A legal opinion is a determination of a legal situation by a lawyer or legal specialist. The preamble to a legal opinion usually explicitly states on the basis of which laws or documents the advice has been drawn up. This often applies as a disguised reservation regarding the correctness of the content of the legal opinion. The office can be held accountable for inaccuracies in the legal opinion. A legal opinion therefore offers a guarantee.
The purpose of legal opinions
Legal opinions play an important role in Dutch legal practice, especially in (international) transactions and financing practices. In cross-border transactions with a Dutch target company, the target, foreign buyers generally use legal opinions to map out the legal risks.
The various parties and safeguarding trust
The parties to an acquisition rely on their own advisers during negotiations and to prepare the transaction documentation. Each party conducts due diligence into the other party(ies) and into the benefits and risks associated with the transaction. They must also rely on the warranties and indemnities provided by the other party(ies).
A private M&A transaction often requires a buying party to provide a legal opinion for a closing by the selling party(ies). In addition, a third party (read: a law firm that does not assist either party in the transaction) is engaged to draw up a legal opinion. This guarantees the objectivity of the legal opinion.
For which legal status is a legal opinion interesting?
Legal opinions on mergers and acquisitions can serve different purposes. Seller opinions find out the legal status of:
- The assets and the company to be sold
- Seller’s property right
- The power to sell
- The absence of legal or contractual restrictions on the transactions
- The seller’s compliance with the law in the execution of the transaction and the enforceability of the transaction documents.
In order to issue a legal opinion, the attorney must perform a due diligence investigation related to the opinion assignment. As a result, it is possible that the investigation goes further than the investigation by the seller’s lawyer. Due to the objectivity of the researcher, this forces parties to be open and the seller’s legal opinion becomes part of the buyer’s due diligence.
A legal opinion on mergers and acquisitions often has the following content:
- Legal validity of the agreement: it is essential that the purchase agreement complies with applicable (special) regulations and other legal requirements. A legal opinion assesses whether this is the case.
- Legal adequacy: in a legal opinion, the transaction is assessed for legal adequacy. This determines whether there are legal grounds that could prevent an expected performance or the transaction as a whole. A legal opinion can reveal important issues that need to be resolved, including both legal and business risks.
- Checks on guarantees: A legal opinion acts to some extent as a method of checking at least some of a party’s guarantees.
- Legal status: the legal opinion on behalf of a seller relates to:
- The legal status of the asset or entity being sold.
- The seller’s ownership of what is being sold.
- The seller’s authority to sell.
- The absence of legal and contractual restrictions on the transactions.
- The seller’s compliance with the law in the execution of the transaction and the enforceability of the transaction documents.
More specialised advice may cover matters such as the status of a patent, the taximplications of the transaction, or a contingent liability issue such as a pending or impending lawsuit.
- Legal result: the buyer wants to be sure that certain tax or other legal results are achieved. A legal opinion assesses whether the results arising from the agreement can be achieved.
Contact
If you need a legal opinion under Dutch law, do not hesitate to contact our corporate law expert Dirk de Waard: dirk.dewaard@viottalaw.com
