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 a due diligence investigation may vary substantially depending on a number of factors. However, most bidders desire to conduct a comprehensive financial and tax due diligence review of the potential target. The scope of the legal due diligence may be more limited in nature, but typically focuses on corporate governance, change of control issues, risks related to material contracts, real estate issues, including potential environmental liability, related parties and separation issues, licences and the need for public approvals, employees and pension law issues, intellectual property rights, disputes, non-competition and competition law issues. Specialist consultants may also be engaged to carry out environmental due diligence investigations or commercial due diligence investigations. A commercial due diligence frequently includes a review of the market (including any trends that might threaten the target’s position), in addition to the threat of new technologies, the risk of new entrants, the competitive environment, etc. For private equity funds, it has become common to retain legal advisers to prepare separate anti-bribery reports to supplement the regular diligence report, often also accompanied by a separate environmental, social and governance report.

Vendor due diligence reports are commonly seen in structured sales processes in Norway. It is also quite customary for successful buyers and their lenders to be able to rely on such vendor due diligence reports, although buyers normally also conduct their own due diligence to evaluate a potential transaction.

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 can be liable for pre-contractual misrepresentations. It is, however, quite common that the SPA attempts to limit a seller’s liability to claim from a breach of contract by excluding liability for pre-contractual and misleading statements. However, under Norwegian law sellers cannot ‘contract out of’ claims relating to fraudulent misrepresentations, wilful misconduct or gross negligence.

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 Norway, a wide range of publicly available information exists on private companies and their assets and can be requested from the Brønnøysund Register Centre (the Norwegian Register of Business Enterprises). Such information includes:

  • corporate formation documents, articles and other related corporate documents;
  • details of the board of directors and chief executive officer;
  • details of changes to the company’s share capital;
  • special shareholder resolutions for approving transactions between a company and its shareholders or directors;
  • audited accounts and related directors’ and auditors’ reports;
  • charges registered over the target’s inventory and fixed assets; and
  • information regarding to what extent a company is under liquidation or insolvency proceedings.

If a Norwegian private limited liability company is approached by anyone requesting to review a list of the company’s register of shareholders, the company is obliged to grant such access. The Norwegian parliament has in 2019 adopted a new act that grants the government powers to establish a new central Registry for Rights Holders, which is expected to allow more easy access to the public about which individuals control Norwegian legal entities (see question 36).

Details of ownership of real estate, mortgages and charges to such real estate are available from the Norwegian Land Register. Information on bond loans, including a full set of the bond documentation, for bond loans raised in the Norwegian and Nordic bond markets can also be obtained from Nordic Trustee. Details of registered intellectual property, such as patents and trademarks, can be obtained from the Norwegian Industrial Property Office.

A buyer of a company will normally carry out a search of the information filed with the Brønnøysund Register Centre (the Norwegian register of business enterprises). Searches may also be performed in respect of those registered assets that are regarded as being material to a transaction. Nominal fees are generally payable to carry out such searches.

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?

A buyer’s knowledge at the time of entering into an acquisition agreement will normally preclude such buyer from bringing a claim against the seller relating to matters the buyer had knowledge about at that time. Therefore, to preserve a buyer’s right to pursue such claims against a seller (irrespective of the buyer’s knowledge), it is common to negotiate a special indemnity clause into the SPA. Under such indemnity clause, the seller will agree to indemnity the buyer with regard to certain specific risks and issues that the buyer was aware of at the time of entering into the SPA. Alternatively, the parties may attempt to agree specifically whether the buyer’s actual, constructive or imputed knowledge will qualify the seller’s warranties.