SWEDEN Law and Practice Contributed by: Niclas Rockborn, Pär Johansson, Daniel Sveen, Arijan Kan and Erik Schwartz, Gernandt & Danielsson Advokatbyrå
count against the return they can distribute to their investors. Private equity sellers therefore strive to limit residual liability in the transaction documentation. In Sweden, the buyer’s knowledge (including informa - tion in the data room) will normally be considered as disclosed against the warranties, which means that any specific findings need to be priced or negotiated as indemnities. However, as warranties are typically given both at signing and closing, the risk for the tar - get remains with the seller until closing. This is one of several contributing factors to RWI being the norm in Swedish private equity transactions, as outlined in 6.9 Warranty and Indemnity Protection . The main limitations on liability for the seller regarding the seller’s warranties are outlined in 6.9 Warranty and Indemnity Protection . Other limitations on the seller’s liability include, as a rule: • several liability for the sellers (as opposed to sev - eral and joint); • a cap corresponding to each seller’s portion of the purchase price; • provisions regarding notification of claims; and • provisions regarding conduct of third-party claims. 6.9 Warranty and Indemnity Protection General When RWI is in place, it is common for private equity (and other) sellers to agree to a wider scope of warran - ties than would otherwise be the case, provided that the warranties can be insured based on the buyer’s due diligence. Correct scoping of the due diligence is very important in ensuring satisfactory coverage. In insured transactions, the scope of the warranties is a matter primarily between the purchaser and the insurer, as private equity sellers typically only assume liability for fundamental warranties in excess of the RWI limit. In the Swedish market, buy-side RWI is by far the most common, as sell-side RWI is both more expen - sive and offers less coverage. On the Swedish market it is uncommon for RWI to be unavailable due to timing or other process constraints, as brokers and under - writers have developed the underwriting process and product offering to offer more flexibility.
In a deal where RWI is for any reason not taken out, a private equity seller would give fundamental warran - ties, but would typically resist giving business warran - ties. As in any other uninsured transaction, the scope of the warranties is primarily a commercial matter and would depend highly on the bargaining power of the parties. Treatment of Private Equity Sellers compared to Management Sellers Private equity sellers and management sellers receive, as a starting point, equal treatment under the acquisi - tion documentation. The background is the applicable shareholders’ agreement, which as a rule does require equal treatment (with certain exceptions). Limitation of Liability The limitations on the seller’s liability for warranties are: • de minimis – 0.1–0.3% of the purchase price; • basket – 1–3% of the purchase price; • cap – 10–50% of the purchase price (in uninsured transactions, the cap is closer to 10% for a private equity seller, and closer to 30–50% for founder or corporate sellers); and • time limitations – 12–36 months’ general limitation period, with 24 months being the most common, and with extended limitation periods for fundamen - tal warranties and tax warranties. As set out in 6.8 Allocation of Risk , the buyer’s knowl - edge (including information in the data room) will nor - mally be considered as disclosed against the warran - ties, which means that any specific findings need to be priced or negotiated as indemnities. 6.10 Other Protections in Acquisition Documentation Protection Offered by the Seller The seller typically offers (i) warranties, (ii) covenants regarding conduct of business between signing and closing, and (iii) sometimes certain other restrictive covenants in the acquisition agreement. It is uncom - mon for private equity sellers to grant indemnities, as they prevent a clean exit. Tax covenants are not seen on the Swedish market (where tax warranties
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