An important part of the process of buying and selling companies and real estate transactions is a legal audit (legal due diligence), which helps to identify risks related to the subject of the contract. During this process, the seller wants to show the subject of the contract in the best possible light, but at the same time he must take into account that the defects and associated risks must be adequately informed to the buyer to reduce subsequent liability. In M&A agreements, the threshold for the publication of information is agreed (so-called “correct disclosure“), according to which the information published according to the methods agreed in the contract exempts the seller from liability in case of violation of the guarantees provided in the contract.
In 2023, the German Supreme Court issued a ruling clarifying the obligation to disclose information in real estate and M&A transactions. This court decision (decision BGH V ZR 77/22 of September 15, 2023) is considered by experts to be one of the most important decisions in the field of transactions last year, and the opinions expressed in it allow, by way of example analogy, to provide lines guide for conducting transactions also in Estonia.
In this case, the seller added a document to the data room that demonstrated a significant financial commitment related to the subject matter of the contract. The seller did this on Friday, shortly before the scheduled transaction was completed on Monday of the new week at 10:00. The seller claimed that since the information had been communicated to the buyer (added to the data space), he was not responsible for the circumstance described in this new document. Although it was indeed agreed in the contract that the information contained in the data room automatically exempted the seller from liability, the court found otherwise.
According to the decision of the German Supreme Court, it is not enough to simply add documents to the virtual data space, but the following must be taken into account.
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If the seller knows facts that are important to the buyer, he must state them clearly. The publication of such information should not be delayed, so as not to leave the buyer a reasonable time to familiarize himself with the circumstances. However, this does not mean that the seller must inform about all possible circumstances that can influence the buyer’s decision.
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The data space in which information is communicated to the buyer must be clearly structured, segmented appropriately based on the amount of data and equipped with a search function. Additionally, documents in the data space should be named correctly based on their content.
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When adding new information to the data space, the seller should inform the buyer about it, especially if the decision to make the transaction may depend on it.
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The seller must respond fully to the buyer’s questions, for example by completing the questionnaire sent by the buyer (list of information requests) Filling.
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Both buyers and sellers are advised to enlist the help of professional advisors when making transactions.
Those who have participated in some transactions on the buy side in the last two years may, in light of the above, reflect whether after the transaction they became aware of important circumstances of which the seller did not inform them, and whether as a result they could make claims against the seller.
Those who today find themselves in the preparation phase of the transaction, could make sure that all important information is disclosed by the seller and do it in an organized manner, and ask all relevant questions by the buyer and, as a recommendation, use the help of professional consultants.
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2024-01-05 16:30:00
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