Managing Risks in the Interim “Vacuum Period” of a Company Sale

14.5.2026 | ARROWS law firm

Between signing the share purchase agreement and the final transfer of the company lies the so-called “vacuum period”, i.e., the interim period. During these weeks or months, the seller remains the legal owner, but in practice can no longer make key decisions without the buyer’s consent. It is precisely in this critical in-between phase that the biggest problems and disputes often arise, which may jeopardize the entire transaction. Understanding the risks and setting the contractual terms correctly is essential for a successful sale of a company.

The photograph shows a specialist discussing the topic of the vacuum period in the sale of a company.

What the interim period is and why it is underestimated
How long the interim period usually is and what must happen during it
What is identified during the interim period and how it is addressed
Risks during the interim period and how to protect against them
Material Adverse Change (MAC): When the buyer may withdraw
Bring-down certificates: The final check before closing
Final summary

What the interim period is and why it is underestimated

Imagine you are the selling owner of an IT company. On Friday, you sit down at the table with the buyer, both sides have agreed, the lawyers have prepared the contract, and you sign it on Monday. It sounds simple—signing means the deal is done. But the reality is completely different.

In legal practice, signing the purchase agreement (sometimes referred to as a Share Purchase Agreement, SPA) means that both parties are bound. The buyer has promised to pay the agreed price, and the seller has promised to transfer the company. But payment and transfer do not happen immediately. Between signing and the final transfer lies a phase that lawyers call the interim period—the in-between time.

During this in-between time, the seller formally remains the owner of the company. You still sign invoices, you are still recorded in the Commercial Register, and you still bear legal responsibility for the company’s operations.

But—and this is the key “but”—you may no longer do anything material that goes beyond the company’s ordinary course of business without the buyer’s prior consent. You cannot increase salaries beyond what is customary, lease new premises, or acquire a competing company.

Likewise, it is prohibited to arrange significant borrowing or dismiss a key manager unless it is consistent with the ordinary course of business and without the buyer’s consent.

The buyer, in turn, is not yet the owner, but has an interest in ensuring that the company does not deteriorate. As a result, the buyer often seeks to obtain de facto control over key decisions through contractual arrangements.

The buyer wants to approve important steps and be informed about changes. This creates a very peculiar situation: the company is legally managed by the existing management, but major decisions often require the consent of the buyer, who is not yet the owner.

This “vacuum” between the legal status and actual influence is uncomfortable for both sides, and it is the space where problems most often arise—problems that later lead to litigation, price disputes, or transactions collapsing.

Based on the experience of the attorneys at ARROWS, a Prague-based law firm that has long specialised in M&A transactions, this period is precisely what determines whether a client “enjoys” the sale—or remembers it for years as one of the most stressful periods of their business life.

How long the interim period usually is and what must happen during it

Let’s return to the practical timeline. Based on international M&A practice, which we also see in the Czech Republic, the interim period typically spans between four weeks and eight months. Shorter periods tend to apply to simpler transactions (e.g., the sale of a smaller service business without complex regulation), while longer periods are common for large deals with regulatory hurdles, foreign participation, or complex conditions.

During this time, a number of conditions must be satisfied without which closing will not take place. Lawyers call them conditions precedent. Typically, these include:

Regulatory approvals – especially for larger transactions, conditions set by competition authorities or other regulators must be met. In the Czech Republic, merger control is governed, for example, by Act No. 143/2001 Coll., on the Protection of Competition.
Bank financing – if the buyer finances the acquisition with a loan, the bank must give final approval and release the funds (and this happens during the interim period, not on the day the agreement is signed).
Legal approvals – for example, transfer of a licence, the landlord’s consent to the assignment of a lease agreement, or release of a pledge over assets.
Internal approvals – in some corporations, the general meeting or supervisory board must convene to approve the transaction.
Tax clearance and other documents – for example, confirmation from the Financial Office that no tax liabilities are due, or other official documents required for the transfer.

