How Dutch Legal Due Diligence Differs from US Due Diligence

What international lead counsel should expect from the Dutch legal workstream

When I act as Dutch counsel in a US-led acquisition, I normally work within lead counsel’s existing diligence process.

I do not start by replacing the US request list or producing a separate process around it. I map that scope against the Dutch target, identify the local records and legal issues that require a different review, and report the findings in a form that can be used in the main transaction.

That usually means focusing on matters such as the Dutch corporate and notarial share history, local employment and works council issues, Dutch contract and regulatory points, and the approvals needed to sign and close.

The report itself is only useful if the material findings make their way into the SPA, disclosure process or closing checklist.

This is one of the practical differences covered in my Dutch Deal Practice in a US and UK Context series.

Keep the US diligence process – add the Dutch proof points

The categories in a US and Dutch legal diligence exercise are not radically different. Both may cover corporate matters, material contracts, employment, IP, litigation, compliance, financing and regulatory issues.

The local evidence can be quite different. For a Dutch BV, I want to reconstruct the legal share position from the corporate records rather than rely on a cap table or a Chamber of Commerce extract.

That means reviewing the articles of association, shareholder register, incorporation deed, historic notarial deeds of issuance and transfer and the relevant shareholder and board resolutions.

A Dutch Chamber of Commerce extract is useful for registered company and director information. It does not establish the complete legal ownership history of the shares.

I see this point particularly often where a US group has acquired, financed or restructured a Dutch company over several years. The commercial cap table may be perfectly understandable and still require reconciliation with the Dutch notarial history.

I discuss that issue separately in Delaware Stock Ledgers vs Dutch Shareholder Registers: Why Cap Tables Are Not Enough.

Agree the reporting threshold before the review starts

There is no single required format for a Dutch legal due diligence report.

In cross-border deals, I prefer to agree the reporting method with lead counsel at the start.

If the buyer wants a red-flag report, I do not turn the Dutch workstream into a full descriptive report. I identify the matters that can affect value, liability, control, signing or closing and explain the transaction response.

The materiality threshold should also follow the deal.

A EUR 100,000 contract may be immaterial for one target and central to another because it contains a critical licence, exclusivity right or customer termination provision.

The same is true for employment. A single management agreement can matter more than fifty standard employment contracts if the person concerned controls the customer relationships or technology on which the acquisition case depends.

This is where local counsel can be most useful to an international deal team: applying the agreed diligence scope to the Dutch legal position rather than sending lead counsel a second generic checklist.

Employment review often affects the transaction process

Dutch employment diligence is not limited to checking standard employment contracts.

I want to know whether a collective labour agreement applies, which pension arrangements exist, whether material bonus or incentive commitments have been made, how key management is engaged and whether employee participation or contractor structures create outstanding liabilities.

For a transaction, I also check whether there is a works council and whether the contemplated acquisition or associated restructuring triggers a consultation process.

An asset deal raises a different issue. Dutch transfer-of-undertaking rules can transfer employees and their employment rights by operation of law if the statutory requirements are met.

That point can affect the deal structure itself. A US buyer should not assume that an asset schedule allows it simply to select which employees transfer with the business.

I address the employment process in more detail in the separate article Dutch Employment and Works Council Issues Compared with US M&A.

Data room access and legal disclosure are separate questions

I keep diligence and disclosure conceptually separate.

The diligence question is what the buyer has found.

The disclosure question is whether and how information made available to the buyer qualifies the seller’s warranties under the SPA.

Putting a document into the virtual data room does not by itself determine its legal effect on a later warranty claim. That depends on the acquisition agreement, the disclosure standard and the disclosure letter.

For that reason, I generally flag a material diligence finding by reference to the transaction response it requires.

If a contract contains a change-of-control termination right, lead counsel needs to know whether consent is required before closing and whether that becomes a condition precedent.

If the target’s IP ownership is incomplete, the relevant question may be whether an assignment can be completed before signing or closing.

If there is an identified tax or litigation exposure, the discussion may move to a specific indemnity.

A red flag with no proposed next step leaves too much work for the person receiving the report.

See also Data Rooms and Confidentiality in Dutch Sale Processes and Disclosure Letters in Dutch M&A Transactions.

Reliance should be agreed, not assumed

Another point worth settling at the beginning is who may rely on the Dutch diligence work.

The direct client and lead counsel may have one agreed use of the report. A lender, W&I or R&W insurer, co-investor or another transaction participant may later ask for reliance.

I would not assume that a third party has reliance rights simply because it received the report.

If third-party reliance is needed, the scope, recipient and liability position should be agreed expressly. That is particularly relevant where a local diligence report will be circulated outside the original legal team or used in an insurance underwriting process.

It is a small engagement point that can become unnecessarily difficult if it is first raised immediately before signing.

Every material finding should have a destination

When I report Dutch diligence findings to international lead counsel, I try to connect each material item to the next transaction step.

A finding may require:

• remediation before signing or closing;
• a third-party consent;
• a condition precedent;
• a warranty;
• a specific indemnity;
• a disclosure item;
• a purchase-price response; or
• a post-closing covenant.

Not every finding requires contractual protection. Some are information only. The distinction should be visible.

That also keeps the report proportionate. The purpose of Dutch local diligence is not to demonstrate how many documents have been reviewed. It is to tell the international deal team which Dutch issues change the transaction.

The broader Dutch diligence process is covered in Legal Due Diligence in Dutch M&A Transactions.

Practical conclusion

For a US-led Dutch acquisition, I would keep one diligence process and add the Dutch workstream to it.

Lead counsel should receive a clear view of the Dutch corporate record, local employment and regulatory issues, material contract findings and any Dutch approvals or remedial steps that affect signing or closing.

The useful output is a report that can be acted on immediately: the issue, its relevance to the deal and the document or closing step in which it should be addressed.

FAQ

Does Dutch legal due diligence require a separate report?

No. The reporting format can be aligned with the international lead counsel’s process. A separate Dutch report is useful only where the transaction scope calls for it.

Is a Dutch Chamber of Commerce extract enough to verify share ownership?

No. Share ownership in a Dutch BV should be checked against the shareholder register and relevant notarial share history and corporate documentation.

Does uploading a document to the data room automatically qualify a Dutch warranty?

No. The legal effect of data-room disclosure depends on the SPA and disclosure arrangements.

Can a W&I insurer rely on the buyer’s Dutch legal due diligence report?

That should be agreed expressly. Third-party reliance should not be assumed merely because the report is shared.

About Dirk de Waard

Dirk de Waard is a Dutch corporate and M&A lawyer, a dual Dutch-US national and partner at Venture Lawyers in Amsterdam.

He works with international buyers and US and UK law firms on Dutch legal due diligence, transaction documentation, corporate approvals and closing implementation. Where international lead counsel manages the wider deal, Dirk can take responsibility for the Dutch diligence workstream and report material local issues directly into the main transaction process.

Dutch legal due diligence for cross-border acquisitions

If you are acquiring a Dutch company or acting as international lead counsel on a transaction involving a Dutch target, contact Dirk at dirk.dewaard@viottalaw.com. He can handle the Dutch legal due diligence workstream, coordinate the findings with the SPA and closing process and work within the wider diligence structure already established by lead counsel.