Structure and process, legal regulation and consentsStructure
How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?
In the Netherlands, the most typical structure to acquire or dispose of private companies, businesses or assets is by means of the acquisition of the shares or all or part of the assets of a target company. The seller and the buyer will enter into a purchase agreement and ancillary documents governing the sale and purchase.
As for the typical private M&A transaction process, a distinction should be made between a bilateral process and an auction process. A bilateral process typically includes the following legal phases:
- signing of a non-disclosure agreement (NDA) and letter of intent or term sheet;
- due diligence and negotiations regarding the purchase agreement and ancillary documents;
- signing of the purchase agreement;
- if applicable, an interim period between signing and closing for the fulfilment of the closing conditions; and
A bilateral process will often take somewhat longer than an auction process due to the absence of competiveness, set timelines and a vendor due diligence, and assuming a staggered signing and closing may take between three to six months.
An auction process will involve certain additional legal documents and generally includes the following legal phases:
- preparations for the auction process, for example, a vendor due diligence report, information memorandum and data room;
- signing of an NDA;
- issue of a process letter to prospective bidders;
- limited due diligence and submission of non-binding offers by bidders;
- submission of binding offers by (selected) bidders, including mark-up of the purchase agreement;
- negotiations with selected bidders and confirmatory due diligence;
- entering into an exclusivity agreement with the preferred bidder and negotiations for the purchase agreement and ancillary documents;
- signing of the purchase agreement;
- if applicable, an interim period between signing and closing for the fulfilment of the closing conditions; and
Given the prewired sales process and competitiveness involved in an auction sale, signing can take place within one month after the bidders have been invited to participate in the auction, and assuming a staggered signing and closing the whole process may take between two to five months.Legal regulation
Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?
Private acquisitions and disposals are not governed by a single code or statute as such. Under Dutch law, the parties are to a large degree free to agree the terms and conditions of the purchase. The Civil Code sets outs the legal framework for the purchase of shares, a business or assets. Parties often exclude the applicability of certain general provisions regarding remedies, warranties, performance, damages, nullification and termination to avoid these provisions interfering with the contractually agreed regime, for example with respect to a seller’s liability in relation to a purchaser in the case of a warranty breach.
Other Dutch laws and regulations that govern private acquisitions and disposals are:
- the Competition Act;
- the Works Council Act;
- the Merger Code; and
- sector-specific laws, such as the Financial Supervision Act.
European Union law and regulations (eg, on merger control) and national merger control rules of foreign jurisdictions may also be relevant.
Parties are free to choose the law that applies to the transaction documents of an acquisition of shares, a business or assets, except for the transfer deed regarding registered shares and property, which must be executed before a Dutch civil law notary and governed by Dutch law.Legal title
What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?
A buyer will typically acquire the full legal title (ie, legal and beneficial) to shares, a business or assets. It is possible that the shares or assets are encumbered (eg, with pledges), which encumbrances will remain vested on the shares or assets when transferred unless released. Dutch law allows the legal and beneficial title to shares or an asset to be separated. The holder of the legal title is the owner of the share or asset. A beneficial title grants the holder a certain beneficial right (eg, an economic interest) to the share or asset.
The legal title to the shares, a business or assets does not transfer automatically (which would be the case in the event of a merger or demerger), but instead the shares, assets and liabilities should be transferred individually and specific transfer requirements apply, depending on the nature of the asset and liability.
Registered shares in private companies are transferred by means of a notarial deed of transfer signed by the seller and the buyer in front of a Dutch civil law notary. In the context of the transfer of registered shares, a Dutch civil law notary has an independent obligation to ascertain title and ownership of the shares by the seller upon the transfer of the shares. This role of the civil law notary provides comfort regarding the validity of the transfer of title.
In addition to an agreement between the seller and buyer that will be required for the transfer of most types of assets and liabilities, the following requirements, inter alia, apply:
- contracts: cooperation of the counterparty (specific transfer requirements or limitations may be included in the relevant contract);
- permits: additional transfer requirements may apply pursuant to the relevant permit, for example notification to or consent from the relevant governmental authority;
- receivables or loans provided: notification to the debtor (specific transfer requirements or limitations may be included in the relevant contract);
- debt: consent of the creditor (specific transfer requirements or limitations may be included in the relevant contract);
- real estate and other registered property: execution of a notarial deed of transfer by a Dutch civil law notary and registration of such deed with the appropriate land register;
- intellectual property: generally registration in the relevant register for purposes of third-party effect; and
- tangible, non-registered property (eg, inventory, stock): granting of possession (unless held by other parties on behalf of the seller, in which case different requirements apply).
As in other EU member states, special protection is granted to the employees in a business through an automatic transfer of most of their rights and obligations under the employment agreement to the buyer of the business in the event that the transaction qualifies as a ‘transfer of undertaking’ (TUPE). However, this protection does not extend to certain types of pension rights of such employees. It is for instance possible that the pensions rights do not transfer, because the buyer has to apply the existing pension arrangement in its business to the transferred employees. If the acquisition does not qualify as a transfer of undertaking, the assumed employees will not transfer to the buyer by operation of law, and an agreement between the seller and the buyer with the consent of the employee will be required.Multiple sellers
Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?
A buyer will typically want all sellers to agree to sell their shares to the buyer. The most common methods to squeeze out or drag along minority shareholders are the squeeze-out procedure included in the Civil Code, or enforcement of drag-along provisions in shareholders’ agreements or articles of association.
