THE BOTTOM LINE
- Conditional Clauses Carry Risk: Structuring M&A payments contingent on a seller’s post-closing approval (e.g., of financial statements) can create a significant bottleneck. If the seller refuses to sign off, payments can be legally suspended, stalling the deal’s finality.
- Substantiate Your Objections: A party cannot simply refuse to fulfill a contractual obligation based on vague suspicions. This court made it clear that if you claim financial statements are incorrect, you must provide specific, expert-backed proof. A simple “my advisor has concerns” is not enough.
- Cooperation is Key, Even in a Dispute: The buyer’s offer to provide full access to its accounting records was a crucial factor. Courts look favorably on parties who act transparently and facilitate the other side’s ability to meet their obligations, reinforcing the principle of good faith dealing.
THE DETAILS
This dispute stems from the sale of a 50% stake in a Bonaire resort company. The parties agreed on a $2 million price, structured through a Share Purchase Agreement (SPA) and a subsequent Loan Agreement. This effectively converted most of the purchase price into a seller-financed loan. However, the deal included a critical condition: the first major loan repayment of $155,000 was only due after the seller formally approved the resort’s historical financial statements for the years up to and including 2020, which the new owner was tasked with preparing.
A deadlock quickly emerged. The buyer, ECR, claimed it had provided the draft financials but that the seller was refusing to provide the required approval. ECR argued this refusal was a breach of contract that prevented it from securing its own financing and, consequently, making the agreed payments. The seller countered that the draft financials contained unspecified “abnormalities” and that the buyer had failed to provide the underlying accounting data for verification. With each side blaming the other for the failure to meet the payment condition, the matter landed in court.
The Court of First Instance took a pragmatic approach to break the stalemate. Instead of immediately ruling on who was in default, it focused on the seller’s obligation to approve the financials. The judge found the seller’s justification for withholding approval—a note from his advisor mentioning “abnormalities”—to be insufficiently substantiated. The court has now ordered the seller to either approve the statements or produce a detailed, specified report from an independent registered accountant proving precisely why they cannot be approved. This “show me the evidence” ruling places the burden of proof squarely on the party withholding performance, forcing them to move beyond vague claims and present concrete facts.
SOURCE
Court of First Instance of Bonaire, Sint Eustatius and Saba
