With respect to the acquisition of companies in The Netherlands the parties often draw up a letter of intent or a preliminary contract. They may also enter into a definitive contract before the actual transfer of the shares or the assets and liabilities (the closing). In such a letter of intent or contract the purchaser may stipulate that he is entitled to perform a due diligence prior to the closing. In practice, such letter of intent or contract does not always provide for the criteria and the legal consequences of such due diligence.

A purchaser may stipulate that the contract is subject to a satisfactory due diligence. Under Netherlands law, in view of the principle of reasonableness and fairness, this does not mean that the purchaser can withdraw from the transaction by simply stating that he is not satisfied with the due diligence. He will have to adduce sound reasons why he is not satisfied. It may be in the interest of both parties to create clarity as to which aspects will be investigated and what the minimum result of the due diligence must be.

As to the legal consequences of a due diligence the purchaser may wish to stipulate that he is entitled to adjust the purchase price if the due diligence does not meet the requirements agreed upon. He may also stipulate that he is entitled to withdraw from the transaction if the results of the due diligence fall below a certain minimum level, in other words he may stipulate a satisfactory due diligence as a condition precedent. The purchaser may stipulate an indemnification against liabilities coming to light during the due diligence, which are not yet certain or quantifiable. The vendor may wish to include a provision that he is entitled to cancel the transaction if the purchase price would fall below a certain amount.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information please contact Hans de Savornin Lohman, Loeff Claeys Verbeke, +31 10 403 4777 or enter a text search "Loeff Claeys Verbeke" and "Business Monitor".