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?

A buyer’s due diligence will normally focus on the legal, financial, accounting, tax, operational and commercial position of the relevant target company, business or assets. The legal due diligence will normally comprise title, legal structure, terms of financing arrangements, terms of key business agreements, ownership and use of information technology, intellectual property and real property, employee arrangements, licences and permits, litigation and compliance with law.

A form of vendor due diligence report called a legal guidance report has become increasingly common in controlled auction processes (and as a preparatory step in larger bilateral sales processes), allowing the seller and the target’s management team to accelerate the process and proactively assess and address any issues that may surface during such review. The report is normally provided to the bidders, financing banks, transaction insurers and their respective advisers on a non-reliance basis.

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 transfer agreement would typically limit a seller’s liability to only those specific warranties and indemnities set forth therein, thereby excluding liability for any pre-contractual or misleading statements. However, if the seller has caused the buyer loss or damage through wilful misconduct or gross negligence, such limitations of liability could potentially be set aside pursuant to general legal principles, but the transfer agreement often also explicitly states this.

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?

Swedish companies are required to make extensive filings with the Swedish Companies Registration Office (SCRO), which are publicly available, including:

  • articles of association;
  • annual reports;
  • details of current and previous company representatives (board of directors, managing directors, auditors, signatory rights, etc);
  • details of shares and share capital, and changes thereto;
  • corporate mortgages;
  • legal status (under liquidation, merged or demerged, in bankruptcy, etc);
  • copies of submitted shareholders’ meeting minutes, among others;
  • certain employer and tax registrations; and
  • ultimate beneficial owners.

The Swedish mapping, cadastral and land registration authority’s registers contains details of all real property in Sweden, including ownership, boundaries, tax status, mortgages and pledges, purchase price and any cadastral activities. The Swedish Patent and Registration Office (PRV) is the authority for intellectual property; its registers contain details on, inter alia, patents and trademarks. Sweden has a long history of having an extensive principle of access to public documents, meaning that information and documents provided to or generated by public authorities often are publicly available.

A buyer would customarily carry out standard searches in the SCRO’s registers, the land register, potentially in PRV’s register (as well as in the European Union Intellectual Property Office’s registers), in the registers of the district court and administrative court with jurisdiction over the municipality where the target company, business or assets has its seat or is located, as well as in the registers of the relevant appeal courts of said courts.

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 transfer agreement would normally - in line with non-mandatory Swedish law - stipulate that the buyer cannot make a claim for a breach of warranties (but not specific indemnities) if the buyer had actual knowledge of the facts or circumstances constituting or resulting in the breach, or if such facts or circumstances were fairly disclosed in the data room material. Other types of deemed knowledge of the buyer are less common as grounds for preclusion of warranty claims.