What can sellers do to make the disclosure process as painless as possible?
Following our previous article on the due diligence process, the next stage of the selling process is the disclosure exercise.
From the sellers' perspective the disclosure exercise can be an onerous and frustrating process - time-consuming and distracting from day-to-day responsibilities. It's therefore crucial that sellers and their lawyers implement effective procedures to achieve a streamlined disclosure process.
Here are our top tips to make this stage of the transaction as focused, cost-effective and efficient as possible.
- Understanding and scope: take time to ensure that your internal team understands the process, purpose and importance of disclosure. Often various members of the team will provide disclosures due to their knowledge of different aspects of the business such as HR and IT, so it's essential everyone has been fully briefed at the outset.
- Responsibility: one member of the sellers' internal team should be given primary responsibility for collating responses from the business in relation to the warranties. It is a good idea for this to be the same person who has responded to due diligence enquiries. This person will be able to manage the large flow of information effectively and ensure that all of the information made available is considered and included in the disclosure exercise if required.
- Be honest about your level of experience: if you are not familiar with the disclosure process, please do let your lawyer know. We have extensive experience in guiding sellers through this and can provide a help sheet about disclosure and arrange face-to-face meetings to walk you through the transaction. This will ensure that correct and full disclosures are made.
- Appreciate the importance of disclosure: if inadequate disclosures are made, you may not have reached the requisite level to qualify as 'Disclosed' and you may face breach of warranty claims. Therefore it is important that comprehensive and accurate disclosures are made in order to avoid potential liability and to ensure sellers have protection through disclosure.
- Provide as much information as possible: you must provide full, fair and accurate disclosures. For example, if you have received any litigation claims it is important to let us know whether matters have progressed to court, the value of any claims and how long the claims have been ongoing.
- Data room: sellers should ask their lawyer to take responsibility for the disclosure data room. This way they can comply with data protection laws by anonymising certain information before uploading documents to the data room and ensure that the correct documents have been uploaded in an orderly fashion. This will make it easier to argue that the documents in the data room should be generally disclosed, providing sellers with more protection.
- Keep your lawyer updated: advise your lawyer of any updates which need to be made to the disclosures. You can't stop operating your business during the disclosure process and so it is likely that certain disclosures will change throughout the sale process.