Due diligence and disclosureScope 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?
The scope and scale of due diligence exercises vary from transaction to transaction. In Ireland, there is a general trend towards limiting the scope of legal due diligence reports to highlighting ‘red flag’ or material legal issues with the target company or business. The materiality thresholds for the reports will be determined by the client with advice from its various advisers.
In a bilateral transaction, the legal due diligence report is generally prepared by the buyer’s lawyers. However, in an auction process, financial vendor due diligence reports are generally produced by the seller’s financial advisers, and the successful buyer will be allowed to rely on them. Such reports allow the seller to limit the impact that the financial due diligence process will have on the target’s day-to-day business, and speeds up the auction process as bidders can make quicker (yet informed) decisions about whether they are interested in acquiring the target company, business or assets, and at what price. Vendor legal due diligence reports are relatively unusual outside of an auction process.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?
A seller can be liable for pre-contractual or misleading statements, but typically the SPA, APA or BTA will seek to exclude liability for such statements (save in the context of fraud or for fraudulent misrepresentation).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?
Private companies in Ireland are required to make certain filings in the CRO. These filings, which include the items listed below, are publicly available:
- the company’s constitution;
- the company’s annual return (which typically includes the company’s financial statements);
- details of the directors and company secretary of the company;
- details of any changes to the share capital of the company; and
- details of mortgages and charges over the company’s assets.
Private companies are required to disclose information relating to the beneficial owners of the company. This information will be available on a central register. The Central Register of Beneficial Ownership of Companies and Industrial and Provident Societies opened on 29 July 2019 and is now accepting filings. Private companies that are in existence before 22 June 2019 must file their beneficial ownership information before 22 November 2019. This register will need to be updated on the sale of shares in a company, to the extent that the sale results in a change to the beneficial ownership of the company. When the relevant entity is updating the information held on its Beneficial Ownership Register, it must also notify the Registrar of the relevant changes within 14 days.
Details of ownership of real property, including any encumbrances registered against such property, are available from the Irish Land Registry (in respect of registered land) and the Irish Registry of Deeds (in respect of unregistered land). Details of registered IP, including trademarks and patents, can be obtained from the Irish Patents Office.
Typically, a buyer will carry out the following searches before entering into legally binding documentation, and certain of these searches will also be re-run immediately before completion:
- company searches: a full company search in the CRO;
- litigation searches: a search for any pending litigation or winding-up and examinership petitions in the central office of the Irish High Court;
- bankruptcy searches: these are relevant where the seller is an individual; and
- property searches: these include searches in the Irish Land Registry and the Irish Registry of Deeds to ensure that there are no encumbrances or superior title in relation to any property involved in the transaction.
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?
The buyer’s ability to bring a claim against a seller is dictated by the contractual terms of the transaction. Generally, the seller will provide customary warranties in relation to the target being sold, and the parties will contractually agree that the buyer may not bring a claim in relation to facts that are fairly and accurately disclosed in a stand-alone disclosure letter. While it is a matter for negotiation between the parties, generally, the SPA, APA or BTA will include a provision setting out that a buyer’s actual or deemed knowledge of factual circumstances will not prohibit the buyer from bringing a claim (ie, if the facts are not set out in the disclosure letter, the warranties are not qualified by those facts). However, in any action taken by a buyer for breach of warranty, an Irish court may exercise its equitable jurisdiction in assessing any amount of damages due to take into account a buyer’s actual or deemed knowledge and in certain circumstances it may prevent recovery being made.