Shares purchased on incorrect figures: can you annul the acquisition on grounds of mistake?

You purchased shares — but the figures were wrong. What now?

You carry out an acquisition. Due diligence has been done, warranties have been given, and the balance sheet looked solid. You sign the purchase agreement. But soon it becomes apparent that the financial position of the company was very different from what was on paper: the profit was fictitious, the acquisition balance sheet was incorrect, and in reality the business was making a loss.

Can you then annul the purchase agreement on grounds of mistake? And if so — what are the consequences? The Dutch Supreme Court answered two important questions on 9 February 2024 that frequently arise in M&A practice.

What happened?

Rookie B.V. acquired all shares in PSS — a company supplying electronic security systems — from ABC Hekwerk Participatie B.V. in December 2012. The purchase price totalled nearly €483,000. The basis for the acquisition was interim figures showing a positive result of over €94,000 and a healthy balance sheet. The purchase agreement contained an explicit balance sheet warranty: the acquisition balance sheet would faithfully and consistently reflect the actual financial position.

Shortly after the acquisition, it emerged that PSS had in fact made a loss of over €109,000 in 2012. A large item of 'work in progress' on the acquisition balance sheet had been incorrectly valued — by up to €120,000. Rookie's accountant raised the alarm. The cooperation fell apart, PSS went bankrupt, and Rookie itself suffered significant losses as a result.

Rookie annulled the purchase agreement extrajudicially on grounds of mistake (dwaling) and claimed repayment of the purchase price.

Two key questions for the Supreme Court

The 's-Hertogenbosch Court of Appeal had upheld the claim of mistake and ordered ABC Hekwerk to repay the purchase price. ABC Hekwerk appealed to the Supreme Court. The Supreme Court had to address two questions:

1. Can the court limit the consequences of annulment if they are 'difficult to undo'?

Article 3:53(2) of the Dutch Civil Code gives the court the power to — if the consequences of an annulment are difficult to undo — deny the annulment its effect in whole or in part. ABC Hekwerk argued this was the case: the shares had since become worthless (PSS was bankrupt), and redelivery was pointless.

The Supreme Court confirms the approach of the court of appeal: the fact that the shares have become worthless does not make the consequences of the annulment 'difficult to undo' within the meaning of Article 3:53(2) DCC. What matters is whether the actual consequences of the legal act itself (the delivery of the shares, the payment of the purchase price) are difficult to reverse — not whether the value of what was delivered has changed. Loss of value after the purchase is a risk that can fall on the seller if the purchase is validly annulled.

2. Does annulment result in an 'inequitable enrichment' for Rookie?

ABC Hekwerk argued that Rookie would be unjustifiably enriched by the annulment: Rookie had, after all, been able to use PSS and the cooperation for a period. Annulment — with full repayment of the purchase price — would give Rookie more than it was entitled to.

This argument also failed. The Supreme Court holds that the mere fact that annulment turns out to be financially advantageous for the party that was mistaken does not constitute 'inequitable enrichment'. That is simply the consequence of a successful claim of mistake: the party that entered into an agreement on the basis of an incorrect assumption is entitled to restoration of the situation prior to the agreement. A different view would largely hollow out the doctrine of mistake.

Why is this ruling significant?

This ruling is practically important for two reasons.

First, the Supreme Court clarifies that Article 3:53(2) DCC is an exception — not a standard defence. The power to deny annulment its effect exists only if the actual consequences of the legal act (the delivery of shares, the payment of the purchase price) are genuinely difficult to reverse. The fact that PSS went bankrupt and the shares are now worthless is not relevant in this regard: what matters is whether the redelivery and repayment can be undone, not the subsequent value development.

Second, the ruling confirms that mistake in share transactions — especially where incorrect financial information has been provided or balance sheet warranties have been breached — can be a powerful legal remedy. Acquirers who discover after an acquisition that the actual financial position differs from what was represented to them can not only rely on breach of contract (breach of warranties), but also on mistake — with annulment of the entire agreement as a potential consequence.

What does this mean for you as a business owner?

As a buyer in an acquisition:

• If you discover after the acquisition that the balance sheet figures were incorrect or that you had a mistaken assumption, you may be able to annul the purchase agreement on grounds of mistake — even if considerable time has passed or the shares are now worthless.
• Make sure you act in time. A claim of mistake must be brought before the limitation period expires (three years from discovery).
• A successful claim of mistake leads to repayment of the full purchase price.

As a seller in an acquisition:

• Incorrect or incomplete financial information — even if you were unaware it was incorrect — can lead to annulment of the purchase agreement and repayment of the purchase price.
• Balance sheet warranties are not without consequences. If reality deviates from the warranted position, you risk not only a claim for damages but also annulment of the entire transaction.
• The defence that the buyer would be 'inequitably enriched' by annulment has little chance of success if the buyer was mistaken due to your conduct.

General:

• Thorough due diligence protects the buyer, but does not entirely eliminate the risk of mistake: if the seller provides incorrect information or withholds relevant information, a claim of mistake may still succeed — even after an extensive due diligence investigation.
• Include clear provisions in the purchase agreement on the consequences of incorrect warranties and the relationship between a claim of mistake and a claim based on warranty breach.

Conclusion

The Supreme Court makes clear: anyone who sells shares on the basis of incorrect financial information runs a serious risk that the sale will be annulled — with repayment of the full purchase price as a consequence. The defences of 'difficult to undo consequences' and 'inequitable enrichment' offer little protection in most cases. This underlines the importance of transparent and accurate disclosure of information in any share transaction.

Ruling

This blog post is based on ECLI:NL:HR:2024:208, judgment of the Dutch Supreme Court of 9 February 2024.