Claims for compensation following the sale of shareholdings. When does the time limit start?

In contracts for the sale of shareholdings, the price of the shareholdings to be sold is usually determined by the parties on the basis of the asset value of the company itself in proportion to the share of capital sold, which is often determined after a careful due diligence, entrusted to external consultants, of the assets of the company whose shareholdings are being sold and of the absence of criticalities that may affect its value.

In practice, in order to protect the purchaser of the shareholdings, clauses such as, among others, the following are included

  • representations and warranties made by the seller concerning the company’s assets and the absence of situations that could reduce the value of the shareholding;
  • the provision of an obligation for the seller to pay to the purchaser – usually subject to contractual terms of time limit – indemnities which are triggered in the presence of facts not disclosed or concealed by the seller which give rise to contingent liabilities or capital losses affecting the actual value of the shareholdings sold.


In the case referred to the Court of Milan and decided by judgment No. 2327 of 19 March 2021, the purchaser of the shareholdings of a target company took legal action against the seller requesting the payment in its favour of contractual indemnities following the occurrence of certain contingent liabilities and capital losses which would have reduced the value of the shareholding sold.

Specifically, after the acquisition, the purchaser had entrusted the preparation of the financial statements of the target as at 31 December 2017 to professionals who, at the time of the audits for the closing of the financial statements, had deemed it necessary to record a provision for deferred tax liabilities in the financial statements as a result of extraordinary transactions carried out a few years earlier, which had led to the occurrence of certain contingent liabilities and capital losses resulting from the failure to record such provision in the previous financial statements.




As a matter of practice, the sale contract in question provided that the claim for indemnity should have been sent within a specific time limit (in that case 30 days) from the time when the purchaser had received notice of the fact justifying the claim (the so-called time limit).

In the proceeding before the Court, on the one hand, the purchaser considered that it had only become aware of the fact justifying the claim (i.e. the non-recording in the previous financial statements of the aforementioned provision) with the approval of the financial statements as at 31.12.2017; on the other hand, the seller argued that the purchaser had already become aware of that fact when it had received, as a shareholder of the target, the proposal for approval of the relevant financial statements, with the result that the 30-day time limit period had already begun to run at that time.

The Court held that the presentation of the financial statements to the shareholders, with the signing of the notes to the financial statements by the sole director of the target company, implies the carrying out of the accounting investigations and of the relevant assessments of the necessity to record the provision relating to deferred tax liabilities. Such necessity indeed represents the “justifying fact” of the claim for indemnity.

In other words, the capital loss for which the purchaser requested the indemnity in question could not be considered known to the same only after the formal approval of the financial statements at the shareholders’ meeting, but rather known at an earlier time, i.e. when the draft financial statements were prepared with the provision in question and presented to the shareholders by the sole director.

In the light of the above judgment, therefore, in the case of claims for indemnification whose justifying facts derive from the preparation of the first financial statement of the target company subsequent to the acquisition, it must be kept in mind that the starting point of any agreed time limit must be traced back to the date of the presentation of the draft financial statement to the shareholders and not to the subsequent date of approval of the financial statement.



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