Considerations For Directors And Supervisory Board Members In LBOs

On 17 May 2023, the Enterprise Chamber (Ondernemingskamer) of the Amsterdam Court of Appeal delivered an important judgment on the responsibilities of directors and supervisory board members in the context of leveraged buyout transactions.

The judgment relates to childcare organisation Estro Group (formerly named Catalpa), which was acquired by the private equity investor Providence in 2010. The acquisition was carried out through a leveraged buyout (LBO). This transaction structure is commonly used in private equity deals and is characterised by financing a significant portion of the acquisition with debt. In this case, the total financing consisted of (i) a EUR 230 million loan from a consortium of banks, (ii) a EUR 225 million shareholder loan by Providence, and (iii) a capital injection of EUR 66 million by Providence. As is customary in LBO transactions, the target group assumes, guarantees and/or secures the acquisition financing provided by third party