Wherever there’s risk, there’s usually someone willing to insure it for the right price.
Early last year, we introduced you to a novel product popping up in M&A circles called “representation and warranty insurance” or RWI. Lawyers say the product is starting to become a common feature of private deals, particularly those in which a private equity fund is the purchaser.
Bryan Haynes, a lawyer in the Calgary office of Bennett Jones LLP who specializes in private and cross-border transactions, says 2015 was a “banner year” for the use of RWI.
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“Three years ago, people didn’t know what it was and they looked at it with a little bit of suspicion and caution. But I think there’s a general acceptance now,” Haynes says. “There’s been a history now of policies being underwritten, of claims being made, and claims being paid. With that, there’s a general comfort level.”
RWI kicks in if a seller is asked to refund some of the purchase price because of a post-closing event that arguably runs contrary to the representations and warranties that were made during the deal talks.
It’s possible to negotiate a deal in which the seller would directly indemnify a buyer if need be. But this can be a hot topic in M&A negotiations. RWI was invented about 20 years ago to bridge indemnity valuation gaps that would otherwise sink deals.
Kurt Sarno, co-head of the private equity group at Blake, Cassels & Graydon LLP, says the weakening economy will likely broaden the cavern between vendors and buyers in negotiating such indemnification agreements. That makes RWI even more relevant today, he says.
“It can get deals across the finish line where, in times like this, the seller wouldn’t want to take the risks that a buyer wants it to hold in respect of indemnification obligations.”
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In this day and age, it’s hard to conceive of any company either using or condoning the use of slavery and child labour. Yet the problem persists, at least on a global basis. According to the International Labour Organization, almost 21 million men, women and children work in some form of modern slavery.
Opposing this seems like a motherhood issue, but there’s a hard legal edge to this. Businesses who turn a blind eye to the issue run the risk of having slave labour pop up in their supply chains.
The Canadian Bar Association meets in Ottawa this weekend to consider several policy proposals. One matter on the agenda is a package of “model business principles” a company could adopt to ensure it avoids the use of forced labour, trafficked labour or illegal or harmful child labour in either its own operations or its supply chain.
Putting together the model code wasn’t as easy as you might think. For example, calling for a complete ban on child labour overlooks that there are many situations in which children might work in a family owned business, such as a farm, convenience store or restaurant.
Stephen Pike, a Toronto-based partner with Gowling Lafleur Henderson LLP, approached a wing of the CBA that represents in-house and corporate lawyers, the Canadian Corporate Counsel Association, with the idea of putting the guideline together. The Canadian model business principles are based on guidelines issued by the United Nations and resemble principles recently adopted by the American Bar Association.
The proposed Canadian principles would be voluntary, and they’re designed so that companies can adopt them to suit their businesses. “They are more of a recommendation than a prescription,” Pike says.
It’s worth noting that some jurisdictions have legislated strict roles. California, for example, requires larges businesses operating there to disclose their efforts to eradicate human trafficking and slavery from their supply chains. The U.K. will mandate the publication of an annual statement on slavery and human trafficking, starting with corporate years that end after March 31 of this year.
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Save the date: We can now tell you the 2016 Canadian General Counsel Awards gala will take place June 1 at the Fairmont Royal York in Toronto.
Nominations for the 12th annual CGCAs can be submitted via email (nominations@cgca.ca) until March 24. The honours, founded by the National Post and ZSA Legal Recruitment, are the only national awards designed exclusively to recognize excellence in Canada’s in-house counsel community.
The award website (cgca.ca) has a sample nomination form plus detailed information on the eight award categories. Dan Malamet of ZSA (dmalamet@zsa.ca) can also answer questions.
dhasselback@nationalpost.com
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