ROMANIA Law and Practice Contributed by: Ileana Glodeanu, Andreea Cărare, George Ghitu and Delia Dumitrescu, Wolf Theiss
a breach of title, is usually capped at an amount as high as the purchase price. In recent years, and unlike transactions involving corporate buyers, warranty and indemnity insurance solutions have often applied where the liability of the private equity seller/corporate seller is mainly limited to breaches of title warranties, excluding authority and leakage warranties. Private equity sellers are typically more focused on achieving a “clean exit”, with minimal ongoing liabil - ity. In contrast, individuals or corporate sellers may be more willing to accept broader and longer-lasting liability, particularly if they retain an ongoing relation - ship with the target business or the buyer. Across both private equity and corporate deals, risk allocation is further defined through: • time limitations for bringing claims; • financial limits (eg, caps, baskets, de minimis claim exclusions); • limitation to direct loss (as opposed to indirect and consequential loss); and • mitigation obligations. 6.9 Warranty and Indemnity Protection Please see 6.8 Allocation of Risk with respect to war - ranties and indemnities in private equity deals. Gen - erally, private equity sellers wish to limit their busi - ness warranties and indemnities in order to be able to promptly distribute the proceeds of the sale to their investors, without any contingent liability. As such, the package of warranties and indemnities offered by a private equity seller is more limited than that offered by a corporate seller. However, structures where warranty and indemnity insurance bridges the gap between the offered war - ranty/indemnity package and the requested protec - tion needs of buyers, where private equity sellers accept a warranty/indemnity package to a certain extent (eg, a small portion of the purchase price is kept as an escrow holdback) or where the manage - ment team provides warranties to the buyer in case they are required (and agree) to remain with the tar - geted business as co-investors alongside the buyer
(in which case their warranties would usually match what is agreed by the private equity seller to the buyer) have been seen of late. Full data room disclosure against the warranties is widely recognised in Romania and is generally fea - tured in transactions where the seller is in a strong negotiation position. Private equity buyers’ preference is usually to not allow full disclosure of the entire data room (especially if it is not well structured and includes fragmented information), but rather to confine the seller to specific disclosures by way of preparing a disclosure letter against specific warranties. In terms of customary limits on liability, for funda - mental warranties the cap is often set at the pur - chase price or a significant proportion thereof. For business warranties, the cap is usually much lower, sometimes being as little as 1% to 10% of the pur - chase price, or even a nominal amount if warranty and indemnity insurance is in place. Similarly, claims for breach of fundamental warranties may be brought for a longer period (eg, up to seven or ten years), while claims for business warranties are typically limited to 12–24 months post-completion. Tax indemnity claims are generally negotiated for up to six years, reflect - ing statutory limitation periods. Liabilities for known issues are usually excluded from warranty coverage and may be dealt with via specific indemnities or price adjustments. 6.10 Other Protections in Acquisition Documentation Please see 6.9 Warranty and Indemnity Protection . Other protections that are included in the acquisition documentation include tax, regulatory, litigation or other specific indemnities, and holdback and escrow arrangements to secure claims under the agreement. In recent years, warranty and indemnity insurance (covering damages resulting from breaches of war - ranties and indemnities) has become a regular part of local M&A transactions, particularly in private equity deals. Known risks or statements where the due dili - gence exercise has been weak (lack of information, documents, limited scope of work, etc) are usually excluded from the insurance package. Such warranty and indemnity insurance may be useful to cover the
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