PORTUGAL Law and Practice Contributed by: Diana Ribeiro Duarte, Pedro Capitão Barbosa and Catarina Almeida Andrade, Morais Leitão, Galvão Teles, Soares da Silva & Associados
6.6 Break Fees In Portugal, break fees and reverse break fees are still rarely applied. 6.7 Termination Rights in Acquisition Documentation Termination rights are usually assigned to a private equity seller (ie, if the closing of the agreement does not occur by the longstop date). Private equity buyers are typically allowed to termi - nate their investments in the following circumstances: • closure of the agreement does not occur by the longstop date; • the seller fails to comply with material closing actions; and/or • (in buyer-friendly transactions) a “material adverse change” occurs. The longstop date, typically agreed upon during the negotiation phase, can vary widely (being anywhere from three months to a year or more) based on the deal’s complexity, the number and type of conditions precedent it is subject to, the industry and other con - siderations. 6.8 Allocation of Risk In transactions where the seller is a private equity fund, risk allocation is typically shifted in its favour (compared to a “corporate” seller). The primary reason for this is that the private equity seller has a limited period in which it may be liable (private equity funds are eventually dissolved and wound up). Long lists of warranties, extended warranty claims periods and indemnities are thus rendered less effective (and less acceptable to the private equity seller). In cases where the buyer is a private equity fund, there are no fundamental differences in risk alloca - tion in relation to a “corporate” buyer: those are deter - mined primarily by the economics and circumstances of the transaction. The main limitations of liability for private equity sellers are those related to breach of representations and warranties in acquisition agree - ments (detailed in 6.9 Warranty and Indemnity Pro- tection ); however, these limitations (quantitative and with regard to time) on liability may also apply to a
breach of other undertakings or covenants under the agreement by the seller. 6.9 Warranty and Indemnity Protection The warranties provided by a private equity seller to a buyer on an exit are usually limited. In most cases, “fundamental warranties” are provided regarding the existence of the seller and the target, the capacity to enter into the agreement and share ownership. “Busi - ness” warranties are more limited and reserved for certain key matters. Private equity sellers’ liabilities arising from breach of warranties are usually subject to caps in liability for breach of warranties and de mini - mis and basket provisions. The contents of the data room and disclosure letters typically exempt the seller from liability in the case of breach of warranties. Moreover, there is an advantage for the buyer, namely the disclosure of many issues that might otherwise remain “under the radar”. Typical quantitative limitations on liability include: • a cap for breach of warranties – 10–20% of the aggregate consideration; • time limitations to claim for breach of warranties of 12–24 months; • de minimis – 0.1% of the aggregate consideration; and • basket – 1% of the aggregate consideration. In turn, qualitative limitations on the acquisition agree - ment usually include: • issues known and fairly disclosed; • changes in the law; • liabilities provisioned in accounts; and • actions that have been agreed in writing with the purchaser. If the event that W&I insurance is contracted, how - ever, these limitations will necessarily be different (ie, the buyer acknowledges that it will not make a claim under the acquisition agreement and that claims regarding breach of warranties will be brought against the insurance company under the terms of the insur - ance policy – which in turn has its own limitations).
496 CHAMBERS.COM
Powered by FlippingBook