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Successful Legal Due Diligence Strategies


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Successful Legal Due Diligence Strategies

  2. 2. LAWPLUS The information provided in this document is general in nature and may not apply to any specific situation. Specific advice should be sought before taking any action based on the information provided. Under no circumstances shall LawPlus Ltd. or any of its directors, partners and lawyers be liable for any direct or indirect, incidental or consequential loss or damage that results from the use of or the reliance upon the information contained in this document. Copyright © 2017 LawPlus Ltd.
  3. 3. LAWPLUS 1 Presentation Topics on Successful Legal Due Diligence (“LDD”) Strategies − Key Issues and Practical Considerations 1. Scope of LDD investigation - Limited LDD and full LDD - Independent searches on target company (“TC”) - Review of documents 2. Legislation considerations for both local and foreign partners - Foreign ownership limits - Exceptions of foreign ownership limits - Nondisclosure of insider-trading information 3. LDD requirements, agreements and obligations - Letter of intent (“LOI”) - Obligations of seller, TC and acquirer 4. How to present effectively the findings from LDD - LDD report - Clarification meetings 5. Practical and successful techniques for conducting LDD - Understanding TC and obtaining LDD documents - Allocating LDD documents and meeting with TC - Independent searches and focusing on legal risks - Clarification meeting and post LDD opinion and advice
  4. 4. LAWPLUS 2 Scope of LDD Investigation Independent Searches on Target Company • Limited LDD - basic corporate matters of 3-5 years only - material agreements of high values only - no litigation and asset investigation • Full LDD - full investigation of all documents - documents starting from TC registration date or at least 10 years - full litigation investigation - full investigation of assets, licenses and permits • Company Search at MOC - Company Affidavit - Objectives - MOA - AOA - Lists of shareholders
  5. 5. LAWPLUS 3 Scope of LDD Investigation Independent Searches on Target Company • Insolvency and Bankruptcy Searches - Rehabilitation at Central Bankruptcy Court - Liquidation at Legal Execution Department • Litigation Searches - Criminal cases - Civil cases • Searches on Lands and Other Assets - Lands, buildings, factories at Land Offices - Machinery at Central Machinery Registration Office - Intellectual property at DIP
  6. 6. LAWPLUS 4 Scope of LDD Investigation Review of Documents • Documents on Company Registration and Corporate Matters of TC - Registration details - Business objectives and activities - Minutes of BOD, AGM and EGM - Shareholders Agreement - Joint Venture Agreement • Permits and Licenses - Investment promotion certificate - Factory construction and factory operation licenses - Other licenses for business operation
  7. 7. LAWPLUS 5 Scope of LDD Investigation Review of Documents • Major Commercial Transaction Agreements - Sale and Purchase Agreements - Distribution Agreements - Manufacturing Agreements - Confidentiality Agreements • Major Investment and Internal Transaction Documents - Transactions with directors or persons related to or associated with directors or major shareholders - Joint venture or partnership agreements with business partners or within the group of the TC • Borrowings and Liabilities - Loan Agreements, B/E, P/N, O/D, T/R, L/C, SBLC - Guarantee Agreements
  8. 8. LAWPLUS 6 Scope of Legal Due Diligence Investigation Review of Documents - Assignment Agreements - Mortgage Agreements - Pledge Agreements - Business Collateral Agreements - Factoring Agreements - Foreign exchange hedging and other derivatives agreements • Labour Protection and Employment Matters - List and details of employees - Work Rules and Code of Conduct - Employment contracts - Employment service (sub-contract) agreements - Benefit schemes (stock option plan, profit sharing schemes, etc.) - Registrations and filings with SSF and WCF - Insurance policies for directors and employees - Labour union documents - Work permits for non-Thai employees
  9. 9. LAWPLUS 7 Scope of LDD Investigation Review of Documents • Land, Buildings, Factories, Machinery and Other Assets - Land title deeds, machinery ownership documents, vehicle registration books - Land Lease Agreements, Office Lease Agreements, Machinery Lease Agreements - Lists and details of account receivables and inventories • Intellectual Property and Information Technology - Trademark applications and trademark registration certificates - Patent and design applications and registration certificates - Domain name and website and related agreements - Trademark License Agreements, Patent License Agreements, Copyright License Agreements - Software License Agreements - IT and Data Service Agreements
  10. 10. LAWPLUS 8 Scope of LDD Investigation Review of Documents • Filings and Reports - Regulatory filings (in relation to company registration and operation, employment, etc.) - Government reports (in relation to investment, promotion, environment, money laundering, exchange control, etc.) • Litigation Documents - Reports on pending lawsuits, arbitration proceedings, demand notices and potential disputes - Copies of claims, answers, court orders and judgements - Confirmation letter of directors in relation to litigation
  11. 11. LAWPLUS 9 Legislation Considerations Foreign Ownership Limits • List 3 of Foreign Business Act B.E. 2542 (A.D. 1999) (“FBA”) restricted activities: foreign ownership not more than 49% of all share capital • Is target company holding FBL or BOI certificate plus FBC? • Will target company obtain FBL or BOI certificate? • Any other law restricting foreign ownership or Thai-foreign director ratio? - financial institution law - telecommunications law - etc.
