1 legal due diligence in jvs and m&as presented by picharn sukparangsee at the conference on...

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““Legal Due Diligence Legal Due Diligence in in JVS and M&As”JVS and M&As”

presented bypresented byPicharn SukparangseePicharn Sukparangsee

at the Conference on at the Conference on “Legal & Financial Due Diligence Strategies for“Legal & Financial Due Diligence Strategies for

Successful Acquisitions, JVs & Strategic Alliances”Successful Acquisitions, JVs & Strategic Alliances”

arranged by arranged by the Asia Business Forumthe Asia Business Forumon October 28-29, 2010on October 28-29, 2010

at the Royal Orchid Sheraton Hotel, Bangkok at the Royal Orchid Sheraton Hotel, Bangkok

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LEGAL DUE DILIGENCE IN LEGAL DUE DILIGENCE IN JVS AND M&AsJVS AND M&As

I.I. LEGAL RATIONAL FOR DUE LEGAL RATIONAL FOR DUE DILIGENCEDILIGENCE

II.II. SCOPE OF DUE DILIGENCE IN SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF DIFFERENT TYPES OF TRANSACTIONSTRANSACTIONS

III.III. AVOIDING PITFALLS AND AVOIDING PITFALLS AND SOLUTIONS SOLUTIONS

IV.IV. CASE STUDYCASE STUDY

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I.I. LEGAL RATIONAL FOR LEGAL RATIONAL FOR DUE DILIGENCEDUE DILIGENCE

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I.I. LEGAL RATIONAL FOR DUE DILIGENCELEGAL RATIONAL FOR DUE DILIGENCE

M&A M&A • amalgamationamalgamation• mergermerger• takeovertakeover• acquisition of shares or assetsacquisition of shares or assets

Joint ventureJoint venture• unincorporated joint ventureunincorporated joint venture• incorporated joint ventureincorporated joint venture

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Legal rational for due diligenceLegal rational for due diligence• comply with laws and regulationscomply with laws and regulations• identify and solve legal problems identify and solve legal problems • protect an interested party from any legal protect an interested party from any legal

liabilityliability• due diligence as used as defence in any lawsuitdue diligence as used as defence in any lawsuit• enable a legal claim against a defaulting partyenable a legal claim against a defaulting party


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Types of due diligenceTypes of due diligence• Financial due diligence by financial advisorFinancial due diligence by financial advisor• accounting due diligence by auditoraccounting due diligence by auditor• legal due diligence by legal advisorlegal due diligence by legal advisor• technical due diligence by technical technical due diligence by technical

consultantconsultant


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Methods applied in the conduct of legalMethods applied in the conduct of legaldue diligencedue diligence• management discussion and analysismanagement discussion and analysis• review and summary of agreements and review and summary of agreements and

documentsdocuments• representations and warranties under representations and warranties under

agreementsagreements• issuance of legal opinionissuance of legal opinion

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Fiduciary duties of directors Fiduciary duties of directors • duty of careduty of care• duty of loyaltyduty of loyalty• duty of obedienceduty of obedience• duty of disclosureduty of disclosure

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Obligations of directors under laws Obligations of directors under laws • duties of careduties of care• no conflict of interest no conflict of interest • no competition with the business of the companyno competition with the business of the company• no sale , no purchase or doing business with the company no sale , no purchase or doing business with the company

unless approved by the board of directorsunless approved by the board of directors• disclosure of interest in any contract , shareholding and disclosure of interest in any contract , shareholding and

bondholding bondholding • no loan to a director or an employee unless made under the no loan to a director or an employee unless made under the

regulations on the welfare or any lawregulations on the welfare or any law• comply with laws and regulationscomply with laws and regulations

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II.II. SCOPE OF DUE DILIGENCE SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF IN DIFFERENT TYPES OF TRANSACTIONSTRANSACTIONS

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II.II. SCOPE OF DUE DILIGENCE IN DIFFERENT SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONSTYPES OF TRANSACTIONS

Examples of important laws Examples of important laws • Civil and Commercial CodeCivil and Commercial Code• Public Limited Company ActPublic Limited Company Act• Securities and Exchange ActSecurities and Exchange Act• Foreign Business Act Foreign Business Act • Land CodeLand Code• Investment Promotion ActInvestment Promotion Act• Industrial Estate Authority of Thailand ActIndustrial Estate Authority of Thailand Act• Factory ActFactory Act• Building Control Act Building Control Act • Act on Mortgage of Machinery Act on Mortgage of Machinery • Foreign Employment Act Immigration ActForeign Employment Act Immigration Act

