Due diligence and disclosure

Scope of due diligence

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?

Purchasers tend to undertake a full due diligence on the target company, where the lawyers examine the operations of the company from a legal standpoint including, inter alia, required licensing, full review of the constitutional documents to assess if there are any restrictions and any third-party consents required pertaining to the material agreements concluded by the target company and an assessment of the employees’ rights and general compliance of the target company to the Egyptian laws. In addition to the legal due diligence, a financial due diligence is also exercised simultaneous to the legal one to assess the financial status of the target company.

Vendors’ due diligence is not common in Egypt and purchasers do not tend to rely on such report unless the transaction documentation provides warranties and limitations covering the same.

Liability for statements

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

If the statement is penalised by virtue of the Penal Code, the seller will be held liable; otherwise the parties usually agree in the transaction documentation that negotiations and precontractual statements are excluded and not relied upon. An exception to the foregoing is the parties’ agreement in a binding pre-contractual document such as a letter of intent or term sheet, the seller would be contractually liable. See question 5 for the limitation of liability.

Publicly available information

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?

The information on private companies and their assets is not readily available. In relation thereto, other than the disclosures made by the listed companies, private companies do not disclose any information publicly. Any major lawsuit is usually published in the newspaper or news websites, which are usually reviewed by buyers prior to any agreement.

Impact of deemed or actual knowledge

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?

Subject to the provisions of the Egyptian Civil Code and subject to the terms of the share purchase agreement, actual or constructive knowledge could potentially limit the buyer’s recourse in connection with the representation and warranties provided by the seller, subject to the court’s discretion unless the buyer proves that the seller assured him or her of the absence of the defects, or intentionally and fraudulently concealed them from him or her.