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?

Buyers usually conduct due diligence on legal, tax and financial matters. Depending on the type of the target company’s business and the risks involved, further due diligence on other matters, including regulatory, environmental, information technology or IP, may be conducted.

Usually, sellers do not provide due diligence reports to prospective buyers. Sellers providing vendor due diligence reports, or more often legal or financial fact books, to prospective buyers is customary only in larger transactions and in the private equity context or in auction processes. In such case, the vendor due diligence reports or fact books are mostly provided on a non-reliance basis only. In some cases, however, the final bidder is granted reliance.

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?

Yes. Under statutory Austrian law, sellers can, in principle, be held liable for pre-contractual or misleading statements. However, share purchase agreements and asset purchase agreements customarily exclude the parties’ liabilities for pre-contractual statements.

A seller’s liability is usually limited to the representations and warranties, indemnities and covenants given in the final transaction agreements. Limitations or exclusion of wilful misconduct cannot validly be excluded contractually.

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?

For a buyer, it is customary to search the electronically accessible

  • companies register, which includes basic corporate information and corporate documents, such as articles of association and financial statements;
  • the trade register, which shows the trade licences held by companies; and
  • the insolvency database.

 

Depending on the scope of the target company’s business, further publicly available registers may be searched, such as the land register, the cadastre of potentially contaminated sites and the databases of the Austrian Patent Office, the European Patent Office, the EU Intellectual Property Office and WHOIS.

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?

Under the statutory representation and warranty concept, a seller is not liable for facts, matters and circumstances that can be seen from public books and records (eg, the land register) or that are known or should have been known (gross negligence required) to the buyer, unless the seller has given a specific representation and warranty with regard to those facts, matters and circumstances.

In the case of specific representations and warranties as usually given in a share purchase agreement or asset purchase agreement, the concept would, in most cases, result in the seller’s liability, even if the buyer knew that the warranted facts, matters or circumstances are incorrect.

However, in Austrian M&A transactions, it is customary to exclude the seller’s liabilities for facts, matters and circumstances disclosed to the buyer in the due diligence. Discussions usually revolve around the standard of disclosure required to exclude the seller’s liability. Tax, however, is usually subject to a separate indemnity, under which the seller is liable irrespective of the buyer’s knowledge.

Law stated date

Correct on

Give the date on which the information above is accurate.

31 July 2020.