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?

In most scenarios, the buyer would be interested in the legal, financial, tax and, sometimes, technical position of a company, business or assets. Full legal due diligence would cover the corporate standing of a company, as well as its ownership titles, encumbrances, concluded agreements, labour issues, competition issues, intellectual property rights, data protection and regulatory compliance. Red flag due diligence is also very common, especially when certain parts of a business or assets are acquired.

It is not usual for sellers to provide due diligence reports to buyers. Buyers would usually engage their own consultants and rely on their own findings.

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?

Should a buyer conclude a contract based on a seller’s pre-contractual statements that were inaccurate, or if a seller misleads a buyer with respect to important attributes of a contract’s subject whereby the buyer would not have entered into such a deal had it been correctly informed, a seller can be liable for damage suffered by a conscientious buyer. On the other hand, it is possible and very common for parties to exclude liability for a seller’s pre-contractual statements by stipulating, for example, the agreement’s effective date to be a reference point as of which time all the seller’s representations and warranties will be evaluated in terms of their truthfulness and accuracy.

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?

In Serbia, all companies are registered within the SBRA. Its register is publicly available, and access is free of charge. The SBRA collects and publishes the following information:

  • general corporate data on companies;
  • data on their capital;
  • data on their directors and legal representatives, and their limitations as regards representation;
  • data on their management bodies;
  • data on the shareholders of LLCs (shareholders of JSCs are registered within the Central Depository and Clearing House);
  • their articles of association and their amendments;
  • their financial statements; and
  • data on bankruptcy and winding up.

Other searches that the buyer would customarily carry out are checking:

  • the register of bank accounts maintained by the NBS to ascertain whether accounts are blocked;
  • the registration of any promissory notes;
  • the land register regarding data on immovable property;
  • the registration of pledges;
  • the registration of financial leasing;
  • the registration of preliminary injunctions;
  • the registration of court injunctions;
  • the registration of value added tax (VAT) taxpayers;
  • trademark registration;
  • patent registration;
  • the registration of graphic design;
  • the central registration of personal databases;
  • the registration of building permits; and
  • the registration of ultimate beneficial owners of company.

Until 1 October 2019 all companies will have to register the address for receipt of electronic mail within SBRA. As from January 2019, Serbia introduced a central registry of ultimate beneficial owners that keeps the data on both domestic and foreign ultimate beneficial owners. Apart from harmonisation with national standards, the purpose of this register is to ameliorate a system for prevention and detection of money laundering and the financing of terrorism.

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?

A buyer’s knowledge of deficiencies would have an impact on any potential claim that it wants to bring against a seller. A difference is made between publicly available data and any knowledge that the buyer acquired during its performance of due diligence. When publicly available information inscribed in the public registers is in question, such information would prevent the buyer from being successful in a claim case. Information that the buyer acquired during its due diligence process that was not publicly available would also have an impact on the buyer’s future claims. However, the level of impact would also depend on the scope of the representation and warranties clause, as well on the knowledge that the buyer acquired during its due diligence process.