Fraud and breach of warranties in takeovers

ls your company is active in the Netherlands or operates internationally, chances are that you will have to deal with complex contracts, for instance in case of acquisitions (M&A transactions). The recent decision of the Netherlands Commercial Court (NCC) underlines the importance of transparency, careful due diligence and the proper recording of warranties and liability in contracts (Amsterdam District Court 5 March 2025, ECLI:NL:RBAMS:2025:1453). In this article, you will read what this ruling means for your business and how to prevent or resolve disputes over fraud and warranties.

The NCC is a specialised chamber of the District Court of Amsterdam that focuses on complex, cross-border commercial disputes. Proceedings are conducted in English, which makes the NCC attractive to international parties. The NCC handles cases in the areas of contract law, liability and international trade disputes. This makes the NCC a logical choice for companies that operate in multiple countries and need efficient, expert and accessible proceedings.

The case discussed revolved around the acquisition of a Dutch company by a foreign investor. After the acquisition, the buyer discovered that the seller had withheld vital information about the company's financial situation. For example, costs were carried forward to a subsequent financial year and a provision for holidays was deliberately understated. The purpose of this was to make the company's profitability look more favourable in the year before the acquisition.

The key question was whether these actions could be imputed to the seller and whether there was fraud and breach of warranties. The NCC ruled that the company's CFO deliberately acted to mislead the buyer. Under Dutch law, fraud is present when someone intentionally provides incorrect information or conceals relevant facts with the aim of inducing the other person to perform a certain legal act.

The NCC made it clear that conduct and knowledge of officers within a company can be imputed to the legal entity (the seller), especially if that officer has a duty of information towards the company or its representatives. In this case, it was found that the CFO not only knew about the irregularities, but also actively implemented them and failed to report them to the buyer.

Since there was fraud, the seller could not invoke contractual limitations of liability. The court ruled that the seller was fully liable for the losses suffered by the buyer due to the breach of warranties. This means that the buyer is entitled to compensation for the difference between the purchase price paid and the actual value of the business, plus additional costs.

This statement shows that it is essential to:

• Conduct careful due diligence and not just rely on supplied information.
  
• Include clear warranties and liability provisions in contracts, with explicit provisions on fraud.
  
• Have internal procedures for the timely identification and reporting of possible irregularities.
  
• Be alert to signals of possible deception during the acquisition process.

• Have contracts reviewed by a lawyer specialising in contract law and international trade.
  
• Ensure that information obligations and control mechanisms are clearly set out in the contract.
  
• Use the NCC as a forum for international disputes: proceedings are efficient, expert and in English.
  
• Act quickly when fraud is suspected: gather evidence, seek legal help and hold the other party liable immediately.

The NCC's ruling underlines the importance of transparency, careful contract formation and timely action on potential fraud.

Want to know how to protect your company from liability in takeovers or have a dispute about warranties or fraud? Feel free to contact us for a no-obligation consultation. We will be happy to help you with practical solutions, whether in contract law, litigation or international commercial disputes.