Thanks to the influence of international and mostly Anglo-Saxon practices, it is nowadays customary to include extensive representations and warranties in share purchase agreements governed by Belgian law.
The main reason for following this international practice is that Belgian common law offers only a very limited protection to the buyers of shares.
The Belgian Civil Code does not specifically address the issue of the sale of shares. Therefore, share purchase agreements are governed by the general rules of the Belgian Civil Code on sale contracts. The basic principles of the Civil Code can be summarised as follows :
(a) the goods subject to sale, i.e., the shares, must be delivered by the seller; (b) the seller must warrant peaceful possession (i.e., no claims by third parties relating to the sold goods, the sold goods are sold free of charge, encumbrances, ...); (c) the seller must guarantee the buyer against hidden defects.These principles do not warrant much protection to the buyer of shares. Case law has deducted from the above principles that the guaranty against hidden defects only applies to the shares being sold and not to the underlying business. In practice, it means for instance that the seller guarantees that the share certificates duly represent shares of the capital of the company at hand. It does not imply that the buyer has any kind of guaranty in connection with the financial condition of the company whose shares are sold. Neither is there any guaranty as to the value of the shares.
The buyer of shares under the usual guaranties of the Civil Code cannot claim anything from the seller in the case where the company whose shares were sold is insolvent.
The representations and warranties usually contained in a share purchase agreement governed by Belgian law are quite similar to those contained in an Anglo-Saxon type of agreement. The limit during which claims can be made by virtue of a breach of warranty usually comprises between two and three years. This time limit is longer for claims in connection with tax matters and social security-related issues which corresponds most of the time with the expiration date of the statute of limitations. Claims in connection with environmental matters are also usually subject to a longer time limit.
The content of this article is intended to provide general information on the subject matter. It is therefore not a substitute for specialist advice.
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