Due diligence for private M&A transactions in Luxembourg

Due diligence and disclosure

What is the typical scope of due diligence in your jurisdiction? Do sellers usually provide due diligence reports to prospective buyers? Can buyers usually rely on due diligence reports produced for the seller?

As mentioned above, Luxembourg companies are often the target of a transaction (ie, the company that will be purchased), and they have mostly holding activities, which limits the scope of the due diligence.

The scope of the due diligence will typically include legal, tax and financing (other topics, such as labour law, IP or real estate can be considered, but not systematically). The aim of the due diligence will be to confirm the ownership of the company (or business or asset), general compliance with the rules applicable to the company and outstanding financial obligations (if any), and to identify any obstacle to a share transfer.

Vendor due diligence reports are often provided to the prospective buyer. The reliance on such reports is limited, as the buyer will always require his or her advisers to conduct a critical review of the VDD and the drafting of a due diligence report based both on the VDD and on the material available in the virtual data room.

Can a seller be liable for pre-contractual or misleading statements? Can any such liability be excluded by agreement between the parties?

A seller can be liable for pre-contractual misleading statements. A misleading statement (or the failure to deliver known adverse information) can be the basis of tort liability or allow a claim for the nullity of the contract (under certain conditions). Such liability can be limited, but cannot be entirely excluded (especially in the case of fraud).

What information is publicly available on private companies and their assets? What searches of such information might a buyer customarily carry out before entering into an agreement?

Most Luxembourg companies are required to file their information at the RCS and at the electronic legal gazette, which is publicly available online.

The following information will be available for a potential buyer:

• the articles of incorporation and any change affecting them;
• the annual accounts;
• the details of the board of directors and managers, and the signatory powers prevailing (eg, single or joint signature); and
• the details of shareholding of the company for private limited liability companies.

In view of a transaction, a buyer will customarily require an RCS excerpt confirming the existence of the company at that date and a negative certificate issued by the RCS in respect of the company, stating that on the day immediately prior to the date of issuance of the negative certificate there were no records at the RCS of any court order regarding, among others, a bankruptcy adjudication against the company, a reprieve from payment, controlled management or composition with creditors.

On the contrary, the encumbrances existing on the shares cannot be publicly evidenced and will only be reflected in the shareholder register of the company, which is not publicly available and must be kept at the registered office of the company.

The Luxembourg administration keeps records of mortgages taken on real estate, and such information is publicly available. National IP rights (patents, brands, etc) are registered at the Luxembourg IP office, whose records are also publicly available.

What impact might a buyer’s actual or deemed knowledge have on claims it may seek to bring against a seller relating to a transaction?

If a buyer has previous knowledge of facts relating to a claim, he or she will either refrain from entering into the transaction or will use this knowledge to enhance his or her contractual position. Should he or she not use this knowledge prior to the transaction but rather after, it will be a matter of showing proof of the prior knowledge in order to preclude him or her from being successful in his or her claim. Contractual clauses of limitation of liability could preclude the parties from using information they had previous knowledge about to file a complaint.