In South African private M&A transactions, sellers usually provide representations, warranties, and indemnities to buyers.
Representations and warranties comprise statements of fact and promises regarding the past, present, and sometimes future aspects of a business or company. Buyers rely on these representations and warranties to understand the true nature of what they're acquiring.
Sellers have various tools at their disposal to limit their liability for warranty breaches, such as knowledge qualifiers, disclosure schedules, materiality qualifiers, and limitations of liability and to decide what they should pay for it.
In most instances, indemnities accompany warranties in sale and purchase agreements. In such cases, the seller agrees to compensate the buyer for losses, damages, or costs resulting from a breach of warranty.
The advantage to the purchaser when relying on an indemnity clause is that it provides direct recourse, allowing for swift resolution and financial redress in case of a breach of warranty, without necessarily having to prove all the elements required for a contractual damages claim.
These legal safeguards protect the interests of both parties, ensuring a smoother and more secure deal-making process.