Business sales—pension indemnities
Produced in partnership with Wyn Derbyshire of gunnercooke LLP
Business sales—pension indemnities

The following Pensions guidance note Produced in partnership with Wyn Derbyshire of gunnercooke LLP provides comprehensive and up to date legal information covering:

  • Business sales—pension indemnities
  • Seller's limitation of scope of indemnities
  • Factors which will give rise to an indemnity
  • Adjustment to business purchase price
  • Drafting issue for the buyer
  • Continuing breaches
  • Pension indemnities and TUPE
  • Beckmann/Martin indemnities
  • Sex discrimination/equal pay indemnities
  • Other types of pension indemnities

An indemnity may be defined as a contractual obligation falling upon one contracting party (the indemnifier) and owed to another contracting party (the indemnified party), the obligation being for the indemnifier to pay or otherwise compensate the indemnified party in respect of specified liabilities incurred or assumed by the indemnified party.

Seller's limitation of scope of indemnities

Typically, the scope of an indemnity may be limited in the following ways:

  1. by limiting the types of liabilities for which indemnification is to be provided—eg an indemnity can be limited to liabilities incurred:

    1. directly from a given set of circumstances and not extend to liabilities incurred indirectly from, or merely in connection with, those circumstances, and/or

    2. before completion of the business sale—for more information in relation to this, see Continuing breaches, below

  2. by limiting the time period over which the indemnity is to be provided

  3. by restricting the amount that can be claimed under the indemnity (known as an indemnity cap)

  4. by setting out requirements that the indemnified party must satisfy for the indemnity to have effect—eg the assignment to the indemnifier of practical control over any litigation involving the indemnified party in relation to the liability giving rise to the indemnity claim

While pensions indemnities are often set out in the pensions section of the sale documentation, clauses imposing limits and