Representations and warranties in a Polish share purchase agreement: defining liability

What is the seller confirming?

Warranties may concern title to the shares, corporate records, financial statements, tax, contracts, employees, rights to the product and disputes. The coverage should reflect the company's business and the transaction. Sellers should not confirm, without checking, that no problem has ever arisen in the company's history.

Title warranties should be distinguished from warranties about the business. The shares are the asset being sold, and an adverse business circumstance is not automatically a defect in the shares. The SPA should therefore expressly address liability for the specified information about the company.

The label does not determine the legal remedy

Using the words representations, warranties or indemnities in a Polish-law agreement does not automatically import English or US remedies. The agreement needs to identify the seller's undertaking and the payment or other remedy due if a statement is inaccurate.

One important issue is whether liability depends on circumstances for which the seller is responsible under the general rules or whether the agreement extends liability to specified additional circumstances. The word “guarantees” does not settle the entire analysis. The loss definition, exclusions and claims procedure must also be read together.

The agreement should address the relationship with statutory buyer remedies, including statutory liability for defects, known in Polish law as rękojmia. The ability to restrict those remedies is not unconditional: the buyer's status and fraudulent concealment of a defect may matter. A general statement that neither party has any claims after the sale is not a substitute for this assessment.

Address identified risks separately

Due diligence is the review of the company before the transaction. It helps identify where remediation, a price change or additional protection is required. It does not itself decide who will bear the consequences of an identified issue.

A separate undertaking to cover an identified risk should define the event, covered costs, person entitled to payment and liability boundaries. Its relationship with the price and other remedies also needs to be agreed so that the same loss is not recovered more than once.

What does a disclosure schedule achieve?

A disclosure schedule identifies exceptions to the warranties. It should allow the buyer to understand the issue, rather than merely stating that a document is somewhere in an archive. Access to thousands of files does not establish that the buyer accepted every associated risk. The effect of disclosure depends on the agreement and the relevant basis of liability.

Each disclosure should be connected to a particular warranty, document and explanation of material circumstances. The data room, meaning the organised collection of transaction documents, should have a retained index, cut-off date and copy showing what was actually made available.

If signing and the transfer of shares take place on different dates, the SPA should address new disclosures. The parties need clarity on whether the buyer may withdraw, whether different protection must be agreed and whether seller liability changes. Updating the schedule does not automatically create any of those effects.

Does the seller answer only for what they knew?

Some warranties may be qualified by the knowledge of specified people. The parties should establish whether this means actual knowledge only or also information that should have been identified through agreed document checks and enquiries. A general reference to “the seller's knowledge” often leaves that question unresolved.

The testing date should also be specified. The position at signing may differ from the position at closing. Equally, the agreement should make clear whether a financial forecast only describes assumptions or whether the seller is actually undertaking to deliver a particular result.

How do liability caps and thresholds operate?

An aggregate cap sets a maximum for liability within an agreed scope. Its monetary base and the categories of claim covered must be clear. Title, tax and identified matters may have separate rules. With several sellers, the agreement must also decide whether each seller answers for their own scope and share of an obligation or whether joint and several liability permits the full payment to be sought from one seller.

An individual claim threshold filters out small matters. An aggregate threshold operates differently: recovery may be limited to the excess above it, or the entire qualifying amount may become recoverable once it is exceeded. The treatment of related small claims should also be clear. A percentage in the draft does not explain the complete mechanism.

Mandatory law sets boundaries. A debtor cannot validly exclude liability for damage they may intentionally cause to the creditor. Statutory limitation periods cannot be shortened or extended by agreement. Claim notification deadlines and the consequences of late notice therefore require assessment within the particular contractual structure; they are not a simple replacement for statutory limitation.

A claim needs a workable procedure

The procedure should operate even when an issue has been identified but its final cost is not yet known. The agreement should identify the information required, whether a notice can be supplemented and how third-party proceedings will be handled. Settlement authority and the seller's access to company records after the buyer takes control also need to be addressed.

A loss suffered by the company and a claim of the buyer are not automatically the same thing. If the protection is intended to cover company costs, the agreement should explain how they are taken into account and who receives payment. It should also address amounts already reflected in the price, recovered from another person or covered by insurance.

Securing claims while releasing the sale price

Protection may include a price holdback, a guarantee or escrow, where funds are released under agreed conditions. The buyer needs a real payment source, while the seller needs clear release rules and timing. A high liability figure alone does not guarantee recovery.

The documentation should identify the evidence required for payment, the process for disputed claims, treatment of undisputed amounts and release of the security. Escrow arrangements must correspond to the actual agreement with the account provider. Naming escrow in the SPA does not open an account or ensure that a payment instruction will be implemented.

The share sale does not resolve every form of liability

Where a seller was also a director, their obligations to the buyer should be separated from potential claims of the company itself. SPA arrangements do not automatically eliminate claims of the company, creditors or authorities. A buyer's promise not to bring claims does not, by itself, provide a former director with a complete release.

The review process and use of its findings are discussed in Buy-side legal due diligence in Poland. The wider agreement is covered in Sale of shares: how to protect the price and allocate liability.