ASSETS AND SHARES ACQUISITIONS; ACQUISITION METHODS
1. GENERAL
The acquisition of a business enterprise in the Netherlands may take place through the following three acquisition methods:
(a) purchase of shares ("aandelenfusie") (hereinafter: share acquisition);
(b) purchase of assets and related liabilities ("bedrijfsfusie") (hereinafter: asset acquisition); and
(c) statutory merger ("juridische fusie").
Below, we discuss the main differences among share acquisitions and assets acquisitions. Public offers and statutory mergers shall not be dealt with.
2. SHARE ACQUISITIONS
2.1 General
The purchase and subsequent transfer of shares in a target is the most common method of acquiring a business enterprise. Through a share acquisition, the target is acquired as a whole and all rights accruing to the corporation (i.e. tax losses, contracts) and all liabilities of the corporation (recorded, contingent or otherwise) are transferred along with the target. This includes tax losses which have arisen in the target prior to the transfer. Agreements of the target with third parties transfer automatically as well, but may contain provisions that may entitle third parties to terminate the agreement upon any "change of control" of the target. Obtaining a waiver from such third parties to the effect that they will not invoke this right may be required prior to the closing of the transaction. As a general rule, in a share acquisition, the matter of transferability of licences, permits and other governmental approvals necessary for the target's operations will equally not arise, as there is generally no relevant change in the identity of the target.
2.2 Corporate approvals
The management board of both a Dutch acquiror and a Dutch seller may need the approval of its supervisory board, where applicable, or its shareholders' meeting, depending on the pertinent requirements in the articles of association of each company.
2.3 Transfer requirements
In general, registered shares must be transferred by means of a notarial deed and bearer shares are transferred by giving the acquiror possession of the share certificates. In either case, the transfer of legal title constitutes the effectuation of the mutual agreement among seller and purchaser, as set forth in the acquisition agreement. It is not uncommon for a certain period of time to lapse following execution of the acquisition agreement prior to "closing" or "completion", which commonly designates the moment of actual transfer of legal title. This interim period will often be necessary where certain conditions remain to be fulfilled after signing of the agreement, such as the conclusion of a due diligence investigation and the obtainment of a third party or Governmental consents.
3. ASSET ACQUISITIONS
3.1 General
Unless otherwise stated, the purchase of assets (and related liabilities) as a method of acquisition is here confined to the acquisition of all or a significant part of a business enterprise as a going concern. As regards corporate approvals, there is essentially no difference between shares and assets acquisitions. The differences when comparing assets acquisitions concern the following issues:
1. more complicated documentation (3.2);
2. transfer of accrued tax losses and other tax issues (3.3);
3. liabilities remain with the seller, unless specifically transferred (3.4);
4. third party consents (3.5);
5. consequences of continued operations by seller (3.6).
Partly by force of law, and partly by virtue of case-law, personnel related differences among the two transaction types have been neutralized. As a consequence, employees which belong to a certain enterprise will "follow", by statue, the enterprise (artt. 1639aa and following of the Dutch Civil Code which embodies European Union rules). Hence, the rights and obligations are transferred to the acquiror (excluding pension rights, however, which require detailed arrangements in acquisition contracts). Also, Works Council and employee consultation rules apply, generally, in both situations. Employee related issues (including Works Council and related issues) will be dealt with in a subsequent article in this series.
3.2 Transfer requirements
As with share acquisitions, the conclusion of an acquisition agreement will in itself not complete the legal transfer of ownership title to the assets concerned. Dutch law provides for various types of legal title transfer requirements for the various categories of assets concerned.
In a share transfer, one notarial deed of transfer suffices, in principle, to transfer the shares (and thus the entire business). This is more complicated, and therefore more costly, in an assets acquisition. More documentation is required. It will be necessary to identify all assets (and liabilities) which are to be transferred in the acquisition agreement. The parties should ensure that everything which constitutes (and is necessary for conducting) the relevant business is reasonably identified in the contract.
3.3 Tax
If the target is loss making or has tax losses available for compensation against future profits these will remain with the target. A purchaser will only be able to set off these losses against its own profits if the shares in the target are acquired.
In an asset acquisition one must take into account that transfer of real property is taxed with real property transfer tax at 6% of its value. Otherwise, there are no stamp duties or similar levies payable in either a share or an assets transfer.
3.4 Liabilities
Liabilities will, as a general rule, only be assumed by the acquiror to the extent expressly or impliedly accepted. The only exception relates to liabilities arising from employment contracts. These accrue to the acquiror by operation of law. Otherwise, an asset transaction may serve the purchaser's interest of not assuming liabilities as would be the case in a share transaction. There have been various schemes tested in Court where the mere purpose of an asset acquisition was to avoid recourse by the government for environmental pollution claims; such schemes are likely not to "hold" despite the general rule that liabilities do not transfer in an assets acquisition unless this is agreed.
3.5 Third party consents
As a general rule, contracts (e.g. licences, leases, customer contracts, supply contracts) can only be transferred with the concurrence of the other contracting party. It will be advisable to timely secure the consent of the contracting parties (or, in the case of certain licences and permits, from the relevant (semi-)governmental authorities) prior to the closing of the transaction. It is invariably a sensitive issue at which point of time the relevant third parties (customers, suppliers, financiers) should be approached, and in which manner.
Of particular relevance is the financing of the operations of the seller. If the assets are secured in favour of banks, refinancing should be established in an assets transfer. The corresponding issue in share transactions is that the target company should be released from any and all group financing arrangements and guarantees. Intercompany loans and other relationships within the group of the seller should equally be terminated. With respect to these third party consents, the acquisition agreement may include appropriate conditions precedent.
CONCLUSION
There is, understandably, no hard and fast rule as to which transaction type should be chosen in any particular situation. The various considerations mentioned above may assist in the process of identifying the most suitable structure in a given case. Invariably, tax and legal considerations will need to be reconciled with each other.
In a subsequent article, we will further discuss the issue of termination of negotiations and the corresponding issue; what is actually required for the formation of an agreement under Dutch law? Negotiating parties may sometimes be closer to agreement (legally) than they would expect!
The contents of this article are intended to provide a general outline of the subject matter. For further information please contact Ewout J. Stumphius at Loeff Claeys Verbeke, Rotterdam, tel.:+31.10.403.49.96, fax:+31.10.4149388.
