Due diligence

Due diligence (risk analysis) is a comprehensive legal analysis of the subject's operations for shaping an objective view of such subject.

In the majority of cases, due diligence is aimed at checking for legal adequacy of certain organization's activity, legal clarity of a deal, or commercial attractiveness of a certain investment project.

Why order a due diligence?

The results of due diligence help to evaluate all possible legal and financial risks. Usually, without due evaluation, many negative complications may arise – like the emergence of unaccounted tax orders, or financial claims after the deal is made, or unregistered ownership rights for immovable property and uncontrolled siting thereof, or existence of various encumbrances or corporate decisions previously unknown to the client, etc.

When a due diligence should be ordered? ... >

Due diligence should be ordered before making any decision on a deal or investment. Clients usually address us for due diligence issues when planning a possible deal. We study activities of the subject in question in detail and analyze information;

 after that we perform a unified analysis with comments by our experts familiar with the client's field of interest. The unified analysis resume helps a client to decide whether to make a deal or to reject it on the basis of the risks revealed in the course of due diligence.

What does a procedure include?

Most often, clients address us for a due diligence service in the following fields and issues:

  • Complex legal analysis of documents on a planned deal including studying corporate documents and internal documentation of legal entities, as well as necessary agreements and corporate approvals in terms of their compliance with Russian law and actual interests of the client;
  • Studies and analysis of legal entity's economic activities in general with regard to its security against unfavorable external influence, facts of company's officials having been called to account for civil or criminal liability, hostile takeovers, and corporate conflicts;
  • Analysis of the legal entity's contractual activities in terms of possibility of its litigations with contractors;
  • Studies, analysis, and optimization of tax plans in use.

The issues are not limited to the above, since each task concerning each specific subject is set by a client individually.

What is the process of due diligence?

Due diligence procedure includes several stages:

1) Searching, tracing, and assessing information from external sources;

2) Preparing and signing a non-disclosure agreement plus making queries (the main goal is to get detailed information);

3) Studying company's documentation thoroughly (legal and financial check-up)

Financial check-up is made on the basis of the following documents:

  • Balance sheet; profit and loss reports;
  • Auditors' reports;
  • Assessment of the company's material and non-material assets (plus availability of legislative decisions on the company)
  • Basic contracts
  • Debts, commitments, and liabilities
  • Tax risks
  • Encumbrances

Legal check-up is made on the basis of the following documents and data:

  • Constituent documents, shareholders’ agreements, as well as documents confirming acquisition of shares;
  • Resolutions of shareholders and board meetings;
  • Availability/possibility of litigations (revealing possible substantial suits)
  • Dividend payment issues
  • Corporate and administrative structure
  • Company's staff, compensation and remuneration system
  • Management contracts

How long does it take to perform due diligence?

The duration of a due diligence procedure directly depends on completeness and timeliness of the requested (necessary) documentation. The procedure may take from one week to few months depending on the studied subject's structure and scope, as well as on specific issues the client is interested in.