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30 Aug 2021 Company takeover? Don’t forget to consider the employee pensions!

If you are thinking about transferring or acquiring a company, the rules on 'transfer of undertaking' ought to be taken seriously. Unfortunately, what is sometimes forgotten are the pensions of employees.

If you are a buyer or seller in the transfer of a business, you should of course seek proper advice from your lawyer and accountant/tax adviser. A due diligence investigation will play a central role in this. All legal, financial and fiscal aspects will be dealt with, and thus also all topics concerning personnel. For example, it needs to be examined whether all employment contracts are correct, whether there is any long-term illness, and whether there are any current and/or expected claims or proceedings.

It is important to remember that under the rules of the transfer of undertaking, the rights and obligations arising from the employment contracts of the employees are passed on to the transferee of the undertaking by operation of law. Think of the salary, non-competition clause, bonus claims and expense allowances. This is to protect the rights of the employees. This rule also applies (with a number of exceptions) to pensions.

Unfortunately, what is not always thought of is a thorough inventory of the employees' pension obligations: what has been arranged and have the agreements always been implemented? Are there possible pension claims?

If the due diligence gives cause to do so, then specific provisions can be included in the takeover contract (by means of indemnities and guarantees), (also) with a view to pensions.

An example of a situation that went wrong is the case handled by the Court of Appeal in Amsterdam. In that case, the seller was obliged to affiliate with an industry-wide pension fund, but the buyer was not. The Court of Appeal ruled that the buyer should have arranged the same kind of pension scheme for its employees. As a result, the buyer still had to pay all pension premiums retroactively. Undoubtedly, this was expensive for the buyer. You can read the full judgment here.

Do you also have questions about company takeovers, transfers of undertakings or due diligence investigations? SPEE advocaten & mediation is happy to advise you.

SPEE advocaten & mediation Maastricht


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