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BUSINESS LAW What is Due Diligence?

BUSINESS LAW What is Due Diligence?

Whether you are buying a business or selling your own business, due diligence is an essential step that must be taken in any business acquisition. This process is the risk assessment of the business. Whether buying or selling a company, do not undertake this on your own, consult your solicitor.

 

Essential Points 

What comes under scrutiny in this process are any financial, legal, commercial, or reputational risks the target company may be exposed to. The person conducting the due diligence will be seeking to confirm that the state of the business is as presented and that there is no concealed information that could affect the value of the business or indeed undermine it. The legal due diligence will look at any binding contracts the company has entered into, whether there are any potential legal actions that could be taken and that the company is compliant with legislation. The financial due diligence will assess the company's accounts to include its balance sheet and tax liabilities. 

The reputational due diligence will explore the company’s reputation in the industry it is working in and to find out if there is anything a buyer should be concerned about.

 

The time involved will depend on the size of the business. Obviously, the bigger the company the longer it will take. But the process is important for the buyer as it gives them comfort that no surprises will emerge after the deal is completed for which, as owner, they may find themselves liable. 

 

Your solicitor will have a checklist for the process so everything will be covered. In a way due diligence is like insurance, if properly done, the business you purchase will be exactly as it was presented to you, and you will not have the worry of any issues or problems presenting themselves that could threaten or damage the business.

