A client informed me, over an informal lunch, that he has been granted an exciting, not-to-be-missed, one-time only opportunity to buy-over a rival company. My client considered this an excellent offer as it would enable him to acquire the rival’s clientele and expand his business. He had already negotiated the price and on the verge of inking the deal.
Being always a lawyer, I offered to “check out” the target company; and advised that a routine risk management measure would entail conducting a due diligence search on the company’s liabilities and contracts.
My client assured me that there was absolutely no need to waste money on due diligence checks as the target company had already made frank disclosure of debts amounting to $800,000 which both parties had mutually agreed to take into account in the purchase price. He felt that the owner, in divulging such information, had proven himself a man of integrity – or else why disclose the enormity of its liabilities?
I suggested to my client that the due diligence exercise would be part of my services when representing him in the purchase; and that in any case, it would not delay the sale nor cost a lot of money. The client agreed with some reluctance (and only because he wanted to prove that I was being paranoid!)
Our due diligence showed that the target company owed creditors total debts in excess of $2.3 million. Additionally, foreign workers employed by a “sister” company were being deployed in their workshops and being paid an hourly wage; putting the company in breach of strict MOM regulations concerning the employment of foreign workers. Our “man of integrity” turned out to be a “man of straw” after all.
Our client was very grateful (and humbled) that we had saved him from a “rotten” deal.
The information contained here is only intended to provide general information on the subject covered. Nothing in this publication should be regarded as constituting legal advice concerning any particular business, operational or other situations with which you might be faced. Further, the law may have changed since first publication and the reader is cautioned accordingly. Please seek professional advice before taking any action.
Chris Chua & Associates LLC
Chris Chua & Associates LLC is a limited liability law corporation with unique entity number: 201826324Z and regulated by the Ministry of Law, Singapore, license number: LSRA/LLC/2018/00019. Its registered office and principal place of business is at 138 Robinson Road, #10-04 Oxley Towers, Singapore 068906.
Based in Singapore, we advise both local and international clients who wish to expand and preserve their business interests and wealth. Our Firm has assisted corporations in establishing and structuring new investments and business ventures in different sectors. We think beyond obvious legal issues and come up with pragmatic solutions to challenging commercial problems.