{"id":44129,"date":"2017-08-01T10:12:03","date_gmt":"2017-08-01T08:12:03","guid":{"rendered":"https:\/\/newserver.fyb.de\/produkt\/practical-issues-in-the-event-of-a-breach-of-balance-sheet-guarantees\/"},"modified":"2017-08-01T10:12:03","modified_gmt":"2017-08-01T08:12:03","slug":"practice-issues-in-breach-of-balance-sheet-guarantees","status":"publish","type":"product","link":"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/","title":{"rendered":"Practical issues in the event of a breach of balance sheet guarantees"},"content":{"rendered":"<p><strong>Dr. Daniel Wied, M.jur.<\/strong>  \u2014 Attor\u00adney at Law and Part\u00adner at Arqis Attor\u00adneys at Law, Munich<\/p>\n<p><strong>Prof. Dr. Chris\u00adtoph von Einem<\/strong> \u2014 Attor\u00adney at Law and Part\u00adner at Arqis Attor\u00adneys at Law, Munich and Lectu\u00adrer for Entre\u00adpre\u00adneur\u00adship &amp; Law, TU Munich<\/p>\n","protected":false},"excerpt":{"rendered":"<p><strong>In M&amp;A purchase agree\u00adments, a balance sheet guaran\u00adtee is found as stan\u00addard, because of which protra\u00adc\u00adted nego\u00adtia\u00adti\u00adons often ensue. The ques\u00adtion arises as to whether a subjec\u00adtive-soft or objec\u00adtive-hard balance sheet guaran\u00adtee should be issued. Parti\u00adcu\u00adlarly in so-called locked box purchase agree\u00adments, the buyer will press for an objec\u00adtive-hard balance sheet guaran\u00adtee, since the purchase price in these cases was ulti\u00adm\u00adately calcu\u00adla\u00adted mainly on the basis of the last balance sheet and no purchase price adjus\u00adt\u00adment is made at closing by so-called closing accounts. The inter\u00adpre\u00adta\u00adtion and, above all, the legal conse\u00adquen\u00adces of brea\u00adching balance sheet guaran\u00adtees have been contro\u00adver\u00adsial for years. This is proble\u00adma\u00adtic against the back\u00adground of the tendency to incre\u00adasingly attempt to use balance sheet guaran\u00adtees as a fall-back guaran\u00adtee. A recent decis\u00adion of the Frank\u00adfurt Higher Regio\u00adnal Court (judgment of May 7, 2015, 26 U 35\/12, GmbHR 2016, p. 116) had to deal with precis\u00adely these issues. This invi\u00adtes to high\u00adlight conside\u00adra\u00adti\u00adons of this problem rele\u00advant for prac\u00adtice, which have to be taken into account alre\u00adady when draf\u00adting M&amp;A purchase agreements.<\/strong><\/p>\n<p><strong>  Facts of the balance sheet guarantee<\/strong><\/p>\n<p>Frequently, the formu\u00adla\u00adtion is found that the balance sheet (i) was prepared with the care of a prudent busi\u00adness\u00adman and in compli\u00adance with the statu\u00adtory provi\u00adsi\u00adons and (ii) give a true and fair view of the net assets, finan\u00adcial posi\u00adtion and results of opera\u00adti\u00adons of the Company. The refe\u00adrence under (ii) is unders\u00adtood as a hard balance sheet guaran\u00adtee, which means that a breach of guaran\u00adtee also exists if, for exam\u00adple, debts and unpro\u00advi\u00added contin\u00adgent liabi\u00adli\u00adties alre\u00adady exis\u00adted at the time of prepa\u00adra\u00adtion, but were not appa\u00adrent even when the prepa\u00adra\u00adtion care requi\u00adred by accoun\u00adting law was taken into account. Such facts, which only become appa\u00adrent at a later date, are also refer\u00adred to as facts that clarify the balance sheet. If proper accoun\u00adting prin\u00adci\u00adples were applied, they did not have to be reco\u00adgni\u00adzed in the balance sheet at all. Ulti\u00adm\u00adately, ther\u00ade\u00adfore, such a \u201chard balance sheet guaran\u00adtee\u201d is based on the fiction of an omni\u00adsci\u00adent balance sheet preparer.<\/p>\n<p>Thus, if the seller wants to avert a \u201chard balance guaran\u00adtee,\u201d the seller must insist on a subjec\u00adtive element. This can basi\u00adcally be done in two&nbsp;ways:<\/p>\n<p><strong>Know\u00adledge Qualifier<\/strong><\/p>\n<p>The seller may accept a wording that limits the warranty to his know\u00adledge. The wording then reads \u201c(ii) to the best of the seller\u2019s know\u00adledge, gives a true and fair view of the assets, liabi\u00adli\u00adties, finan\u00adcial posi\u00adtion and profit or loss of the company.