May 25, 2022
Companies which refrain from conducting proper compliance due diligence on corporate transactions may face significant liability and organizational risks. In the case of a share purchase transaction, for example, the purchaser may be subject to corporate successor liability by inheriting the liabilities of a target corporation. In their article published in Financier Worldwide Magazine, Osler’s Malcolm Aboud, Frédéric Plamondon and Jayne Cooke discuss the importance of proper compliance due diligence and having appropriate representations and warranties in place to mitigate transaction risk.
Risks associated with improper compliance due diligence include significant monetary fines for the amalgamated company, debarment from public contracting or funding, monitorship over future operations, and the potential for costly civil class actions. Companies that engage in corporate transactions without confirming their counterparties’ compliance may also face significant business disruptions and regulatory and reputational risk.
As part of the compliance due diligence process, acquiring companies should verify whether the target company has policies and procedures in place regarding compliance issues such as conflict of interest, corruption, fraud and money laundering. The acquiring company should also verify whether the target company has a consistent system of internal accounting controls designed to maintain fair and accurate books, records and accounts. Proper keeping of books and records is required under various anti-corruption legislation.
A common representation is for counterparties to take reasonable measures to ensure they have not done business with sanctioned entities or in sanctioned jurisdictions, and that neither the company nor any of its affiliates is subject to applicable sanctions.
Read the full article in Financier Worldwide Magazine's June 2022 issue