Acquisition of a business or business assets is one way to expand globally. There are many pitfalls, but the benefits, including pre-existing market share in a foreign market, may overshadow the negatives. The following due diligence checklist, complements a larger more detailed due diligence checklist because it highlights the types of information needed to make a sound judgment when the acquisition includes a manufacturing or industrial properties where environmental issues may arise.
SUPPLEMENTAL DUE DILIGENCE CHECKLIST
Acquisition of any manufacturing or other industrial properties
1. GENERAL INFORMATION / CORPORATE STRUCTURE
1.1 Inspect minutes of meetings and agenda papers during the last 18 months to determine whether environmental issues were raised:
(c) Directors’ committees.
(d) Management committees.
1.2 Review copies of any reports prepared during the last five (5) years or any other relevant reports on the Seller, for example accountant’s report, environmental report or management letters.
Consents and permissions
1.3 Details of any governmental and other consents required for the implementation and closing of the transaction.
2. COMPANY (this information may have been included on your primary due diligence checklist)
(a) A copy of the Certificate of Incorporation (including certificates issued on change of name).
(b) A copy of the Memorandum and Articles of Association or its equivalent (incorporating any amendments) together with all resolutions and consents required by law to be annexed.
(c) Names and addresses of all directors, stating any management job title and any other directorships and business interests held.
(d) A copy of the last Annual Return filed at the Companies Registry:
(e) A copy of the resolution of the Seller to:
(i) undertake; close this transaction; and
(ii) enter into the agreements to which they are parties.
3. COMPLIANCE PROGRAMMES
3.1 Details of any compliance programs run during the last five years.
4. TRADING ACTIVITIES
Licences, consents, etc.
4.1 Copies of all licences, consents, permits, and authorities (public and private) required to carry on the business of the Seller, noting those which are actually held by the Seller.
5. LAND AND BUILDINGS
(a) A list of occupiers of any properties being transferred where any of them are occupied other than by the Seller and full details of the terms of their tenure.
(b) Copies of the following:
(i) Title deeds to the properties, details of the location of such title deeds and, if possible, details of the solicitors who acted on the purchase of any property or upon the grant of any lease.
(ii) (If not available with the title deeds) a plan or plans indicating the extent of the properties.
(iii) All leases, superior leases, sub-leases, tenancy agreements, licenses to assign, underlet and alter together with all amendments to or variations of such documents and all agreements to enter into such documents.
(iv) All covenants, restrictions and consents relating to the properties or full details thereof.
(v) All agreements as to the making of any alterations or additions to the properties.
(vi) Planning permissions, building regulation consents and any other statutory consents, together with all licenses or outstanding notices granted or served by public or local authorities or adjoining owners.
(vii) All mortgages and charges affecting the properties.
(viii) Any guarantees relating to the fabric of the buildings and the fixtures and fittings on the properties
(c) Details of all outgoings on all properties including rents, service charges, rates and water charges
(d) If access to any of the properties is not over the public highway, full details of any access from the properties onto the nearest public highway.
(e) Correspondence and details relating to any dispute and any potential dispute involving the properties or its/their use.
(f) Copies of any contract for the supply to any premises of the company or from which its business is carried on of services (such as electricity, gas, water, etc.) containing any unusual or special terms or any contract for the disposal of trade effluent.
6. ENVIRONMENTAL MANAGEMENT
6.1 All information regarding any manufacturing or other processes or extraction of minerals carried out at any time on the properties occupied by the Seller or any current proposals to do so.
6.2 What is the historical use of the properties? Obtain all information in the possession of the owner as to such use which could have resulted in ground or water contamination.
6.3 Have any properties been required to be cleaned up from contamination?
6.4 Details of any environmental assessments and reports or any environmental management system, environmental policy or audits which are in place or have been carried out in respect of the properties or the Seller.
6.5 Is any property affected by any substance likely to cause nuisance or pollution of the environment?
6.6 A copy of the list of chemicals (including fuels and lubricants), raw materials and all other substances (including radioactive substances) used or stored at any of the properties.
6.7 Do any of the buildings or equipment located on any of the properties contain either asbestos of any kind or polychlorinated biphenyls or terphenyls (PCBs/PCTs)?
6.8 Are there any premises other than the properties in any country that have been used by the Seller at any time for the manufacture, handling, storage or transport of any substances (including radioactive substances) which are capable of causing pollution of the environment or harm to human health?
6.9 Are there any other substances generally known at the date hereof to be dangerous or deleterious or likely to affect human health?
6.10 Have any polluting or harmful substances been spilled, leaked, stored or deposited (whether buried or not) on or in any of the properties or any other premises used or occupied at any time by the Seller? Obtain the following full details of the accident or incident:
(i) copies of any repairs, correspondence, court orders, notices or recommendations relating to the accident or incidence;
(ii) details of any remedial work carried out, including certificates of satisfactory completion.
6.11 Copies of the results of any soil, groundwater or air monitoring surveys that have been conducted at any of the properties, at any other premises used or occupied at any time by the Seller, and (so far as information is available to the Seller) on or in neighboring properties.
6.12 List and describe any discharges to air made on any of the properties.
6.13 Is the groundwater in the area used for drinking purposes by people or animals? Is surface water in the area used for drinking purposes by people or animals?
6.14 Does any drainage from the properties discharge into a watercourse?
6.15 Details of all discharges from any of the properties to sewers or controlled waters and of the applicable discharge consent in each case. Is there any reason to suppose that there will be any difficulty in complying with such consents or that the cost of complying will significantly increase in the near future?
