SINGAPORE Law and Practice Contributed by: Evelyn Wee, Sandy Foo, Tracy-Anne Ang, Terence Quek, Hoon Chi Tern, Goh Jun Yi and Tricia Teo, Rajah & Tann Singapore LLP
Limits on Liability Customary limitations on a seller’s liability under a sale and purchase agreement include: • for fundamental warranties – capped at an amount equal to or less than the purchase price; • for other warranties, typical caps between 10% and 30% of the consideration; • a de minimis threshold (normally about 0.1% of the purchase price for each individual claim and 0.5% to 1% of the purchase price for the aggregate value of such claims); • a limitation period of 18–36 months for non-tax claims and between three and six years for funda - mental warranty and tax claims; and • qualifying representations and warranties with disclosure contained in the disclosure letter and information in the data room, subject to negotiated standards of disclosure. 6.10 Other Protections in Acquisition Documentation Warranty and Indemnity and Other Transactional Insurance The use of warranty and indemnity (W&I) insurance to mitigate deal risk for private equity firms has gained traction in recent years and is now widely accepted (in fact, it is a prerequisite for most private equity par - ties). On the sell side, it bridges the gap on the extent of warranties coverage and liability caps; on the buy side, it enhances the attractiveness of the private equity investor’s bid in competitive bid situations. Seller-initiated, limited or no-recourse W&I insurance appears to be becoming increasingly popular in bid situations, as more private equity sellers seek clean exits by requiring buyers to take out buy-side insur - ance as stapled deals (commonly known as the sell- buy flip). In addition to W&I insurance, increasingly other transactional insurance products such as tax indemnity insurance, regulatory qualification insur - ance, litigation buyout insurance and environmental insurance can also be structured to address specific transaction risks or goals. Target Company Management’s Involvement A private equity sponsor will also typically look to greater commitment and support for the transaction from the management of the target company to ensure
management continuity. As such, it is not uncommon to find private equity sponsors insisting that the terms of the transaction give them the right to negotiate with the existing management of the target company or offer them the opportunity to participate with an equity stake in the bidding vehicle or enter into new service agreements. See 8. Management Incentives for more on typical management participation terms. Escrows and Security Where known risks are identified, an escrow account may be set aside from the consideration to satisfy such claims and to secure any indemnity obligations; however, it is extremely rare for any private equity seller to agree to provide any such escrow or security. 6.11 Commonly Litigated Provisions There do not appear to have been many litigation suits in connection with private equity M&A deals in Singapore. While disputes over the interpretation of earn-out clauses have become more common, these disputes are typically arbitrated or settled out of court. Take-privates are common in Singapore. As compa - nies listed on the SGX often trade at a discount to their book values, delistings have outnumbered listings on the SGX for the past five years. Many of these take-privates are backed by private equity investors (often as part of a consortium with existing controlling shareholders). However, due to changes in the voluntary delisting regime and compulsory acquisition provisions, it is expected that privatisations will become increasingly difficult to structure. It is therefore also expected that the pace will slow somewhat. 7.2 Material Shareholding Thresholds and Disclosure in Tender Offers For listed entities, a substantial shareholder (5% or more) needs to give notice to the listed corporation within two business days of: 7. Takeovers 7.1 Public-to-Private
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