Introduction

Closing day feels like the finish line, but in reality, it is just the start of a new risk phase. In M&A, what you do not see can cost you. Hidden liabilities can turn a dream acquisition into a nightmare. That is why every entrepreneur preparing for an acquisition needs to understand one thing: protection does not end at signing.

The information gap

When acquiring a company, buyers face an inherent asymmetry of information. No matter how thorough your due diligence, past and hidden liabilities are not always visible. Tax issues, social security claims, environmental risks, or litigation can surface months after closing. Without safeguards, these surprises can erode value and create costly disputes.

Reps & warranties: your safety net

Representations and warranties (or “Garanties de passif” in French, “Vrijwaring voor passief” in Dutch) are strategic clauses designed to rebalance this risk. They allow the buyer to claim compensation if undisclosed liabilities emerge post-closing. In short, they protect your deal and give clarity to both sides.

Key considerations for robust protection

To make these clauses work for you, focus on:

- Materiality thresholds: Align them with the target’s risk profile.

- Consistency: Avoid contradictions between general and specific warranties.

- Limitations: Define caps, duration, and trigger thresholds clearly.

- Integration: Ensure smooth articulation with price adjustment clauses, earn-outs, and locked-box mechanisms.

Well-structured warranties secure the buyer while giving the seller a clear framework of responsibility. They are not just legal details, they are strategic levers in every negotiation.

What happens if a problem is discovered after closing?

If a hidden liability emerges post‑closing, such as an unexpected tax bill or a legal claim, the buyer must follow the claims process set out in the agreement. This typically involves:

• Notification: Promptly notifying the seller in writing, detailing the issue and providing supporting evidence.

• Documentation: Gathering all relevant documents, contracts, and correspondence to substantiate the claim.

• Resolution: The parties may attempt to resolve the issue through negotiation. If no agreement is reached, the contract will specify whether mediation, arbitration, or litigation (often before the competent Belgian court) is the next step.

• Timelines: Most agreements set strict deadlines for making claims, so acting quickly is essential.

A well‑drafted reps & warranties section will clarify these steps, reducing the risk of disputes and ensuring both sides know what to expect. In Belgium, practical remedies often include escrow release, holdback set‑off, or vendor loan offsets where agreed.

How reps & warranties interact with other protections

Reps & warranties are just one part of the risk allocation toolkit. They often work alongside:

- Price adjustment clauses: Adjusting the purchase price if working capital or debt levels differ from agreed targets at closing.

- Earn-outs: Deferring part of the price based on future performance, which can bridge valuation gaps and share risk.

- Locked-box mechanisms: Fixing the price based on a historical balance sheet, with protections against value leakage before closing.

Integrating these mechanisms ensures that both buyer and seller have clarity on how risks and rewards are shared.

Common pitfalls and negotiation tips

- Vague language: Avoid generic or ambiguous warranties, be specific about what is covered.

- Over-reliance on boilerplate: Tailor clauses to the actual risks of the target business.

- Missing carve-outs: Ensure known issues are disclosed and excluded from claims.

- Ignoring integration: Make sure reps & warranties align with price adjustments, earn-outs, and other deal terms.

- Failing to prepare for claims: Both sides should understand the claims process and have a plan for post-closing communication.

Negotiation tip: Focus on material risks and use data from due diligence to justify your positions. A collaborative approach often leads to better outcomes than a purely adversarial stance.

Why it matters for entrepreneurs

Whether you are raising funds, acquiring, or preparing to exit, deal structuring is about more than valuation. It is about protecting your future. At dups, we do not just draft clauses, we negotiate them, challenge them, and make sure they serve your long-term interests. Our dual expertise in law and finance means we see the full picture: economics, governance, and risk.

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