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A commonly negotiated provision in M&A transactions is the clause that provides for the buyer s indemnity right, which, among other things, applies in relation to the liabilities of the target whose existence is based on a past event prior to the closing of the deal. This clause aims to limit the liability of the parties involved in the transaction for losses relating to the company or the asset traded and can be structured in several ways.
Facts
A relevant decision by the Sao Paulo Court of Justice highlighted the importance of expressly regulating this type of clause in M&A contracts. In the case, a contract for the purchase and sale of shares representing 26.05% of a limited company s capital was entered into. Pursuant to this agreement, the buyers would pay part of the price in cash and the other part by paying off the seller s debts to the company and the other partners. ....

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