Vol 15 (2018) - Issue 5

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M&A Transactions in France: False Representation by Seller Regarding Ongoing Material Contract Generates No Loss to Buyer and Therefore Gives No Right to Indemnification

Synopsis
The Commercial Chamber of the French Cassation Court recently rendered a decision denying the buyer of a French company from the benefit of various contractual representations and warranties. The buyer was denied indemnification following discovery, after closing of the transaction, that the seller had misrepresented that a material contract was ongoing, whereas the true position was that the contract in question had been terminated a few months prior to closing. On the face of matters, this situation risks defeating a primary purpose of an M&A transaction and causing serious financial problems to the target of the transaction and to the buyer. The author analyses the decision ('the Ruling') and to what extent its outcome might have been different, if the wording of the documentation binding the seller and buyer had been different, or if the buyer had based his claim on other legal grounds.