Is There any Point in a Non-Disclosure Agreement?

Non-disclosure Agreements (NDAs) have recently received lots of high profile press coverage, with such agreements being used by the wealthy and powerful seeking to buy silence. Theresa May has promised reform of the use of NDAs so that they are not used to stop whistleblowing of misconduct or malpractice in the workplace.

Despite the negative coverage NDAs have had, they do remain useful tools in business settings. In particular, they should be used to facilitate the sale of part or whole of a business, to keep sensitive financial information private or to limit knowledge of a particular deal until it has been completed, giving peace of mind to both seller and buyer. NDAs are also useful for entrepreneurs who wish to share their ideas to investors or contractors and for organisations during recruitment processes involving the discussion of sensitive information.

Keeping business information confidential

Naturally, a potential buyer of shares or assets in a business will require sufficient information to be able to determine whether or not such a purchase is sound. A buyer will carry out a process of legal and financial due diligence to consider the affairs of the business or the asset(s) in question. The information received by the buyer will be used to make an informed assessment of the potential risks and rewards of the proposed acquisition. The buyer can decide whether it wants to proceed with the transaction, to renegotiate the terms to reflect any issues identified or withdraw from the transaction.

This process will identify highly sensitive and confidential information which, if leaked, could have a detrimental effect on the seller’s business. For example, trade secrets accidently disclosed to a competitor could provide said competitor with an unfair advantage in the market place. The use of an NDA can seek to protect this information and the seller will have recourse against a potential buyer should the information be disclosed. The seller can bring legal action for misuse of confidential information remedies of which include injunctions, damages, accounts of profits and delivery up of the information or documents within which is it contained. As the seller has confidence that the information will remain private it can allow business to continue as usual whilst negotiations are carried out preventing uncertainty amongst the current workforce.

What is included in an NDA?

A solicitor specialising in Company Commercial or Intellectual Property law will typically draft the NDA which specifies the information to be protected, the party’s obligations and the extent to which it can be shared in a particular deal. NDAs can be mutual or one-way depending on whether it is both or just one party disclosing confidential information respectively. There can be staged disclosure so that only limited amounts of information are initially disclosed, with further disclosure provided when necessary to serious buyers.

NDAs can give sellers the reassurance that staff, customers and suppliers will be unaware of ongoing negotiations. Additionally, the seller can gauge the suitability and intent of possible buyers by requesting financial information from them to include proof of their ability to pay. Buyers can also be comforted by the NDA if it includes the provision of such sensitive financial information.

Therefore, NDAs are still a useful and necessary tool to protect confidential information in an array of situations. An NDA should be signed by all those identified before serious discussions begin and information is disclosed.

For further information or advice, please contact Anastasia Whitlock on 01234 270600 or email awhitlock@woodfines.co.uk