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?

Typically, the scope of due diligence on a German entity comprises corporate matters (including corporate history and chain of title), financing agreements, commercial agreements, employment, pensions, real estate, intellectual property, data protection and public law (permits, regulatory, environmental, subsidies).

Vendor due diligence reports are usually not provided in typical German mid-cap transactions, but are frequently available in large-cap transactions or when the organisation of the target group is complex so that the seller deems it helpful to educate the bidders by means of the vendor due diligence report or fact book. If a vendor due diligence report is available, it is more or less common to offer reliance by the seller’s legal advisers.

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?

In the context of the potential liability of a seller for culpa in contrahendo (see question 10), it could of course be liable for misleading statements under statutory law. Against this background, the parties usually explicitly exclude any liability of the seller for certain information such as projections, business plans or forecasts. A seller’s liability for fraud, however, cannot be 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?

A buyer will customarily perform research of the commercial register, which contains information about a company’s legal form, authorised representatives, share capital, capital measures and transformation measures in the past. The financial statements, as well as limited other information, are available from the federal gazette.

Before acquiring real estate, a buyer reviews excerpts from the land register disclosed by the seller, in which the owner and the most important in rem encumbrances are registered. Other than, for example, in jurisdictions such as the US, there are no further publicly accessible registers such as litigation or debt registers. Here, the buyer needs to rely on the disclosure of the seller and protect itself by agreeing with the seller on reasonable representations and warranties.

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?

Under statutory law, if a buyer has actual knowledge of circumstances that constitute a claim before signing, the seller is not liable in regard to this claim. However, the parties usually agree upon a deviating compromise in this regard that only facts and circumstances that are either fairly disclosed in the data room or that are explicitly referred to in the disclosure exhibits to the purchase agreements exclude claims for a breach of representations and warranties.