436 13 Due Diligence and Disclosures
13.3.4 Buyer Due Diligence, Target’s Board
The interests of the target’s board are directly influenced by board members’ own
legal duties (such as their duty of care, fiduciary duties, and duties under securities
markets laws) and indirectly influenced by the interests of the target (which board
members must take into account in order to comply with their duties). There is no
contractual relationship between the target’s board and the buyer.
The right of the target’s board to permit buyer due diligence. The internal
power to decide whether to permit buyer due diligence is based on the rules that
govern the internal distribution of power in general. Typically, the board of direc-
tors or, when the company has a statutory two-tier board, the management board is
empowered to decide on most management matters and therefore also on buyer
due diligence. Even sub-board executives can have such a right depending on the
governing law, the company, and the circumstances.
For example, Nordic company laws provide for a managing director (CEO) who is respon-
sible for the day-to-day management of the company. While the managing director is not
empowered to decide on unusual and important things such as the sale of an important part
of the company’s business, the CEO may be empowered to permit buyer due diligence as
part of day-to-day management when the board already has decided to enter into talks with
the prospective buyer.
The duty of the target’s board to permit buyer due diligence. As a rule, the board
of the target has no duty to permit buyer due diligence as such.
On the other hand, failure to permit buyer due diligence can, in practice, mean
that the negotiations will fail or that the price will reflect the buyer’s higher risk
exposure. It can be in the interests of the target company and in line with board
members’ duty of care to permit buyer due diligence in some circumstances. For
example, the target company may need: an investor in a financial crisis; a high
valuation for its shares; a better ownership structure; business synergies; or other
benefits. Failure to permit buyer due diligence can thus amount to a breach of duty
of care in some circumstances.
Exceptionally and depending on the applicable law and the company, the duty
of the target’s board to permit buyer due diligence can be based on a prior resolu-
tion of the general meeting or the unanimous consent of shareholders. In most
cases, however, shareholders and the general meeting have very limited powers to
decide on management matters.
A non-controlling shareholder typically has no power to force the target’s board
to permit buyer due diligence. For example, the right of a shareholder to receive
financial information under the German Aktiengesetz or GmbH-Gesetz is a per-
sonal right that cannot be transferred to any prospective buyer of that share-
holder’s shares.
The duty of the target’s board not to permit buyer due diligence. The board of
the target may have a duty to refuse buyer due diligence in some cases or restrict
it.
First, the exercise of the board’s powers is constrained by board members’ duty
of care. Where buyer due diligence is decided on by the board, board members