M&A Vocabulary – Experts explain: Bring Down Certificate

For more complex M&A transactions, in particular cross-border M&As, it is common practice to pool the basic regulations concerning the entire transaction within one framework contract. Apart from the parties’ obligation to conclude the appropriate implementing agreements necessary for the transfer in rem of the shares in the target companies or to perform acts of transfer, provided the closing conditions have duly been met, such a contract includes details of other arrangements made by the parties that apply to the transaction as a whole. These usually include specifics on the calculation and payment of the purchase price, closing conditions and covenants. An essential issue are also guarantees and warranties given in the reps and warranties section.  

In this context however, attention should be paid to the fact that – in the absence of any other or further arrangements – these representations are valid at the time when they are made, i.e. at the time when the framework contract is concluded (signing). A cautious buyer, however, is at any rate anxious about the seller also securing the period between signing and the actual transfer of the shares in the target company (closing) in equal measure. 

Therefore, it is common practice that the seller confirms to the buyer that the declarations, warranties and guarantees given in the reps and warranties section will be equally true and valid without any modifications as of the closing date; this conformation is made either directly in the framework contract 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 respect of an insurance policy (usually taken out by the buyer) where in the case of a breach or incorrectness of the reps and warranties given by the seller the insurance company instead of the seller will be obliged to pay compensation for the damage suffered.

Also here – in view of its potential payment obligation – the insurance company is very interested in receiving explanations from one or several persons that are considered to have knowledge on the part of the seller (and, thus, are usually indicated in the definition of “Seller’s knowledge”) regarding any and all facts or circumstances that materialized after signing and may possibly constitute a breach of the reps and warranties. Otherwise, in the Bring Down Certificate, which is to be submitted immediately before closing, such persons have to confirm towards the buyer, but also towards the insurance company that no such circumstances exist.