31 January 2025
In February 2019, the plaintiff was injured from a terrifying fall and lengthy skid from his motorbike on a slip road driving onto the M1 motorway. Liability for the accident was attributed to an unknown driver of a car who could not be traced, so the defendant was the Motor Insurers Bureau of Ireland. The case came before the High Court for assessment of damages only as special damages had been agreed between the parties at €8,000. On the day of the accident, the plaintiff was leaving his home at approximately 6:30 a.m. to travel to his work in Sandyford, Co. Dublin. This was a journey the plaintiff was well familiar with. He came down the slipway at the Balbriggan interchange to enter the M1 when an erratic motorist cut in front of him without warning causing him to brake suddenly. The motorist then also braked, causing the plaintiff to brake again and ultimately fall from his motorbike with an approximately 200m skid along the roadway amongst heavy traffic. He said he came to a stop on his back with his head in a ditch and felt immediate pain in his left arm. He described that he “knew something was up” and, on taking off his protective biking gear could see his hand “hanging off at the end of his wrist.” He also had an injury to his left ankle. The plaintiff was taken to hospital by ambulance where he was x-rayed revealing the extent of his injuries. These were: (a) his left wrist revealed a comminuted intra-articular fracture with depressed intra-articular fragments (b) his left ankle revealed no obvious fracture and of his lumbar sacral spine, no acute injury. Notwithstanding the absence of a fracture, the plaintiff outlined how very painful and debilitating his ankle was in the aftermath of the incident. The plaintiff accepted that the injuries had substantially resolved themselves after about six months though he remains in some residual pain five years since the accident if required to stand for long periods. In the course of the operation the plaintiff experienced an allergic reaction to a prophylactic antibiotic he had been given, Teicoplanin, and required resuscitation. This was understandably traumatic for the plaintiff to hear when he later woke up from his anaesthetic. He had an uneventful post-op recovery but he is left with a 10cm longitudinal surgical scar extending up from his wrist. During the plaintiff’s four-day in hospital, he was concerned about developing MRSA as another patient close to him had caught the disease. When the plaintiff was discharged from hospital his arm was in a splint and sling for approximately six weeks. He required a support on his ankle and his movements and general activities of daily life were restricted. He required intensive physiotherapy and was prescribed home exercises thereafter, which he carried and continues to carry out, to get movement into his wrist. The plaintiff accepted that he had not engaged with further professional assistance in this regard. The plaintiff indicated that he would have taken time off work if that had been possible but as he is self-employed, the simple fact of life was that if he did not work, he did not get paid and there was no other income coming into the family. He therefore returned to work within a week of the accident. However, to travel to work then took an hour and a half as it required a car journey, with his wife available to drive, followed by a bus and then a Luas. While at work the plaintiff had difficulties operating the keyboard and mouse on his computer. Later he tended to work from home. His social activities in sports were impacted by his injuries. Given the extent of the plaintiff’s injuries and the later intrusion these made on his professional and home life the court, in assessing damages, took into account the psychological Injuries that resulted from his ordeal. Scar: The 10cm scar was deemed noticeable but not significantly burdensome to the plaintiff. If it had been the primary injury, it would merit €20,000, but its contribution as an additional injury was valued lower. Ankle Injury: Falling into the “minor” category of the Guidelines, it would have been valued at €2,500 as a standalone injury. Psychological Effects: Though no formal psychological injury was diagnosed, the plaintiff’s sleep disturbance, flashbacks, and fear following the accident were acknowledged. These were valued at €5,500. A combined award of €21,000 for these injuries after applying a discount of 25% for their cumulative effect. General damages were awarded at €66,000 and the agreed special damages of €8,000 brought the total award to €74,000 with costs. Crum -v- Motor Insurers Bureau Ireland [2023] IEHC 656 (ex tempore).
31 January 2025
We are in the season of high winds and those with trees on their land could have damage claims against them where the trees or branches fall onto a neighbour’s land or obstruct a public pathway or road. The governing law here is the Roads Act, 1993, section 70 which places the responsibility on the landowner to ensure the trees are safe and do not cause damage to others. S.70 (i) (a) of the Act states: 70.—(1) (a) The owner or occupier of any structure and the owner or occupier of any land on which a structure is situated shall take all reasonable steps to ensure that the structure or the use of the structure is not a hazard or potential hazard to persons using a public road and that it does not obstruct or interfere with the safe use of a public road or the maintenance of a public road. The section has interesting words in this section in ‘all reasonable steps’ so it is not an absolute rule and there is some flexibility. It would appear from this that if a person with trees on their property is fastidious in maintaining the trees, then through storm damage they may not be liable. If the damage is done to a neighbour that also has trees that may not be such an issue. But if the neighbour does not have trees and their property is damaged then it gets more complicated depending on the damage. Storm damage is regarded as a natural event but poorly maintained or diseased trees on lands may not escape under liability. Property owners living in suburbs with hedges hanging out over their property obstructing footpaths are liable for any injury caused to pedestrians or children passing by. In non-stormy weather conditions, liability for fallen trees is covered by the legislation so poorly maintained trees will be the responsibility of the property owner. Property owners with trees on their land are best advised to ensure the trees are well maintained. Dead trees should be removed as these are most vulnerable in stormy conditions and if in doubt speak to your solicitor.
16 January 2025
