Judgment of Amsterdam District Court of 14 May 2020 regarding the impact of COVID-19 on an M&A transaction

On 14 May 2020, the Amsterdam District Court ruled in summary proceedings in one of the first cases related to COVID-19 whereby the court ordered the parties to proceed with the signing of a share purchase agreement (the SPA).

The matter concerned a dispute between a Dutch private equity investor (acting as purchaser) and the owners of a Dutch target company (acting as sellers) about whether or not the condition precedent for signing the SPA was fulfilled and if so, whether the SPA should be modified in light of the COVID-19 circumstances.


The sellers own a business in the field of private-label fashion jewelry and accessories providing retail concession services in 25 European countries. The sellers intended to sell a majority stake in the business to the purchaser for a purchase price of EUR 125 million.

The purchaser was selected in a controlled auction, after it submitted a binding offer with fully committed financing. The parties entered into a signing protocol on 28 February 2020, which provided for the signing of the SPA in agreed form, subject only to the purchaser using its best efforts to take out a warranty and indemnity (W&I) insurance covering the majority of the warranties/indemnities. The SPA contains financing conditions precedent and a long stop date, after which date the parties would be allowed to walk away from the transaction. At that time, the first cases of COVID-19 have already been reported in Europe.

Claims by sellers

On 19 March 2020, the purchaser claimed that it was unable to obtain the W&I insurance, so that the SPA could not be signed and by doing so tried to postpone the transaction pending more clarity on the impact of the measures taken by governments in response to the COVID-19 outbreak.

The sellers initiated summary proceedings claiming:

  • signing of the SPA by the purchaser; and
  • to postpone the long stop date, originally set on 1 July 2020.

Defence by purchaser

The purchaser argued that the SPA did not have to be signed, as the negotiations regarding the W&I insurance were not yet finalized due to a few outstanding issues (transfer pricing, IT systems) with respect to which the insurer requested additional due diligence. Furthermore, the purchaser insisted that taking into account the COVID-19 circumstances, which the purchaser argued, qualify as unforeseen circumstances based on section 6:258 of the Dutch Civil Code, the SPA should be modified. The purchaser took the position that although the parties did shortly discuss the potential impact of the COVID-19 outbreak and even mentioned the possibility of including a material adverse change (MAC) clause in the SPA, at the time of signing the signing protocol the current effects of the COVID-19 outbreak have not been foreseen by the parties and were therefore impossible to accommodate in the SPA. The purchaser argued that these circumstances created such an impact on the target’s business and the fundamentals of the transaction that the standards of reasonableness and fairness dictate that the SPA should be modified.

Court ruling

The court ruled in favor of the sellers by deciding that the purchaser did not honor its best efforts obligation to obtain a W&I insurance. The court put emphasis on the fact that a W&I insurance covering the majority of the warranties/indemnities was available to the purchaser, but that the purchaser chose not to take out such insurance. As such and on the basis of the standards of reasonableness and fairness the W&I insurance condition included in the signing protocol should be considered as being fulfilled. The award obliges the purchaser to sign the SPA.

The court also ordered the long stop date to be moved to 1 September 2020 due to the delay in signing the SPA.

The court dismissed the purchaser’s arguments based on section 6:258 of the Dutch Civil Code regarding unforeseen circumstances, reasoning that (i) the full effects of the COVID-19 outbreak still need to come to fruition, (ii) the potential consequences for the target company, including the possibility of a lockdown, were discussed between the parties before the signing protocol was entered into and the purchaser did not insist on/was not successful in negotiating the inclusion of a MAC clause after this possibility was discussed and (iii) a number of European countries are in the process of relaxing restrictions. This is in line with the Dutch doctrine. In this case, the parties have foreseen the COVID-19 outbreak, but have left this situation unprovided for in the contract, thereby accepting the risks and consequences of doing so. Furthermore, the court considered that the signing protocol only obligates the parties to sign the SPA, not to close the transaction. In the event that the purchaser would fail to secure financing with an external financier due to a reason beyond its control, the purchaser was protected by the financing condition as a condition precedent in the SPA.

Key take-aways

We see the key take-aways as follows:

  • If a circumstance is existing (the COVID-19 outbreak), it is the responsibility of the interested party to include countermeasures;
  • The previous point seems to be further exacerbated if the parties discuss a remedy for a certain event, but subsequently do not include remedies in a contract (inclusion of a MAC or hardship clause);
  • Conditions precedent require careful wording – the courts may refuse invoking a condition precedent on grounds they were not intended to cover;
  • The conduct of a party plays an important role in such assessment, especially if the expectation is created that satisfaction of a condition precedent is near certain;
  • The matter is not fully resolved yet: presumably the SPA has been signed in the meantime, but it still contains a condition precedent of the purchaser being able to obtain financing for the transaction. In this respect, it is worth mentioning that the sellers have stated to be willing to provide vendor loans if needs be.

If you have any further questions, please do not hesitate to contact us.

Andrea Tomo

Andrea Tomo

Aston Goad

Aston Goad