In one of the first judgments handed down in matters of fraud since the reform of contract law, the Court of Cassation reaffirmed that the seller’s silence on information essential to the assignment excuses the buyer’s error, regardless of his experience or curiosity (Court of Cassation, com., September 18, 2024, No. 23-10.183).
Background: An acquirer acquired shares without conducting due diligence or obtaining in-depth information about the target company. After the sale, he discovers the existence of significant debts not revealed by the seller. Considering that the latter had deliberately concealed this information, the buyer requested the cancellation of the sale for fraudulent concealment.
➡️ The Douai Court of Appeal rejected his request, considering a lack of diligence on the part of the buyer who, as a company manager, was bound by a “reinforced obligation” to verify a priori the company’s financial situation.
➡️ In a clear decision, the Court of Cassation quashed and annulled this decision. It considers that even if the buyer had not carried out a due diligence, the seller’s fraudulent reluctance was sufficient to excuse his error and justified the cancellation of the sale.
What to make of this?
This decision may come as a surprise to professionals accustomed to these transactions, since the courts usually assess the level of information of the buyer to identify any fraudulent concealment on the part of the seller. The fact is that in this case, the company had been sold, apparently without the parties being accompanied by accounting or legal professionals prior to the completion of the transaction.
Will this decision now invite buyers to be more stingy in their due diligence prior to the sale?
For further information, please contact:
Olivier d’Abo, Partner
ebl lexington avocats, Paris
e:moc.wal-txl@obado
t: +33 1 8375 4141
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