The ‘inherent jurisdiction’ of the High Court is an interesting relief that owes its origin to the Common Law, but in Ireland, it is enshrined in our constitution. Article 34.3.1° provides: ‘The courts of first instance shall include a high court invested with full original jurisdiction in and power to determine all matters and questions whether of law or fact, civil or criminal’. In October 2023, the High Court issued a Practice Direction (these are procedures to be followed when bringing proceedings before a court) aimed at people who lacked capacity. The Practice Direction in full is available on the Courts website at HC123 - Inherent Jurisdiction (Capacity) Applications but in short states that: 1. This Practice Direction is intended to apply to all applications made pursuant to the inherent jurisdiction of the High Court for the detention and treatment of people who lack or are alleged to lack capacity. These applications will appear in the Inherent Jurisdiction (Capacity) List. 2. This Practice Direction will come into operation on 2 October 2023 and is issued in accordance with the general authority of the President of the High Court and sections 11(12) and (13) of the Civil Law (Miscellaneous Provisions) Act 2020, insofar as it relates to remote (or hybrid) hearings. (Courts Website) An example of the exercise of this doctrine came before the High Court recently. The case involved a woman who lacked capacity due to anorexia nervosa. Her case was before the High Court’s ‘ inherent jurisdiction ’ list. In this list, orders are sought to vindicate the constitutional rights of people who cannot make decisions in their own interest due to a lack of capacity. In this case, a High Court judge had previously made orders to the Mater Hospital for the woman’s detention and treatment at the Mater after hearing her body mass index (BMI) was falling dramatically and that her condition was that she was close to death. The orders had been sought by the Mater Hospital, but it transpired that only one doctor was aware of the orders. When this doctor went on a week’s leave, the woman was assessed as medically stable and ready for transfer to another medical facility. This amounted to a breach of the orders that had been made and was deemed an ‘illegal movement.’ This transfer had a detrimental effect on the woman as she had become nervous and ‘crucially’ her BMI level was affected. The judge noted that the hospital only noticed the move of the woman after it had occurred. The judge was very critical of the hospital for allowing this to happen and deemed it a breach of the orders that had been made for the treatment and care of the woman. The judge accepted an undertaking by the CEO of the Mater Hospital ensuring that no breach of a court order will ever occur again in relation to someone who falls under the inherent jurisdiction of the High Court.
16 January 2025
Former presidential candidate, Peter Casey, issued defamatory proceedings for the untrue and defamatory postings on Facebook. The defamatory postings were made in April 2023 to 2,000 followers of the person who put up the post. Casey ran in the local elections. He said in his election literature that he had been an activist for years and stood up against ‘draconian lockdowns 4G and 5G, austerity and undocumented and uncontrolled immigration’. When the Ukraine war broke out, Casey decided to convert a bed and breakfast he owned in Buncrana, into accommodation for women and children fleeing the war in Ukraine. The defamatory post claimed that workers at Casey’s building were ‘moving unvetted people around like cattle and then warehousing them in office cubicles for profit is akin to human trafficking and inhumane.’ After a fire occurred on the property, the defendant posted a picture of damage to the property complaining that the matter had not been reported in the mainstream media. . Mr. Justice David Nolan considered the statements made by the defendant and ruled that they were untrue and defamatory stating that they were ‘very stressful, hurtful and upsetting’ to Mr. Casey and his family. Judge Nolan determined that the words posted were untrue and, by their natural and ordinary meaning, were defamatory to Mr. Casey’s reputation. He consequently awarded €120,000 in general damages and €20,000 in aggravated damages. The judge noted that the defamatory posts remained online for nine months after the court ordered their removal in November last year. He considered this as a breach of the court order and contempt. Peter Casey v Kim McMenamin High Court (Mr. Justice David Nolan) 13 December 2024 [2024] IEHC 705 
29 November 2024
The Employment Permits Act, of 2024 is now law and basically it is an extension of the existing legislation with some additions. The Act applies to non-EEA nationals who want to accept eligible employment and residence in Ireland. It introduces Seasonal Employment Permit (known as SEP), this is designed to support sectors such as horticulture and agriculture. It will allow permit holders to work up to 7 months per year in seasonally recurrent employment. It will be formally launched in early 2025. Employers who wish to avail of this scheme must apply to become registered. Removed from the Act is the requirement to advertise the job vacancy in print media which is replaced by advertising online. However, job vacancies will still need to be published on the Jobs Ireland and EURES websites operated by the Department of Social Protection. Change of Employer Position Permit holders for General Employment Permit (GEP) and Critical Skills Employment Permit (CSEP) are allowed to change their permit employer. Once 9 months have passed with their current employer, they can change employers. GEP holders can apply to change employer within the type of employment under which their permit was granted, while CSEP holders can change to an employer across a broader category of employments. The current permit must be valid for at least two months following this request. Permit holders can receive a promotion without having to seek a new permit. Dependants other than spouses and partners of CSEP holders and Researchers who are in Ireland pursuant to EU Council Directive 2005/71/EC are now eligible to apply for Dependant Employment Permits. Subcontractors Position A change in the system is that subcontractors will now have access to the employment permit system.  The new Act should make the employment of qualifying non-nationals more streamlined.
29 November 2024
