SWITZERLAND Law and Practice Contributed by: Christoph Neeracher, Philippe Seiler and Lukas Bründler, Bär & Karrer Ltd
6.10 Other Protections in Acquisition Documentation
litigation. In addition, with respect to risk allocation, there is a current trend towards so-called quasi- indemnities, which are representations and warranties that are excluded from disclosure and the general cap, but still subject to the other limitations, such as the notification obligation, de minimis, threshold/deduct - ible, damage definition, etc. In addition, risks can be allocated through the purchase-price mechanism as well as certain covenants. Even though the details of risk allocation depend on the leverage and negotiating power of the buyer or seller, these methods are used regardless of whether the buyer or seller is a private equity fund. 6.9 Warranty and Indemnity Protection The standard share purchase agreements usually contain a catalogue of representations and warran - ties, covering (but not limited to) the following areas: capacity, title to shares and corporate existence, shareholder loans, financial statements, ordinary course of business, material agreements, employment and social security, real estate, assets, environment, intellectual property, information technology, data pro - tection, compliance with law, litigation, insurance and tax. In terms of limiting warranties, private equity sell - ers tend to limit these representations and warranties as much as possible while requesting buyers to take up a buyer policy W&I insurance. With regard to disclosure of the data room, as a mat - ter of principle, all information provided in the data room is considered as disclosed and therefore known, which is taken by the seller as an occasion to exclude any liability for what has been fairly disclosed. In recent years, the use of W&I insurance in private M&A transactions has seen a significant increase in Switzerland, with buyer-side policies being the pre - dominant form of W&I insurance. These policies serve to bridge the “liability gap” when sellers are prepared to provide representations and warranties but seek to cap their liability at a level deemed insufficient by buy - ers. W&I insurance can augment the overall coverage available to buyers, thereby rendering transactions more agreeable for both parties.
As far as other protections are concerned, indemni - ties for fundamental warranties and tax matters are often requested by buyers. Depending on the actual wording of such indemnity clauses, these clauses are mostly designed as guarantees, which oblige the seller to indemnify and compensate the buyer fully for any damage, irrespective of the fault of the seller. It should be noted that, under Swiss law, the sole usage of terms such as “indemnification” does not constitute this effect. Whether the indemnity clause has an effect as a guarantee depends decisively on the formula - tion and design of the clause. Further, other kinds of guarantees – such as guarantees of a parent or group company, personal guarantee or bank guarantee – can be seen. W&I insurances have been enjoying increasing popu - larity in recent years. However, such an insurance is subject to certain conditions and limitations, such as a positive due diligence and general as well as deal- specific exclusions. Accepting a W&I insurance con - cept in an auction process may also give a bidder a competitive advantage over other bidders who are not willing to accept W&I insurance. Further, in case of a reinvestment by the seller, W&I insurance prevents potential disruptions resulting from bringing represen - tation and warranty claims against the co-invested seller post-closing. 6.11 Commonly Litigated Provisions While it is common that disputes in general arise from private equity transactions, it is rather uncommon that these disputes are litigated before ordinary courts or resolved by arbitration. The Swiss approach to dispute resolution in connection with private equity transac - tions in general is settlement. However, in most cases, transactions are subject to a careful contract drafting to reflect potential conflicts and to agree on dispute resolution mechanisms at an early stage. The provisions from which most disputes arise are consideration mechanisms as completion accounts, consideration provisions, and representations and warranties.
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