Everyone who sells something and everyone who buys something must ask themselves what information about the sold he has to share and what information he has to find out: the duty to investigate and the duty to disclose!
Do I have to? Well, if you don't you may end up with your mouth full or facing a claim: prevention is better than cure.
When you buy or sell a business, the same applies. The seller must share information about the business (duty to disclose) and the buyer must research what he is buying (duty to research): that research is called due diligence in the world of business acquisitions (freely translated: proper research).
Terms
The seller collaborates on this: he gathers all the information that he can and should understand is important to a potential buyer and stashes it in the data room. The buyer asks important questions (so that he can be sure the seller "should understand" that this information is important to him) of the seller and examines all the information obtained. For the buyer, this is contained in a due diligence report, usually prepared by financial, tax, legal and often technical and commercial experts.
As a result, the buyer will want to verify his willingness to go through with the transaction under the conditions that have been discussed (price, resolutive conditions, warranties and indemnities). If the buyer doesn't look closely at that, he runs the risk of co-buying a rotten apple that makes the value of the business lower than he expected. Then the buyer can no longer claim that either.
Disclosure
An example: buyer Jumbo bought EmTe from Sligro. In the process, some, but not all, of the information was provided about the purchasing bonuses that EmTe as a business might receive. Jumbo did not ask but did make the transaction. When it turned out that EmTe was loss-making without Sligro's purchasing benefits, Jumbo fell behind in court: they could have known that and could and should have arranged for it in the purchase documentation.
So why should a seller participate in that, what's in it for the seller? Well, it's like this.
With the purchase documentation comes an extensive list of "guarantees": the buyer wants to know that the seller does own all the shares, that the company is not bankrupt and that the financial statements are correct and complete, that all the employees have been paid properly, that there are no tax arrears and no requisitions for the necessary permits, etc. Anything the buyer knows or can know from his investigation that is not as stated in the warranties is at the buyer's risk. He cannot then claim any more.
A famous example: the buyer of the Hoog Catharijne shopping center overlooked in his due diligence that minutes of conversations with the municipality mentioned a ground lease obligation. When, after the purchase, he was confronted with a ground lease rent of several millions that did not show up in the financial statements of which the seller had also guaranteed that there were no obligations outside the financial statements, he wanted to claim from the seller. None of that, the judge said, you could have seen it. So the seller was now "saved" because he did put that reference to the leasehold obligation in the data room.
Due diligence
Lawyers often have long discussions about when a seller should understand if something is important to a buyer and when a buyer should be deemed to have taken notice of something. You can find that in the contract. The basis of it is: doing proper and well-documented due diligence. That is relevant to both a buyer and seller.
