An administrator was appointed by the shareholder of a solvent group of UK industrial manufacturing companies. This group had been selling subsidiaries and assets for number of years and was in the process of disposing of the remaining business.

The group holding company was to be liquidated and contained a number of liabilities as a result of contractual obligations in the sale agreements effecting nine previous disposals over the preceding five year period.

There were two issues to address: (i) the administrator was not willing to make a full distribution whilst there were outstanding liabilities and (ii) the buyer was not willing to accept warranties and indemnity protection from the holding company because of the intended administration.

The new share purchase agreement capped the holding company’s liability in respect of the warranties at £1 and the buyer was insured up to £5m. The policy issued to the buyer afforded it the protection it required, whilst at the same time freeing up the sale proceeds and giving the administrators the requisite comfort to enable them to distribute these immediately.

A second policy, with a £10m limit, provided a ‘wrapper’ of protection covering all the historic warranties and indemnities, insuring the holding company as warrantor of the previous nine disposals. Additionally, cover was included for both the administrator and the holding company directors, to protect them in the event that they were named in any future warranty or indemnity claim (a precaution for when the holding company had been wound-up).

The administrator was able to make an earlier distribution than would not have been possible without insurance. At the same time the administrator avoided personal liability and the shareholders removed potential liabilities which could have reduced their return.