In the previous article, we focused on the general steps of legal due diligence, including preliminary preparation, on-site due diligence, and report drafting and review. The conscientiousness and solidity of on-site due diligence are directly related to the quality of due diligence and the accuracy of due diligence conclusions. Lawyers who want to have a comprehensive and in-depth understanding of their counterparties must comprehensively use various due diligence methods at this stage to identify problems and prevent risks as much as possible.

The main methods of legal due diligence

In a legal due diligence investigation, the comprehensive investigation methods that we need to use to achieve the investigation purpose include: written review, on-site investigation, interviews, inquiries and correspondence, online verification, and so on.

1. Written review. This is the main method of due diligence and the main way to obtain information. When conducting a written review, we need to achieve 'review with issues' and' identify issues from materials'.

The so-called "review with issues" refers to both the key issues that the acquiring party is concerned about and the issues that the lawyer needs to investigate in this due diligence. After carrying such questions, further determine which written materials to obtain such questions from, and how to obtain them. The so-called "discovering problems from materials" not only requires us to comprehensively and meticulously review all written materials, but also requires us to pay attention to the relevance, contradictions, and conflicts of the reviewed written materials.

In the process of due diligence, we often find that many materials related to a project are interrelated or even interrelated. For a major matter, multiple contracts or documents may be signed. Further exploration of existing materials and identification of problems through material comparison is one of the important purposes of written review.

2. Field investigation. Field investigations include both on-site investigations, as well as on-site visits and even interviews. Field investigation can help us understand the situation of the proposed transaction project or counterparty in the most intuitive way, which is also a basic requirement of "due diligence" in due diligence. On site visits or interviews are conducted by collecting "witness testimony" to compensate for the information we were unable to obtain in written materials.

In real estate mergers and acquisitions projects, it is necessary to conduct on-site surveys to understand the current situation of the target plot and surrounding conditions. During the on-site investigation process, conducting appropriate visits and even interviews is an important way to gain a deeper understanding of information. The objects we visit or interview may be counterparties or government departments in charge of the project, shareholders and responsible persons of the target company, gatekeepers, cleaning aunts, surrounding merchants, and even passersby. Those who may help us have a more comprehensive understanding of the project information may be our visiting objects.

3. Interview. Interviews are an important method of on-site due diligence. Generally speaking, for issues that cannot be clearly identified in written materials or discovered during the review of written materials, as well as issues that the acquiring party focuses on but cannot verify at the moment, effective supplementation is required through interviews.

The target audience for the interview is generally the person in charge or management of the target company, who must have a deep understanding of the target company. If necessary, the scope of the interview can be expanded. Before the interview, we need to review and sort out the existing materials and extract our interview outline; During the interview, we must make an interview transcript that truthfully records the relevant information of the interviewee, as well as the relevant questions and answers during the interview. Both the lawyer and the interviewee must sign the transcript. If the interviewee refuses to sign, it must be noted in the transcript.

4. Inquiry and confirmation. The verification here includes both the verification of relevant national authorities and the verification of other intermediary institutions. In M&A projects, the government agencies that often require verification include industry and commerce, taxation, land, planning, housing management, social security, housing provident fund, courts, etc., while the common intermediaries are accounting firms and evaluation companies. When conducting investigations by national authorities, it is necessary to determine in advance the items and contents to be verified, as well as the relevant work documents and materials to be carried. If necessary, the target company is required to cooperate. For the verification of other intermediary institutions, it can be either written confirmation when necessary, or communication and information sharing at any time during the due diligence process.

5. Network verification. With the development of the Internet and the disclosure of government information, online verification has become a necessary means of due diligence. The content of online verification includes the target company's business registration information, credit information, qualification information, administrative penalty information, litigation related information, online public opinion information, industry information, etc. Online verification is generally conducted before on-site due diligence, as a preliminary way to understand, and during the due diligence process, it can also be used as one of the methods for data review and review.