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 due diligence typically varies depending on the size of the contemplated transaction (i.e., whether the buyer intends to acquire a minority interest or 100 per cent of the share capital of the target). Due diligence usually covers corporate documentation, commercial contracts, employment, taxation, IP, IT, regulatory, litigation, environment, compliance, accounting and financials. Compliance matters are increasingly becoming a key issue of due diligence, particularly following the new requirements enacted by the 2016 French Anti-corruption law (‘Sapin 2’ bill).

Vendor due diligence reports are very common in auction processes in order to expedite the due diligence exercise of prospective buyers. The successful bidder is often entitled to rely on such report, subject to applicable qualifications and limitations, under a reliance letter drafted by the relevant service provider.

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?

As a direct consequence of the good faith requirement for pre-contractual negotiations (see question 10), the Civil Code now provides specifically that any party having knowledge of a fact that is key for the consent of the other party must inform such other party thereof, provided, however, that such other party is legitimately unaware of such information or relies on the knowledgeable party. This pre-contractual duty to inform is likely to have an important impact on M&A negotiations, especially because it cannot be excluded or limited by the parties. In addition, in the case of a breach, it may lead to the contract being null and void. In addition, specific regulations (real estate, environment) may also impose specific disclosure obligations.

Except for this important caveat, the liability of the seller for any pre-contractual or misleading statements may be limited or extended depending on the terms and conditions of the contract. Any limitations on such liability would, however, be disregarded in cases of fraud.

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?

Trade and companies registers are the main public source of information regarding French privately held companies. They make available, inter alia, companies’ incorporation certificates (K-bis excerpts, which certify the legal existence of a company and provide information about their management), their articles of association, their annual financial statements as well as information about potential insolvency proceedings and potential pledges or encumbrances. In practice, such documents may be consulted online on the Infogreffe website (www.infogreffe.com) for limited fees.

It may also be helpful to check other sources of information, such as patent and trademark databases held by the French National Institute of Industrial Property, land registers or the registers of the relevant regulators in the event the target is subject to any specific regulation given the nature of its business (eg, information about portfolio management companies may be found on the AMF’s website).

Finally, in the event that the target is a subsidiary of a listed company, useful information may also be found in the public disclosure of such listed company (eg, through its annual report).

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?

Unless otherwise provided in the transaction document, if the buyer was aware or should have been aware of any fact or event giving rise to a claim, French courts would take into account such failure to reduce the amount of the claim or to exclude it.