Cyprus: The 'Dark' Side Of The Data Room: Disclosure Dangers In M&A And Finance Transactions

Last Updated: 13 February 2019
Article by Elena Georgiou

Given the corporate environment's ever-changing nature and business needs and the importance of data protection at the EU level, the topic of due diligence in M&A and financial transactions warrants examination. The disclosure, transfer and processing of data raises concerns at several stages of the due diligence process during a transaction and undoubtedly makes things more complicated.

Legal due diligence

Legal due diligence is the exercise pursuant to which legal professionals examine a target company's affairs by investigating its structure, constitutional documents, agreements and other corporate records. Assessing the potential legal risks of acquiring a target company, as well as its equity and assets, is vital in the context of M&A transactions. The ultimate aim of a due diligence exercise is to green-light a corporate, financing, restructuring or M&A transaction and reduce the likelihood of any unpleasant surprises following its completion.

Legal due diligence usually culminates in the preparation of a report that:

  • represents the findings of the corporate review and examination;
  • sets out the key issues that should be brought to the attention of the parties to the upcoming
    transaction; and
  • provides potential recommendations regarding any problematic issues that might endanger
    the successful execution and conclusion of a deal.

During a legal due diligence examination, a variety of documents are disclosed, including:

  • the target company's memorandum and articles of association;
  • shareholders' agreements in the company's articles of association;
  • corporate registers;
  • corporate certificates issued by the Registrar of Companies;
  • corporate approvals passed by the company's board of directors or shareholders;
  • minutes from the board of director or general or extraordinary shareholder meetings; and
  • agreements and contracts relating to IP rights, financing, restructuring or obtaining security (eg, pledge agreements, guarantees, or agreements governing the relationship of the company with its employees).

These documents encompass only one part of the due diligence exercise, as financial and tax advisers must also carry out financial due diligence.

To facilitate the flow of information used for due diligence in the digital era, and in the spirit of the 'think green – keep it on the screen' approach, a virtual data room is usually established. This allows legal and financial professionals and potential purchasers or investors to avoid the need to meet face to face, exchange pleasantries and instead provides access to a virtual data room where all relevant information and documents are uploaded. Each party is offered the opportunity to conduct their own risk assessment of the transaction in question.

Data protection in M&A transactions

The above exercise gives rise to a dilemma: a target company must abide by data protection rules, as well as confidentiality obligations, while allowing the transacting parties to access a large amount of information in order to complete their due diligence successfully. The General Data Protection Regulation (GDPR) is the European Union's main data protection legislation and has introduced increased harmonisation of data protection laws across EU member states. The GDPR defines 'personal data' as:

Any information relating to an identified or identifiable natural person ('data subject'); an identifiable natural person is one who can be identified, directly or indirectly, in particular by reference to an identifier such as a name, an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that natural person.

The GDPR applies to businesses that process personal data as data controllers or data processors, regardless of whether the processing takes place in the European Union. Companies that disclose contracts, agreements or other documents that contain personal data during a due diligence must be aware of the dangers of violating data protection provisions and implement the appropriate safeguards for the dissemination of such information, especially when a data room is used.

Under the GDPR, personal data must be:

  • processed lawfully, fairly and in a transparent manner;
  • collected only for a specified, clear and legitimate purpose;
  • adequate, relevant and limited to what is necessary in relation to the purpose for which it is processed;
  • accurate and up to date where necessary;
  • not kept in a form which permits identification of the data subjects for longer than is necessary for the purpose for which the data is processed;
  • processed in a manner that ensures its security, using the appropriate technical and organisational measures to protect against unauthorised or unlawful processing and against the data's accidental loss, destruction or damage;
  • not transferred to another country without appropriate safeguards being in place; and
  • made available to data subjects who are allowed to exercise certain rights in relation to the data.

Companies are responsible for and must be able to demonstrate compliance with the data protection principles listed above.

Personal data must always be processed lawfully, fairly and in a transparent manner in relation to the data subject and certain conditions must be fulfilled, including:

  • the data subject must give their consent;
  • the data processing must be necessary for the performance of a contract with the data subject;
  • legal compliance obligations must be met;
  • the data subject's vital interests must be protected; and
  • the data must be processed to pursue legitimate interests and must not prejudice the data subject's interests or fundamental rights and freedoms.

In light of the above, data disclosed during M&A and financial transactions must be disclosed lawfully, fairly and in a transparent manner. Companies are advised to disclose only information that is necessary for a deal to go through. The setting up of a data room raises further concerns relating to the security of that information and digital protection issues of data disclosure and processing.

Issues of consent can complicate matters in cases where the data being processed and disclosed is:

  • sensitive personal data (ie, the subject's religious, ideological, political or union-related views or data relating to the subject's health, racial origin, social security measures and administrative or criminal proceedings); or
  • a 'personality profile' (defined as a collection of data permitting an assessment of a natural person's personality).

Justification based on legal compliance obligations or overriding public interest cannot be easily evoked in the context of a due diligence exercise and would require the data subject's consent or the pursuit of a private interest. In the case of sensitive personal data, it could make sense for companies to cease processing such data, unless there is a specific purpose for which it is deemed necessary.

Consent must be based on appropriate information and be given voluntarily. Considering the magnitude of documents in a transaction, a company could be lost in a labyrinth of consents if it tries to obtain the consent of each party involved. This also raises issues of timing and confidentiality, as finance or M&A transactions are usually strictly confidential.

This potentially leaves only the justification of an overriding private interest, whereby a company can claim that the relevant personal data will need to be disclosed and processed for the performance of a contract that is connected to the data subject. However, this justification is not as straightforward as it might seem, as the company will have to weigh the disclosure interest versus the data subject's privacy.

The nature of data contained in such documents and their virtual nature in the digital era may complicate matters further, as a virtual data room requires careful handling and supervision, including setting up access restrictions and limiting the its contents to the perusal and review of the documents contained therein.


Unless companies can navigate their way around the rules set out by the GDPR, it is highly likely that they will encounter significant difficulties and potential data protection breaches in the context of due diligence work undertaken for M&A transactions. It is advisable to involve a GDPR specialist before and during the setting up of an information system through which information for due diligence will be disclosed and disseminated, particularly with regard to a virtual data room, in order to shed some light in those 'dark' corners.

Originally published by International Law Office, October 10, 2018.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions