By Simon Palmer and Harry Nicolaidis
If you are looking at buying a veterinary practice, it is likely that you will be asked to sign a Confidentiality Agreement or Non-Disclosure Agreement at some stage.
There are a lot of misconceptions about these agreements, what they mean and if they are enforceable. In this article, we address some of the frequently asked questions that arise from these agreements.
- Why are confidentiality agreements necessary in a practice sale transaction?
During a practice sale, it is likely that a seller will share information with a buyer that they would not like shared in a wider context.
This confidential information might include the financials of the practice, the details of its marketing efforts, payroll information about the staff, etc.
For the seller to feel comfortable about sharing this information, the purchaser needs to agree to treat these disclosures confidentially.
- Does signing a confidentiality agreement mean that you cannot share the information with your spouse or advisors?
Buying a business will almost never be completed without the buyer discussing information regarding the deal with spouses and advisers (bank, accountant, lawyer).
A confidentiality agreement usually has provisions to reflect that the confidential information may be used and shared in specific circumstances. That is, shared with their necessary advisors (bank, accountant, lawyer, business partner, etc.), for the purposes of considering a specific opportunity. If they don’t, then the buyer should either seek an amendment or get a separate NDA for their spouse and advisors.
- What happens if the confidential information that you have received becomes public knowledge – are you still bound by the agreement?
Typically, a confidentiality agreement will have exclusions for information that is or becomes publicly available or generally known to the public.
- Is a confidentiality agreement only in place to protect the seller?
In a business sale transaction, confidentiality agreements are usually in place to protect the seller alone.
However, there are many reasons that a buyer will also want a confidentiality agreement in place.
A vet looking at a veterinary practice to buy may be reluctant for their current boss to find out that they are looking, as there may be an implication that they intend to stop working at their current job to pursue the purchase.
For this reason, every Practice Sale Search practice for sale also includes a separate confidentiality agreement from the seller, to give a buyer peace of mind that the buyer’s identity will be treated confidentially.
- Is there a difference between a confidentiality agreement and a Non-Disclosure Agreement (NDA)?
In a business sale interaction, there is unlikely to be any material difference between a confidentiality agreement and a Non-Disclosure Agreement. Irrespective of what they are called, both have the effect of protecting confidential information provided by one party to another.
- I have heard that NDAs and Confidentiality agreements cannot be enforced. Is this true?
This is incorrect; significant penalties can absolutely be incurred if people misuse or inappropriately disclose information provided under a confidentiality agreement.
However, I think this question misses the point of these agreements.
The principal purpose of putting a confidentiality agreement in place is to guide appropriate behaviour. The fact that it creates legally enforceable obligations is ancillary to that purpose.
If you are sharing sensitive information, you would want a confidentiality agreement for four reasons.
- First and foremost, it is a written acknowledgement from the recipient that they recognise that the information received is commercially sensitive.
- Secondly, you want acknowledgement that the information should not be shared. unnecessarily, should be kept securely and that unauthorised disclosure could cause harm.
- Thirdly, you want it to act as a deterrent in place for people who would otherwise be careless by disclosing this sensitive information.
- Finally, so that if there is unauthorised disclosure or misuse of this confidential information such that a loss flows from it, there is a legal pathway to appropriate compensation and recourse for that loss.
Hopefully the first three points will mean that the confidential information is secure and the fourth point – recourse- is rarely if ever necessary.