What is one basic skill for legal due diligence?

Due Diligence

I think it’s the ability to spot inconsistencies in the information provided and ask follow up questions.

Here are a few examples:

1. The Phantom Employees

The target company’s representatives claimed that there were no employees in a seemingly dormant company. Yet, its audited accounts showed salaries and wages being paid.

Could there be ghosts on the payroll?

2. The Disappearing Assets

When asked about physical assets, the company representative informed there were none. However, the audited accounts listed plant, machinery, and equipment.

Where did the assets go?

3. The Missing Records

The company’s representative confirmed that all statutory registers and resolutions were in order and kept in accordance with the applicable laws. However, 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.

***

There may be valid explanations for these inconsistencies.

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 first posted on LinkedIn on 3 August 2024.

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