ARTICLES: STATE AID - SALE OF A COMPANY - REIMBURSEMENT OF THE AID - REPRESENTATIONS AND WARRANTIES OF AGREEMENT – VALIDITY

State Aids and warranties agreements : The Commission’s position

In the event of the sale of a company, it is common practice for the seller and the buyer to execute a “Representations and Warranties Agreement”. If the company received State aid before the sale and if the Commission imposes at a later stage the reimbursement of this aid, which is later deemed to be incompatible, the buyer will seek to invoke the indemnification guarantee agreement in order to recover compensation from the seller. Despite the practical interest of the question, there are very few Commission decisions on the validity of this type of guarantee contract. However, all of the decisions on this type of contract, when it is to be implemented following privatisations, have been negative and each time the Commission has imposed a suppression of these guarantees. Community jurisdictions have, particularly recently, confirmed the Commission’s decisions. After more than 50 years of European law, it is time for the Commission to clarify its position and to renounce its principled opposition to guarantee contracts. If this is not the case, the Commission’s position could represent a hurdle for privatisations.

*This article is an automatic translation of the original article, provided here for your convenience. Read the original article. 1. Most contracts for the acquisition of companies between private (or public) groups are accompanied by the signature of a "Representations and Warranties Agreement" (hereinafter "Guarantee Agreement"). These agreements contain representations and warranties from the seller, who undertakes to indemnify the purchaser in the event of any inaccuracies in the representations and warranties, either in the amount of the decrease in the assets or increase in the liabilities of the target, or, more generally, in the amount of the loss suffered as a result of such inaccuracies. 2. If the acquisition concerns a company that has received State aid - within the

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Olivier D'Ormesson, State Aids and warranties agreements : The Commission’s position, May 2012, Concurrences N° 2-2012, Art. N° 45233, pp. 38-47

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