EXPERT
HOW SPAS DEVELOPED WITH THE USE OF W&I INSURANCE AND HOW GLOBAL BEST PRACTICES MAY IMPACT DUTCH SPAS
The first M&A insurance solutions appeared in the late 1990’s, in the form of sell-side W&I insurance policies, specifically designed for family or private equity exits. The share purchase agreements (SPA) did not contain specific clauses to acknowledge or manage the use of W&I insurance, but rather, it was simply a case of the insured seller notifying the W&I insurer when it received a claim from a buyer.
More recently, the use of W&I insurance in M&A transactions has developed significantly and now the vast majority (99%) of W&I insurance policies are buy-side rather than sell-side. Whilst W&I insurers have become better versed in the way M&A transactions are done, M&A lawyers have also become much more comfortable with the use of W&I insurance in their transactions, and what this means for their template documents. From 2000, the team at Risk Capital Advisors (RCA) has been at the forefront of developing W&I insurance, e.g., non-recourse W&I policies and stapling the W&I policy to auction-draft SPA (sell-buy flip). For more than 20 years, the team at RCA have been advising lawyers how best prepare their transaction documents to maximise the benefits available through the W&I insurance. The RCA team has also been supporting M&A lawyers in The Netherlands to understand how to use W&I insurance. Whilst many international law firms based in The Netherlands have adopted the full benefits of W&I insurance into their SPA precedents, a number of Dutch SPAs are still drafted with recourse to the seller and/or an escrow as standard. There are, of course, good commercial reasons for a buyer to want to have some seller exposure, but where sellers intend to ‘walkaway’ there is no requirement to offer any seller liability under the SPA. At RCA, we expect to see a change in the way Dutch SPAs are drafted. For instance: • Fully non-recourse SPAs. De minimis, threshold, limit of liability and time period are not needed in the SPA anymore, but rather are set out in the W&I policy, so do not necessarily need to be negotiated between buyer and seller. Non-recourse W&I policies set the seller’s liability to a nominal amount or nothing at all. The only recourse against a seller/warrantor will be in the event of fraud. • Nowadays W&I insurers are fully accepting of a SPA that has no recourse to the seller. This was not always the case but claims experience has shown that there is no discernible difference between having sellers who walk-away completely and those
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