The price in the Share/Asset Purchase Agreement (SPA) is only a starting point. What the deal actually costs depends on what due diligence uncovers, how the SPA allocates the risk of undisclosed defects between the parties, and whether that risk can be shifted onto an insurer. Below we explain how these three elements — DD scope, representations and warranties, and W&I insurance — combine into a single protection mechanism for the buyer.
Due diligence scope — what actually needs checking
A standard due diligence exercise runs along several parallel tracks, usually led by different advisors:
- Legal. Corporate structure, contracts with key counterparties (including change-of-control clauses), litigation, title to real estate (land and mortgage register), permits and licences.
- Tax. CIT, VAT and Tax on Civil Law Transactions (PCC) arrears, transfer pricing, the risk of settlements being challenged for the past 5 years (the statute of limitations for tax liabilities).
- Employment. Employment contracts, arrears owed to the social security office (ZUS), past inspections by the National Labour Inspectorate, exposure to mobbing or discrimination claims.
- Financial and environmental. Quality of earnings, net working capital, and — in industrial sectors — environmental permits and any history of soil contamination.
DD scope is not a formality — it sets the boundaries of what the buyer can later claim from the seller or from an insurer. A risk not identified at this stage usually stays with the buyer permanently.
Representations and warranties — why statutory rękojmia is not enough
Polish civil law scholarship remains divided on whether the statutory warranty against defects (rękojmia) applies to a share sale at all — since the subject of the sale is a corporate right, not a physical or legal “thing” in the sense used by the Civil Code. In practice, this means a buyer cannot rely on rękojmia as an automatic safety net.
As a result, virtually every professional SPA on the Polish market expressly excludes the statutory rękojmia provisions and builds its own, self-contained system of representations and warranties, based on the general rules of contractual liability (Article 471 of the Civil Code). A typical structure distinguishes three categories:
- Fundamental warranties. Title to the shares, capacity to enter into the agreement — usually uncapped (100% of the price) and with a long survival period.
- Tax warranties. Compliance of tax settlements — with a survival period matched to the 5-year statute of limitations for tax liabilities.
- Business warranties. The state of contracts, assets and regulatory compliance — typically 12–24 months, with a liability cap and a de minimis/basket threshold below which claims are not pursued.
Tax risks are often additionally secured with a separate indemnity clause, independent of the tax warranties — unlike a warranty, which requires proving loss, an indemnity creates a direct obligation to reimburse a specific amount if a defined risk materialises (for example, a disclosed but unsettled tax arrear), regardless of the seller’s fault or knowledge.
| ⚠️ Warning: statutory warranty is not a safety net |
| Foreign buyers used to systems where a statutory warranty (or its local equivalent) automatically protects the purchaser often assume something similar will apply when buying a Polish company. In fact, even if rękojmia — often characterised as a warranty against legal defects in the corporate right itself — could be held to apply, professional market practice excludes it entirely regardless, in favour of a dedicated set of representations and warranties. If the SPA does not contain its own, carefully drafted set of representations and warranties with clearly defined remedies, the buyer may in practice be left with no contractual recourse for defects discovered after closing. |
Pricing mechanisms: locked box or completion accounts
Parties choose between two basic models for setting the final price. Under a locked box, the price is set based on a balance sheet as of a reference date preceding signing — the seller gives a no-leakage covenant for value extracted after that date, and the buyer typically pays a ticking fee to compensate the seller for waiting to be paid. Under completion accounts, the price is adjusted after closing based on actual net working capital and net debt as of the completion date — this requires preparing and verifying post-closing accounts, which can become a source of disputes resolved through expert determination.
The Polish market is increasingly converging with Western European practice: private equity sellers almost always prefer a locked box, for a clean and predictable cash inflow, while private sellers or companies in a weaker financial position more often accept completion accounts.
Both models usually also settle the company’s existing bank debt (a cash-free, debt-free mechanism) — net debt as of the reference date or closing date reduces the price, and the transaction requires the lender’s consent to the change of control if the loan agreement provides for one. Less often, the buyer takes on the debt (a rollover) instead of repaying it at closing.
W&I insurance — when it pays off
Warranty & indemnity (W&I) insurance transfers the risk of a breach of representations and warranties from the seller to an insurer — the seller gets a clean exit without an escrow holdback, and the buyer gains a solvent debtor in place of an individual seller who may disappear from the market or spend the proceeds after closing.
- Cost. The premium in Central and Eastern Europe typically falls in the 0.7–1.5% range of the insured limit, plus an underwriting fee of around EUR 15,000–25,000. Insurance Premium Tax (IPT) in Poland is currently nil.
- Coverage period. Usually 2–3 years for business warranties, up to 7 years for fundamental and tax warranties.
- Typical exclusions. Risks known to the parties before signing, transfer pricing, underfunded pension schemes, and adjustments arising from the pricing mechanism (leakage, completion accounts).
The W&I market has been present in Poland for nearly a decade, first developed by the real estate sector and now increasingly used in transactions well beyond it.
| 💡 Tip from Destrier |
| Plan the due diligence scope with future W&I insurance in mind from the outset, not after the fact. An insurer will not cover representations relating to areas that were not actually examined during DD — a gap in the legal or tax review automatically becomes a gap in the policy. Discuss the planned DD scope with a W&I broker before due diligence begins, to avoid an expensive last-minute expansion of the review. |
| 📋 Checklist: readiness for SPA negotiations |
|
| Negotiating an SPA or preparing for due diligence? Destrier Law Firm conducts legal due diligence, negotiates representations and warranties, and coordinates the process with W&I brokers. Get in touch. |
Legal position: 2026 (updated: September 2026). This article is for informational purposes only and does not constitute legal advice. We recommend seeking individual legal advice before making any decisions.
