Due Diligence Investigations

In the industry today more then any other, due diligence must play a vital roll in the war against terror and, as part of any company’s housekeeping policy, it should be employed at the initial stages of any joint venture and agent selection.

While the task of carrying out due diligence can involve complex networks of ownership, directors and links to government officials, in some ways common sense is the first indicator.

It is a fact that people do more to carry out checks on potential partners in relationships than they do when it comes to financial deals and business partnerships, but what could once have been sealed with a handshake now requires a series of checklists, meetings, decisions and the added cost of peace of mind.

So what is due diligence? It is best described as: “The process of systematically evaluating information, to identify risks and issues relating to a proposed transaction, i.e. to verify that information is what it is proposed to be”.

Due diligence must in every case be measured, reasonable investigation into a company, group of companies or individuals to obtain intelligence which allows you to make an informed decision based on what you have discovered, without being totally reliant on it.

The definition of due diligence is simple. What is not simple is how to carry it out, when to carry it out or even how much should be built into the budget to pay for carrying it out.

Due diligence can be split down in to sections:
– Company information – director’s names, formation and ownership details
– Financial information – current turnover and past returns
– Legal history – judgements past, present or pending
– Political risk indication – country and region

While the above can be broken down further into complex discussions and argument, it represents the fundamental basics of what needs to be investigated to help with decision-making. Every company can undertake a level of due diligence at no cost whatsoever just by having a set standard in place and a check list for every supplier, agent or end-user. This information must, of course, be verified, but just asking for it will in itself add to a company’s security.

Prior to any business relationship, basic information should be requested in a formal document drawn up as part of either a non-disclosure agreement (NDA) or as a stand-alone document. Gathering copies of documentation and basic information will act as basis, the start of a lengthy process that will culminate in founded decision.

A formal request should be made for the following:
– Names, addresses and dates and places of birth of all company directors
– Past employment of directors
– Names, addresses and dates and places of birth of all company shareholders (non-listed companies)
– Company formation documentation
– Company structure
– Company insurance documentation
– Office locations and registered head office

Any company being asked to submit the above information will, if intending to commit any fraud or unlawful act, think twice before proceeding with any transaction.

Available today on the internet is a vast arsenal of information which is easy to use and can save a company thousands of pounds on the cost of due diligence. Understanding how search engines work can be daunting, but the basics for finding out information are quite simple and rudimentary facts can be obtained via this method.

However, investigation or intelligence gathering is only a part of due diligence because financial data needs to be examined just as filly for abnormal, unexplained rises or falls in turnover or profit. Whilst Companies House in the UK can be a great source of information on a UK-registered company, many other countries do not have what can be described as reasonable company registration 尽职调查报告 procedures.

Where a country does not have an easily accessible database of listed companies, and financial or tax returns listings, the process of due diligence becomes more complex and expert help is required.

Many UK companies call on the service of business intelligence providers to carry out due diligence on their behalf and, while a report may be forthcoming, the report in all its glory cannot in itself be relied upon when making a final financial decision; this can only be up to the instructing party.

Uncovering legal history can also be a headache even in most economically developed countries; it’s a case of knowing where to look for the information. Many companies are not going to quickly volunteer any legal complication they may have had in the past, yet this area is key to the success of any possible relationship.


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