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Legal Due Diligence (LDD) - EMLI Training


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Materi Workshop Legal Due Diligence (LDD) yang di selenggarakan oleh EMLI Training. Materi di sampaikan oleh Bapak Dendi Adisuryo, beliau adalah Partner at ADCO Attorneys at Law.

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Legal Due Diligence (LDD) - EMLI Training

  1. 1. Legal Due Diligence By: Dendi Adisuryo (ADCO Attorneys at Law) 1
  2. 2. AGENDA OF DISCUSSION  Introduction to acquisition  Acquisition deals flow  Roles of legal due diligence  Workflow of legal due diligence  Preparing due diligence checklist  Key areas for legal due diligence review  Frequent findings  Preparing legal due diligence report  How LDD Report will affect the deal? 2
  3. 3. INTRODUCTION TO ACQUISITION WHAT’S THE ACQUISITION?  Acquisition may be defined as an act of one enterprise of acquiring, directly or indirectly of SHARES, voting rights, assets or control over the management, of another enterprise  Acquisition is a legal action taken by a legal entity or an individual to take over shares in a company which will change the control of the Company (Article 1 (11) of Company Law) 3
  4. 4. ACQUISITION RATIONALE  Enhance, build and preserve markets  Achieve rapid business growth  Secure new resources  Develop globally-competitive companies  Establish a new business unit  Supporting tools for core business unit INTRODUCTION TO ACQUISITION 4
  8. 8. 8 ROLES OF LEGAL DUE DILIGENCE Obtaining objective information Identifying legal risks Arguments for negotiations Transaction structuring Determining conditions precedent to transaction Determining holdback amounts in transaction
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  10. 10. 10 LEGAL DUE DILIGENCE WORKFLOW START UP Management Meeting Information Gathering Analysis The Report  Term of Reference  Initial manageme nt meeting  Site visit  Reassure management that LDD will not disrupt commercial activities of the target  Establish timings and reporting  Review initial proposed transaction structure  Obtain person in charge in the data room  Gather info from dataroom/documen t provided  Gather info from internet and other resources  Close liaison with the target’s official  Gather info from financial/environm ent/technical counsel  Obtain infofrom government agencies  Site Visit  Legal issues  Legal consequences  Legal Solution  Clear, easily- read document  Address what the commercial people need to know  Timely manner  Good news is nice, but the truth is the aim  Presentation to client  Q & A  Next stage of the transaction Post Report
  11. 11. Obstacles to Due Diligence in Indonesia  No sophisticated public data base  Reluctance to present full package of documents  Delays in gathering and presentation of documents (from usually remote sites)  Differences: so many interdisciplinary issues (e.g. forestry, transportation, overlapping, counterfeited documents  More important than in developed countries – not purely a data room exercise  Legal uncertainty – clear title (in licenses, buildings, property)  Lawsuits: difficult to access  Representations and warranties may be useless because sellers are often “big” local person 11
  13. 13.  Corporate legal standing  Establishment  Capital structure (eg. change of capital structure, minimum capital requirement for PMA Co)  Shareholding composition  Company management  Authorities of management and corporate approval  Domicile of the company 13 KEY AREAS FOR LEGAL DUE DILIGENCE REVIEW
  14. 14.  Operating Licenses  Validity  Compliance  Possibility of license revocation 14 KEY AREAS FOR LEGAL DUE DILIGENCE REVIEW
  15. 15.  Third Party Comitment  Sale agreement  Exclusivity, duration, committed volume, price adjustment, payment methode, quality and quantity determination, exit clause, Exclusifity, commited amount, price determination, pre shipment payment,  Services / contractorship agreement  Scope of work, service fee, fall and rise, exclusivity, evaluation based on performance indicator, parties responsibility  Joint Venture/Joint Operation/ Shareholder agreement  Scope of cooperation, parties’ responsibilities, rights of first refusal, quorum, minority vs majority roles, tag along vs drag along, additional investment and capital injection, pre agreed matters, changes of control  Financing agreement  Indebted amount, security, prepayment, change of control, covenants, breach of agreements, debt reschedule / restructurisation 15 KEY AREAS FOR LEGAL DUE DILIGENCE REVIEW
