The most difficult part of legal due diligence when I started out as a corporate lawyer was not the voluminous review of documents and preparation of reports.

The most difficult part was to rate the risks relating to the issues identified during the legal due diligence exercise.

Some clients or instructing counsels prefer to have a summary of legal issues with a rating on the significance of each issue in legal due diligence reports.

Having the high, medium and low risk rating or traffic light system (red, orange and green) doesn’t help if there is no description of the significance of the risk for each category. Some instructing counsels may provide their own rating of risk and description.

If you need to come up with your own, an example of the description may look like this:

• Material issues which affect the ability to complete the transaction/ deal breaker
• Issues to be addressed in transaction documents
• Issues to take note of/to be addressed post-completion of the transaction
• Issues requiring further evaluation/information

There is no fixed rule on the description. What matters is to have a clear description so that the parties preparing and the parties reading the reports have the same understanding on the significance of each issue identified from the legal due diligence exercise.

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This post was first posted on Linkedin on 18 May 2022.