Asset and liability warranty

The asset and liability warranty (garantie d'actif et de passif, or GAP) is the primary contractual risk allocation mechanism in M&A transactions. The seller warrants that the company's assets and liabilities as represented at closing are accurate and complete, and indemnifies the buyer for any pre-closing contingencies that materialise post-closing (tax reassessments, undisclosed liabilities, hidden defects). In the context of financial due diligence, identifying items likely to trigger warranty claims is a core objective: tax provisions, social charges, environmental obligations and off-balance sheet items are key areas of focus. The scope, caps, baskets and survival periods of the warranty are negotiated as part of the SPA.

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Example: following the acquisition of a French subsidiary for CHF 8.0 million, a tax audit reveals CHF 650,000 of VAT reassessments relating to the pre-closing period. The buyer files a warranty claim under the asset and liability warranty, which carries a cap of 20% of the purchase price (CHF 1.6 million) and covers tax reassessments for three years post-closing. Hectelion assists the buyer in quantifying and documenting the claim.

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Hectelion advises on warranty quantification and supports both buyers and sellers in warranty claim resolution post-closing.