M&A Vocabulary – Understanding the experts: „Bring Down Certificate”

In the context of more complex M&A transactions, particularly cross-border ones, it is common practice to consolidate the entire transaction into a master agreement. In addition to the parties’ obligation to execute the necessary implementation agreements or transfer deeds for the transfer of ownership of the shares in the target companies upon proper fulfillment of the closing conditions, such a framework agreement contains details regarding the parties’ agreements applicable to the entire transaction. These provisions typically include agreements regarding the calculation and payment of the purchase price, closing conditions, covenants, and, as a key element, guarantees and warranties in the representations and warranties.

In this context, however, it should be noted that these representations are valid, in the absence of any other agreements, as of the date on which they are made, i.e., the date of execution of the master agreement (the “Signing”). In any case, a prudent buyer will want to ensure that the seller also provides equivalent protection for the period between the signing and the actual transfer of the shares in the target company (the “closing”).

Therefore, it is customary for the seller to confirm to the buyer the accuracy and continued unchanged status of the representations, warranties, and guarantees given in the context of the reps and warranties at the time of closing, either directly in the framework agreement or in a separate document, the so-called “Bring Down Certificate.”

The Bring Down Certificate has substantially the same significance in the area of W&I insurance. That is, in connection with an insurance policy (usually taken out by the buyer) that is obligated to compensate for damages incurred in lieu of the seller in the event of breaches or inaccuracies in the reps and warranties given.

Here too, the insurer has a considerable interest, with regard to its potential liability, in having one or more persons who are considered knowledge holders of the seller with respect to the target company and its circumstances (and are therefore typically listed in the definition of “Seller’s Knowledge“) explain any circumstances or facts that have occurred after signing and could potentially constitute a breach of the reps and warranties. Otherwise, these persons must confirm in the Bring Down Certificate, which is to be issued immediately before closing, to the buyer as well as to the insurer that no such circumstances exist.

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