Dangerous product series in a business acquisition: recall, authority reporting and costs

The starting point is a reliable identification. The buyer needs the product name, brand, model, batch or serial number, production period, Member States and distribution channels. The file should also contain test reports, complaints, accident information and the technical reasoning that explains the danger. A general label such as “defective goods” is too vague for a recall plan.

Article 9(2) of the Regulation requires manufacturers to carry out an internal risk analysis and prepare technical documentation where appropriate in view of the possible risks. For serially produced products, suitable procedures must ensure continued conformity with the general safety requirement. Article 9(8) applies where the manufacturer knows or has reason to believe that a product placed on the market is dangerous. Effective corrective measures, consumer information and reporting through the Safety Business Gateway must then be considered without delay.

In a share deal, the target remains the same legal entity. Its complaints, test reports, recall data and authority contacts therefore do not disappear when the shares change hands. The buyer acquires the company with its information position and must make open measures visible before signing.

The data room should connect each affected product line with its supporting evidence. This includes risk analysis, technical documentation, test and laboratory reports, internal complaints, accident information, sales figures, returns, dealer lists and correspondence with market-surveillance authorities. Published warnings and recall notices belong in the file as well.

The timing is equally important for the transaction. When was the risk identified? When were distributors and dealers informed? Were products removed from the market or recalled? Which Member States are affected? Which reports were submitted and what responses have been received? These answers support warranties, indemnities and a realistic reserve.

The general mechanics of a share transfer are explained in the article on the share transfer agreement and notarial deed. The product safety file needs a separate responsibility matrix showing who submits the next report and which document is still missing.

Article 35 requires direct and immediate information for affected consumers who can be identified in the event of a product safety recall or safety warning. If not all consumers can be reached, suitable additional channels must achieve the widest possible reach. Under Article 36, a recall notice must clearly describe the product, identification details, the danger, the instruction to stop using it immediately, available remedies and a contact channel.

Article 37 provides for at least two remedies from repair, replacement with a safe product of the same type or an appropriate refund. The circumstances determine the concrete choice. The remedy must be effective, free of charge and timely. Consumers must not bear shipping or return costs; for products that cannot be transported, the economic operator must arrange collection.

Reporting through the Safety Business Gateway and publication in Safety Gate must be distinguished. Article 26 concerns Member State notifications of corrective measures and requires national authorities to transmit them without delay, in any event within four working days after the measure. Article 20 concerns the publicly accessible Safety Gate portal and the possibility of reporting products that may pose a risk. The deal file must therefore establish which body has already reported and which action remains with the target.

The Regulation distributes product safety duties. It does not automatically decide how the economic loss is divided between buyer and seller in a share deal. The SPA must do that work. Recall, storage, transport, testing, repair, replacement, refunds, communication, external advice and possible authority follow-up should be recorded separately.

A general warranty of compliance with all laws is often too vague for a concrete recall. A product-specific statement with an annex is more useful: Which series is affected? Which reports, complaints and measures are known? How many units remain on the market? Which costs are paid, reserved or disputed? The indemnity should define period, event, beneficiaries, evidence, defence and exclusions so that later accounting remains verifiable.

For an ongoing recall, an escrow, holdback, price adjustment or closing condition may also be appropriate. The answer depends on risk, bargaining position and expected implementation. The article on the stock package in an acquisition covers the corporate transaction side; the product safety clause must connect it to the target’s actual measures.

Between signing and closing, new complaints, further returns or an authority response may arise. The agreement should therefore establish ongoing information duties and an escalation route. This includes reporting new safety facts, coordinating material communications and handing over the product and authority file in an orderly way.

The closing list should update at least the product list, batch status, returns, open remedies, authority correspondence, published recall notice and cost overview. The buyer should also know which employees or external service providers operate the recall. That is a practical condition for keeping the target capable of acting after closing.

An open issue does not automatically stop the acquisition. It must, however, be assigned a clear consequence. Possible solutions include completion before closing, a condition, a seller obligation after closing, an indemnity or an allocation of the economic risk. The due diligence checklist supports the documentation of open review and handover points.