People often engage in reflexive behaviour without thinking
about the function underlying such behaviour. Likewise, in
recurrent M&A transactions, clients sometimes lose sight of why
they engage in certain formalities.
One such formality concerns pre-acquisition agreements; more
specifically, confidentiality agreements (CAs)
– including their (i) purpose and (ii) scope.
Purpose of CAs
In preliminary M&A negotiations, the exchange of
confidential information is essential to the terms of the
transaction. As parties progress beyond preliminary stages to due
diligence, increased disclosure is met with intensified risk of the
compromise of proprietary information. Executing CAs allows the
parties to securely progress beyond preliminary negotiations in
order to effect the deal.
Scope of CAs
The scope of confidential information is a trade-off –
while the seller prefers a broad or open definition of confidential
information to protect itself from excessive disclosure, the buyer
prefers a narrow definition in order to avoid breach. In defining
the scope of confidentiality, consideration should be given to
several factors, including:
Timing of disclosure. The CA should
distinguish the confidential quality of disclosures made prior to
or after the CA's execution.
Means of disclosure. The CA should cover
disclosures made orally, in writing and by electronic means
(g., email or cell phone).
Length of disclosure. The survival of the CA
is important because a lengthy term for confidentiality might not
be enforceable. Typically, it is at the discretion of the parties
to choose a period of between 12 and 24 months.
Derivative information. The CA should cover
information arising from confidential information, such as
information related to a party's subsidiaries.
Restrictions on use. The CA should have a
clearly stated purpose, such as undertaking M&A due diligence.
This limits parties from using proprietary information for purposes
contrary to the other party's desires.
Security protocol. Storage of information,
both physically and electronically (g., data rooms), is
vital to its security.
Jurisdiction. In cross-jurisdictional M&A,
the agreement should select governing law and forum for disputes
arising from the relationship between the parties.
Breach of confidentiality should also be robustly defined, with
consideration given to breaches arising intentionally,
unintentionally and/or negligently. Appropriate remedies, damages
and indemnities should be afforded to the breached party. The
standard for breach should be agreed upon between the parties and
should be an objective standard, such as "commercially
reasonable efforts" (for the legal interpretation of this
phase, see our
recent post on interpreting "efforts" in commercial
The author would like to thank Sam Zadeh,
articling student, for his assistance in preparing this legal
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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