Share purchase deal : when can the buyer claim damages for reps & warranties?

In a decision of 4 December 2020 the Belgian Supreme Court reminded in the context of a share purchase deal, that the buyer can only claim damages for the losses he suffered himself and not for the losses suffered by the target company whose shares were subject of the share purchase deal.

In the case at hand, the seller had given "reps and warranties" to the buyer in which he inter alia declared that the target companies had outstanding invoices to be collected within 6 months amounting to 368.459,86 EUR and that the financial statements of the target companies were fair and correct. These declarations turned out to be incorrect. The invoices could not be collected and the financial statements mentioned a guarantee of 34.633,37 EUR that was not enforceable. The buyer consequently and successfully claimed damages equal to the aforementioned amounts. The decision of the Court of Appeal of Ghent which was contested before the Supreme Court granted the damages.

The Supreme Court however overruled the Court of Appeal of Ghent stating that the incorrect reps and warranties constituted a contractual breach towards the buyer (i.e. the new shareholder) and not towards the target companies. To be able to claim damages the buyer should demonstrate having suffered an own loss. The buyer did not show that the damage suffered by the target companies resulted in an equal loss of value of the shares retained by the buyer as a result of the share purchase deal and therefore failed to demonstrate having suffered own losses.

Generally in share purchase contracts clauses are provided according to which the damage suffered by the target companies should be considered also being a damage suffered by the buyer. In the case at hand such clause seems not to have been foreseen. Since thisdecision of the Supreme Court does not decide on such clause, it does not rule out the possibility to make such contractual arrangements.

Should you have further questions on this topic or need assistance with a share purchase deal, please contact us.

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