A business takeover offers opportunities, but also involves risks. Especially if the acquired company is already loss-making, a deal can quickly turn into a dispute about liability, contractual guarantees and who is responsible for what. A recent ruling by the Rotterdam District Court shows how quickly things can go wrong and what contractual pitfalls lurk in takeover transactions. For any company considering or recently completed an acquisition, this case contains valuable lessons.
What was at stake.
In this case, Dümmen Orange (DO), part of an international floriculture group, sold all shares in two subsidiaries (the Rijnplant Entities) to the family-owned company Houwenplant. The purchase price was symbolic EUR 1.00, supplemented by deferred payment obligations totalling EUR 650,000.00. Less than three months after the acquisition on 1 March 2024, the acquired companies went bankrupt. This led to an extensive takeover dispute, in which both parties held each other mutually liable for millions of euros in damages.
Safeguard clause: scope is all-important
A key point of contention concerned an indemnity provision for employee expenses. DO claimed over EUR1.2 million because 24 employees were found not to have transferred to the acquired companies after the bankruptcy. The court rejected this claim. According to the court, the indemnity covered the situation where one or a few employees would object to the transfer, not the scenario where no employee had transferred. The linguistic interpretation of the contract was decisive and DO had not sufficiently demonstrated that the parties had intended a broader effect. Moreover, the court found the reliance on the indemnity unacceptable by standards of reasonableness and fairness, as DO itself had communicated that the transition of employees would be automatic.
This underlines how important it is to word indemnity provisions accurately. In the case of a commercial agreement between professional parties, courts in principle attach great value to the literal text.
No obligation to continue funding
DO also argued that Houwenplant had agreed to continue and finance the businesses. The court did not read that obligation into the contract. The relevant article was about the termination of group relationships and the buyer's own responsibility for working capital. An obligation to continue financing regardless of economic conditions was not there. The court stressed that DO should have taken into account that Houwenplant might feel compelled to file for bankruptcy, especially since DO knew that Houwenplant's financial capabilities were limited.
Due diligence: not a luxury but a necessity
A striking element in this case is the role of due diligence. Houwenplant's advisor had explicitly advised to conduct a thorough financial, tax and legal investigation. Houwenplant did not follow that advice and closed the deal under time pressure after only a limited investigation. The court ruled that as a result, Houwenplant could not in retrospect take the position that DO should have spontaneously shared all relevant information. Those who consciously refrain from proper due diligence raise the bar for a successful tort claim considerably higher.
Fraud as an exception to contractual estoppel
In the deed of delivery, the parties had waived the right to set aside the purchase agreement. Nevertheless, the court opened the door for avoidance on the grounds of fraud. While professional parties can contractually waive annulment rights, this does not apply if a party knowingly misrepresents the facts. The court gave Houwenplant a burden of proof: it must show that DO deliberately stated, prior to the deal, contrary to the truth, that there were no problems with customers other than the one party that Houwenplant already knew about.
Balance sheet guarantee: limited but breached
The purchase agreement contained a balance sheet guarantee. The court found that this guarantee had been breached in the amount of €279,115.74, concerning missing items on the transfer balance sheet. DO's maximum liability was contractually capped at €500,000.00. The court found this limitation valid and ruled that Houwenplant had not sufficiently substantiated that it would not have entered into the deal at all if only these items had been correctly stated.
What does this mean for your business?
This ruling makes it clear that diligence in a business acquisition pays off on several fronts. Make sure that indemnity and warranty clauses in purchase agreements cover exactly what you intend, as the courts look first and foremost at the literal text. Always carry out a thorough due diligence, even if there are time constraints. Skipping this investigation can cost you dearly later on, as it will be harder for you to prove that the seller acted unlawfully. Be aware of the effect of an "as is" clause, as it means you accept the company in the state it is in. Finally, be aware that a contractual exclusion from annulment will not stand if there is deliberate misinformation or withholding of relevant facts.
More information.
TK's Corporate & Commercial Litigation team will be happy to help you assess takeover disputes. Feel free to contact Michiel for tailored advice.
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