The Civil Code provides for a squeeze-out mechanism for shareholders of both public and private companies, which is not often used in a private company context. A shareholder who holds at least 95 per cent of the shares of a company can institute proceedings against the other shareholders jointly for the transfer of their shares to the claimant (ie, the buyer).
Furthermore, minority shareholders can be forced to sell their shares through the enforcement of a drag-along right by the majority shareholder or shareholders. Drag-along provisions will typically be included in a shareholders’ agreement. In addition, such provisions can also be incorporated in the articles of association of a private company. However, in view of the statutory requirements that such arrangement needs to comply with, drag-along provisions in the articles of association require careful drafting, and often it will not be possible to implement the drag-along arrangement in the shareholders’ agreement ‘back-to-back’, or by way of incorporation by reference.Exclusion of assets or liabilities
Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?
In principle, a buyer and a seller can decide which assets and liabilities will be transferred to the buyer and which will remain with the seller. However, in cases where a transaction qualifies as a TUPE (see questions 3 and 33), all rights and obligations arising from employment agreements (other than, in certain cases, pension rights) will transfer to the buyer by operation of law, as a result of which these agreements cannot be excluded from the relevant transaction by the parties.
As set out in question 3, in the case of a transfer of assets and liabilities, and depending on the type of asset or liability transferred, third-party consents from, for example, counterparties, creditors or governmental authorities, or notifications to registers or governmental authorities, may be required to effect such transfer.Consents
Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?Competition
It is possible that a transaction needs to be notified to the Dutch Authority for Consumers and Markets (ACM). The Competition Act applies if a transaction qualifies as a concentration and the turnover of the relevant businesses involved exceeds certain thresholds. A concentration is defined as:
- a merger of two previously independent undertakings;
- the direct or indirect acquisition of control over the whole or part of an undertaking; or
- the establishment of a joint venture that performs all the functions of an autonomous economic entity on a long-term basis.
The current thresholds for notification to the ACM are a combined worldwide turnover of the undertakings concerned of €150 million in the calendar year preceding the transaction; and at least two undertakings concerned each realised a turnover of €30 million or more in the Netherlands in the calendar year preceding the transaction.
If a concentration needs to be notified to the ACM, it may not be implemented prior to clearance from the ACM. Concentrations that involve at least two Dutch healthcare providers can be subject to lower turnover thresholds. Furthermore, specific methods for the calculation of the relevant turnover apply for banks, financial institutions, insurers and pension funds.
If a concentration triggers a notification to the European Commission under the EU merger filing rules, no separate notification to the ACM is required.
Furthermore, acquisitions and disposals taking place in certain sectors (eg, financial) may require prior consent or a declaration of no objection from the relevant regulatory authority. Dutch law does not include any foreign ownership or investment rules, nor any general public or national interest consideration rules. The most relevant sector-specific regulations are the flollowing:Energy sector
In the energy sector, the Minister of Economic Affairs must be notified of any change of control over a power station with a production capacity above 250 megawatts. Such transaction can be prohibited for reasons of national security or supply security.Healthcare sector
In the healthcare sector, approval of the Dutch Healthcare Authority is required for a business combination involving a healthcare provider if the healthcare provider involved has more than 50 employees.Financial sector
In the financial institutions sector, a declaration of no-objection from the Dutch Central Bank is required before acquiring an equity or voting interest of 10 per cent or more in a financial institution. In the event the financial institution is a bank, a declaration of no-objection from the European Central Bank is required. The decision to grant a declaration of no-objection is based on, inter alia, the integrity, suitability and financial soundness of the prospective buyer. Increases in the interest held by the buyer above certain thresholds and decreases below those thresholds must be notified to the Dutch Central Bank.
Are any other third-party consents commonly required?
The articles of association of a private limited liability company may contain share transfer restrictions. First, there may be a blocking clause, which entails that a transfer of shares is subject to prior approval of the general meeting of shareholders (or another corporate body of the company) or a right of first refusal of the other shareholder or shareholders. Furthermore, the articles of association may contain other types of restrictions, such as a lock-up period, restrictions on transferees (eg, competitors) or tag-along rights.
Furthermore, shareholders of public limited liability companies have a statutory right to approve decisions of the management board relating to an important change in the identity or character of the company or its business by a simple majority of the votes cast. Such decisions include the transfer of all or substantially all of the business of the company, and the acquisition or divestment of an interest in another company with a value of at least one-third of the company’s assets. Although no similar provision exists for private limited liability companies, a transaction by which all of its assets are sold (ie, a factual liquidation) is generally considered to be subject to shareholder approval. Moreover, further-reaching approval rights may be included in the articles of association of a company.
In addition, change-of-control-related third-party consents may be required under the relevant contract (eg, under existing financing agreements or other loans, subsidies, lease agreements or commercial contracts).
Although not constituting an actual ‘consent’, the right of a Dutch works council to render advice on the transfer of control over a company is often also mentioned in this category. See question 34.Regulatory filings
Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?
The transfer of specific assets (eg, real estate and intellectual property rights) may require registration of the transfer in the appropriate register. Registration fees may be payable for such purpose. No stamp duties apply (see also question 31), and notary fees are not determined by law and will be agreed with the Dutch civil law notary involved (eg, on the basis of time spent).