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Closely Held and Growing Business Enterprises Committee second virtual retreat

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Giuseppe Coco
Ughi e Nunziante, Milan; Young Lawyers Committee Liaison Officer, IBA Closely Held and Growing Business Enterprises Committee


The Covid-19 pandemic has just turned one. It was 11 March 2020 when the World Health Organization, with 118,000 confirmed cases in 114 countries, officially declared it as such.

Today, with the vaccination process finally in place, it looks like there is a light at the end of the tunnel. And yet, 2021 will most likely go down in the annals of history, together with 2020, as the Covid-19 biennium.

It comes as no surprise that, when something good happens under such troubled circumstances, you may want to repeat that.

And our first virtual retreat – which took place in October 2020, before the IBA Virtually Together Conference, with more than 80 enthusiastic participants – was something good!

Of course, no virtual event will ever be able to replace an in-person meeting (especially not the CHAGBE retreats), but there was a large consensus amongst the participants that, until international travels are doable again, meeting online in a relaxed atmosphere with your fellow CHAGBE members is definitely a good idea.

So, we set the dates (27-29 February) and started to organise. The idea was to have a little more structure – with two moderated break-out sessions instead of one, and some substantive topics (with a focus on M&A) to foster the discussion.

With more than 100 registrants (a good portion of which were new members), our expectations on attendance were exceeded so much that we had to add a third session. In the end, we had a session on Wednesday, to accommodate the Asia/Pacific time zone, and two on Thursday and Friday, for Central Europe Time attendees.

In any online event, it is important to have some form of script, so that the ball keeps rolling and the discussion never loses momentum. Although we had one, none of the sessions was like the other! During the Tokyo time session – that for us Europeans was in the middle of the night – we decided to have no break-out rooms, both because the number of participants already allowed for a close atmosphere in the plenary session and because we had a guest star – Peter Bartlett, LPD Chair – who gave the audience the latest news about how the IBA is coping with the pandemic. The first CET session was the only one that was played by the book, with the participants discussing the substantive topics in the break-out rooms, along with some catch-up chats. During the final session, probably because it was on a Friday afternoon, it was decided through an improvised online poll to have purely social chats in the break-out rooms, and that was fun!

We received a lot of feedback from the participants. The vast majority of them were eager to have more events like that, with the possibility of staying informally in touch, in this period of full agendas and empty planes. This message will not go unheeded.

They say good things come in threes, so make sure you don’t miss our next virtual retreat!


Report on breakout sessions: the interplay of actual/deemed knowledge-disclosure-representations & warranties in M&A transactions

Ivan Delgado
Conference Quality Officer, IBA Closely Held and Growing Business Enterprises Committee


We started the conversation talking about how the M&A activity and deals in our jurisdictions have been affected. We all concluded that more distressed M&A and bankruptcy work is coming. There is a lot of money and appetite in the market.

Issues: due diligence, disclosures and representations and warranties

Interesting discussions took place when we talked about the transactions signed since the pandemic started. The impression is that nowadays there are sellers not willing to spend so much time and money in the due diligence exercise and devoting their efforts in heavily negotiating the disclosure schedule to be included in the sale and purchase agreement (SPA). On the other side, buyers are happy with this approach because that is the way they can limit their liability.

There is also an additional, classic, and general issue negotiating the representations & warranties, which is the approach to the definition of ‘knowledge’ in the SPA. Sellers typically prefer ‘actual knowledge’ and buyers ‘constructive knowledge’. In this scenario, identifying the right employees that have knowledge is always key.


Report on breakout sessions: the interplay of actual/deemed knowledge-disclosure-representations & warranties in M&A transactions

Sandeep Mehta
J Sagar Associates, Mumbai


We had four participants from The Netherlands, Spain, Switzerland and the United States, and the moderator was from India.

Some key takeaways included:

  • There are no statutory rules for knowledge qualifier and it is a matter of a contract
  • The approach to knowledge qualifier is risk allocation between buyer and seller
  • The knowledge should be on actual basis and not constructive basis
  • The knowledge should be after due inquiry
  • The knowledge qualifier would also depend on nature of transaction such as private equity investor seller or auction sell. In the former, the sale and purchase agreement is very tight as private equity seller has limited information and in the later no changes are generally preferred
  • The knowledge qualifier is generally not given in the fundamental representations & warranties. However, in certain European countries even such fundamental representations & warranties can be qualified by knowledge qualifier. The exceptions are only fraud or willful misconduct
  • The specific indemnity matters cannot be qualified by the knowledge qualifier
  • In US, the knowledge qualifier is less important as compared to information disclosed in the data room and due diligence undertaken
  • The consensus was that the buyer can claim under indemnity for breach of representations and warranties even if buyer was aware about the issue as the result of due diligence or otherwise provided it is provided for in the sale and purchase agreement
  • If the buyer knows of certain facts that breaches of representations but does not realise or is not aware of the implications, the buyer is still entitled to enforce indemnity available. However, no such enforcement of indemnity would be considered as a waiver
  • Knowledge qualifier is an exception to indemnity enforcement
  • The position relating to knowledge qualifier is generally same in common law and civil law countries and in the US


Report on breakout sessions: the interplay of actual/deemed knowledge-disclosure-representations & warranties in M&A transactions

Caroline Conrad-Behr
Conrad & Partner Advokatur, Baden


The United States:

  • The contract typically specifies the actual knowledge and attributes it to specific people
  • As seller, you would want to exclude any responsibility for what buyer knows (based on due diligence) and make clear whether this also covers knowledge of what impact a fact has
  • Carefully formulate the representation to make clear whether the buyer may or may not sue seller for breach even if buyer knew about it before closing (sandbagging / anti-sandbagging clause)

Austria and Germany:

  • If certain facts are guaranteed and subsequently prove to be wrong, seller is liable, independently of seller’s knowledge
  • Knowledge includes what seller should have known had he been diligent
  • There is no knowledge qualifier about guarantees
  • Knowledge qualifier may be used in connection with tax clause; in this respect, it depends on the negotiation position you have; seller would want to have as much knowledge qualifiers as possible ‘as far as he knows’, whereas buyer would be very reluctant to take responsibility for hidden defects
  • As a rule, it is seller’s duty to identify the risks
  • Rarely are their specific names of knowledge people; difficult to prove what a person knows or not, unless you nail it to a very specific item; buyers are very reluctant to accept it