legal costs
October 21, 2020

Why does transaction liability exist?

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In M&A deals. the seller typically holds liabilities should the deal fall through. If issues do occur then the seller will likely be financially responsible for any liabilities.

The risk can be diminished by taking out transaction liability insurance which will reimburse the policyholder should any loses occur.

By transferring risk over to an insurer it allows for:

  •  Smooth transaction processes

  •  Reduced credit risk for the policy holder

  •  Cover for unknown risks

Often transactions for M&A’s fall through due to failure to show true financial statements, failure in complying with the law (e.g. health and safety standards), tax breaches and employment law breaches. If any of these occur in the middle of a transaction then the seller will be liable and could suffer monumental liabilities.

Transaction liability insurance steps in to allow for a smooth process in claiming losses rather than having to go through long and expensive legal proceedings. It will also remove the threat of financial punishment for the policyholder.

If you have any questions, please do not hesitate to contact us on 01245 449060.


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Categories: Business