Confidentiality agreement or NDA – return or destruction of confidential information
Andy Lau has substantial experience representing pe/vc funds, investment banks and startup and growth companies in pe/vc investments, M&A, IPO and capital markets transactions. For a preliminary consultation, please email him at andy@askventure.com.
Let’s talk about confidentiality agreement (aka non-disclosure agreement or NDA) in this post – specifically on the clause relating to return or destruction of confidential information. There may be a confidentiality clause in a term sheet, but in this post, we are focusing on NDAs.
You will almost definitely see a clause relating to return or destruction of confidential information in every NDA. This leads to the following questions:
1. To what extent shall confidential information be returned or destroyed if so requested by the Disclosing Party.
2. What are the obligations of the Receiving Party in relation to information not returned or destroyed.
Your lawyer should be able to help you negotiate the above terms depending on whether you are the Disclosing Party or Receiving Party. But not all lawyers are created equal – some lawyers are better than others. Anyway, I’ll try to explain.
In relation to 1, it is common to see a clause that says upon the written request of the Disclosing Party, the Receiving Party shall [promptly] return or destroy all copies of the Confidential Information and all notes, reports, etc., created by it that contain or reflect the Confidential Information. This is normally accompanied with the following carve-outs:
- retention required by law, regulation, court order, rules of any relevant securities exchange or professional standards, a bona fide document retention policy, etc.
- for Confidential Information stored electronically, destroy only to the extent that is reasonably practical to do so.
In relation to 2, if you are the Disclosing Party, you will want the Receiving Party’s obligations to keep the information retained confidential to survive termination of the agreement unless such information is eventually destroyed or returned or no longer constitutes Confidential Information (eg becomes public information etc.).
I’ll end the post here. If you have recently received an NDA from a potential investor and need to hire a lawyer to review it, make sure the above points are well covered. Hire a good lawyer to help you.
Related posts:
- Confidentiality agreement or NDA – restricted use of confidential information
- Risky but High Potential Return Nature of Venture Capital Investments
- What is a venture capital term sheet? Is a Series A term sheet binding?
- Pre-money, Post-money Valuation and Calculation in a Venture Capital Investment
- Incorporation of a Hong Kong company limited by shares as a special purpose vehicle (spv) or holding company
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gd post. thx.
you raised some very good points.
Agree with you.