Due diligence

 
 

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 first examine the target “with due diligence”.

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 business or the shares being acquired.

Sometimes the seller itself prepares a 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) or an enterprise or specific assets (an asset 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
  • the 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).