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?

Due diligence will practically always relate to at least the legal, financial, tax and commercial aspects of a company or business. In addition, depending on the type of business, separate in-depth investigations may be conducted in relation to specific subjects such as environmental risks and pension obligations, but these can also be part of the overall legal due diligence exercise. A legal due diligence exercise will generally focus on corporate matters, commercial (customer and supplier) agreements, real estate (including, as the case may be, environmental matters), employees (including, as the case may be, pensions), IP, information technology and financing agreements.

In small and medium-sized transactions, vendor due diligence reports are not often provided, whereas in auction processes relating to large or complex targets it is customary to facilitate and accelerate the due diligence phase of the auction process by providing candidate buyers with vendor due diligence reports. Most buyers will still conduct a limited confirmatory due diligence on the basis of these reports when evaluating a transaction. Reliance on the provided vendor due diligence reports is often provided to the successful bidder and its financing banks.

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?

The seller has a pre-contractual obligation to inform. If he or she fails to notify the (potential) buyer about possible deal-altering information, he or she could be held liable pre-contractually even if a contract is not ultimately entered into. Parties can by agreement exclude their extra contractual liability; however, no such exclusion is possible in the case of fraud or deceit.

See question 10 in relation to pre-contractual liability for the termination of negotiations.

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 number of documents relating to private companies need to be deposited at the registry of the enterprise court in the territorial jurisdiction in which the company has its registered office. Such documents include the deed of incorporation, amendments to the articles of association and important corporate decisions. Extracts of these documents often also need to be published in the Annexes to the Official Belgian Gazette.

Furthermore, if a company has changed its articles of association since 1 May 2019, the full text of the latest version of the articles of association can be consulted online. A company also needs to deposit its annual accounts at the National Bank of Belgium, which accounts are made available publicly online. In addition thereto, the Crossroads Bank of Enterprises, with which each company needs to be registered, includes certain basic information in relation to each company. However, this is not always accurate and should always be verified against the official publications in the Official Belgian Gazette. Finally, it will be possible to consult the identity of the ultimate beneficial owners of a company in the UBO-register. The obligation for companies to disclose their ultimate beneficial owners in the UBO-register entered into force on 30 September 2019, it being understood that government officials have indicated that no sanctions would be enforced until 31 December 2019

Certain other databases, such as Graydon, may include additional information relating to, for example, the financial health of a company, but these are rarely used in the context of due diligence processes.

In relation to real estate, searches of the mortgage register can be conducted. In relation to soil, depending on the location of the land, certain online public registers exist on the basis of which rudimentary information in relation to previously conducted soil investigations can be consulted. In addition, following from the basic principle of government transparency, complete permits and certain soil investigations can be requested. However, such information would generally form part of the data room.

The status of registered IP rights and domain names can generally also be verified quite easily in freely accessible online registers.

The above searches are usually conducted in addition to and to verify, where possible, the information provided through the data room.

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?

The fact that a buyer has knowledge of a certain matter, such as a breach of representations and warranties, will in principle not prevent said buyer from claiming damages from a seller. However, especially in cases where the buyer had actual knowledge of the matter, the argument could be raised that the seller is acting in bad faith, which is against the general principle that an agreement needs to be performed in good faith. This could potentially limit a buyer’s chances of successfully claiming damages.

In this respect, transaction documentation will often specify whether a buyer is permitted to issue a claim on the basis of matters or circumstances of which it was aware at the time of entering into the agreement. It is fairly common to exclude the possibility for the buyer to claim if he or she had actual knowledge of a matter. The exclusion of deemed knowledge is less common, but does occur from time to time. Such purchaser’s knowledge provision is often included in addition to the concept of (fair) data room disclosure.