Duty to disclose in business acquisitions: silence is no defence

Anyone who is aware of a problem and conceals it cannot, in the event of a breach of warranties, hide behind the buyer’s duty to investigate. This is clear from a recent judgment by the Amsterdam District Court (ECLI:NL:RBAMS:2026:4722).

What were the facts of this case?

In 2021 and 2022, an investor provided loans to a company that sold, rented out and leased e-bikes. These loans were later converted into a 51% majority stake in the company. Upon concluding the investment agreement, the two selling shareholders – which were personal holding companies – provided warranties.

However, as early as May 2022, the company and the selling shareholders were aware that the front forks of the e-bikes were repeatedly breaking, posing a real risk of serious physical injury. Even shortly before the investment agreement was concluded, this problem was still regarded internally as urgent. This was never disclosed to the investor. Following the takeover, the incidents continued to occur, ultimately leading to liability claims, a warning letter to customers, contract terminations, a liquidity crisis and the company’s bankruptcy.

The investor held the sellers liable for breach of warranty and also brought a personal claim against the director of one of the selling companies.

Can a seller hide behind the buyer’s duty to investigate?

No. The court ruled that the warranties had been breached. The problems with the front forks were structural and safety-related, and this was simply not disclosed, even though it would reasonably have influenced the investor’s decision to enter into the investment agreement.

The defense that the warranties were not formulated specifically enough to imply a duty to disclose technical or operational problems was rejected. As these were matters directly affecting the core of the business operations – this information should have been disclosed proactively. The fact that the buyer could have carried out its own investigation does not therefore relieve the seller of its duty to disclose if the seller was already aware of the risk.

Does the buyer’s own conduct alter the liability?

The sellers argued that the investor, in his role as director of the company following the takeover, had himself caused damage by writing to customers and filing for bankruptcy too quickly. The court did not agree with this. It had not been sufficiently demonstrated that a realistic alternative existed to prevent the insolvency. The fact that other factors also contributed to the insolvency does not detract from the causal link between the breach of the warranties and the loss.

Indeed, the court held that the sequence of events leading to the insolvency – the concealed problem, the claims for liability, the warning letter, the contract terminations and the cash flow crisis – forms a single continuous chain triggered by the original breach of the duty of disclosure. The fact that the investor acted on his own initiative at a certain point does not alter this, where that action was a reasonable and virtually inevitable response to the situation that the other party had itself created.

The court calculates the damages by comparing the actual situation with the hypothetical situation in the absence of the investment agreement.

When is the director of the selling company personally liable?

In addition to the selling shareholder companies that had provided the guarantees, the director of one of the shareholder companies was also held personally liable. The court applied the established test here: a director is liable alongside the company if he knew, or ought reasonably to have realised, that the company would be unable to fulfil the obligation it had entered into and that the company would offer no recourse in that regard.

For one director, this liability was rejected, simply because it had not yet been established that the company would offer no recourse. The situation is different for the other director: his company had no assets or expected income. This director was aware of the problems with the front forks and should have realized that this could have a significant impact on the company’s operations. He is therefore held jointly and severally liable as a director of his personal holding company.

This clearly demonstrates that the question of whether recourse against the company itself is possible constitutes a separate element of the assessment. Until this is established, a claim for directors’ liability is premature.

What does this mean for takeover practice?

A seller who is aware of a material risk cannot hide behind the argument that the buyer could have discovered this for themselves, certainly not when it concerns information that directly affects the core of the business operations.

In practice, this means that, in a share transaction, sellers must proactively disclose what they know about risks that could affect business operations; directors of selling companies must also be mindful of this.

Are you involved in a dispute concerning a breach of warranties or directors’ liability in connection with a business acquisition? We would be happy to explore the options with you, whether you are a buyer, seller or director.