It is precisely during this period that what puts the seller under pressure often happens: the buyer receives a message from the bank that the company’s figures have changed during the interim period and the financing is now risky. Or the regulator starts processes that take longer than originally expected. Or a key employee resigns and, with them, an important part of the business begins to fall apart.

That is why the attorneys at ARROWS, a Prague-based law firm, strongly recommend that the purchase agreement clearly define what may and may not be done during the interim period. This is not a mere formality—this setup protects both parties.

The main rule of the interim period: the ordinary course covenant (Conduct of Business Covenant)

The most important obligation the seller undertakes is, in lawyers’ English terminology, called the conduct of business covenant—essentially, “an undertaking to operate the business in the ordinary course.”

What does this mean in practice? The seller undertakes to run the business as they have done to date—without doing anything extraordinary that would materially change or devalue it. For example, the seller must not:

Make major purchases or disposals of assets that go beyond ordinary business activities.
Amend or terminate contracts with key partners.
Dismiss or hire people into management positions without the buyer’s consent.
Change accounting policies or methods that would affect financial reporting.
Increase or decrease the company’s registered capital.
Pay unusual bonuses or dividends.
Take on debt outside the ordinary course or provide significant guarantees.

Sounds clear? In practice, it is not. For example: Can the seller buy new office furniture? Does that fall within the “ordinary course” or not?

If the old chairs have worn out, replacing them is ordinary. But buying furniture for CZK 3 million for a company with 10 employees likely will not be ordinary. Lawyers would say it depends on “materiality”—the significance of the amount relative to the size of the business and its usual financial management.

That is precisely why it is important for the agreement to include clear, specific examples and carve-outs. Most commonly, the agreement contains a list of prohibited actions (e.g., may not purchase real estate) and a list of permitted exceptions (e.g., may purchase inventory up to a certain reasonable amount).

If the seller breaches this obligation, the buyer has two main remedies: First, the buyer may withdraw from the agreement and the closing will not take place, with the option to claim damages. Second, the buyer may offset it by deducting it from the purchase price or claim damages from the funds held in escrow.

This is where the biggest disputes often arise. The seller believes the issue was “minor” and was not addressed. The buyer then insists it is a material breach and seeks a discount that sometimes reaches millions.

Representations and warranties: When are they true?

One of the most frequently overlooked questions during the interim period is: When exactly must the representations and warranties (reps and warranties) be true—on the signing date, on the closing date, or continuously in between?

Imagine that in the purchase agreement the seller states: “I warrant that there are no disputes that could negatively affect the company.” On the signing date this is true—there are none. But during the month in which the interim period runs, a lawsuit by a competitor appears. Is the seller in breach of its warranty?

That depends on how it is drafted in the purchase agreement. Although it is sometimes stated that representations apply only “as of the signing date”, in modern M&A practice it is common for the agreement to require that the representations are “true and correct” both on the signing date and on the closing date.

This obligation is often reinforced by the so-called “bring-down” mechanism. If a new fact arises during the interim period that would constitute a breach of a representation, the seller usually has an obligation to notify the buyer of this fact without undue delay (so-called “disclosure”).

If the breach is “material”, the buyer may have the right to withdraw from the agreement, or to request an adjustment of the purchase price or security in the form of escrow.

Our attorneys in Prague at ARROWS often encounter situations where Czech companies underestimate the importance of setting these provisions in detail. Consider that you have representations in the purchase agreement only “as of the signing date” and then a tax audit begins during the interim period.

The seller thinks it is not their problem. The buyer thinks otherwise. And then there is a dispute. The safest approach is for the agreement to clearly specify which representations are “continuously valid” (especially the critical ones—absence of legal disputes, tax obligations, compliance), and which must be “true and correct” as of both dates—signing and closing—possibly with the option to update the disclosed information.

What is identified during the interim period and how it is addressed

During the interim period, the buyer typically seeks to re-verify that everything they were told is still true. This is done through a so-called “bring-down certificate” and an updated due diligence review.