The Safety, Health, and Welfare at Work Act, 2005 is the legislation that employers must comply with to safeguard their workers in the workplace. The Act is very explicit in setting out the duties of the employer and these are set out in section 8 as follows: (a) managing and conducting work activities in such a way as to ensure, so far as is reasonably practicable, the safety, health, and welfare at work of his or her employees; (b) managing and conducting work activities in such a way as to prevent, so far as is reasonably practicable, any improper conduct or behaviour likely to put the safety, health, or welfare at work of his or her employees at risk; (c) as regards the place of work concerned, ensuring, so far as is reasonably practicable— (i) the design, provision, and maintenance of it in a condition that is safe and without risk to health, (ii) the design, provision, and maintenance of safe means of access to and egress from it, and (iii) the design, provision and maintenance of plant and machinery or any other articles that are safe and without risk to health; (d) ensuring, so far as it is reasonably practicable, the safety and the prevention of risk to health at work of his or her employees relating to the use of any article or substance or the exposure to noise, vibration or ionising or other radiations or any other physical agent; (e) providing systems of work that are planned, organised, performed, maintained, and revised as appropriate so as to be, so far as is reasonably practicable, safe and without risk to health; (f) providing and maintaining facilities and arrangements for the welfare of his or her employees at work; (g) providing the information, instruction, training, and supervision necessary to ensure, so far as is reasonably practicable, the safety, health, and welfare at work of his or her employees; (h) determining and implementing the safety, health and welfare measures necessary for the protection of the safety, health and welfare of his or her employees when identifying hazards and carrying out a risk assessment under section 19 or when preparing a safety statement under section 20 and ensuring that the measures take account of changing circumstances and the general principles of prevention specified in Schedule 3 ; (i) having regard to the general principles of prevention in Schedule 3, where risks cannot be eliminated or adequately controlled or in such circumstances as may be prescribed, providing and maintaining such suitable protective clothing and equipment as is necessary to ensure, so far as is reasonably practicable, the safety, health and welfare at work of his or her employees; (j) preparing and revising, as appropriate, adequate plans and procedures to be followed and measures to be taken in the case of an emergency or serious and imminent danger; (k) reporting accidents and dangerous occurrences, as may be prescribed, to the Authority or to a person prescribed under section 33 , as appropriate, and (l) obtaining, where necessary, the services of a competent person (whether under a contract of employment or otherwise) for the purpose of ensuring, so far as is reasonably practicable, the safety, health, and welfare at work of his or her employees. This is a mighty list of responsibilities! Personal injury claims can be made by staff as well as customers or visitors to the workplace. It is for this reason that employers must ensure that the places their staff work in or visitors come need to comply with the legislation. Insurance Insurance premiums will rise because of a personal injury claim so this alone should be an incentive for businesses to be compliant. If the business is compliant with the Health and Safety legislation, then it is a shield against personal injury claims. We read in the media the increasing costs of insurance and where some businesses have had to close because of the rising cost of cover. The best defence to such legal actions is compliance with the legal obligations of employers in workplace health and safety. Risk Assessment Identifying potential hazards in the workplace is key to ensuring against claims. Employers are required to implement suitable protective and preventive measures to control risks. Be sure to engage a qualified risk assessor to carry out the work of risk assessment. Governing Body The Health Safety Authority (HSA) is responsible for regulating and overseeing workplace safety and health, which includes providing guidance and information to employers and employees, conducting inspections and investigations, and taking enforcement actions when necessary to ensure compliance with the legislation. A non-compliant employer can face serious consequences, including enforcement notices, fines, and potentially imprisonment in the most serious cases. The HSA can issue improvement or prohibition notices requiring immediate action to rectify non-compliance. If in doubt on your obligations as an employer, contact your solicitor for advice.
29 November 2024
It falls to company directors to ensure the proper running of a company. Thus, it follows that improper actions by directors can result in sanctions against directors themselves. There aren’t many cases that come before the High Court on directors’ liability, but recent caselaw illustrates how serious the courts view improper conduct by directors. Improper conduct can take many forms: disrespecting the interests of shareholders, disrespecting minority shareholders rights, conflicts of interests among board members where decisions could impact negatively on the company, not obeying a court order and more. The Companies Act, 2014 – Exposure of Directors The Act sets out the duties and obligations of directors. Failure to follow these can result in exposing directors to categories of penalties ranging from minor to major. There are four categories listed in the Act for sanctioning directors. Category 1 offences can result in imprisonment for up to 10 years and/or a fine of up to €500,000 on conviction on indictment or on summary conviction imprisonment for not more than 12 months and/or a fine not exceeding €5,000. Category 2 offences can result in imprisonment of up to 5 years and/or a fine of up to €50,000 on conviction on indictment or on summary conviction imprisonment for up to 12 months and/or a fine not exceeding €5,000. Category 3 offences are summary offences only and can result in imprisonment of up to 6 months and/or a fine not exceeding €5,000. Category 4 offences are summary offences only and can result in a fine not exceeding €5,000. The courts take breaches by company directors very seriously and in some instances, convictions can result in an order of Attachment. This can be against an individual for contempt in refusing to carry out a court order and if they continue to be in contempt, they could be committed to prison. Attachment, Sequestration of Assets Attachment is an order to have a named individual arrested and brought before the court to answer the contempt, which has been alleged. Sequestration of Assets is where a sequestrator (court official) is appointed to take possession of all property and assets in the possession of a person judged to be in contempt of court. Conclusion The consequences are severe and rightly so for directors who abuse the law and put the company at risk. The company secretary has greater responsibilities under the 2014 Act and if he or she is in any doubt on how the company is being operated, early contact with the company solicitor is advised.
19 November 2024
