THE BOTTOM LINE
- Vague contract terms create major risks. A Dutch court interpreted the phrase “all remaining obligations to staff” broadly, including accrued holiday pay and leave entitlements, not just liabilities that were already due for payment.
- Buyers can set off pre-acquisition costs. If a buyer pays for liabilities that should have remained with the seller, they may be able to deduct those costs from the purchase price, even if the seller is now bankrupt.
- Industry practice matters. The court considered standard practices within the temporary staffing sector to understand the commercial context and reasonable expectations of the parties when interpreting the agreement.
THE DETAILS
In a cautionary tale for M&A dealmakers, the District Court of The Hague has ruled on a dispute over the €400,000 purchase price for a temporary staffing agency that was sold just weeks before entering bankruptcy. The bankrupt company’s curator sued the buyer for the unpaid purchase price. The buyer refused to pay, arguing it had a counterclaim exceeding the sale price. The buyer had paid over €472,000 to cover accrued employee entitlements (like holiday pay and vested leave days) that it claimed were the seller’s responsibility under the acquisition agreement. The case hinged on the interpretation of a single, crucial clause.
The core of the dispute was a contract clause stating the seller would ensure “all remaining obligations to the Staff until the Transfer Date will be or have been fulfilled.” The curator argued this phrase only covered payments that were already due and payable at the time of the transfer. The buyer, however, argued it encompassed all liabilities accrued by employees during their time with the seller, including untaken vacation days and other built-up entitlements. The court sided firmly with the buyer. It reasoned that since both parties were sophisticated commercial entities in the same industry and assisted by lawyers, the broad and unqualified wording of “all obligations” should be given its full effect. If the seller had intended to limit its liability to only immediately payable debts, it should have explicitly stated so in the agreement.
The court’s decision was further bolstered by the specific context of the Dutch temporary staffing industry. It is standard practice in the sector for all accrued employee benefits to be paid out upon the termination of an employment contract. As the employees’ contracts with the seller ended upon the transfer, these liabilities crystallized. The court also rejected the curator’s attempt to limit the buyer’s right to set-off the debt, identifying an “obvious drafting error” in another clause and prioritizing the clear overall commercial intention of the parties. Because the employee-related costs paid by the buyer exceeded the €400,000 purchase price, the court allowed a full set-off, leaving the curator’s claim entirely dismissed.
SOURCE
Source: Rechtbank Den Haag
