Due Diligence Checklist

due diligenceThis due diligence checklist provides a summary of the issues that a due diligence team will consider when conducting a due diligence audit of your business.

It is only an overview to the core areas addressed in the corporate due diligence process.

Due diligence is an important process that can result in money being saved or lost. There is much detail hidden within these points.

The process is not only about verifying the information provided, but also detecting any crucial information that was not provided.

It is also a search for the smoking gun. A hunt for clues to where further investigation and evaluation should be targeted.

The due diligence checklist is a useful tool for your preparations for due diligence. It shows the search areas. It does not replace experience and knowledge of what to look for in those areas or how to interpret the documents that are provided.

General Corporate
  • organisation structure chart;
  • constitution;
  • certificate of incorporation;
  • board minutes (includes meetings of the board of directors, committees of directors, shareholders and management committees);
  • company register; and
  • stock exchange registration (if applicable).
Material Documents
  • material acquisition or disposals of shares or assets documents; and
  • other material corporate transactions.
Commercial Contracts
  • sales, distribution, agency, licensing, manufacturing or franchise contracts;
  • supply or purchase agreements;
  • contracts with sub contractors;
  • joint venture or partnership agreements;
  • distribution agreements;
  • management agreements;
  • transportation agreements;
  • contracts entered into outside the ordinary course of business; and
  • contracts with government entities.
Contract Issues
Any other contracts that:
  • contain product warranties;
  • restrict business operations in a region;
  • may be terminated or varied if there is change of control in your company;
  • restrict disposal of material assets; and
  • may be breach or terminated in certain circumstances.
Tenders
  • All outstanding tenders and quotations.
Retention of Title
  • Any retention of payments or retention of title issues.
Intellectual Property 
  • patents;
  • trademarks (registered and unregistered);
  • copyright;
  • registered designs;
  • business names;
  • trading names;
  • logos; and
  • domain names.
Intellectual Property Ownership
  • certificates of registration;
  • registration applications;
  • licences, authorised user agreements or other arrangements; and
  • IP assignments.
Intellectual Property Infringement
  • against your company; or
  • by your company.
Information Technology
  • licences; and
  • maintenance agreements.
Real Property
Leases, assignments, options and licences including:
  • plans;
  • address and description;
  • approximate area;
  • zoning classification;
  • current rent; and
  • any mortgage or charge.
Employment – General
  • industrial instruments;
  • awards; and
  • industrial or enterprise agreements.
Employment – Staff
List all employees identifying:
  • job title;
  • status of employment i.e. full-time, part-time or casual;
  • state or territory;
  • applicable awards or agreements;
  • employment entitlements (e.g. commission, bonus or other incentive scheme or non-cash benefits); and
  • membership of any trade union.
Employment – Documentation
  • employment contracts;
  • employment policies, practices or procedures;
  • redundancy policies/severance pay awards, agreements or arrangements;
  • breaches or possible breaches of any conditions; and
  • outstanding employee entitlements.
Employment – Claims
Claims by an employee or trade union relating to:
  • unfair dismissal or unlawful termination;
  • under unfair contracts provisions;
  • under anti-discrimination legislation;
  • for breach of contract;
  • workers compensation;
  • breach of an award or agreement;
  • occupational health and safety legislation; and
  • industrial disputes.
Occupational Health and Safety
  • safety inspection reports;
  • any accident reports;
  • any investigations;
  • any prohibition or improvement notice; and
  • any convictions or penalties.
Leave
  • Compliance with annual holiday, long service leave, sick leave, parental leave, carer’s leave, and other applicable leave obligations.
Independent Contractors and Outsourcing
  • Any contracts or arrangements.
Superannuation
  • All superannuation arrangements.
Financial Contracts and Charges
All financing documents including:
  • material finance and operating leases;
  • material hire purchase or purchase agreements;
  • rental agreements;
  • bank or corporate guarantees; and
  • any breaches of the above arrangements.
Securities
Details of all securities including:
  • charges;
  • mortgages;
  • guarantees;
  • comfort letters;
  • indemnities;
  • priority and subordination agreements; and
  • others.
Insurance
  • current insurance policies;
  • details on all premiums; and
  • any claims.
Litigation
Any current material disputes, litigation, arbitration or proceedings including:
  • parties to material contracts;
  • employees or unions;
  • government or semi-governmental authorities (including tax authorities);
  • claims made, or threatened; and
  • any judgment, order or settlement.
Environmental/Safety
  • all environmental licenses, registrations, approvals, and permits;
  • any non-compliance;
  • any liability in respect of the contamination or remediation;
  • reports or inspections;
  • environmental management plans, environmental audits or environmental reports and terms of reference;
  • work required to comply with licences, permits or approvals;
  • any known exposure of employees to hazardous materials, noise, vibration or dust;
  • any off-site impacts such as noise, dust or odour; and
  • any claims, proceedings or complaints.
Financials
  • monthly board packs;
  • monthly budget packs;
  • historical audit files;
  • debtors ageing profile;
  • statutory records;
  • financial accounts;
  • monthly management accounts;
  • reconciliation of the historic statutory results;
  • accounting policy details;
  • budget for the current trading year with assumptions;
  • year to date trading results comparison;
  • management comment on actual trading to budget variance; and
  • budgeting explanation.
Trading
  • major customers and annual historical spend vs financial year forecast;
  • major suppliers;
  • outstanding quotations or tenders;
  • trade discount and credit terms;
  • customer complaint disputes with suppliers;
  • outstanding notices with may result in contract termination; and
  • trade association rules or regulations.
SWOT
  • Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis.
Customers
  • customer list;
  • any disputes;
  • any known reasons for major customers ceasing to trade;
  • review of major customers lost;
  • review the strength of relationships with key customers;
  • accounting procedures for customer credits;
  • customer correspondence;
  • review of aged debtor trial balance;
  • review credit policy and procedures; and
  • review discount structure and procedures.
Suppliers
  • major suppliers;
  • terms of trade;
  • any deterioration in supply quality; and
  • review of aged creditor trial balance.
Plant and Equipment
  • historic number, rate and utilisation of each category of internal facilities;
  • fixed assets register;
  • current status of the plant and equipment;
  • policy for capitalising cost of writing off repairs and maintenance costs;
  • repairs and maintenance policies;
  • reviews of the adequacy of the depreciation;
  • any abnormal write offs;
  • any capital commitments or new items of plant and equipment;
  • all plant and equipment not in satisfactory working order and repair; and
  • any notices that may interfere with use of the assets.
Taxation
  • group tax;
  • management commentary on tax losses; and
  • tax office or tax advisors correspondence.
Other
  • final reports from corporate advisors or consultants; and
  • major sales and marketing, strategy, restructuring presentations.
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About Mark Toohey

Mark Toohey is an experienced commercial lawyer who has worked with both major law firms and as general counsel in the media, telecommunications, software and IT industries. He has been a lawyer, company director, marketing director, company secretary and entrepreneur. Mark's commercial experience extends way beyond the theoretical. He has helped launch a number of start-up businesses and his hands on experience was gained from negotiating and documenting deals for a wide variety of business initiatives.