Legal due diligence in Dutch M&A: what to check before you buy

Legal due diligence is the buyer’s investigation of a Dutch target company before signing: corporate structure, contracts, employees, permits, intellectual property, disputes and regulatory approvals. Dutch law does not prescribe it, but it matters for your protection: a buyer who does not investigate will find it harder to rely on error (dwaling, Article 6:228 of the Dutch Civil Code, BW) later, and in a share deal all liabilities stay inside the company you buy.

The findings feed directly into the price, the warranties and indemnities in the share purchase agreement (SPA), and the conditions for closing. Some findings are timetable issues rather than risks: works council advice, merger control and investment screening must be completed before closing.

Why does due diligence matter under Dutch law?

Under Dutch contract law the seller has a duty to inform and the buyer a duty to investigate. If you later claim that you bought on a wrong assumption, the court weighs both duties under Article 6:228 BW; a buyer who skipped obvious checks may be left without a remedy.

In a share deal you acquire the company with all its history: contracts, claims, tax positions and environmental issues remain with it. In an asset deal you select assets and contracts, but employees transfer automatically under Article 7:663 BW if the deal is a transfer of undertaking. Contracts in an asset deal require the cooperation of the counterparty for a transfer of contract (contractsoverneming) under Article 6:159 BW.

Due diligence also has a seller side. A seller who prepares a vendor due diligence report and a complete data room limits later claims, because disclosed facts are usually excluded from warranty claims in the SPA.

What should the corporate review cover?

Start with an extract from the Dutch Business Register (Handelsregister) at the Chamber of Commerce (KVK). It shows the registered directors, authorised signatories and other registered information. Cross-check it with the articles of association, the shareholders’ register and board minutes.

For a private limited company (BV), check transfer restrictions in the articles: under Article 2:195 BW shareholders have a pre-emption right (aanbiedingsregeling) unless the articles provide otherwise, and many articles add a consent requirement that must be followed before the shares can be transferred. Check that all shares were validly issued by notarial deed, as Article 2:196 BW requires for both issue and transfer. Check share classes, options and convertible loans that could dilute your stake.

Larger companies may be subject to the large company regime (structuurregime), which gives the supervisory board powers such as appointing directors. Check the articles for supervisory board approval rights on major decisions. Our corporate governance framework article explains these structures.

Which contracts need the closest review?

Focus on contracts that represent significant revenue or are hard to replace: key customers, sole suppliers, distribution, financing and leases. The main question is whether they survive the transaction.

• Change-of-control clauses that allow the counterparty to terminate or renegotiate.
• Assignment restrictions that block a transfer in an asset deal.
• Exclusivity and non-compete clauses that restrict the buyer’s group after closing.
• Uncapped liability, guarantees, penalty clauses and contingent payments.
• Financing covenants and security rights (pledges, mortgages) on the target’s assets.

Check real estate ownership and encumbrances in the Land Registry (Kadaster). Where key consents are needed, make them a condition for closing. See our article on protecting your Dutch business contracts.

How do you check intellectual property and data?

Verify that the target owns its trademarks, patents, software and domain names, and that registrations are in force and renewed. Missing assignments from founders, freelancers or developers are a common defect, particularly for software.

Check licences for change-of-control and termination clauses, and whether open-source components affect the use of the code. For personal data, review processing records, data processing agreements and any correspondence with the Dutch Data Protection Authority (Autoriteit Persoonsgegevens) under the GDPR. More in our guides on intellectual property law in the Netherlands and protecting trade secrets.

What are the employment law risks?

Dutch employees have strong protection, so employment is often the largest hidden cost. Review employment contracts, collective agreements (cao), pension schemes, bonus and share plans, and pending dismissal or illness cases.

Check fixed-term contracts against the chain rule, the status of self-employed contractors (risk of reclassification as employees), and whether the transition payment has been accrued for upcoming terminations. Our article on common Dutch employment law mistakes lists the usual problem areas.

A company that normally employs at least 50 people must have a works council (ondernemingsraad), under Article 2 of the Works Councils Act (WOR). Under Article 25(1)(a) WOR the council must be asked for advice on a proposed transfer of control, at a time when the advice can still influence the decision. If the decision departs from the advice, the company must wait one month before implementing it (Article 25(6) WOR), and the council can appeal to the Enterprise Chamber (Ondernemingskamer) of the Amsterdam Court of Appeal within one month (Article 26 WOR). The SER Merger Code (SER-Fusiegedragsregels) also requires the trade unions to be informed in many transactions.

Which permits and environmental issues should you check?

Since 1 January 2024 the Environment and Planning Act (Omgevingswet) governs environmental permits and activity rules. Check that the target holds a valid environmental permit (omgevingsvergunning) for each activity, that permits carried over under the transitional rules match what the site actually does, and that reporting obligations have been met.

