German Supreme Court ruling impacts M&A disclosure obligations

The increased disclosure obligations require especially:

• Providing comprehensive information as early as possible, particularly regarding material factors for purchase decisions.
• Merely uploading documents to a data room is insufficient.
• Shortly before signing, explicit notice must be given to the purchaser for any newly disclosed documents or updates, especially if they are critical for the purchase decision.
• The seller shall use a professional data room, which is well-organised and clearly structured, featuring an index and search function for managing larger volumes of data.
• Comprehensive disclosure during the Q&A process and forthwith response to purchaser inquiries is essential.

Until now, information disclosed in the data room was generally recognised as disclosed, preventing warranty claims based on these disclosed circumstances. However, according to the new decision of the German Supreme Court, the seller must carefully assess, with the help of professional advisors, what information is relevant for buyers when structuring the data room. This information must be clearly identified and stored in a well-organised data room. To avoid disputes, any significant circumstances for the buyer must be explicitly highlighted and documented in the purchase agreement.

authors: Gabor Kulcsar, Nikolaus Stepan