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?

Legal due diligence in any transaction is paramount to assess potential risks in the target company that may have an impact on the transaction’s valuation, timing or structure. In the absence of a ‘one size fits all’ model, the scope should be fine-tuned depending on the business acquired. Clients may opt for full or limited scope reviews and request thorough investigations into matters that are critical to the target’s business or that are of particular importance to the industry involved.

The most complex and sophisticated deals are organised through bid auctions. In these bid auctions, buyers are occasionally entitled to rely on vendor due diligence reports. These reports identify potential irregularities that may impair or delay the transaction’s closing. In these cases, the scope of the review that the buyer’s advisers conduct is substantially reduced and is focused on predefined key matters (confirmatory reports). Agreeing on specific materiality thresholds to assess the information and report any findings is also common.

Increasing pressure on fees and timing is affecting the scope of both types of due diligence reviews. Consequently, clients are keen to reduce the scope to a minimum, which has an impact on drafting and negotiating sale and purchase agreements.

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?

A seller may be liable for pre-contractual misrepresentations. However, except when wilful or gross misrepresentations have been made, the parties may limit the seller’s liability to claims for breach of contract, excluding liability for pre-contractual statements. This limiting of the seller’s liability can be established in the sale or purchase agreement.

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?

Portuguese companies must make a large number of filings to the competent commercial registry offices, which are publicly available online, including:

  • the articles of association;
  • amendments to the articles of association, including share capital increases and reductions, mergers, demergers, and the company’s transformation and dissolution;
  • the annual financial statements and management report;
  • the appointment of directors and statutory auditors; and
  • the transfer, unification, pledge, attachment, seizure and redemption of quotas of private limited companies.

Any person or entity may request a permanent certificate from a Portuguese company at any time. This permanent certificate allows the person or entity to view all registrations in force and the underlying documents entered into as a basis for the registrations.

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?

Information on the target company specifically disclosed to the buyer on or before signing of the transaction documents may restrict the buyer’s right to terminate the agreement or seek compensation for breach of warranty on grounds of misrepresentation, provided that the facts, events or circumstances that constitute the basis of the buyer’s right to terminate the agreement or seek compensation against the seller have been disclosed to it prior to closing of the transaction. Hence, the buyer’s knowledge of the facts and circumstances on which a claim is based on or before the closing date excludes the seller’s liability for this claim (except where the claim concerns a breach of an indemnity (not a breach of warranty), in which case the seller’s liability cannot be excluded).