  16. 16.  Assets  Types of assets  Ownership title  Land compensation?  Encumbrances  Property rights  List of property – owned, occupied, leased  Supporting documents of ownership, occupation or leasing  Physical checking to BPN – Lurah for land properties  Appraisal or valuation of assets 16 KEY AREAS FOR LEGAL DUE DILIGENCE REVIEW
  17. 17.  Disputes  Court searches in PN, PTUN, PHI, P Niaga, BANI, PN Jakarta Pusat  Court search cannot reach potential disputes  Disputes in international arbitration forum?  Court search – must be authorized by the targeted company through a formal PoA  Cost may vary, depends on where, who, how big is the company, time frame  No full reliance to court search result  Potential dispute  Always asked for indemnity in the definitive agreement 17 KEY AREAS FOR LEGAL DUE DILIGENCE REVIEW
  18. 18.  Environment  AMDAL Documents / approval  AMDAL requirement – time line  RPL – RKL documents 18 KEY AREAS FOR LEGAL DUE DILIGENCE REVIEW
  19. 19.  Corporate Matters  The shares have been transfered to other parties  Unreported amendment to the AoA  Lack of deed of shares transfer  Absence of spousal consent  Lack of corporate approval for certain transaction (eg. Loan, establishment of subsidiary, assets encumbrance, assets divestment)  Absence of shareholder registry  Absence of annual general meeting of shareholders  No BoD for certain period of time 19 FREQUENT FINDINGS
  20. 20. FREQUENT LDD FINDINGS  General matters  Discrepancy in assets ownership (eg. Land)  No financial statement  Liabilities in the financial statement  disputes  Target company has not submited any annual tax return  Lack of compliance documents  Wrong business model (legally) 20
  21. 21. FREQUENT LDD FINDINGS  Contractual  Long-term contract with onerous provisions and no possibility to adjust  Contract with its affiliated party  Contracts with no-perfect provisions  Agreement to pay “royalty” to un-disclosed party  Exclusife offtake agreement or marketing agreement  Business contract contradicts with the laws and regs  One-sided services agreement 21
  22. 22. PREPARING LEGAL DUE DILIGENCE REPORT  Golden rules:  Findings  Legal consequences  Proposed action  A glancing through a LDD Report 22
  23. 23. HOW LDD REPORT WILL AFFECT THE DEAL?  Subtance of the report:  Information of the target company  Risk identification  What to do with the risk:  Transfer of risk (eg. Insurance, seller)  Limit the risk  Absorb the risk  Reject the risk 23
  24. 24. HOW LDD REPORT WILL AFFECT THE DEAL? 24 Buyer Seller Get discount as much as possible Get selling price as high as possible Calculate future / contingent risks Release from any future risk Get full representation and warranties Minimize representation and warranties Maximize indemnity Minimize indemnity
  25. 25. HOW LDD REPORT WILL AFFECT THE DEAL?  Drafting acquisition agreement  Definitions and Interpretation  Sale and Purchase  Consideration  Condition  Pre-Completion and Post-Completion Obligations  Completion  Warranties  Indemnities  Share Purchaser’s Undertakings  Security for Claims  Share Purchaser’s Rights to Terminate  Confidentiality  Governing Law and Dispute Resolution  Notices  Miscellaneous 25
  26. 26. The contents of this presentation are intended for informational purposes only and are not in the nature of a legal opinion or advice. They may not encompass all possible regulations and circumstances applicable to the subject matter and readers are encouraged to seek legal counsel prior to acting upon any of the information provided herein. © ADCO Attorneys at Law 2014 26
  27. 27. Legal Due Diligence for Acquisition Deal in Indonesian Mining Projects 27 DendiAdisuryo Practice Description He specializes and has practical experience in energy and mining projects and the banking/finance sector. He also has broad experience in assignments related to foreign capital investments and corporate restructuring. Lawyer/Consultant Biographies Please contact us if you have any questions regarding our firm: ADCO Attorneys at Law Setiabudi Building 2 6th Floor , Unit 605C Jl. HR. Rasuna Said, Jakarta 12920 Jakarta Selatan - Indonesia Telp: +6221-52903034 Fax: +6221-52903035 email:
  28. 28. Legal Due Diligence 28