\u201d Of course, how strong this rest\u00adric\u00adtion is then depends on the defi\u00adni\u00adtion of the seller\u2019s knowledge.<\/p>\n","protected":false},"featured_media":41307,"comment_status":"open","ping_status":"closed","template":"","meta":{"wp_typography_post_enhancements_disabled":false},"product_brand":[],"product_cat":[2452,2516,2553,2583],"product_tag":[1899,2106,2139,2144,2156,2163,2170,2177,2184,2190,2194],"class_list":{"0":"post-44129","1":"product","2":"type-product","3":"status-publish","4":"has-post-thumbnail","6":"product_cat-ebook-en","7":"product_cat-prof-dr-christoph-von-einem-en","8":"product_cat-fyb-2017","9":"product_cat-dr-daniel-wied-m-jur-en","10":"product_tag-christoph-en","11":"product_tag-from-one","12":"product_tag-wied-en","13":"product_tag-daniel-en","14":"product_tag-ma-purchase-agreements","15":"product_tag-balance-sheet-guarantee","16":"product_tag-closing-accounts-en","17":"product_tag-on-the-balance-sheet","18":"product_tag-proper-accounting","19":"product_tag-knowledge-oualifier-en","20":"product_tag-earnings","21":"pa_sprache-english-3","22":"pa_sprache-german","24":"first","25":"outofstock","26":"taxable","27":"shipping-taxable","28":"purchasable","29":"product-type-variable"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Practical issues in the event of a breach of balance sheet guarantees - FYB Financial Yearbook<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Practical issues in the event of a breach of balance sheet guarantees - FYB Financial Yearbook\" \/>\n<meta property=\"og:description\" content=\"In M&amp;A purchase agreements, a balance sheet guarantee is found as standard, because of which protracted negotiations often ensue. The question arises as to whether a subjective-soft or objective-hard balance sheet guarantee should be issued. Particularly in so-called locked box purchase agreements, the buyer will press for an objective-hard balance sheet guarantee, since the purchase price in these cases was ultimately calculated mainly on the basis of the last balance sheet and no purchase price adjustment is made at closing by so-called closing accounts. The interpretation and, above all, the legal consequences of breaching balance sheet guarantees have been controversial for years. This is problematic against the background of the tendency to increasingly attempt to use balance sheet guarantees as a fall-back guarantee. A recent decision of the Frankfurt Higher Regional Court (judgment of May 7, 2015, 26 U 35\/12, GmbHR 2016, p. 116) had to deal with precisely these issues. This invites to highlight considerations of this problem relevant for practice, which have to be taken into account already when drafting M&amp;A purchase agreements.  Facts of the balance sheet guarantee Frequently, the formulation is found that the balance sheet (i) was prepared with the care of a prudent businessman and in compliance with the statutory provisions and (ii) give a true and fair view of the net assets, financial position and results of operations of the Company. The reference under (ii) is understood as a hard balance sheet guarantee, which means that a breach of guarantee also exists if, for example, debts and unprovided contingent liabilities already existed at the time of preparation, but were not apparent even when the preparation care required by accounting law was taken into account. Such facts, which only become apparent at a later date, are also referred to as facts that clarify the balance sheet. If proper accounting principles were applied, they did not have to be recognized in the balance sheet at all. Ultimately, therefore, such a &quot;hard balance sheet guarantee&quot; is based on the fiction of an omniscient balance sheet preparer. Thus, if the seller wants to avert a &quot;hard balance guarantee,&quot; the seller must insist on a subjective element. This can basically be done in two ways: Knowledge Qualifier The seller may accept a wording that limits the warranty to his knowledge. The wording then reads &quot;(ii) to the best of the seller&#039;s knowledge, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company.