A bring-down certificate is a formal document by which the seller, before closing, reconfirms all of its representations, or alternatively points out what new facts have changed matters. It is essentially the buyer’s “last chance” to verify that nothing has gone off the rails in the meantime.

In practice, the following are most commonly identified during the interim period:

1. Changes in finances – revenues have fallen, or a new outstanding liability has appeared.

2. Legal issues – a new lawsuit, a tax audit, a regulatory notice.

3. Staffing issues – the departure of a key person, especially if they “carry” important projects or relationships.

4. Partner issues – a major customer announces that it will end cooperation after the change of ownership.

5. Technical or compliance issues – it emerges that licences or registrations are not in order, or that regulations have not been complied with.

When such an issue arises, both parties sit down to negotiate. It is usually addressed as follows:

Purchase price reduction – the buyer seeks a discount based on the identified issue.
Escrow / Holdback – part of the money is withheld (in escrow) to address the issue until its impact is clarified.
Indemnity (compensation) – the seller confirms in writing that it bears responsibility for the issue and will pay the buyer for any losses arising from it.
Timing shift (delay closing) – the closing is postponed so the matter can be resolved or clarified.

Our attorneys in Prague at ARROWS see that many sellers believe these issues will be “carried over” into the post-closing period and that they will deal with them “later”. That is a mistake.

An issue in the interim period is the moment when the seller has maximum negotiating leverage—there is still room to discuss whether the buyer wants to “go through with” the acquisition or not, or to “negotiate” new terms. After closing, the seller is left without many levers and the buyer holds all the cards.

Most common questions about the interim period and financing risks

1. What happens if, during the interim period, the banks lose appetite to provide financing to the buyer?

This is one of the most common reasons transactions fail shortly before closing. During the interim period, the bank may discover new information or market conditions may change. If the agreement does not clearly state who bears the risk of financing being withdrawn (e.g., through a so-called “break-up fee”), a legal dispute may arise. Our attorneys in Prague at ARROWS recommend that the seller knows the bank’s exact conditions already on the signing date and that the agreement includes a mechanism for the event that financing falls through, for example with clearly defined sanctions for the buyer.

2. Can the seller simply dismiss the people it wants?

The seller remains the employer until closing and formally has the right to make staffing decisions. However, if it were to dismiss a key person without the buyer’s consent and such a step would not be in line with the obligation to “operate the business in the ordinary course”, it would constitute a breach of the agreement. Moreover—and this is important—liability for employment-law obligations towards employees remains with the target company (and therefore indirectly with the seller) during the interim period as well. If a dismissal were carried out in breach of the Czech Labour Code, the target company would be liable for it.

3. What happens to employees during the interim period—are they motivated to stay?

A major issue. Employees often know the company is being sold, and many start looking for a new job. During the interim period, the best people may decide to leave—precisely those the buyer wants to retain. That is why “retention bonuses” are often used in practice—promised payments to employees if they stay until closing. Their payment and amount then become a matter of negotiation between the seller and the buyer, as they increase costs. This is complex negotiation that ARROWS, a Prague-based law firm, helps clients structure effectively.

Risks in the interim period and how to protect against them

Potential issues	How ARROWS law firm in Prague helps
The buyer changes their mind and wants to withdraw – they invoke the MAC clause (material adverse change) and claim the company has changed	We set up the MAC clause to be as clear as possible and to include specific carve-outs. If the buyer wrongfully claims that an MAE exists, ARROWS negotiates with the buyer and protects the seller’s rights, and, where appropriate, assists with enforcing contractual penalties.
The buyer’s financing falls through and they do not complete the purchase – the seller is left without the money and with a company prepared for sale	We ensure that the share purchase agreement clearly describes liability for a financing failure and that sanctions or penalties for the buyer are agreed for such a case (e.g., a break-up fee).
A new legal issue arises (lawsuit, tax audit) and it is unclear who is responsible	We structure the representations and warranties so that it is clear which party bears responsibility for which issue, and we set up a mechanism for a price adjustment or escrow if a new issue is identified during the interim period.
Key employees leave, taking an important part of the business with them – the buyer then no longer wants the company or demands a discount	We help prepare retention packages and ensure that the agreement includes penalties for the seller or price-adjustment mechanisms if the seller fails to retain the key team.
Uncertainties from the interim period only come to light after closing and lead to disputes and financial losses	We carry out a thorough due diligence update and regular reviews during the interim period to prevent surprises and, where necessary, negotiate adjustments in time.

