Indemnity Clauses in SPAs: Caps, Baskets and Survival Periods in Vietnam: the issue
If warranties answer the question ‘what did the seller say’, the indemnity clause in an SPA answers the harder one: ‘when the bad thing happens, where does the money come from and how much is there’. Three numbers decide the clause’s real value — the cap, the basket and the survival period. This article explains how those three numbers work in a Vietnamese transaction and the drafting traps that make an indemnity useless exactly when it is needed most.
The core legal basis
The legal footing of an indemnity is the same trio behind every Vietnamese SPA: the Civil Code 91/2015/QH13 on transaction validity and damages, the Enterprise Law 59/2020/QH14 with Article 127 on free transfer of shares (limited by Clause 3, Article 120 for founding shareholders and by the charter), and the parties’ bargain. Unlike a warranty, which needs proof of loss on breach, an indemnity is an event-based reimbursement mechanism: a listed risk materialises and the payment duty triggers. Because no statute pre-builds this structure, the clause’s entire value sits in the drafting — clear trigger events, a clear measure of money, clear time limits.
Analysis, question by question from the client’s brief
The cap is the maximum aggregate indemnity the seller accepts, usually negotiated as a percentage of the purchase price. International practice and Vietnamese deals commonly place the cap for ordinary indemnities around 10 to 30 percent of the price, while fundamental warranty breaches and tax risks may be capped at 100 percent of the price or left uncapped. The right number never comes from precedent; it comes from the deal’s own risk file: which exposures diligence has identified and quantified, and what their combined worst case adds up to. Setting the cap below the known aggregate exposure means the buyer voluntarily absorbs the difference.
The basket is the minimum aggregate loss the buyer must exceed before claiming, designed to filter out nuisance claims. Two variants must be distinguished expressly in the drafting: a tipping basket, where crossing the threshold recovers everything from the first dollar, and a deductible basket, where only the excess is recoverable and the threshold works as a true deductible. Silence on which variant applies is a classic post-closing dispute. Baskets are commonly set around 0.5 to 1 percent of the price, paired with a per-claim de minimis threshold to block trivial individual items.
Survival is how long the right to claim lives, and it should be set per risk group rather than as one number for the whole contract. Tax risk should survive at least until the tax authority’s audit and finalisation window for pre-closing periods has closed; title and seller-capacity risks are usually longest or unlimited; ordinary operational risks can be shorter, at 12 to 18 months. A frequent drafting error is a survival period shorter than the time a risk realistically takes to be discovered by an authority — the clause then expires before the loss has even surfaced.
A holdback or retention is the bridge between a paper indemnity right and real money. Without funds held back, a buyer who wins a claim must still chase a seller who may have spent the proceeds or left Vietnam. A sensible retention tracks the quantified exposure of the long-survival risks and is released in tranches matched to the corresponding survival milestones. Only the combination — a cap set from exposure, a basket filtering noise, and a holdback funding payment — gives the indemnity real economic value instead of decorative text in the SPA.
Recommended sequence of actions
When settling the indemnity clause: first, total the worst-case exposure from diligence findings and negotiate the cap from that figure, not from a template; second, state expressly whether the basket is tipping or deductible and add a per-claim de minimis; third, set survival per risk group, with the tax group tied to the audit window; fourth, retain part of the price matched to long-tail exposure, with releases aligned to the survival milestones.
This article is pending review by the QA Council.
Frequently Asked Questions
What is the first point to verify on indemnity clauses in spas: caps, baskets and survival periods?
There is no statutory figure; deal practice commonly caps ordinary indemnities around 10–30% of the purchase price, while fundamental breaches and tax risks may be capped at 100% of the price or uncapped. The right cap is derived from the aggregate quantified exposure in that deal’s own diligence, not from precedent.
Which documents and filings decide the outcome on indemnity clauses in spas: caps, baskets and survival periods?
A basket is the minimum aggregate loss the buyer must exceed before claiming, designed to filter small claims. Below it, the buyer bears the loss. Above it, drafting decides: a tipping basket recovers everything from the first dollar; a deductible basket recovers only the excess — the contract must say which.
What goes wrong most often on indemnity clauses in spas: caps, baskets and survival periods, and what does it cost?
The claim period (survival) is set per risk group: operations typically 12–18 months, tax should run to the end of the audit and finalisation window, and title to the capital sold is usually longest or unlimited. Making survival shorter than the time a risk takes to surface is a common drafting error.
How should the parties allocate the risks of indemnity clauses in spas: caps, baskets and survival periods in the deal documents?
Yes, for large and long-tail risks. A retention converts a paper indemnity into money that can actually be collected, especially where the seller is offshore or may spend the proceeds after closing. Size it to the quantified exposure and release it in line with the survival milestones.
This article has been quality-reviewed by the FLAW AI Legal Council