Legal Due Diligence
Identifying risks during legal due diligence is only the starting point. The true threat emerges when these red flags are ignored, underestimated, or left unaddressed. The consequences can be severe, often undermining an otherwise promising transaction. Below are some of the most critical worst-case scenarios to consider.
- Corporate Structure
– If company records are incomplete or ownership rights are unclear, you may later discover that the seller lacked the proper authority to transfer shares. In the worst-case scenario, you may have paid for a company you do not legally own. - Contract
– Change-of-control provisions may be triggered upon acquisition, giving key customers or suppliers the immediate right to terminate agreements. - Licenses
– Operating without valid or transferable licenses can lead regulators to shut down the business. If approvals are expired, suspended, or non-compliant, the newly acquired company could be forced to halt operation - Employment
– Without enforceable employment contracts, critical staff may resign in large numbers after the acquisition. - Financing
– Change-of-control clauses in financing agreements may trigger mandatory repayment obligations, leading to unexpected liquidity pressures or even default. - Litigation
– Unresolved or undisclosed disputes can expose the acquirer to significant liabilities, effectively inheriting costly litigation from the past.
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Author(s):
Ashley Yeo, Founder
E: ashley@yeoashley.com.my
Nicole Goh, Associate
E: nicole.goh@yeoashley.com.my
Tan Nian Tze, Pupil
E: niantze.tan@yeoashley.com.my
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Hello! This is Yeo Ashley & Partners, a law firm based in Kuala Lumpur, Malaysia. We provide comprehensive services tailored to growing businesses to meet your complex needs.
Our experiences include structuring of company shares for purposes of fundraising and incentivising employees, capital markets, mergers and acquisitions, regulatory compliance, and other shares-related matters, ensuring efficient and compliant processes. Our dedicated team is committed to empowering companies with the tools and guidance needed to navigate these critical areas, enabling them to focus on growth and success with confidence.
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This article is intended to provide general information and does not constitute and/or should be relied on as any legal opinion or professional advice. For more information, you may reach out to Yeo Ashley & Partners, a law firm based in Kuala Lumpur, Malaysia.
