The stage of legal analysis of the target, commonly referred to in Polish by its English name “due diligence”, derives from the Anglo-Saxon common law tradition and the ancient principle of caveat emptor. As the buyer proceeds at its own risk, the buyer should examine the target “with due diligence” before deciding to acquire it.
In Poland, due diligence is typically conducted by the buyer in order to assess the degree of risk associated with the planned acquisition and to determine the value of the assets, enterprise, organised part of an enterprise, or shares being acquired.
But increasingly often, the seller itself prepares a due diligence report (known as a “vendor’s due diligence report”), which is then typically verified during due diligence by the buyer.
The subject of due diligence will vary depending on whether the transaction involves the sale of shares (a share deal).
In the case of a share deal, analysis of the target’s corporate documents is critical, but the company’s enterprise is also examined. Because the transaction involves the shares (rather than the enterprise as such or its assets), it is necessary to:
- First, confirm the existence of the shares and determine the rights attached to the shares
- Second, verify that the seller owns the shares and whether there are any encumbrances on the shares or restrictions on selling them.
In either of the main types of transaction, the scope of due diligence typically includes, in addition to corporate matters, an analysis of documents concerning:
- Real estate (land, buildings and other structures)
- Movables and encumbrances established for the company or on the company’s assets
- Rights to intangible assets
- Financial matters
- Employment matters
- Environmental issues
- Judicial and non-judicial proceedings and the status of receivables and other claims
- Shares and other securities owned by the company
- Fundamental operations of the company (e.g. contracts with suppliers and customers, administrative contracts and the like)
- Competition issues
Regulatory matters (licences, permits, other administrative issues, and the like).