Indemnities in corporate transactions
Indemnities in corporate transactions

The following Employment guidance note provides comprehensive and up to date legal information covering:

  • Indemnities in corporate transactions

An indemnity is an agreement by one person to bear the cost of certain claims brought against another person. For example, the seller may agree to bear the buyer's costs of handling claims by employees for pre-completion discriminatory acts by the seller. Indemnities are used to apportion specific liabilities between the parties.

When a seller discloses information against a warranty, it may alert the buyer to certain liabilities it will inherit which it may then seek an indemnity to cover.

Indemnities are also useful where there is a risk of a claim but it is not appropriate to make a price reduction or the amount cannot be quantified. Disclosures do not limit indemnities.

There is no reason in principle why share sales should not include employee indemnities, but by convention sellers are less willing to provide them in share sales than in transactions to which TUPE 2006 applies and often insist that the buyer relies instead on warranties. The most that may be negotiable may be an indemnity covering existing litigation. The buyer may therefore want any significant liability to be reflected in a reduction to the purchase price. The reverse applies to transactions to which TUPE 2006 applies: given the existence of indemnities, the seller may be less willing to give extensive warranties.

In a transactions to which TUPE 2006 applies, indemnities are also