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?

The scope of due diligence consists of identifying any issues related to the asset, business or company to be purchased in order to decide whether to execute the deal and, in the case of a positive outcome, how to protect the buyer from any possible liabilities related to the transaction. In particular, in the case of a share deal - depending also on the size and on the business carried out by the target company - the legal due diligence may cover the following areas of investigation: corporate matters, commercial agreements, labour law matters, administrative and environmental law matters, antitrust, litigation, banking, intellectual property (IP) and regulatory matters.

It is not very common that sellers provide prospective buyers with due diligence reports, particularly because of the costs related. However, in auction processes, it may be possible to have vendor due diligence reports that are made available to prospective buyers, which in certain cases may rely upon such reports under terms and conditions that are agreed between the parties and regulated in the transaction documents.

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?

Parties have the obligation to negotiate in good faith and, pursuant to article 1337 of the Italian civil code, in the event such principle is breached by any of the parties (eg, in cases of unjustified interruption of the negotiations), this party shall indemnify the counterparty for any losses suffered by the latter. The seller is liable also for misleading statements where such statements have caused a prejudice or loss, or both to the buyer. In this respect, it is worth mentioning that, under Italian law, the parties may exclude the above liability both with respect to conduct that occurred during the negotiation phase as well as in relation to misleading statements possibly contained in the transaction documents, provided that such liability may not be excluded in relation to damage proved to be the consequence of gross negligence or wilful misconduct of the other party.

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?

A lot of information on private companies may be retrieved in the competent companies register and include, inter alia, the following: financial statements, corporate structure, registered office and local units, value added tax (VAT) number, duration of the company, amount of the corporate capital, composition of the corporate bodies, by-laws and history of all corporate and organisational changes. All of the above information is easily obtained from the companies register, and is consulted first by prospective buyers before entering into negotiations for the acquisition of a private company.

Generally speaking, information regarding ownership of assets, as well as any lien on the same, may be collected insofar as the relevant assets are registered with public registers (eg, real estate, cars, etc).

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?

As a general rule, under Italian law, no claim may be brought by the buyer against the seller with respect to potential liabilities actually known by the buyer. Likewise, no indemnification may be claimed by the buyer in the case of reasonably recognisable potential liabilities, unless the seller declared that the goods to be transferred were free from defects. However, with respect to private company acquisitions, it is quite common that, if the buyer is aware of certain potential liabilities (eg, a pending litigation), he or she will seek to negotiate the inclusion of a special indemnity clause in the transaction documents that therefore protects him or her against certain specific risks or issues expressly identified therein.