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Examples of important laws Examples of important laws • Revenue Code and Double Taxation AgreementsRevenue Code and Double Taxation Agreements• Customs ActCustoms Act• Excise ActExcise Act• Financial Institutions Business Act Financial Institutions Business Act • Foreign Exchange Act Foreign Exchange Act • Environmental Protection and Promotion ActEnvironmental Protection and Promotion Act• Competition ActCompetition Act• Labour Protection Act Labour Protection Act • Act on Establishment and procedures of the tax courtAct on Establishment and procedures of the tax court• Trade Mark Act Trade Mark Act • Copyright ActCopyright Act• Patent ActPatent Act

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Conduct of legal due diligenceConduct of legal due diligence• Affidavit, Memorandum and Articles of Affidavit, Memorandum and Articles of

Association and the list of shareholders shall be Association and the list of shareholders shall be reviewed.reviewed.

• Financial statements of the target company shall Financial statements of the target company shall be provided.be provided.

• MOU is signed between a seller and a purchaser.MOU is signed between a seller and a purchaser.• Confidential undertaking is signed by the Confidential undertaking is signed by the

purchaser.purchaser.• A kick-off meeting between a seller and its A kick-off meeting between a seller and its

advisors and a purchaser and its advisors.advisors and a purchaser and its advisors.


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Conduct of legal due diligenceConduct of legal due diligence• Roles of local advisors and foreign advisors.Roles of local advisors and foreign advisors.• Data room and documentsData room and documents• List of requested legal due diligence documentsList of requested legal due diligence documents• Legal due diligence questionsLegal due diligence questions• Interview directors and/or the managementInterview directors and/or the management• Site visitSite visit• Preparation of memorandumPreparation of memorandum• A draft and a final legal due diligence reportA draft and a final legal due diligence report


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Legal due diligence reportLegal due diligence report

Disclaimer provisionDisclaimer provision

Executive summaryExecutive summary


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II.II. SCOPE OF DUE DILIGENCE IN DIFFERENTSCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS TYPES OF TRANSACTIONS

Summary of DocumentsSummary of Documents• corporate documentscorporate documents• licences, concessions , permits , certificates and approvallicences, concessions , permits , certificates and approval• financing agreementsfinancing agreements• material agreementsmaterial agreements• land title deeds , land documents, buildings , factories , land title deeds , land documents, buildings , factories ,

machinery and equipmentmachinery and equipment• insuranceinsurance• trade mark , copyright and patenttrade mark , copyright and patent• employmentemployment• environmental issuesenvironmental issues• regulatory requirements regulatory requirements • tax disputestax disputes• litigation and arbitrationlitigation and arbitration


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Corporate documentsCorporate documents• Affidavit Affidavit • MemorandumMemorandum• Articles of associationArticles of association• List of shareholdersList of shareholders• Holding company, subsidiary, related company Holding company, subsidiary, related company

and affiliated companiesand affiliated companies• Notices and minutes of the meetings of the Notices and minutes of the meetings of the

managementmanagementContinue


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Corporate documentsCorporate documents• Notices and minutes of the board of directors Notices and minutes of the board of directors

meetingsmeetings• Notices and minutes of the general meetings of Notices and minutes of the general meetings of

shareholdersshareholders• Groups of shareholdersGroups of shareholders• A branchA branch• A representative officeA representative office• A regional officeA regional office• Regional operating headquartersRegional operating headquarters


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Corporate Issues to be focused uponCorporate Issues to be focused upon• Major shareholdersMajor shareholders• Authorized directors Authorized directors • Restriction on transfer of sharesRestriction on transfer of shares• Important matters as approved by the board Important matters as approved by the board

of directors of directors • Important matters as approved by the Important matters as approved by the

meeting of shareholders meeting of shareholders


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Licenses, permits, approval, certificatesLicenses, permits, approval, certificates

BOI privileged certificateBOI privileged certificate• foreign shareholdingforeign shareholding• ownership of land ownership of land • tax exemption and reductiontax exemption and reduction• exemption of importation of raw material and exemption of importation of raw material and

finished productsfinished products• work permits for experts and technicianswork permits for experts and technicians


