(Marketing Material); important in their decision to proceed (Assumptions); and (Proposals). circumstances and the limitations mentioned below, the due diligence exercise then becomes a task in testing out whether: Material are reasonably based; Proposals, as these may be an integral part in the decision to buy. Exercises term at the outset of a deal seems to be the length of the due diligence period. The vendor will wish to limit this because they don't want to waste time with a party who may not sign, particularly if there are other potential purchasers. This time factor, together with cost, leads to the need to limit the extent of a due diligence exercise. The process of cutting down the exercise should be undertaken in consultation with the client, and documented so that the prospective purchaser accepts that some corners are being cut, with consequential risks. The whole magic about the exercise is trying to work out which corners you can safely cut. A review of the Marketing Material, Assumptions and the Proposals will ignored because: its freehold land for another use, the purchaser would not be concerned with the past trading performance of the business; own in-house expertise e.g. much of the Marketing Material may be devoted to analysis of the market, comparable sales, discussion on capitalization rates etc. If the purchaser is retaining a valuer, or is sufficiently confident of their in-house valuation expertise, this area is covered and needs no further external due diligence. However it is important that the due diligence team provides feedback to the valuer or those looking at the issue in-house, so that the valuation is not based on assumptions which may be incorrect; issue or assumption to the business or the purchase? an Australian Statutory Example specific statutory provisions that create local due diligence issues. The following is one example, of many found in the Australian context. Other examples include local tax, stamp duty, employment, zoning, privacy and land laws. Apart from Victoria and Western Australia, each Australian state and territory has implemented variants of the model workplace, health and safety laws developed by Safe Work Australia. These new laws impose duties on persons conducting business or undertakings to ensure the health and safety of workers, among others. One duty imposed requires officers of a person conducting a business or undertaking to exercise compliant with the workplace, health and safety laws (see for example, section 27 of the Work Health and Safety Act 2011 (NSW)). Therefore in Australian jurisdictions where this or a similar provision has been enacted, if the purchaser of a business is a company, due diligence in relation to occupational health and safety (OHS) must be conducted by its officers if that business is to be carried on by the company after completion. While a vendor may give warranties in relation to OHS issues up to the date of completion, that may be insufficient to discharge the purchaser's statutory due diligence obligations. The laws impose duties on the person conducting the business or undertaking. Accordingly, immediately on completion, a purchaser is required to be complaint with those laws and will be liable for any breaches. A prudent approach would be to obtain an expert OHS report ahead of purchase, for the following purposes: new procedures and controls may need to be implemented (and seek an adjustment to the purchase price or warranties as appropriate); given the OHS risks involved; risk, so the aim of the advisor in a due diligence exercise is not to stop the client taking all risks. Rather, it is to assist the client to make an informed decision on whether to buy and, if so, on what terms. Local legal input is essential for this purpose. |