Legal Flexibility and Practical Challenges in Hungary’s M&A Rescission Rollercoaster

The legal firm Taylor Wessing has highlighted the complexities and implications associated with post-completion rescission in contracts, emphasizing the importance of clarity and foresight in such agreements. Ákos Mátés-Lányi, a partner at Taylor Wessing Hungary, points out that while the flexibility granted under Hungarian law allows for post-completion rescission, it also underscores the necessity of clear and precise contractual language to avoid potential legal complications down the road.

The recent case that brought attention to post-completion rescission involved a purchaser invoking their rescission right after acquiring legal ownership of shares, based on a condition outlined in the SPA. The court upheld this right, emphasizing that parties must act in good faith and not abuse this privilege. This ruling reaffirms the legal validity of post-completion rescission under Hungarian law, as long as it is explicitly agreed upon by the parties involved.

Mátés-Lányi cautions that while post-completion rescission may seem like a safety net, it can quickly become a legal quagmire if not carefully navigated. He stresses the importance of contracts addressing potential scenarios where the business landscape has shifted post-completion, such as changes in assets, emerging liabilities, or significant shifts in the company’s direction. Failure to anticipate and address these complexities can lead to protracted disputes and legal challenges.

One of the major risks associated with allowing post-completion rescission is the difficulty in restoring the business to its original state, particularly if substantial changes have occurred. Additionally, the fluctuation in the company’s value post-completion raises questions about who should bear any resulting gains or losses. Moreover, unexpected liabilities that arise after the completion of the transaction, such as tax or employment claims, further complicate the post-rescission landscape.

Mátés-Lányi underscores that while post-completion rescission is legally permissible, it is laden with commercial volatility and uncertainty. In order to navigate this complex terrain effectively, well-structured contracts and proactive planning are paramount. Parties must carefully consider and address potential risks and challenges that may arise post-completion to mitigate the likelihood of disputes and ensure a smooth resolution in case of rescission.

In conclusion, the case highlighting post-completion rescission underscores the delicate balance between contractual flexibility and legal clarity. The insights provided by Taylor Wessing serve as a cautionary tale for businesses entering into transactions that leave room for rescission post-completion, emphasizing the need for comprehensive and foresighted contractual agreements to navigate potential pitfalls and complexities effectively.