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 exact scope of the due diligence varies depending on the type of transaction and on the industry the target operates in. The scope of due diligence normally covers commercial, financial, legal and tax matters. Environmental or technical due diligence may also be carried out by a relevant adviser, if relevant. Generally, due diligence is carried out through a review of documents stored in a virtual data room (VDR) operated by one of the internationally recognised VDR service providers complemented by management interviews and possible site visits. Vendor due diligence (VDD) or similar reports are usually produced by the seller in an auction process, whereas such reports are seldom prepared in the absence of the wider solicitation of purchasers. The eventual buyer is usually given reliance on the financial VDD report substantially on the same terms and limitations as the seller, whereas reliance is not as commonly given to legal reports, often titled ‘legal guidance reports’, prepared for the sales process.

However, even where the buyer is given reliance on the VDD report, the buyer normally needs to carry out its own due diligence, especially to take into account any events having occurred between the date of the VDD report and the transaction date, to address any matters excluded in the VDD as well as owing to the fact that the representations and warranties of the buyer are normally qualified by the information disclosed in the data room.

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?

Generally, the transaction agreement provides that the buyer is not relying and the seller is not giving any implied or other representations and warranties other than as expressly stated in the agreement, and the parties have not relied on any such statements when entering into the agreement. Thus, the parties may generally limit their liability for any such pre-contractual statements absent fraud or other special circumstances such as intentional concealment of a material fact.

However, under some circumstances, a party may face liability by giving false information or by knowingly withholding information that would be required not to make a statement misleading. Furthermore, the contract may be found valid, but its contents may be interpreted differently. Under some exceptional circumstances, the contract may also be adjusted to meet the other party’s justified expectations where the other party has issued misleading statements.

The requirement of sufficiently extensive disclosure arises also under the Finnish Sale of Goods Act and the Finnish Code of Real Estate. The parties’ bargaining positions and expertise are important determining factors of the extent of the disclosure obligation. In the M&A context, where agreements are entered into between sophisticated parties using their respective professional advisers, the liability threshold for pre-contractual misleading statements can be considered to be higher.

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?

The publicly available information generally consists of the articles of association, a trade register extract, an extract of business mortgages and the annual accounts of the company. These documents provide some limited fundamental information on the company, such as the names of the members of the board of directors, number of shares outstanding and any options registered as well as information on any consent or redemption clauses restricting the transfer of shares of the company. In addition, anyone may request from the company and obtain a copy of the company’s shareholder register and depending on the company, there may be more information that the company has itself decided to make available, for example through its website. Finally, the company has an obligation to keep an updated register of its beneficial owners from 1 January 2019 onwards and to register its beneficial owners with the Finnish Trade Register no later than 1 July 2020. Once registered with the Finnish Trade Register, the information will become publicly available.

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?

As a general rule, the buyer cannot claim compensation for a matter the buyer knew or should have known, save for situations where the seller has expressly agreed to indemnify the buyer for such matter. Generally, a buyer’s right to make a claim under a Finnish share purchase agreement is connected to a concept of ‘fairly disclosed’, meaning that the buyer’s right to make a claim is limited to the matters or risks not sufficiently disclosed in the data room or in other disclosure material. Similarly, pursuant to the Sale of Goods Act, which may apply in the absence of an agreement to the contrary, a buyer may not generally rely on a defect that he or she knew or should have known of at the time of entering into the agreement.