Part of legal due diligence includes spotting inconsistencies in the information provided for legal due diligence.

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For example, the representative of the target company replied that the company does not have any employee in response to questions in the due diligence questionnaire about employment.

However, there is information about salaries and wages paid by the company in its audited accounts.

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The representative of the target company said it does not have any assets.

But the audited accounts show the company has plant, machinery and equipment.

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The representative of the target company confirmed that the company has maintained all statutory registers and records of resolutions in accordance with the applicable laws.

But the registers are not up-to-date or there are missing resolutions in relation to circulation of audited financial statements of the company to its shareholders, which should be in place for every financial year.

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There may be good explanation as to why there are inconsistencies in the information provided.

It is important to identify the inconsistencies and ask follow-up questions to clarify as part of the legal due diligence exercise.

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This post was first posted on Linkedin on 13 May 2022.