For industrial sites, request soil investigation reports and correspondence with the competent authority. Soil contamination at current or former sites can lead to remediation orders that stay with the company in a share deal.

Which regulatory approvals can delay closing?

Three regimes can make clearance a condition for closing. Plan them into the timetable, not the closing checklist.

• Merger control. Under Article 29(1) of the Dutch Competition Act (Mw) a concentration must be notified to the Authority for Consumers and Markets (ACM) if the combined worldwide turnover of the parties exceeded €150 million in the previous year and at least two of them each achieved at least €30 million in the Netherlands. Larger deals may fall under EU merger control instead.
• Investment screening. Since 1 June 2023 the Security Screening of Investments, Mergers and Acquisitions Act (Vifo) requires notification of acquisitions of control over vital providers, operators of business campuses and companies active in sensitive technology. Notification goes to the Investment Screening Bureau (Bureau Toetsing Investeringen).
• Foreign subsidies. The EU Foreign Subsidies Regulation requires notification to the European Commission for larger deals involving financial contributions from non-EU states.

Regulated targets need more. Companies in banking, insurance or investment services need licences under the Financial Supervision Act (Wft) from the Dutch Central Bank (DNB) or the Authority for the Financial Markets (AFM), and acquiring a qualifying holding in a financial institution usually needs prior approval.

How do you deal with disputes and hidden liabilities?

Ask for a list of pending and threatened proceedings, claims letters and investigations by authorities such as the ACM, the Tax Administration (Belastingdienst) or the Data Protection Authority. Court records are not centrally searchable, so the seller’s disclosure and the target’s correspondence are the main sources. Our Dutch litigation article explains how proceedings run.

Past competition law infringements deserve attention: cartel damages claims can run for years after the infringement ended. Product liability, guarantees given for group companies and old tax years are other common sources of liability.

How do findings translate into the SPA?

Each material finding should lead to a decision: a price reduction, a specific indemnity, a warranty, a condition precedent, or acceptance of the risk. Specific indemnities cover known risks; warranties cover the unknown.

Under Dutch law the parties are largely free to agree the remedies, caps, thresholds and claim periods in the SPA. Draft them carefully: the agreed regime usually replaces or limits the statutory remedies for non-conformity and error. Consider an escrow or deferred payment if the seller’s ability to pay claims is uncertain. See our article on the preliminary purchase agreement for the letter of intent stage.

How is a due diligence process organised?

The buyer sends a request list; the seller uploads documents to a virtual data room; advisers report on findings, usually in a red-flag report that lists only material issues. Q&A rounds and management sessions fill the gaps.

Agree a confidentiality agreement before access, and limit access to competitively sensitive information between competitors to a clean team, to avoid infringing the cartel prohibition before closing. Keep a copy of the data room as it stood at signing, because disclosure against the warranties is usually based on it.

What should you check as a buyer?

• Check the KVK extract, articles and shareholders’ register against the seller’s description of the shares.
• Identify contracts with change-of-control clauses and make key consents a closing condition.
• Check whether ACM, Vifo or other approvals are needed and build them into the timetable.
• Assess employment risks, pension obligations and the works council procedure.
• Verify ownership of IP and software, including assignments from developers.
• Translate each red flag into price, indemnity, warranty or condition in the SPA.

What should you check as a seller?

• Put corporate records in order: shareholders’ register, notarial deeds and resolutions.
• Prepare a complete data room and consider vendor due diligence.
• Disclose known issues fairly against the warranties to limit later claims.
• Start the works council procedure in time, before the decision is final.
• Negotiate caps, thresholds and claim periods for warranties and indemnities.

What can we do for you with legal due diligence?

Our corporate lawyers and business acquisition lawyers act for buyers and sellers in Dutch transactions. Our Dutch M&A checklist shows where due diligence fits in the process.

• We draft the request list and run the legal review of the data room.
• We deliver a red-flag report focused on issues that affect price, structure or timing.
• We check whether merger control, investment screening or works council procedures apply.
• We translate findings into warranties, indemnities and conditions in the SPA.
• For sellers, we prepare vendor due diligence and the disclosure letter.

Summary

• Legal due diligence identifies the risks you take over; in a share deal all liabilities stay with the company.
• A buyer who does not investigate has a weaker position if it later invokes error (Article 6:228 BW).
• Review corporate records, key contracts, employees, permits, IP, data and disputes.
• Works council advice (Article 25 WOR), ACM merger control and Vifo screening can determine the timetable.
• Findings must be reflected in price, warranties, indemnities and closing conditions in the SPA.

Frequently asked questions