(h) Bringing down warranties

To ‘bring down‘ warranties. Warranties are made as of a particular moment in time. That moment in time can be the signing date of the contract, the closing date of the transaction or any other date provided for in the contract. Warranties that are deemed to be repeated on a later date are referred to as being brought down.

Bringing down warranties is usually required at times when a significant event occurs under an agreement. For example, a share purchase agreement may provide for completion of the transfer only after the required approvals are obtained; the pur­chaser will require the seller to bring down its warranties at the closing. This bring-down implies an extra incentive for the seller to make sure that the quality of the transferred business remains as it was at the signing date by leaving any deterioration for the risk and account of the seller.

Warranty bring-downs are also found in other types of agreement. In master sale agreements with deliveries of product pursuant to subsequent (future) purchase orders, the purchaser needs the warranties to be made as of each delivery date. A borrow­er is required to bring down its warranties to the lender each time it draws under a loan or credit agreement. If a warranty in a credit agree­ment provides that all the borrower’s subsidiaries are listed in a schedule, the bring-down of that warranty may become impossible (and rightfully so). When new subsidiaries were created or acquired, the risk profile of the borrower has likely changed and additional loans cannot be made without violating the warranty, unless a specific waiver is obtained or an appropriate amendment made to the schedule. Obviously, such waiver or amendment will trigger the lender to scrutinise the creditworthiness of the borrower after creating or acquiring the subsidiaries.