equity transac - tions is extremely rare in Luxembourg, notwithstand - ing the absence of alternative dispute resolution mechanisms in most contracts. The provisions that are most commonly disputed, even if the dispute does not actually mature into full litigation before the courts, are without doubt those regarding the calculation of the consideration. In turn, disputes over the calculation of the consideration are often based on underlying disputes over the closing accounts that then impact on a closing account con - sideration mechanism. Public-to-private transactions remain rare in Luxem - bourg, except (to a limited extent) in relation to utilities and infrastructure assets. As for all other types of transactions, the target com - pany’s board of directors plays a crucial role in evalu - ating and approving the transaction and has a fiduci - ary duty to act in the best interests of the company. The board of directors is responsible for reviewing the terms of the acquisition offer and conducting due dili - gence in particular. Relationship agreements between the bidder and the target are not very common and are not mandatory, but in some cases, the parties may decide to enter into an agreement to govern their interactions during 7. Takeovers 7.1 Public-to-Private
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