Charltons undertakes comprehensive legal due diligence investigations and reports for clients who are buying or selling companies or businesses in Hong Kong and China. We also and often act as the coordinating law firm for legal due diligence in M&A transactions when advice from multiple jurisdictions is required. We can provide a tailored and cost-effective service based on a client’s requirements, budget and risk profile.
We aim to provide useful and actionable information for clients, to enable them to proactively assess and mitigate the risks involved when making acquisitions. Our long experience in China means that we understand and take a pragmatic approach to the challenges of carrying out legal due diligence on Chinese businesses and assets. We can also structure and draft key transaction documentation to address transaction risks and purchase price adjustments arising from due diligence findings.
Our team comprises multi-cultural and multi-lingual lawyers with considerable experience of local and international M&A deals. The firm also has extensive personal links with firms in over 60 countries worldwide, enabling us to coordinate legal due diligence in multiple jurisdictions. Our lawyers provide an insightful and highly personalised service to clients, often working round the clock to deliver on transactions spanning several time zones.
The scope of legal due diligence investigation on target companies or businesses would depend on the purpose of the acquisition, the industry the target operations in, and it may be influenced by practical realities such as available time, expense and overriding need to get the transaction done. Legal due diligence on regulated businesses (such as licensed corporations, registered institutions and insurance companies and intermediaries) would require extended legal due diligence in respect of past and ongoing regulatory compliance.
Some standard legal due diligence matters that would typically be examined includes:
- good standing (including valid business registrations, solvency and whether the target is subject to any pending or threatened litigation, proceedings as well as regulatory or disciplinary actions, investigations, examinations and sanctions etc.)
- statutory books and corporate records (including minutes, resolutions, registers etc.) and reviewing compliance with constitutional documents as well as relevant laws and regulations;
- intellectual property (including ownership rights, licences, sub-licences, licensing agreements, royalty agreements; any infringement and violations or disputes etc. as well as any proceedings, claims or disputes or infringement relating to patents, trade marks, designs and other intellectual property)
- material contracts (including review of terms of these contracts for breaches of regulatory requirements or outstanding claims and liabilities and, in particular, whether there are any change of control provisions which may affect the relevant acquisition)
- share structure of the company (including details of warrants, pledges, derivatives, outstanding options or similar rights or arrangements affecting the company)
- shares and fixed assets (including reviewing details of all leases, subleases, licenses, certificates, properties; encumbrances and restrictions on transfers etc.)
- employment and labour related issues (including examining mandatory retirement scheme contributions; review of sufficiency of mandatory employment compensation insurance; review of share option/share incentive schemes, bonus distribution policies and other incentive arrangements; review of collective bargaining or other comparable agreements with trade unions, chambers and third parties; review any labour law violations, etc.)
- tax compliance (*general only) (including review of any tax filings, conduct search on tax prosecution list; review any tax contingency reserves; review any tax preferential treatment etc. )
- debt and financing arrangements (including review of details of borrowings (including bank loans, intra-companies borrowings and other borrowings, current and future borrowing capacity etc.); bank guarantees; conditions and restrictions imposed on the business; security and mortgage arrangements; pledges, charges and other encumbrances; contingent liabilities and capital commitments etc.)
- foreign exchange issues, if applicable;
- related party transactions;
- dealings and relationships with suppliers and clients.