&quot; Of course, how strong this restriction is then depends on the definition of the seller&#039;s knowledge.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/\" \/>\n<meta property=\"og:site_name\" content=\"FYB Financial Yearbook\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.fyb.de\/wp-content\/uploads\/2017\/08\/Wied.png\" \/>\n\t<meta property=\"og:image:width\" content=\"334\" \/>\n\t<meta property=\"og:image:height\" content=\"298\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/\",\"url\":\"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/\",\"name\":\"Practical issues in the event of a breach of balance sheet guarantees - FYB Financial Yearbook\",\"isPartOf\":{\"@id\":\"https:\/\/www.fyb.de\/en\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.fyb.de\/wp-content\/uploads\/2017\/08\/Wied.png\",\"datePublished\":\"2017-08-01T08:12:03+00:00\",\"breadcrumb\":{\"@id\":\"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/#primaryimage\",\"url\":\"https:\/\/www.fyb.de\/wp-content\/uploads\/2017\/08\/Wied.png\",\"contentUrl\":\"https:\/\/www.fyb.de\/wp-content\/uploads\/2017\/08\/Wied.png\",\"width\":334,\"height\":298},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.fyb.de\/en\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"FYB Shop\",\"item\":\"https:\/\/www.fyb.de\/en\/shop\/\"},{\"@type\":\"ListItem\",\"position\":3,\"name\":\"Practical issues in the event of a breach of balance sheet guarantees\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.fyb.de\/en\/#website\",\"url\":\"https:\/\/www.fyb.de\/en\/\",\"name\":\"FYB Financial Yearbook\",\"description\":\"For Your Business\",\"publisher\":{\"@id\":\"https:\/\/www.fyb.de\/en\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.fyb.de\/en\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/www.fyb.de\/en\/#organization\",\"name\":\"FYB Financial Yearbook\",\"url\":\"https:\/\/www.fyb.de\/en\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.fyb.de\/en\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/www.fyb.de\/wp-content\/uploads\/2020\/06\/logo.svg\",\"contentUrl\":\"https:\/\/www.fyb.de\/wp-content\/uploads\/2020\/06\/logo.svg\",\"caption\":\"FYB Financial Yearbook\"},\"image\":{\"@id\":\"https:\/\/www.fyb.de\/en\/#\/schema\/logo\/image\/\"}}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Practical issues in the event of a breach of balance sheet guarantees - FYB Financial Yearbook","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/","og_locale":"en_US","og_type":"article","og_title":"Practical issues in the event of a breach of balance sheet guarantees - FYB Financial Yearbook","og_description":"In M&amp;A purchase agreements, a balance sheet guarantee is found as standard, because of which protracted negotiations often ensue. The question arises as to whether a subjective-soft or objective-hard balance sheet guarantee should be issued. Particularly in so-called locked box purchase agreements, the buyer will press for an objective-hard balance sheet guarantee, since the purchase price in these cases was ultimately calculated mainly on the basis of the last balance sheet and no purchase price adjustment is made at closing by so-called closing accounts. The interpretation and, above all, the legal consequences of breaching balance sheet guarantees have been controversial for years. This is problematic against the background of the tendency to increasingly attempt to use balance sheet guarantees as a fall-back guarantee. A recent decision of the Frankfurt Higher Regional Court (judgment of May 7, 2015, 26 U 35\/12, GmbHR 2016, p. 116) had to deal with precisely these issues. This invites to highlight considerations of this problem relevant for practice, which have to be taken into account already when drafting M&amp;A purchase agreements.  