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?

The scope of the due diligence performed by a buyer in the context of a transaction can, in addition to a legal investigation, extend to a financial, tax, commercial and environmental investigation into the company and its assets and liabilities.

Under Dutch law, in the context of a transaction, a seller in principle has a duty to disclose all information in relation to the target that can be deemed essential for a buyer, and a buyer has the duty to investigate (ie, to perform adequate due diligence, which includes asking for clarification on unclear matters). In contrast to the common law systems, the ‘caveat emptor’ or ‘buyer beware’ concept does not apply.

Parties can to a certain extent contractually agree the scope of the buyer’s duty to investigate and the seller’s duty to disclose in the context of a transaction. Absent any arrangement, it will be up to a Dutch court to determine whether information disclosed to the buyer will limit its ability to claim under the relevant warranty. Therefore, parties typically address the due diligence performed by the buyer and the consequences thereof (ie, to what extent this qualifies the warranties) in the purchase agreement. From a seller’s perspective, all information known to the buyer, or any information that could have reasonably be discovered, should bar a claim under the warranties, while a buyer will want to lay down that the due diligence performed shall not limit its right to make such claim. Parties usually agree to a compromise whereby the purchase agreement provides what matters are considered disclosed for purposes of the warranties.

A seller will usually prepare a vendor due diligence report in the context of a controlled auction process, among other things, to ensure an expedited sales process and to frame complexities of the transaction upfront. In the context of such auction process, typically reliance is provided to a buyer.

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?

Although the buyer has a duty to investigate, it may in principle rely on the correctness of statements made by the seller. Whether a seller will be liable in relation to the buyer for misleading statements will to a large extent be subject to negotiations.

A seller will usually insist on providing in the purchase agreement that the buyer may only rely on the representations and warranties included in the purchase agreement, and that no implied warranties are provided. Such provision will limit the buyer to rely on pre-contractual statements made by the seller (to the extent these are not reflected in the purchase agreement).

As for misleading statements, warranties commonly include an ‘information warranty’ in which the seller warrants that the information provided to the buyer is true, complete and not misleading, thereby creating a basis for a claim in the case of a misleading statement.

If the purchase agreement is silent on whether a seller is liable for misleading statements, a buyer can invoke the relevant remedies of the Civil Code (eg, error or fraud). The exclusion of such remedies by the parties may not be enforceable before a Dutch court (eg, the prevailing doctrine in the Netherlands is that the remedy for fraud cannot be contractually excluded).

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 the trade register of the Dutch Chamber of Commerce, inter alia, the following information on private companies, their assets and liabilities can be retrieved:

  • deed of incorporation;
  • articles of association;
  • share capital;
  • composition of the management board and, if installed, the supervisory board;
  • authority to represent the company;
  • proxy holders;
  • in cases where the company has a sole shareholder, the details of the sole shareholder;
  • annual accounts; and
  • descriptions of filings made by the company with the trade register, such as annual accounts, mergers and liability declarations.

In addition, the Dutch Land Registry contains information about real estate held by companies, including mortgages and other charges that are vested on the relevant property.

The online register of the Dutch courts contains judgments; however, only a selection of judgments is published on this website, and in most of the judgments the parties are redacted (the search capability is more intended for the public (in particular lawyers) to be able to follow case law, rather than to search for party names). In the Netherlands, other than the Dutch Land Registry, no public lien register exists in which liens are registered.

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 purchase agreement may include arrangements between the parties with respect to the consequences of the actual or deemed knowledge of the buyer. Typical provisions in this respect are either that the seller shall not be liable for a claim in relation to any information known to, or that could have reasonably be discovered by, the buyer (seller-friendly), or that any knowledge attributable to the buyer shall not affect or limit the buyer’s right to make a claim (buyer-friendly). It is, however, argued in Dutch legal literature that a buyer’s knowledge that a warranty is or may not be true will prevent a buyer from relying on and filing a claim for a breach of that warranty. Therefore, in cases where the buyer is aware that a certain warranty is not true, it is advisable to request a specific indemnity.