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IEATIEAT• government industrial estategovernment industrial estate• private industrial estateprivate industrial estate• FactoriesFactories• types of factory licencestypes of factory licences• construction licenseconstruction license• use of building license use of building license


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Financial AgreementsFinancial Agreements• single loan agreement single loan agreement • syndicated loan agreementsyndicated loan agreement• underwriting agreementunderwriting agreement• subscription agreementsubscription agreement• purchase agreement purchase agreement • mortgage agreementsmortgage agreements• pledge agreementspledge agreements• assignment agreementsassignment agreements• ISDA Master AgreementISDA Master Agreement


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Material agreementsMaterial agreements• joint venture agreementjoint venture agreement• consortium agreementconsortium agreement• shareholders agreementshareholders agreement• share sale and purchase agreement share sale and purchase agreement • asset sale and purchase agreementasset sale and purchase agreement

Issues in the AgreementsIssues in the Agreements• representations and warrantiesrepresentations and warranties• affirmative covenants affirmative covenants • negative covenantsnegative covenants• events of defaultevents of default


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Materiality testMateriality test• percentage of the total assets percentage of the total assets • percentage of the total revenuespercentage of the total revenues• percentage of profitspercentage of profits• material adverse effect or changematerial adverse effect or change

Land DocumentsLand Documents• land title deedsland title deeds• land utilization certificateland utilization certificate• land possession certificateland possession certificate• mortgage and other encumbrances over propertymortgage and other encumbrances over property


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Intellectual propertyIntellectual property• trademark and trade servicetrademark and trade service• copyrightcopyright• patent (product patent and process patent)patent (product patent and process patent)• know-howknow-how• Licensing AgreementLicensing Agreement• Know-how AgreementKnow-how Agreement• Technical Assistance AgreementTechnical Assistance Agreement


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Human resourcesHuman resources• labour protection lawlabour protection law• labour relation lawlabour relation law• law on establishment and procedures of law on establishment and procedures of

labour courtslabour courts

Environmental complianceEnvironmental compliance• environmental impact assessment reportenvironmental impact assessment report• health impact assessment reporthealth impact assessment report


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Insurance Insurance • life and non-life insuranceslife and non-life insurances• product liability insuranceproduct liability insurance• professional insuranceprofessional insurance

Dispute settlement Dispute settlement • litigation vs arbitrationlitigation vs arbitration• professional expert, arbitrators , umpire, judgesprofessional expert, arbitrators , umpire, judges

Governing law Governing law • issues on conflict of lawsissues on conflict of laws


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CourtsCourts• Constitution CourtConstitution Court• Court of justiceCourt of justice• ordinary courts of justice- courts of first instance, ordinary courts of justice- courts of first instance,

courts of appeal and the Supreme Courtcourts of appeal and the Supreme Court• special courts of justice- labour courts, tax court, special courts of justice- labour courts, tax court,

intellectual property and international trade court intellectual property and international trade court or IP and IT court, bankruptcy court or IP and IT court, bankruptcy court

• administrative courtsadministrative courts


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Court forumCourt forum• place of domicile of defendantplace of domicile of defendant• place of location of propertyplace of location of property• place of occurrence of tortplace of occurrence of tort• place of committing an offenceplace of committing an offence


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Tax issuesTax issues• Revenue CodeRevenue Code• Customs ActCustoms Act• Excise Tax ActExcise Tax Act• Signboard Tax ActSignboard Tax Act• Land and structure Tax Act Land and structure Tax Act • Municipality Tax ActMunicipality Tax Act


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Revenue CodeRevenue Code• personal income tax, personal income tax, • corporate income taxcorporate income tax• value added taxvalue added tax• specific business taxspecific business tax• stamp dutystamp duty

Double taxation agreementsDouble taxation agreements• taxation of income taxation of income • taxation of capitaltaxation of capital


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Examples of frequent opinions on laws and Examples of frequent opinions on laws and regulationsregulations• opinion on foreign shareholdingopinion on foreign shareholding• opinion on ownership and mortgage of land and opinion on ownership and mortgage of land and

building building • opinion on creation and enforcement of securityopinion on creation and enforcement of security• opinion on investment promotionopinion on investment promotion• opinion on joint venture and consortiumopinion on joint venture and consortium• opinion on bankruptcy and liquidationopinion on bankruptcy and liquidation