Facts of the balance sheet guarantee Frequently, the formulation is found that the balance sheet (i) was prepared with the care of a prudent businessman and in compliance with the statutory provisions and (ii) give a true and fair view of the net assets, financial position and results of operations of the Company. The reference under (ii) is understood as a hard balance sheet guarantee, which means that a breach of guarantee also exists if, for example, debts and unprovided contingent liabilities already existed at the time of preparation, but were not apparent even when the preparation care required by accounting law was taken into account. Such facts, which only become apparent at a later date, are also referred to as facts that clarify the balance sheet. If proper accounting principles were applied, they did not have to be recognized in the balance sheet at all. Ultimately, therefore, such a \"hard balance sheet guarantee\" is based on the fiction of an omniscient balance sheet preparer. Thus, if the seller wants to avert a \"hard balance guarantee,\" the seller must insist on a subjective element. This can basically be done in two ways: Knowledge Qualifier The seller may accept a wording that limits the warranty to his knowledge. The wording then reads \"(ii) to the best of the seller's knowledge, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company.\" Of course, how strong this restriction is then depends on the definition of the seller's knowledge.","og_url":"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/","og_site_name":"FYB Financial Yearbook","og_image":[{"width":334,"height":298,"url":"https:\/\/www.fyb.de\/wp-content\/uploads\/2017\/08\/Wied.png","type":"image\/png"}],"twitter_card":"summary_large_image","schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/","url":"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/","name":"Practical issues in the event of a breach of balance sheet guarantees - FYB Financial Yearbook","isPartOf":{"@id":"https:\/\/www.fyb.de\/en\/#website"},"primaryImageOfPage":{"@id":"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/#primaryimage"},"image":{"@id":"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/#primaryimage"},"thumbnailUrl":"https:\/\/www.fyb.de\/wp-content\/uploads\/2017\/08\/Wied.png","datePublished":"2017-08-01T08:12:03+00:00","breadcrumb":{"@id":"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/#primaryimage","url":"https:\/\/www.fyb.de\/wp-content\/uploads\/2017\/08\/Wied.png","contentUrl":"https:\/\/www.fyb.de\/wp-content\/uploads\/2017\/08\/Wied.png","width":334,"height":298},{"@type":"BreadcrumbList","@id":"https:\/\/www.fyb.de\/en\/produkt\/practice-issues-in-breach-of-balance-sheet-guarantees\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/www.fyb.de\/en\/"},{"@type":"ListItem","position":2,"name":"FYB Shop","item":"https:\/\/www.fyb.de\/en\/shop\/"},{"@type":"ListItem","position":3,"name":"Practical issues in the event of a breach of balance sheet guarantees"}]},{"@type":"WebSite","@id":"https:\/\/www.fyb.de\/en\/#website","url":"https:\/\/www.fyb.de\/en\/","name":"FYB Financial Yearbook","description":"For Your Business","publisher":{"@id":"https:\/\/www.fyb.de\/en\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.fyb.de\/en\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/www.fyb.de\/en\/#organization","name":"FYB Financial Yearbook","url":"https:\/\/www.fyb.de\/en\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.fyb.de\/en\/#\/schema\/logo\/image\/","url":"https:\/\/www.fyb.de\/wp-content\/uploads\/2020\/06\/logo.svg","contentUrl":"https:\/\/www.fyb.de\/wp-content\/uploads\/2020\/06\/logo.svg","caption":"FYB Financial Yearbook"},"image":{"@id":"https:\/\/www.fyb.de\/en\/#\/schema\/logo\/image\/"}}]}},"_links":{"self":[{"href":"https:\/\/www.fyb.de\/en\/wp-json\/wp\/v2\/product\/44129","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.fyb.de\/en\/wp-json\/wp\/v2\/product"}],"about":[{"href":"https:\/\/www.fyb.de\/en\/wp-json\/wp\/v2\/types\/product"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fyb.de\/en\/wp-json\/wp\/v2\/comments?post=44129"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.fyb.de\/en\/wp-json\/wp\/v2\/media\/41307"}],"wp:attachment":[{"href":"https:\/\/www.fyb.de\/en\/wp-json\/wp\/v2\/media?parent=44129"}],"wp:term":[{"taxonomy":"product_brand","embeddable":true,"href":"https:\/\/www.fyb.de\/en\/wp-json\/wp\/v2\/product_brand?post=44129"},{"taxonomy":"product_cat","embeddable":true,"href":"https:\/\/www.fyb.de\/en\/wp-json\/wp\/v2\/product_cat?post=44129"},{"taxonomy":"product_tag","embeddable":true,"href":"https:\/\/www.fyb.de\/en\/wp-json\/wp\/v2\/product_tag?post=44129"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}