A recent Hungarian court decision has opened the door to a controversial yet powerful tool in M&A transactions: the right to rescind a share purchase agreement (SPA) even after closing. International law firm Taylor Wessing highlights the implications of this ruling for dealmakers, warning that greater flexibility also brings significant complexity.
“This decision affirms the contractual freedom granted under Hungarian law, but also reminds us that flexibility should never come at the expense of clarity,” said Ákos Mátés-Lányi, LL.M., MRICS, Partner at Taylor Wessing Hungary. “Undoing a transaction after completion is far more complex than entering into one in the first place.”
Post-completion rescission: Legal but not simple
The case involved a purchaser who exercised a rescission right after taking legal ownership of the shares, based on a condition defined in the SPA. The court upheld this right, provided the parties acted in good faith and did not abuse it.
While such clauses differ from typical market practice—where post-completion rescission is usually excluded—the ruling confirms that Hungarian law allows parties to maintain rescission rights beyond completion, if clearly agreed.
“Rescinding a deal post-completion may seem like a safety net, but it can easily turn into a legal minefield,” Mátés-Lányi noted. “Contracts must address scenarios where assets have changed hands, new liabilities have emerged, or the company’s direction has shifted entirely.”
Risks and practical challenges
Allowing rescission after closing raises difficult questions. For example:
- Restoring the original state may be unrealistic if the business has changed significantly.
- Value fluctuations—the company may have increased or decreased in value. Who bears the gain or loss?
- Liability allocation—ongoing or contingent risks (like tax or employment claims) may have surfaced in the meantime.
These issues can lead to complex disputes if not anticipated and addressed in the SPA.
“Post-closing rescission is legally possible, but commercially volatile,” said Mátés-Lányi. “Well-structured contracts and proactive planning are essential if parties choose to go down this path.”
What should be included in SPAs
Taylor Wessing recommends the following safeguards in SPAs that allow post-completion rescission:
- Detailed mechanisms for ownership reversal, financial adjustment, and handling operational changes
- Clear allocation of liabilities and value changes during the interim period
- Procedural safeguards such as valuation and dispute resolution frameworks
- Good faith provisions to reduce the risk of abuse
“Just because you can walk away from a deal doesn’t mean you should,” Mátés-Lányi concluded. “Rescission after completion should never be a substitute for due diligence or sound deal-making.”