Material Adverse Change (MAC): When can the buyer withdraw?

One of the most frequently discussed legal mechanisms during the interim period is the so-called MAC clause – a material adverse change clause.

What is it? It is a condition that allows the buyer to withdraw from the agreement if, during the interim period, such a fundamental adverse change occurs that buying the company would no longer make sense. Typically:

The company loses its largest customer.
Revenues drop by 30% within one month and a quick return to previous levels is not expected.
A legal issue arises that may lead to a significant fine or insolvency.
A key production machine breaks down and cannot be repaired or replaced within a reasonable time.

It sounds reasonable – why should a buyer purchase a company that has collapsed over the course of a year?

But reality is more complicated. MAC clauses are often very difficult to enforce, and courts will generally not uphold them unless they are precisely specified. The buyer faces a very high threshold for what can be considered an MAE.

UK and US courts (whose case law has a strong influence in this area) typically say: it would have to be a truly significant change that alters the company’s fundamental ability to generate cash, and it would have to last longer than just a short period.

For example, a 15–20% drop in revenues in a single month may not be enough – it would have to be a trend that the court sees as lasting and fundamental.

In practice, this means it pays for sellers to negotiate the MAC clause in the purchase agreement very carefully – so that it includes specific carve-outs (e.g., “a general economic crisis or a pandemic is not an MAE, but the loss of 50% of key customers is”).

It should also include specific thresholds (e.g., an EBITDA decline of 30% or more in two consecutive quarters is an MAE) and time limits (e.g., the change must be evident for at least X months).

Our attorneys in Prague at ARROWS law firm in Prague focus specifically on MAC clauses, because that is where the biggest disputes arise. A drafting mistake in a MAC clause can cost you tens of millions of Czech crowns if the buyer interprets it in a way that is not in your favour.

Most common questions on representations and warranties

1. What is the difference between representations and warranties?

A representation is a statement about the state of affairs in the past or present (e.g., “there are no disputes”). A warranty is a promise about a future state or an undertaking to indemnify for certain events (e.g., “we warrant that the licence will remain valid for a certain period”). In practice, however, the terms are often mixed and used together (reps and warranties). Our attorneys in Prague at ARROWS law firm in Prague also ensure that representations and warranties include so-called “knowledge qualifiers” – a note that the seller is only responsible for what they actually know or should have known when exercising reasonable care.

2. What happens if, after closing, it turns out that a representation was not true?

Then the so-called indemnification clause applies – the buyer will send you a claim for damages. Such a claim can only be made for as long as the representations and warranties “survive”. This period is usually 12–36 months from closing for general warranties, but for tax or environmental warranties it can be significantly longer. After this period expires, the buyer typically cannot bring claims for breach of these representations and warranties. That is why it is important to negotiate the length of the survival period – you want it as short as possible.

3. What is the difference between “true and correct” and “true and correct in all material respects”?

The words “in all material respects” slightly soften the seller’s obligation. They mean that minor, immaterial inaccuracies are disregarded and the buyer may only bring a claim if the breach is significant or material. This is beneficial for the seller because it protects them from trivial claims. ARROWS attorneys focus on such details to protect the party they represent.

Bring-down certificates: The final check before closing

During the interim period, usually a week or two before closing, a formal confirmation known as a bring-down certificate is used. The seller formally confirms that all of its representations are still true, or alternatively discloses new facts that may affect their validity.

This document is key. The buyer will review it and decide:

Yes, all conditions are met, we proceed to closing.
No, I am not satisfied, new issues have arisen and we need to renegotiate the terms or consider withdrawal.

