Company acquisition in the Netherlands
There are different ways to transfer a company from one owner to another. What way is most suitable depends on various factors: how does the seller intend to transfer the management of the company, what is the financial situation of the business and how will the purchase price be paid? Drafting an acquisition agreement is therefore always customized work. Dutch corporate lawyer Hidde Reitsma explains the possibilities.
When taking over a company that has its capital divided into shares (limited or public limited company) the obvious route is to acquire the business by transferring the shares through a share purchase agreement. The acquired business will remain its structure as limited; only the shares will be transferred, and if the seller is the director of the company as well, most likely he will step down after the transaction.
Due diligence investigation
When an enterprise is transferred, all contractual obligations will mostly be transferred as well. Therefore, the buyer needs to have a clear insight of everything that goes on in the company. The seller is required to disclose all known facts about the company to the buyer. This disclosure obligation prevails (as a basic rule) to the obligation to due diligence. The buyer will have the possibility to carry out a due diligence investigation (usually after having signed a non-disclosure agreement). The more extensive the due diligence will be, the more awareness of the ins and outs of the company can be attributed to the buyer.
Audit of the books and no debt guarantee
The importance of an accurate due diligence and negotiating process, as well as a careful documentation hereof, cannot be stressed enough. Generally, the buyer will carry out an independent audit of the books. The seller has to hand over the books (or part thereof) of the company. The results of this audit often lead to an acquisition balance sheet in which a “no debt guarantee” is given. The acquisition balance sheet shows the financial position at the date of transaction. The seller usually warrants the accuracy of the content of the balance. If there is a deviation to the detriment of the buyer, the seller has to compensate the difference. Often parties agree that the seller will only be held liable for compensation if the claim exceeds an agreed (cumulated) minimum amount, while at the same time the maximum liability of the seller will be limited (“capped”).
Transfer of assets & liabilities
Occasionally, there are valid reasons to only transfer some of the company units, instead of the shares (this is mostly called an “asset-deal”). Many types of undertakings, like a commercial partnership, do not hold capital divided into shares. Therefore a transfer of assets and liabilities is often the only way to transfer such enterprise. Likewise, a buyer might be interested in a company but prefers to exclude a certain liability risk from a deal, or the company undertakes other activities that are not included in the sale. As in those situations some of the rights and duties stay behind in the selling company, it is important to carefully check if the effects of the transfer of assets and liability do not result in the company (and its creditors) being prejudiced. After all, in this form of transaction it is not the shareholder who sells his shares but the company itself that sells a part of its enterprise.
The purchase price
It is required that the business unit is transferred for a fair commercial purchase price. Without a reasonable price, the creditors of the company that remained after the sale, could claim they have been prejudiced due to the transaction (“actio pauliana”). At the same time it is key to record the transfer of the (existing) contracts –where the concurrence of the other party to the contract is usually required – in an accurate manner and to set out in detail which assets are included in the sale (think of the account receivable portfolio, service contracts, trademark rights and licenses). Except for a share transfer, all these assets have to be separately identified and transferred. Here fore a detailed record is required.
Paying the sale price when buying a company
In most cases the greater part of the purchase price has to be paid immediately. The seller wants what he is entitled to, whereas the buyer prefers to hold back a percentage in case things are not as expected or to stimulate the seller to make an effort to let the transition run smoothly. Therefore the buyer usually intends to withhold a part of the money, for example for planned works for which the seller is still responsible, or to secure that the seller will comply with other contractual obligations.
There are various ways to lay down the terms when and how the withheld money will be transferred to the seller. A short-term loan that has to be paid off quickly is one way; another is a subordinated loan that is separated from the repayment obligation of the banking funding of the company. An accurate record of the amount due and the creation of security interests herein as well as a detailed account of the terms under which the amount remains due, is of the utmost importance. Especially to avoid that the buyer will be confronted with future claims from possible prejudiced creditors of the acquired company.
Dutch corporate lawyer for company acquisitions
Law firm AMS is based in Amsterdam, The Netherlands. Our corporate lawyers have gained a broad experience in the transfer of companies. Our lawyers have assisted their clients with various transactions and have also whenever necessary litigated in disputes concerning transactions. Should you require more information on the acquisition of a company, or should you have any question with respect to litigation in The Netherlands, please feel free to contact our law firm.