A leveraged PE backed company had breached its banking covenants and its creditors appointed a liquidator to realise proceeds on their behalf. The business, a German industrial components manufacturer, was successful despite being leveraged. A Japanese corporate wished to acquire the target company but was concerned about potential liabilities and the lack of recourse available on a sale by a liquidator.

Neither the PE shareholder nor the liquidator were prepared to provide the buyer with customary warranties, while management did not hold shares and were not incentivised to do so. Given the presence of only one buyer the requirements of the Japanese corporate were deal critical.

Following discussions a solution was proposed whereby the buyer would conduct a robust due diligence exercise and accept a balanced suite of warranties against which incumbent management would undertake a disclosure exercise. The buyer had the benefit of an insurance policy and the liquidator was able to realise a realistic market value for the business. Our policy was for a period of 7 years and provided €15m of cover.