The seller should treat the bring-down certificate seriously. It is not just paperwork – it is the last moment when you have control over what information the buyer receives.

If at that point you “forget” to mention an issue (e.g., a new tax audit), then it is too late – after closing, the buyer will pursue you via indemnification and your position will be significantly weaker.

Our attorneys in Prague at ARROWS law firm in Prague always recommend that the seller organise a thorough internal review of information before signing the bring-down certificate – to identify all new issues and disclose the material ones. It is better to proactively reveal an issue and try to resolve it than to have it “discovered” by the buyer with potentially drastic consequences.

Escrow and holdback: Security against issues

One of the most commonly used methods for addressing uncertainties and potential issues that may arise during the interim period or after closing is an escrow or holdback—i.e., retaining part of the purchase price in escrow.

How does it work? Instead of the buyer paying the full CZK 100 million, they pay, for example, CZK 90 million, and CZK 10 million remains held in escrow at a bank (e.g., with a notary or an attorney). This money serves as security.

If, after closing, an issue is discovered for which the seller is liable under the agreement, the buyer will take part of these funds as compensation for damages. The remaining amount is returned to the seller after the agreed period (typically 12 to 24 months).

Escrow is a pragmatic solution because:

It protects the buyer—providing security for potential issues that arise after closing.
It protects the seller—who knows the remaining funds will be returned if no claims are made.
Both parties are motivated to resolve issues quickly and efficiently, rather than argue about them for years.

But be careful—escrow is effective only if it is set up properly. If the escrow is too small, it does not provide real protection. If it lasts too long, the seller’s money will be “tied up” for too long. Most commonly, escrow is between 5–15% of the price and lasts 12–24 months.

The attorneys at ARROWS, a Prague-based law firm, recommend that the seller carefully negotiates the escrow terms—so they know exactly what the escrow covers, how issues will be handled and how the funds will be released, and what the time limits are for asserting claims.

Leakage and lockbox: When does profit become the buyer’s property?

Another mechanism used during the interim period is the so-called lockbox date—the day from which all profits and losses “transfer” to the buyer.

It usually works like this: the share purchase agreement states that the price is determined based on the company’s financial position as of a specific date in the past (e.g., 31 December 2024). That is the “lockbox date”. From that moment, all profits and losses belong economically to the buyer—even if closing takes place only in March 2025.

The seller no longer cares whether the company has made or lost money in the meantime, because the economic risk and benefit have passed to the buyer.

To prevent the seller from trying to “extract” money from the company after the lockbox date (so-called “leakage”), the agreement includes a clause limiting what the seller is allowed to do.

For example, the seller may not:

Pay dividends or extraordinary bonuses.
Buy items outside the ordinary course of business or sell assets below market value.
Repay loans to the seller or related parties in an increased amount.

If the seller breaches these rules, they must reimburse the buyer for the value of the “leakage”.

Final summary

The vacuum period—the interim period—between signing the share purchase agreement and its closing is one of the riskiest periods in the life of a selling entrepreneur. While it may seem that everything is already “in motion”, the reality is that all decisions are restricted, uncertainties accumulate, and the foundations for future disputes are being laid right now.

Key takeaways:

1. The interim period is not the end, but the beginning of a new phase—between signing and closing, it is often “fine-tuned” how many matters were not fully addressed in the final agreement, and it is these negotiations that determine whether the client ultimately ends up satisfied or with problems.

2. The most common issues are not surprises, but ambiguities—if it is not clear who is responsible for what, a dispute arises. That is precisely why it is important for the share purchase agreement to include specific details and minimize ambiguity.

3. It pays for the seller to negotiate carefully—every word in the share purchase agreement affects the interim period. The MAC clause, bring-down certificate, representations, warranties, escrow—each of these provisions determines how secure you will feel.

4. The risks are not only legal, but also financial and operational—key employees leaving, the buyer’s financing failing, emerging legal issues, hidden liabilities. All of these can arise during the interim period, and all of them can change whether the transaction goes through and at what price.

