A compensatory indemnity is a financial payment owed to a party to compensate for a right or service provided, distinct from damages for breach. In M&A and commercial law contexts, it frequently arises in connection with non-compete agreements (compensation for the competitive restraint accepted), termination of commercial relationships (commercial agent indemnity) and pre-emption rights (compensation for waiving preferential rights). Its calculation requires a careful assessment of the economic value of the right relinquished or the obligation accepted, often involving expert valuation.

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Example: in the sale of a French advisory firm for CHF 12.0 million, the SPA includes a 3-year non-compete obligation on the founder. A compensatory indemnity of CHF 600,000 (5% of the price) is paid to the founder in consideration of this restraint — legally required in France for non-compete agreements binding employees, and commercially recommended for founders to ensure enforceability.

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Hectelion advises on the calibration and documentation of compensatory indemnities in the context of non-compete and commercial relationship agreements.