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Tax opinionsTax opinions• Opinion on use of a branch, an office or a subsidiary Opinion on use of a branch, an office or a subsidiary • opinion on share purchaseopinion on share purchase• opinion on asset purchaseopinion on asset purchase• opinion on sale of goods and provision of servicesopinion on sale of goods and provision of services• opinion on royalty and service feesopinion on royalty and service fees• opinion on dividend and interestopinion on dividend and interest• opinion on dividend and capital gainsopinion on dividend and capital gains


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Legal DocumentationLegal Documentation• Memorandum of understandingMemorandum of understanding• Term sheetTerm sheet• sale and purchase agreement sale and purchase agreement • shareholders agreementshareholders agreement• joint venture agreementjoint venture agreement• loan agreementloan agreement• security agreementsecurity agreement


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III.III. AVOIDING PITFALLS ANDAVOIDING PITFALLS AND

SOLUTIONSSOLUTIONS

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III. AVOIDING PITFALLS AND SOLUTIONSIII. AVOIDING PITFALLS AND SOLUTIONS

Avoiding pitfallsAvoiding pitfalls• All material documents have not been disclosed.All material documents have not been disclosed.• Some documents have severe legal issues.Some documents have severe legal issues.• Documents are produced periodically.Documents are produced periodically.• Documents are not completely provided.Documents are not completely provided.• No correct, true and accurate information has been given.No correct, true and accurate information has been given.• Complicated transactions and waxed issues Complicated transactions and waxed issues • A limited period for legal due diligenceA limited period for legal due diligence• Important issues are missing. Important issues are missing. • An executive summary does not reflect significant issues.An executive summary does not reflect significant issues.

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III. AVOIDING PITFALLS AND SOLUTIONSIII. AVOIDING PITFALLS AND SOLUTIONS

Problems • Licences are not renewed• Failure to meet financial ratio such as debt to equity ration and interest

coverage ratio• Restriction on foreign shareholding limit • Trade secret and confidential information• Infringement of intellectual property • Non-compliance with laws and regulations• Taxes are not paid or are incorrectly paid.• floating charge• non perfect security • outright and conditional assignments • Legal cases are pending and are not updated.• Business rehabilitation or liquidation of a subsidiary • Novation and assignment• Legal and beneficial interest

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II.II. AVOIDING PITFALLS AND SOLUTIONSAVOIDING PITFALLS AND SOLUTIONS

Solutions to Problems Solutions to Problems • Detailed representations and warranties Detailed representations and warranties • strict undertakings strict undertakings • escrow agreementescrow agreement• right of first refusalright of first refusal• tag-along or drag-along provisiontag-along or drag-along provision• indemnificationindemnification• events of default – cross default , negative pledge, material events of default – cross default , negative pledge, material

adverse changeadverse change• terminationtermination• Governing lawGoverning law• Arbitration or ligationArbitration or ligation

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IV.IV. CASE STUDY CASE STUDY

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IV.IV. CASE STUDY CASE STUDY

Case studyCase study• lease of land owned by a state enterpriselease of land owned by a state enterprise• 2 sets of bank accounts- on balance sheet 2 sets of bank accounts- on balance sheet

bank accounts and off-balance sheet bank bank accounts and off-balance sheet bank account account

• Related transactions Related transactions • Acquisition or disposition of assets Acquisition or disposition of assets • Licences have not been renewedLicences have not been renewed

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Thank you for your Thank you for your attentionattention

SIAM CITY LAW OFFICES LIMITED SIAM CITY LAW OFFICES LIMITED 183183 Rajanakarn Building Rajanakarn Building, 20, 20thth FlooFloo

r, r, South Sathorn Road, South Sathorn Road,

BangkokBangkok 10120 10120 , Thailand , ThailandTel: (662) 676-6668 Tel: (662) 676-6668 Fax: (662) 676-6188Fax: (662) 676-6188

- E mail : [email protected] E mail : [email protected]

1 legal due diligence in jvs and m&as presented by picharn sukparangsee at the conference on...

Documents

diligence slide

diligence financial

legal advisor legal

exchange act securities

mortgage of machinery

tax court act

diligence affidavit

diligence strategies