When a broker or lender engages with a prospective client, quite often the prospect will need to pass over confidential financial information, in order to get the relationship under way.
In doing so, the prospect may ask the recipient to promise to keep the information confidential, by signing a legal document called a ‘NDA’ or Non-Disclosure Agreement. The document may also be called a Confidentiality Agreement. Should the finance party agree to sign the NDA? Does it matter?
From a strict legal perspective, there may be no point to a NDA. There has always been some doubt as to whether it is enforceable. This is because it is not certain that any consideration or benefit passes between the parties.
A way around the technical objection is for the parties to execute the NDA as a deed. If a signing party is an individual then the traditional recital “Signed Sealed and Delivered” is necessary, with the signing before a fully identified witness. For a corporate party, a director & director/secretary signings are mandatory.
With the easing of the COVID emergency, the old deed signing formalities have returned. They must again be ‘wet ink’ signatures, as the validity of electronic impressions on deeds continues to be doubtful.
More importantly perhaps, signing a NDA is good business practice.
- A NDA serves as an indicator of the sharing parties’ transactional bona fides.
- A signed and dated NDA acts as a marker for the beginning of the hoped-for engagement.
- if credit is being sought from one or more funders, and the transaction doesn’t proceed, the discloser has the comfort of being in control of its commercial information. It receives an assurance that the information will be returned or destroyed.
- SMEs with a turnover under $3 million don’t have the “protection” of the Privacy Act i.e. that the recipient will behave properly with regard to the management of the discloser’s confidential information. Instead, they need to put a private contract in place, in the form of a NDA.
- A NDA can benefit the finance party too. In order for the transaction to be progressed the financier may need to disclose its own confidential techniques and relationships.
Whilst not a strictly necessary formality to moving forward with a transaction, a NDA is a simple tool to give both rigour and comfort to each party in the deal creation process
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please also note that the law may have changed since the date of this article.