Due diligence refers to the quality or special effort given a particular action like investigating a person or a business or the care to be provided a certain task. The legal aspect of the action is often the focus in the act or task and, in many cases, the effort is voluntary. It is also often applied when buying property. A buyer surely wants to be certain about all the details of a property purchase, such as a clean title deed, the amount to change hands, and the property use. He then hires someone to conduct the investigation with due diligence.
This extra and careful effort can be comprehensive, requiring various forms of investigation. Some of these are translating the Thai text into English to enable the buyer to understand all the details of the contemplated property; the land title deed itself and its history and possessors; rights against the land, such as mortgages, lease, obligations, and powers; ocular inspection of the physical land and access to it in bad weather; bankruptcy or contested ownership; the previous or intended use of the land; occupant/s of the land; drainage problems; its connection to main utilities and how these are paid for; road accesses to the land; disturbances or disputes in the environment; and waste disposal system, and sewage, telephone, and cable system. The person performing the task with due diligence can also obtain information on the land’s taxes, its registered value or that paid at the last transfer; registered powers of attorney; registered rights against the land; earlier transfer dates; and the owner’s family history and the length of time the present owner held the land title. Investigating property bought at a complex that houses businesses may seem safer to do. But because their sole aim is to make a profit, they may not give out all the protection and concessions sought.
The person investigating with due diligence should and would also look into certain details if the landowner is a developer in Thailand. Among these are the registration date of the company; registration of shared capital; changes in the company name in the last three years; the building permit; a land allocation permit, if any; type of title deed; and the number of plots allocated. A reliable charted surveyor should conduct a land survey to confirm the land size and its location. Other details that must be looked into are the land’s compliance with the Land Allocation Act requirements; its environmental impact assessment report; building permit and under whose name; the landowner and with whom he or she holds the contract; the housing development license of the developer; the sales structure of the project; and the developer’s experience in his line.
Facts about Corporate Due Diligence
Thai businesses require a distinct kind of due diligence, particularly for foreign investors. It must secure and provide a solid and measurable basis for the businesses’ decision-making functions. These functions must incorporate all Thai law aspects, regulations and market practices. These include the business environment, four specific phases, applicable laws, the data room, the company’s due diligence report, vulnerable legal areas often overlooked, and related aspects.
Business environment – Foreign businesses and investments are often in the form of limited companies that must comply with the requirements of Thai laws for corporations and foreign businesses. Very often, they enter into joint ventures, yet the better option is acquiring an existing company along with all of its assets and market position and share. Due diligence is required in deciding whether a foreign investment should be a merger, an amalgamation or a hybrid deal and in exploring the legal, tax and business implications of the choice.
Four phases – the process consists of 1) shaping the entire deal and signing preliminary agreements so as to explore the commercial aspects of the deal; 2) all the steps in the due diligence processes; 3) drafting and negotiating the purchase agreement and the pertinent documents; and 4) the signing and closing of the deal, payments of fees and the formal transfer.
Applicable Laws – these vary and depend on the goal of the company sought for acquisition or merger. The general policy of the Trade Competition Board regulates mergers or amalgamations. Broad laws, regulations and legal provisions must likewise be complied with, such as permissions from BOI, the IEAT, Foreign or Alien BusinessAct, land code restrictions, EIA, HIA, laws, and disputes involving employment, intellectual property, borrowings and liabilities, disputes and tax planning.
The Data Room – All the required documents by the buyer are scrutinized with due diligence at a previously secured or guarded onsite data room. It is now a virtual or digital room.
The data room: Until the ink has dried on the purchase contract, it is unclear whether the potential buyer will be the new owner or remain a competitor. To resolve the conflict between the buyer’s information interest and seller’s interest in confidentiality the documents required by the buyer are put together and made available in a data room for due diligence. While such data room had formerly been a physical room with a guard, it is now a virtual room on the Internet. Occurrences and records will remain in that virtual room and will include company structure, contracts, documents, investment promotions if any, employment and financial matters, taxation, inventory of other data, such as everything about the property, litigation, insolvency and those on the specific business target.
The Corporate Due Diligence Report must declare what pertinent legal aspect has or was not investigated.
Vulnerable Legal Areas Often Overlooked include theft or loss of important intellectual property, payment frauds, inefficient measures, secret business interests, inability to plan and implement appropriate strategies, and the tendency to violate regulations.
Related Aspects center on the interdependence among legislations involving the company, laws covering foreign investments and contract laws of Thailand.
Conclusion
A foreign investor should secure the professional service of a property lawyer in Thailand who should exercise due diligence in handling the deal. Your lawyer will know the ongoing projects in the kingdom and which developers are in good standing. When this is done completely and properly, the foreign investor can feel confident about establishing and conducting business in Thailand.
