When agreements for the purchase and sale of a company – so-called “share purchase agreements” (SPAs) – are being negotiated, the assurances as to specific qualities of the sold company given in the form of warranties or guarantees are often of key importance. Purchasers are interested in getting the widest possible assurances regarding the company, which is still largely unknown to them. Sellers, on the other hand, wish their liability in respect of the situation of the company to be as foreseeable and limited as possible after the sale has taken place. Consequently, in the run-up to the purchase decision, purchasers are often allowed to gain a thorough insight into the economic, financial and legal situation of the company for sale in order to have potential risks enter into the calculation of the purchase price already in advance.

In the context of the catalogue of assurances being negotiated, the previous annual financial statements and accounts of the company for sale play a particularly important part, especially the so-called “accounts warranty”. Depending on its wording, such an accounts warranty usually serves to assure that the relevant annual financial statements were prepared in accordance with the applicable accounting principles or, in addition, that the items contained in the statements are complete and correct. In the first case, the accounts warranty is referred to as a “soft” guarantee while one also warranting completeness and correctness qualifies as a “hard” accounts warranty. The difference between a soft and a hard accounts warranty consists in the scope of liability which is incumbent on the seller, which, in the case of a hard accounts warranty, includes every objective incorrectness of the warranted accounts.

The wording of such accounts warranty is therefore of vital importance for determining the seller’s scope of liability. This has been shown once again by a recent judgment of the Court of Appeal of Frankfurt am Main (OLG Frankfurt am Main, 07.05.2015, 26 U 35/12), which stirred up intensive debate. The OLG Frankfurt am Main qualified a warranty that the annual financial statements (in the case dealt with, for the 2007 fiscal year) “were prepared with the reasonable care of a prudent businessman respecting the principles of adequate and orderly accounting according to the statutory provisions and respecting the continuity of presentation and measuring, and give a true and fair view of the assets, financial position and income of the company” as a hard accounts warranty. The court thereby regarded the wording “give a true and fair view of the company” as decisive for the qualification as a hard accounts warranty. In its interpretation, the OLG Frankfurt am Main applied an objective standard, disregarding the subjective understanding of the contracting parties. In the court’s opinion, the seller was thus also liable for unknown and contingent liabilities, even for those the seller, while applying due care, was unable to identify at the time of preparing the statements.

In practice, this is a landmark decision insofar as it shows the importance of clear and unambiguous wording when it comes to defining the intended scope of an accounts warranty. In the absence of any Austrian court decisions on this issue so far, it remains to be seen to what extent this decision will also have an impact in Austria. Not least because of the rather meagre number of court rulings on the interpretation of SPAs, it is to be expected that the Austrian courts will, if necessary, also keep decisions made in the neighbouring country in mind. It is therefore highly recommendable for the parties to a share purchase agreement to dedicate increased attention to the phrasing of assurances including, in particular, accounts warranties and to clearly state, by means of explicit wording, to what extent an assurance, supplemented by limitations of liability and liability caps where necessary, is to be given.