A decision by the Supreme Court last year (Revenue Commissioners v Karshan (Midlands) Ltd) was put to the test in a case before the Workplace Relations Commission (WRC) where a musician who was dismissed by the management company of performer Michael English, sought compensation for breaches of employment law. The applicant, Matt McGranaghan was a musician who played the fiddle, for many years, in Michael English’s band. The principles of the Supreme Court's ruling last year were on distinguishing employees from contractors in the entertainment industry - "the original form of the gig economy", as it was described in court for the band's management. McGranaghan had argued with the respondent that he had employment rights having continuously worked for Michael English for six years. The respondent argued that McGranaghan was not an employee, but an independent contractor and self-employed. At a meeting with the band’s musicians, Michael English made it clear that members of the band being employees was a ‘non-runner.’ He is alleged to have said at the meeting ‘If that doesn't suit any of ye I'd appreciate it if you'd let me know now". Following that meeting, Mr McGranaghan was told by email that his services would no longer be required at the end of the following month and received no notice pay upon the termination of the relationship. Mr McGranaghan cited to the WRC hearing extracts from secretly recorded comments made by Mr. English which was objected to by Mr. English’s barrister. It was submitted by Mr. English’s barrister that he ‘vigorously and strenuously" denied that Mr McGranaghan was ever an employee and maintained he had always been a contractor - with no recourse to the Unfair Dismissals Act. Mr McGranaghan told the tribunal that 98.7% of his annual earnings came from working with the respondent’s band. The complainant’s representative, Martin McMahon, said that his client made €50,000 annually for playing around 220 gigs a year – adding that treating Mr McGranaghan as self-employed created a "substantial" 15% saving on employer PRSI contributions compared with direct employment. In her decision, WRC adjudicator Caroline Reidy noted that the Supreme Court had rejected the "mutuality of obligation" test in its decision on Revenue Commissioners v Karshan (Midlands) Ltd last October and had set out a new test which considered the exchange of money for work, the level of control exercised by the alleged employer, and whether the purported employee was providing personal services or had the right to engage a substitute. Ms Reidy noted that the relationship between Mr McGranaghan and the management company involved the weekly exchange of money for work as well as the provision of his personal services as the band’s "resident fiddle player" - with substitutes only an "exception". There was also sufficient control exercised by the employer to potentially qualify the relationship as employment, she stated, as Mr McGranaghan had "no flexibility" on when he played with the band, wore a uniform, was told what to play, and took direction from the company.
19 November 2024
Before committing to work on your home, consult your solicitor on building regulations in your area. Failure to do so could result in penalties and in some cases the removal of the finished work. Planning Permission In some instances, planning permission will not be required, and your solicitor will advise you on when such exemptions arise. However, if planning permission is required, it is important that you comply with all necessary requirements otherwise the permission may well be void. Examples of development that require planning permission are: 1. Extensions that increase the overall size of your home by more than 400 square feet. 2. Loft conversions that alter the structure of the roof. 3. Any changes that affect the exterior appearance of your dwelling. Your solicitor will advise you on this. Procedure in Applying for Planning Permission Ideally engage an architect to draw up detailed plans that will be submitted to the local authority on your behalf. The plans must provide all details of the work to be undertaken. The length of time for decisions can vary with local authorities but your architect should be able to give you an estimate of the time. Building Regulations The architect draws up the plans in accordance with your instructions, but you will need an engineer to ensure the proposed renovation complies with (a) structural stability (b) Fire safety (c) Energy efficiency and (d) accessibility. Failure on any of these will result in possible fines or demolition of the work. Short cuts are to be avoided. Inspections of Work in Progress While the work is underway it will be subject to inspections by the building control officers of the local authority. Their function is to ensure the work is being carried out in compliance with the planning permission granted. Assuming that the inspectors find no issues on inspection, you will receive a certificate of completion. This is important and it is important to keep in a safe place as if selling the property later, it will be required.  The above is for straight forward home renovations, anything greater will require the involvement of your solicitor at an exploratory stage to discuss a planning application and likely agreement with your neighbours as to access, debis removal and possible noise issues.
19 November 2024
Differences between management and employees or among employees themselves can lead to issues spiralling out of control and ending up in avoidable expensive litigation. In any working environment, there will be people who may not get on with each other. How management deals with such issues could, if handled badly, result in a negative atmosphere towards management. A complaint improperly handled by management can affect more employees than just the person involved in the complaint itself. Grievance Procedure Companies should seek their solicitor’s advice in the drafting and updating of their Grievance Procedure. Time and money spent on this can save the company a great deal more expense otherwise. Also, a complaint from an employee, if not dealt with fairly, can result in litigation creating a negative working environment and an ‘us’ and ‘them’ attitude between management and employees. This is time consuming, a work distraction and potentially harmful to the business. If the internal disciplinary procedure fails to resolve the complaint, the employer will likely be faced with a complaint made against the company under the Workplace Relations Commission (WRC). Following correct internal procedures could avoid this development. Compared to litigation in the courts the WRC is quicker with its decisions and is much less expensive but proper internal procedures can avoid this. So, consult your solicitor to ensure you have fair and robust procedures in your workplace to resolving disputes and complaints among staff.
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