Contingent Liabilities
Potential obligations that may arise depending on the outcome of uncertain future events, such as litigation, tax disputes, or environmental claims.
Also known as: Contingencies, Off-balance sheet liabilities
One-line definition
Contingent liabilities are the known unknowns in a deal — risks that exist but may or may not crystallise into actual cash outflows.
Examples
- Pending litigation (employment, IP, regulatory).
- Tax assessments under appeal.
- Environmental remediation obligations.
- Product warranty claims.
- Pension deficits (underfunded schemes).
TS treatment
TS teams flag contingent liabilities identified in the data room for quantification by legal, tax, and specialist advisers. In the SPA, these are addressed via specific indemnities, price adjustments, or W&I insurance.
Related terms
Net Debt
The gap between Enterprise Value and Equity Value in a deal — gross debt minus cash, plus a long list of debt-like items.
W&I Insurance (Warranty & Indemnity)
An insurance policy that covers losses arising from breaches of seller representations and warranties in the Share Purchase Agreement.
SPA (Share Purchase Agreement)
The definitive legal agreement governing the sale and purchase of shares in a company, including price, conditions precedent, representations, warranties, and indemnities.