Cross Border Tax Audit Survival Periods against Purchase Price Escrows
Aligning purchase price escrow release schedules with statutory tax audit limitation periods protects transaction proceeds against unexpected post-closing liabilities.
Post Closing Indemnity Claim
Meaning
Formal demand for compensation made by a buyer against a seller after the completion of a business acquisition. A post closing indemnity claim arises when the buyer discovers that representations or warranties made in the purchase agreement were inaccurate. This process is the primary way that value is adjusted after the cash has changed hands.
Notification Requirement
Buyers must provide a detailed notice describing the nature of the breach and the estimated financial damage. This notice for a post closing indemnity claim must be delivered within the survival period defined in the contract. Failure to meet this deadline usually results in the total loss of the right to seek damages.
Dispute Resolution
Sellers often contest the validity or the amount of the demand. If the parties cannot reach a settlement, the post closing indemnity claim may move to a pre-arranged arbitration or court proceeding. This phase tests the precision of the definitions and disclosures provided during the due diligence period, often focusing on the specific wording of representations.
Payout Source
Recovery typically comes from funds held in escrow or through a representation and warranty insurance policy. In some cases, the buyer may set off the post closing indemnity claim against future earn-out payments or promissory notes.