M&A transactions represent significant opportunities to expand markets, acquire new technologies and strengthen strategic positions.

However, these transactions come with challenges and risks that require care and diligence from the management of both the acquiring and target companies, who are responsible for ensuring legal compliance, transparency and value creation for the company and its stakeholders.

Law No. 6.404/1976, the Brazilian Corporations Law, establishes the guiding principles for the liability of company directors and officers. According to articles 153 to 159 of such law, their actions are governed by three essential duties: care, loyalty and information.

Considering that M&A transactions often involve substantial amounts and strategic impact, strict observance of these duties becomes even more critical compared to the regular course of business. In such contexts, risks and responsibilities are heightened and any negligence may directly influence the success of the transaction.

In addition, directors and officers may be held personally liable if wilful misconduct or fault is proven in the performance of their duties.

1. Duty of Care

In M&A transactions involving multinational companies, the role of local management becomes particularly important in decision-making related to the deal. The same applies to many large domestic conglomerates, especially publicly traded companies.

In family-owned businesses, however, this decision-making process is usually carried out directly by the quotaholders or shareholders, who are often individuals.

To make informed decisions, management should conduct a thorough assessment of the target company, covering everything from financial health to detailed compliance with regulations specific to the healthcare sector. This includes analysing the legal, tax, labour, regulatory, environmental, and financial/operational impacts of the target company.

To support this assessment, it is essential that the management assemble a multidisciplinary team comprising accountants, lawyers, healthcare specialists, IT experts and other professionals.

For example, when evaluating the acquisition of a laboratory or a merger with a company specialising in laboratory analysis, it is crucial to review factors such as litigation history, environmental liabilities, quality control and customer satisfaction ratings. Negligence at this stage may result in future liabilities for the acquiring company.

Furthermore, management must stay alert to the dynamic nature of the healthcare sector, including regulatory updates and technological advancements. Ongoing vigilance is key to a successful post-transaction integration strategy, enabling the capture of operational synergies and minimisation of disruptions.

2. Duty of Loyalty

The duty of loyalty requires management to prioritise the interests of the company and its stakeholders over personal interests or third-party interests. Directors and officers must always act ethically and impartially throughout the M&A transaction, prioritising transparency and making decisions that promote the long-term success of the company. This includes proactively identifying, assessing, and mitigating conflicts of interest that could jeopardise impartial decision-making.

To ensure integrity, it is essential to implement strict policies that reinforce the commitment to the duty of loyalty, as well as creating independent committees to assess potentially conflicting situations. Establishing confidential whistleblowing channels and holding regular training sessions are essential practices throughout the directors' careers and are particularly relevant during M&A transactions.

Practical examples of applying the duty of loyalty include providing clear information about the selection criteria for the target company and the expected benefits of the transaction, whether it is a merger or an acquisition.

Prioritising the company's interests may require making difficult decisions, such as rejecting proposals that benefit only a restricted group of shareholders or quotaholders, while maintaining independence even under external pressure.

3. Duty of Information

The duty to inform requires management to keep all stakeholders, as applicable, adequately informed about decisions and events relevant to the company, ensuring transparency and clarity in communications. This includes providing accurate and complete information about the impacts on the various areas of the company during M&A transactions.

Although unlisted companies and limited liability companies are not legally obliged to inform stakeholders about impending corporate transactions – unlike publicly traded companies, which must disclose announcements to the market – current best management practices emphasise the importance of considering all those involved in the process.

Therefore, whenever possible, it is recommended that stakeholders be also kept informed. It is also worth noting that, in cases where there is no legal obligation, information duties may be contractually provided for — for example in shareholders’ or quotaholders’ agreements — and should be respected.

This recommendation becomes even more relevant when considering two of the guiding principles of corporate governance: transparency and equity. The Brazilian Institute of Corporate Governance (IBCG) defines transparency as practices that aim to ‘make truthful, timely, coherent, clear and relevant information available to interested parties, whether positive or negative, and not just that required by laws or regulations’. The concept goes further, clarifying that it ‘fosters an environment of trust for the relationship of all stakeholders’.

Equity, in turn, consists of ‘treating all shareholders and other stakeholders fairly, taking into account their rights, duties, needs, interests and expectations, as individuals or collectively’. In short, it is part of good practice, to the extent possible, to make relevant information available to stakeholders, even if there is no explicit obligation to do so.

The adoption of practices consistent with these - and other - principles, and materialised in the duty and/or prerogative to provide information, tends to contribute to the company's credibility and strengthen relationships with stakeholders.

During M&A operations, it is crucial to disclose updates on the progress of the transaction, including the potential risks and benefits. Regular meetings with stakeholders are essential for communication and clarifications, accompanied by detailed reports outlining the milestones reached and upcoming steps.

In addition, dedicated information sessions are recommended to discuss specific aspects of the transaction and address any concerns that may arise.

4. Management Accountability

Failure by the management of a company to fulfil the duties listed above during M&A transactions can lead to severe consequences. This includes the possibility of lawsuits brought by stakeholders, alleging negligence or misconduct, as well as regulatory penalties imposed by official bodies and significant damage to the reputation of the management member involved.

In the case of civil liability, the general civil liability regime for management applies, as established in articles 158 and 159 of the Brazilian Corporations Law.

For civil liability to be established, it is essential that there has been a violation of the law, the corporate documents of the company, or that the management member has acted with fault or wilful misconduct within the scope of their duties under these documents and legislation.

In either case, it is essential to prove the causal link between the misconduct and the resulting damage in order for the management member to be held liable.

In the case of criminal liability, there must be a specific criminal provision that typifies the conduct of the member of management as a criminal offence. A classic example of a breach of management's duties that can give rise to both criminal and civil liability is insider trading. In this case, one or more members of management uses, for example, confidential information about an imminent M&A transaction that has not yet been disclosed to the market in order to gain undue advantage (generally on the stock market).

These risks emphasise the need for a diligent and ethical approach on the part of members of management, who must always guide their actions according to the highest management standards, ensuring that the interests of the company and its stakeholders are protected at all stages of M&A transactions.

To summarise, the responsibility of the management of a company in M&A transactions in the healthcare sector is broad and complex, requiring meticulous diligence in all legal, ethical and operational aspects.

By implementing best management practices, directors not only protect the interests of the company and its stakeholders but also strengthen the foundations for sustainable growth and consolidation in the competitive healthcare market.

In short, the application of solid management principles and clear policies is fundamental to mitigating risks and optimising the success of M&A operations in the healthcare sector in Brazil, contributing to responsible and effective management in the sector.