Due Diligence: Key to Making Good Business Decisions

An Anglo-Saxon practice that helps prevent fraud.

A due diligence is a process of investigation and review of a company or business in order to obtain the clearest and most accurate picture possible of its financial and legal situation, as well as other technical and operational aspects.

The due diligence processes come from an Anglo-Saxon legal practice because English law provides strong guarantees in favour of the purchaser to prevent fraud. These guarantees in favour of the purchaser also exist in Spanish law, in which the seller is obliged to clean up the object of the sale, which implies the double obligation to deliver the sold good free of hidden defects or flaws -saneamiento por vicios ocultos-, and to guarantee the purchaser the legal and peaceful possession of the sold good -saneamiento por evicción-. Due diligence processes are therefore generally carried out in the context of a company acquisition or integration process, although they are also sometimes carried out, for example, in order to get funding.

In Due Diligence processes, we will mainly analyse the financial, legal, tax and labour aspects, although, depending on the case, we can get information about other specific topics.

Due Diligence processes are a fundamental element in business transfer and integration operations and help the parties involved negotiate and agree on the final conditions of the operation regarding price, terms, guarantees, etc. Indirectly, Due Diligences also serve to correct any financial or legal deficiencies or contingencies detected, leading to a better level of compliance.

Although there is no legal provision in Spanish law that makes due diligence processes compulsory, they are an optimal instrument for securing an investment, as they allow us to check the state of a company or business through a third party, who will issue a more independent opinion.

At IVC we have extensive experience carrying out due diligence processes and we have a highly qualified team ready to analyse the financial and legal status of any company.

Miguel Vidal - Senior Corporate Lawyer

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