If you are planning to sell your company, you should not view the interim period as some boring administrative phase. It is the moment when it is decided whether the sale will proceed smoothly or whether the transaction will be full of problems.

The attorneys at ARROWS, a Prague-based law firm, have long specialized in interim periods and know what risks may arise. If you are not sure how to safeguard this critical period, it is safer to obtain expert advice already during the negotiation and signing of the agreement, rather than only once problems start piling up. Simply contact office@arws.cz and ask us to explain how to manage the interim period properly, so that the vacuum does not become the cause of your disappointment.

FAQ: The vacuum period when selling a company

1. Do I have to approve all decisions with the buyer during the interim period, even minor ones?

No, but it should be clear what is considered “ordinary course of business” and what is not. The share purchase agreement should include a list of activities that do not require consent (standard inventory purchases, routine operating expenses) and a list of those that do (sale of significant assets, entering into major contracts, dismissing or hiring key individuals). The attorneys at ARROWS, a Prague-based law firm, can help set these exceptions correctly.

2. What happens if, during the interim period, I find out that I provided false information about the company—that it is not as I told the buyer? This is a serious situation. You have a duty to notify the buyer of this fact without undue delay (so-called “disclosure”). If you disclose it in time, it can be resolved by agreement—either by reducing the purchase price or by securing it through escrow. If you “keep it quiet” and the buyer discovers it only after closing, you face civil-law claims for damages due to a breach of contractual obligations (representations and warranties) and, in extreme cases, where intent is proven, even the risk of criminal prosecution for fraud (under the Czech Criminal Code). It is always better to tell the truth immediately.

3. How long does the interim period normally last, and how much does it cost entrepreneurs financially?

The interim period usually lasts 4–8 weeks in straightforward cases, but for large deals with complex regulation or financing it may be 6–12 months. Direct financial costs for the seller are typically not high if the transaction runs smoothly. Higher costs for lawyers, auditors, and advisers are often borne by the buyer. However, the seller may incur costs in the form of the buyer negotiating a discount to offset its expenses, or in the form of costs to retain key employees. ARROWS attorneys in Prague will help you negotiate so that these costs do not fall unfairly on the seller.

4. Can the buyer change the terms of the agreement during the interim period if they “change their mind”?

Legally, no—the purchase agreement is legally binding and the buyer cannot unilaterally change its terms. Of course, they can “ask for a discount” or “propose different terms,” but you do not have to agree. In that case, it is a new negotiation. However, if the buyer attempts to breach the agreement (e.g., tries to sabotage the acquisition), you can sue for specific performance or for damages. ARROWS, a Prague-based law firm, will then represent you in such disputes.

5. What happens to employees during the interim period—do they have the right to leave without notice?

Employees have their standard rights under the Czech Labour Code—they may resign with the usual notice period (typically 2 months). However, if you have a “change of control clause” in their contracts (a clause that is triggered by a change of owner), they should be incentivized to stay, for example through retention bonuses. ARROWS attorneys in Prague will help you set up retention packages correctly and ensure that employees do not take key know-how with them.

6. How can I protect myself from the buyer “sabotaging” the acquisition during the interim period—for example, to reduce the price?

The best approach is to agree a “good faith clause” in the contract—a duty for both parties to act in good faith and not actively sabotage the acquisition. If the buyer breaches this duty, you can sue them. But prevention is better than cure—ARROWS attorneys in Prague recommend regular check-ins during the interim period, careful communication, and timely resolution of potential issues so that the buyer does not invent pretexts to withdraw or reduce the price.

Notice: The information contained in this article is of a general informational nature only and is intended for basic guidance based on the legal status as of 2026. Although we take the utmost care to ensure accuracy, legal regulations and their interpretation evolve over time. We are ARROWS, a Prague-based law firm, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client protection we maintain professional liability insurance with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS directly (office@arws.cz). We accept no liability for any damages arising from the independent use of the information in this article without prior individual legal consultation.

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