  12. 12. LAWPLUS 10 Legislation Considerations Exceptions of Foreign Ownership Limits FBA 49% foreign ownership limit does not apply to:- • Activities not listed under the FBA, e.g. manufacturing own brand products • Business that is granted BOI certificate or Industrial Estate Authority of Thailand (IEAT) permit • Business that is given exceptions under treaties and agreements between Thailand and other countries (Thailand-US Treaty, JTEPA, ACIA, AFAS) • Service businesses exempted from List 3 of FBA: securities trading, investment consulting, mutual fund and private fund management, futures trading, trustee under the law on trust for transactions in capital market, commercial banks, representative office of foreign banks, life and non-life insurance, etc.
  13. 13. LAWPLUS 11 Legislation Considerations Nondisclosure of Insider-Trading Information • TC listed on SET or MAI • Internal disclosure on the “need-to-know” basis only • Set up a project name for LDD investigation • Penalties for disclosure and use of LDD information by insiders - directors and management team - advisors - family members and related persons
  14. 14. LAWPLUS 12 LDD Requirements, Agreements and Obligations Letter of Intent (“LOI”) • Signed by seller and acquirer • Intention to enter into M&A transaction, subject to - LDD investigation - successful negotiation and execution of SPA or APA • Details of shares or assets to be acquired and their prices • LDD investigation commitment • Exclusivity period for LDD investigation and negotiations of SPA • Non-disclosure undertakings during and post exclusivity period
  15. 15. LAWPLUS 13 LDD Requirements, Agreements and Obligations Obligations of Seller, TC and Acquirer • Seller and TC - Making LDD documents available in a prompt manner - Making full disclosure of LDD documents - Being cooperative in giving additional LDD documents, explanations, clarifications or confirmation letters • Acquirer - Appointing lawyers for LDD investigation - Giving lists of LDD documents to seller and TC - Asking for additional documents and more information as lawyers may direct - Communicating and meeting with seller and TC to clarify unclear issues
  16. 16. LAWPLUS 14 How to Present Effectively the Findings from LDD • Draft LDD Report - carefully drafted - Having it reviewed by acquirer before issuing its original • LDD Report consists of:- - introduction - the Report - the Extent and Basis of the Report - list of documents reviewed • LDD Report is - a summary of facts found - not opinion or advice - based only on documents reviewed - subject to assumptions and qualifications
  17. 17. LAWPLUS 15 Practical and Successful Techniques for Conducting LDD • Understanding TC - obtaining general information on industry - checking general information on TC and seller • Obtaining LDD documents - LDD data room and sufficient accession must be made available - list of LDD documents must be prepared and given promptly - additional LDD documents must be obtained from TC promptly - cooperation from TC must be requested
  18. 18. LAWPLUS 16 Practical and Successful Techniques for Conducting LDD • Allocating LDD documents for reviewing - reviewing by lawyers having relevant experience and expertise - templates for summary of documents reviewed - setting up timeframe and deadline for LLD investigation • Meeting with TC - meeting if necessary - for clarification of unclear or suspicious issues - to check originals of documents if necessary
  19. 19. LAWPLUS 17 Practical and Successful Techniques for Conducting LDD • Independent searches - necessary for documents available to the public - online searches where possible - relying on independent search results if they conflict with those given by TC • Focusing on legal risks - existing legal risks - future legal risks that may occur - add them as red flags in the LDD report
  20. 20. LAWPLUS 18 Practical and Successful Techniques for Conducting LDD • Clarification meeting - requested by acquirer - clarification letter may be necessary • Post LDD opinion and advice - given only if requested separately from LDD report - opinion on validity and enforceability of documents - opinion on regulatory compliance - determining and assessing legal risks - advice on legal issues and measures to mitigate legal risks END OF PRESENTATION
  21. 21. LAWPLUS Unit 1401, 14th Floor, 990 Abdulrahim Place, Rama IV Road, Bangkok 10500, Thailand Tel. +66 (0)2 636 0662, Fax +66 (0)2 636 0663 Room 517, Yangon International Hotel, No. 330 Corner of Ahlone and Pyay Roads, Dagon Township, Yangon, Myanmar Tel. +95 9 505 6667 and Tel. +95 92 6111 7006 Contacts: Kowit Somwaiya, Managing Partner Prasantaya Bantadtan, Partner Naddaporn Suwanvajukkasikij, Partner