Relevance of Due Diligence in Acquisition Contracts

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