Compliance risks are usually incorporated into the sale and purchase agreement in two ways: an indemnification clause between seller and purchaser is agreed with regard to known risks, or, for unknown risks, the seller gives a guarantee.
Thus, with regard to the liability regime in a sale and purchase agreement, the purchaser benefits from pre-signing compliance due diligence. Where specific risks have been clearly identified by way of a pre-signing assessment, the seller will agree to issue an indemnity for such risks. Otherwise, the seller will only provide the purchaser with a compliance guarantee. From the purchaser’s perspective, the clear benefit of an indemnity over a guarantee is that an indemnity is usually not subject to the same restrictive limitations as a guarantee (e.g. de minimis, threshold, cap, limitation period). As a rule, an indemnity is granted on the basis of a 1-to-1 Euro compensation for occurred damages, hence no de minimis or threshold, and normally with a deviating cap and a longer limitation period than the guarantee claims.
Further, a guarantee has a narrower scope than an indemnification. In the currently prevailing seller-friendly market environment in Germany, the seller will not be prepared to assure that the target group is not in breach of any and all material regulations and laws. The market trend rather suggests that the seller will only guarantee compliance with the German anti-corruption laws (and, if applicable, with the FCPA and UK Bribery Act) in the framework of a compliance guarantee.