Right of setoff
Hi guys,
Would anyone be able to shed some light on the right of setoff/offset in the context of M&A please?
My understanding is that it is a remedy in case of seller being in breach of reps/warranties, buyer can claim directly against the security (escrow or else) without having to go to court to settle the score. Is that correct?
What is seller doesn't agree?
It seems to be one direction only...
Thanks
Not sure right now
Not quite how I’ve seen it in practice. I’ve mostly seen a set off in the context of future payments. Let’s say you owe an earn out, but have an indemnity claim. The set off would allow you to holdback the claimed amount from the earnout while the claim is pending. The set off itself doesn’t settle any matters - how disputes are handled (arbitration or court) are separate from the ability to hold back additional payments while the dispute is pending.
Buyers like them because it can essentially turn an earnout into an escrow.
Don't forget the awkward energy which results from the buyer withholding an earnout on what they perceive as a claim.
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