6.16 Is the Seller aware of any ground surface movement, escape of gas or other similar indicator which might indicate earlier disposal of waste?
6.17 Provide a description of all waste materials produced at the properties, indicating which (if any) are or were treated as special waste and the ultimate disposals of the waste materials. Please provide a copy of any agreement relating to such disposal.
6.18 Confirm that no radioactive material or waste has been dealt with on or from the properties.
Regulatory or other action
6.19 Details of any notices issued, inspections made or enforcement actions taken by any governmental or other regulatory authority concerning environmental issues or health or safety in respect of the Seller or the Properties.
6.20 Details of any operations by the Seller on any site, and/or on any of the properties or any situations which are (or have been) in breach of any legally enforceable requirements (statutory or otherwise) or in respect of which there is a significant risk of such a breach being found, irrespective of whether litigation has already begun or threatened.
6.21 Are there any actual or potential claims, actions or proceedings or threatened litigation by or against the owner in respect of the contamination of or damage to the property or neighboring property by reason of the release, escape, discharge or emission of any substance from or to neighboring or nearby properties, or any access or other activity on such properties?
6.22 Details of any formal or informal complaints which the Seller has received from or on behalf of any employees or neighbors or from any environmental action group concerning alleged exposure to harmful substances or other environmental, health or safety matters.
6.23 If the Purchaser’s environmental consultants or experts indicate that there have been breaches of any environmental requirements and that remedial care is required to be taken, please confirm that the Seller will be responsible for the costs of such action including consultant’s fees.
6.24 Please give details of any insurance policy covering the properties or any part relating to environmental impairment and details of any claims (whether settled, refused or outstanding).
6.25 Have complaints about noise been made or received in relation to the properties or any neighboring properties.
6.26 Has the Seller ever had cause to make a complaint about or make a claim against the owners of any neighboring property in respect of any environmental matter?
7. PLANT, EQUIPMENT AND OTHER FIXED ASSETS
7.1 Details of a schedule of plant, equipment, machinery, furniture, fittings and other fixed assets (including any design drawings).
7.2 Details of any assets which are subject to any hire, rental, lease, hire purchase, conditional sale, credit sale or similar arrangement.
7.3 Identify any other items not owned by the Seller, for example tanks owned by the Seller but located on third party properties, and the legal agreements relative to such arrangements.
Material Assets not owned
7.4 Complete copies (or details where unwritten) of any agreements for hire, rental, lease, hire purchase, conditional sale or similar arrangement.
8. INTELLECTUAL PROPERTY
8.1 Trade marks
(a) Details of any trade marks to be used by the Purchaser or its affiliates.
(b) In respect of all trade marks to be used by the Purchaser or its affiliates:
(i) Copies of all certificates of registration and any license agreements.
(c) Details of any mortgages or debentures over any trade marks owned by the Purchaser or its affiliates.
9. BANKING FACILITIES / BORROWING FROM THIRD PARTIES, FINANCIAL GRANTS
Copies of all mortgages, debentures, debenture trust deeds, instruments by way of security charges, pledges, liens, encumbrances, conditional sale or other title retention or trust arrangements, deeds of postponement, preferential rights or other agreements or arrangements the effect of which is to create a security over the assets or any part thereof of the Seller, together with copies of all extant notices, demands or other communications from the beneficiary of the relevant security to the Seller.
10. INVESTIGATIONS / LITIGATION / DISPUTES
(a) Details of any potential or actual litigation, arbitration or other disputes (including industrial tribunal actions) affecting the Seller or any person for whose acts or defaults the Seller may be vicariously liable which, to the Seller’s knowledge is currently involving the Seller, or is contemplated, or foreseeable.
(b) In respect of any current litigation or other dispute, copies of:
(i) Any writ, statements of claim and defense.
(ii) Any correspondence.
(iii) Opinions from counsel or other advisers.
(iv) Settlement levels.
(v) Estimated costs (including legal costs).
(vi) Particulars of any terms of settlement negotiated or proposed.
(c) Any injunction, order or judgment still in force made by any court or governmental agency against the Seller.
(d) Any undertaking given by the Seller to any court or any third party arising out of any legal proceedings.
10.2 Details of any notices issued, inspections made or enforcement actions taken by any governmental or other regulatory authority (other than environmental issues or health or safety) in respect of the Seller.
10.3 Details of any operations by the Seller or any situations which are (or have been) in breach of any legally enforceable requirements (statutory or otherwise) or in respect of which there is a significant risk of such a breach being found, irrespective of whether litigation has already begun or threatened.
10.4 Details of any formal or informal complaints which the Seller has received from or on behalf of any employees or neighbors on any matter.
11. NON-COMPLIANCE WITH AGREEMENTS / CHANGE OF CONTROL
11.1 Details of any non-compliance by either the Seller or the other party in respect of any material agreement (whether written or unwritten) entered into by the Seller.
11.2 Agreements or arrangements which are subject to termination or variation, require prior consent, novation or notification, or are contravened or otherwise affected by the transfer to the Purchaser.
12. IMPENDING LEGISLATIVE CHANGES
12.1 Are you aware of any impending legislative changes which might affect the Seller?
13. OTHER MATTERS
In view of the structure whereby substantial assets of the Seller will be vested in a new company, are there likely to be any challenges from creditors?
DISCLAIMER: These materials have been prepared by for informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking direct professional legal counsel. To discuss your business issue contact Wendy Kennedy by e-mail firstname.lastname@example.org