Getting confidentiality agreements in place

Part 5 – Planning a business acquisition

Confidentiality Agreements (Confidentiality Agreement or NDA’s) are essential in business Acquisitions, particularly if either the Target or Acquirer is subject to the ASX Listing Rules. Whilst generally an equitable obligation of confidence is applicable, a Confidentiality Agreement reduces the obligations of the parties to writing to ensure that there can be no miscommunication of the parties intentions.

What is a Confidentiality Agreement?

A Confidentiality Agreement or NDA is an agreement (or Deed depending on the circumstances) between two (2) or more parties requiring the recipient of confidential information to keep that information confidential.

In the context of ASX Listed entities, in order to assist to keep the name of the Target confidential, it is usual for the Advisory Team to give the project a name such as “Project Zeus” or “Project Abrams” which avoids the need to mention the Target’s actual name other than in the Confidentiality Agreement itself.

Confidentiality Agreements can be two way or one way with the respective parties usually being defined as the Discloser and the Recipient respectively.

What provisions can Confidentiality Agreements contain?

Depending on the nature of the Target, the characteristics of the Acquirer it is possible for Confidentiality Agreements to include the following non-exhaustive list of provisions:

  • duration or term of confidentiality;
  • nature of material to be kept confidential;
  • how confidential material is to be identified;
  • how the confidential information can be used by the recipient (Permitted Purpose);
  • obligations or security measures required by the recipient to protect the confidential information;
  • conditions on which confidential information may be disclosed;
  • obligations to destroy or return confidential information on termination; and
  • obligations to bind employees and contractors to the obligation of confidentiality.

Decide on the terms

Once it has been determined what information is to be kept confidential and how it should be kept confidential the Acquirer should engage the lawyer on its Advisory Team to draft the Confidentiality Agreement. The general rule being that ‘the party that controls the document controls the deal’. From there the parties should be asked to sign it.

Who should sign Confidentiality Agreements?

Certainly all the members of the Advisory Team should be required to sign a Confidentiality Agreement. That said, Lawyers have strict obligations of confidence as required by both the Australian Solicitors Conduct Rules and their respective State based act such as the Legal Profession Act 2007 (Qld).

The Directors and Officers of the Target and the Acquirer may also need to sign the Confidentiality Agreements and an in certain circumstances a register of those that have signed it should be kept by the Advisory Team.

Are Confidentiality Agreements enforceable?

The answer to this question will depend on whether the drafter has strayed beyond the boundaries of what the Court considers to be enforceable. For example a Confidentiality Agreement with an indefinite term is likely to be unenforceable.[1]

For a Confidentiality Agreement to be enforceable, the confidential information which is subject to the obligations of confidence must have the necessary ‘quality of confidence’.[2]

Further references

Related articles by Dundas Lawyers

What is a “Confidentiality Agreement”?

Enforcing the terms of a confidentiality agreement

Is your confidential information really confidential?

Anton Piller Orders – preventing evidence destruction

Further information

Malcolm-Burrows-15

 Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
Telephone: (07) 3221 0013
Mobile: 0419 726 535
e: mburrows@dundaslawyers.com.au

 

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice. Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.


[1] Maggbury Pty Ltd v Hafele Aust Pty Ltd [2001] HCA 70.

[2] Maggbury Pty Ltd v Hafele Aust Pty Ltd [2001] HCA 70.

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