• A group of individuals
• The parent company selling a subsidiary to new and/or existing management team;
• The retiring proprietary owner manager(s);
• The private equity house selling to management rather than a secondary buy out, or
• A group of exiting shareholders following a share buy back or a public to private

6 months – 3 years

The methods of documenting and contracting between the Purchaser and Vendor for deferred consideration could be where the vendor insures:

• A loan note or other formal and contracted deferred debt agreement
• Redeemable preference shares (considered an insurable interest given the contracted due date of a contracted indebtedness)
• Earn out.

All of the European Union, Australasia

Monthly, Quarterly, Six Monthly or Annually;

The insurance premium payable is calculated using a per annum percentage on the limit of liability outstanding during the policy period and is usually in the region of 3% to 6% per annum. The premium will reflect the nature of the business, the assets and value of the business and the experience of the management team. The premium for the entire insured period is paid on day one. This ensures that the Vendor has a non-cancelable instrument for the duration of the deferred period. The premium can sometimes be financed over a 12 month period.

£100k – £2m (For Over £2m see 'Default')

Loan Note interest can also be secured

Vendors or the Underwriters may sometimes hold a
second ranking debenture security position

The Policy is only assignable to ones trust or estate.

None. 100% of the deferred debt is protected

Insolvency shall mean in relation to the Purchaser/Newco being any of:

i) In the course of execution of a judgement the levy of execution fails to satisfy the deferred debt in full; or

ii) A valid assignment, composition or other arrangement is made for the benefit of the Purchaser’s creditors generally including the entry by the Purchaser into a voluntary arrangement with it's creditors; or

iii) An order is made or an effective resolution is passed for the winding-up of the Purchaser; or

iv)   An administrator or other receiver or manager of any of the Purchaser’s property is appointed out of court or otherwise; or

v)   You show to our satisfaction, by way of a letter from a Certified Chartered Accountant or acting Lawyer as appropriate and as appointed on behalf of the Vendors, that either the Purchaser has ceased trading; or

vi)  That it has agreed a Board resolution to voluntarily dissolved itself; or

vii) That its financial state is such that even partial payment is unlikely and that to enforce judgement or to apply for a bankruptcy or winding-up order would have no foreseeable result other than one disproportionate to the likely cost of the proceedings; or

viii)  A receiver, administrative receiver or similar official is appointed in respect of the whole or a substantial part of the undertaking or assets of the Purchaser; or

viiii)  An event has occurred elsewhere than in your country which, under the law of the court having jurisdiction, is substantially equivalent in effect to any of the events listed above.

(i) Arising directly or indirectly from dishonest, criminal or malicious acts, material misrepresentation, fraud or concealment of any material fact on the part of the Vendor.

(ii) Arising directly or indirectly from any material change, alteration or modification to the Contract except where the Underwriter shall have given express written consent to such change, alteration or modification, which consent shall not be unreasonably withheld or delayed.

It does not affect coverage in any way should the Vendors enforce the insolvency themselves to claim on the insurance security.

Where there is a large deferred repayment right at the end of the Vendor period, the Vendor will have 60 days additional cover at the end of the period to either collect the debt or start the legal action.

If the Vendor writes off or forgives the deferred debt or decides not start the demand process in 60 days from the end of the deferred period, the cover will simply finish and this last element of exposure will not be insured.

But, if the Vendor starts legal action to recover within the 60 day period, by way of a simple demand from a lawyer, then the insurance security remains in place indefinitely until insolvency takes place and a claim is paid. There is no limit on how long the liquidation takes as long as the process is started in 60 days from the end of the period. Indefinite coverage is then guaranteed.

Coverage is not affected in any way if the Vendor starts the legal process but the process is on hold due to any agreed Stand Still with the lending Bank. Underwriters may also agree to re-issue a completely new insurance policy if requested by the Vendor due to the Vendor agreeing to re-structure the deferred debt. In this situation additional premium would be payable.

The Purchaser or Vendor will always pay the entire premium for the entire loan note period at inception, which occurs at completion of the acquisition. This ensures the Vendor has non-cancelable cover for the whole loan note period and beyond.