Checking a target company's legal and compliance position before buying it
A buyer was acquiring a mid-sized manufacturer. Before signing, we checked whether the company had followed the law and its own paperwork.
A buyer planned to acquire a family-owned manufacturer. The business looked sound on the numbers, but the buyer had no view on whether the company had kept its legal house in order: filings, licences, contracts, disputes and approvals.
A company can have good profits and a quiet legal problem. A missed filing, a lapsed licence or an old dispute becomes the buyer’s problem on the day the deal closes.
What we did
- Step 1
Check the company is what it says it is
We read the charter documents, share records, statutory registers and the filings on the Registrar of Companies record, and compared them with each other.
- Step 2
Check the right to operate
We listed every licence, registration and approval the plants need, checked whether each was current, and checked whether any lapses on a change of ownership.
- Step 3
Read the contracts that matter
We read customer, supplier, lender and lease contracts for change-of-control clauses, exclusivity, guarantees and penalties, and listed those needing consent.
- Step 4
Find the disputes and the notices
We reviewed litigation, tax notices, labour and provident fund compliance and environmental approvals, and rated each finding by its likely cost and by who should carry it.
A graded list of findings the buyer could act on.
The buyer received a report in plain language with every finding graded: must fix before signing, must fix after, or acceptable risk. Each carried an estimate of what it could cost.
The agreement was then written around the findings: some became conditions before closing, some became specific indemnities, and a few moved the price.
Conditions before closing
Missing filings and lapsed approvals were fixed by the sellers before the buyer paid.
Named indemnities
Open disputes and tax matters were covered by specific protections, not a general warranty.
A post-closing list
The buyer started with a dated list of what remained to be put right.
Legal due diligence on a company is a check that the law and the paperwork agree. The buyer needs to know what is wrong, what it costs and who pays.
Facing something similar?
Read next
Merger and restructuringMerging two group companies before a lender review