1. “Legal Due Diligence in JVS and M&As”
presented by
Picharn Sukparangsee
at the Conference on “Legal & Financial Due Diligence Strategies for Successful Acquisitions, JVs & Strategic Alliances”
arranged by
the Asia Business Forum
on October 28-29, 2010
at the Royal Orchid Sheraton Hotel, Bangkok

2. LEGAL DUE DILIGENCE IN JVS AND M&As
I. LEGAL RATIONAL FOR DUE DILIGENCE
II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
III. AVOIDING PITFALLS AND SOLUTIONS
IV. CASE STUDY

3. I. LEGAL RATIONAL FOR DUE DILIGENCE

4. LEGAL RATIONAL FOR DUE DILIGENCE
M&A
amalgamation
merger
takeover
acquisition of shares or assets
Joint venture
unincorporated joint venture
incorporated joint venture

5. LEGAL RATIONAL FOR DUE DILIGENCE
comply with laws and regulations
identify and solve legal problems
protect an interested party from any legal liability
due diligence as used as defence in any lawsuit
enable a legal claim against a defaulting party

6. Financial due diligence by financial advisor
LEGAL RATIONAL FOR DUE DILIGENCE
Types of due diligence
Financial due diligence by financial advisor
accounting due diligence by auditor
legal due diligence by legal advisor
technical due diligence by technical consultant

7. I. LEGAL RATIONAL FOR DUE DILIGENCE
Methods applied in the conduct of legal
due diligence
management discussion and analysis
review and summary of agreements and documents
representations and warranties under agreements
issuance of legal opinion

8. I. LEGAL RATIONAL FOR DUE DILIGENCE
Fiduciary duties of directors
duty of care
duty of loyalty
duty of obedience
duty of disclosure

9. I. LEGAL RATIONAL FOR DUE DILIGENCE
Obligations of directors under laws
duties of care
no conflict of interest
no competition with the business of the company
no sale , no purchase or doing business with the company unless approved by the board of directors
disclosure of interest in any contract , shareholding and bondholding
no loan to a director or an employee unless made under the regulations on the welfare or any law
comply with laws and regulations

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

11. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Examples of important laws
Civil and Commercial Code
Public Limited Company Act
Securities and Exchange Act
Foreign Business Act
Land Code
Investment Promotion Act
Industrial Estate Authority of Thailand Act
Factory Act
Building Control Act
Act on Mortgage of Machinery
Foreign Employment Act Immigration Act

12. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Examples of important laws
Revenue Code and Double Taxation Agreements
Customs Act
Excise Act
Financial Institutions Business Act
Foreign Exchange Act
Environmental Protection and Promotion Act
Competition Act
Labour Protection Act
Act on Establishment and procedures of the tax court
Trade Mark Act
Copyright Act
Patent Act

13. Conduct of legal due diligence
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Conduct of legal due diligence
Affidavit, Memorandum and Articles of Association and the list of shareholders shall be reviewed.
Financial statements of the target company shall be provided.
MOU is signed between a seller and a purchaser.
Confidential undertaking is signed by the purchaser.
A kick-off meeting between a seller and its advisors and a purchaser and its advisors.

14. Conduct of legal due diligence
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Conduct of legal due diligence
Roles of local advisors and foreign advisors.
Data room and documents
List of requested legal due diligence documents
Legal due diligence questions
Interview directors and/or the management
Site visit
Preparation of memorandum
A draft and a final legal due diligence report

15. Legal due diligence report Disclaimer provision Executive summary
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Legal due diligence report
Disclaimer provision
Executive summary

16. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Summary of Documents
corporate documents
licences, concessions , permits , certificates and approval
financing agreements
material agreements
land title deeds , land documents, buildings , factories , machinery and equipment
insurance
trade mark , copyright and patent
employment
environmental issues
regulatory requirements
tax disputes
litigation and arbitration

17. Articles of association List of shareholders
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Corporate documents
Affidavit
Memorandum
Articles of association
List of shareholders
Holding company, subsidiary, related company and affiliated companies
Notices and minutes of the meetings of the management
Continue

18. Notices and minutes of the board of directors meetings
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Corporate documents
Notices and minutes of the board of directors meetings
Notices and minutes of the general meetings of shareholders
Groups of shareholders
A branch
A representative office
A regional office
Regional operating headquarters

19. Corporate Issues to be focused upon Major shareholders
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Corporate Issues to be focused upon
Major shareholders
Authorized directors
Restriction on transfer of shares
Important matters as approved by the board of directors
Important matters as approved by the meeting of shareholders

20. Licenses, permits, approval, certificates BOI privileged certificate
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Licenses, permits, approval, certificates
BOI privileged certificate
foreign shareholding
ownership of land
tax exemption and reduction
exemption of importation of raw material and finished products
work permits for experts and technicians

21. government industrial estate private industrial estate Factories
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
IEAT
government industrial estate
private industrial estate
Factories
types of factory licences
construction license
use of building license

22. syndicated loan agreement underwriting agreement
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Financial Agreements
single loan agreement
syndicated loan agreement
underwriting agreement
subscription agreement
purchase agreement
mortgage agreements
pledge agreements
assignment agreements
ISDA Master Agreement

23. joint venture agreement consortium agreement shareholders agreement
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Material agreements
joint venture agreement
consortium agreement
shareholders agreement
share sale and purchase agreement
asset sale and purchase agreement
Issues in the Agreements
representations and warranties
affirmative covenants
negative covenants
events of default

24. percentage of the total assets percentage of the total revenues
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Materiality test
percentage of the total assets
percentage of the total revenues
percentage of profits
material adverse effect or change
Land Documents
land title deeds
land utilization certificate
land possession certificate
mortgage and other encumbrances over property

25. Intellectual property trademark and trade service copyright
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Intellectual property
trademark and trade service
copyright
patent (product patent and process patent)
know-how
Licensing Agreement
Know-how Agreement
Technical Assistance Agreement

26. law on establishment and procedures of labour courts
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Human resources
labour protection law
labour relation law
law on establishment and procedures of labour courts
Environmental compliance
environmental impact assessment report
health impact assessment report

27. life and non-life insurances product liability insurance
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Insurance
life and non-life insurances
product liability insurance
professional insurance
Dispute settlement
litigation vs arbitration
professional expert, arbitrators , umpire, judges
Governing law
issues on conflict of laws

28. administrative courts
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Courts
Constitution Court
Court of justice
ordinary courts of justice- courts of first instance, courts of appeal and the Supreme Court
special courts of justice- labour courts, tax court, intellectual property and international trade court or IP and IT court, bankruptcy court
administrative courts

29. place of domicile of defendant place of location of property
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Court forum
place of domicile of defendant
place of location of property
place of occurrence of tort
place of committing an offence

30. Land and structure Tax Act Municipality Tax Act
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Tax issues
Revenue Code
Customs Act
Excise Tax Act
Signboard Tax Act
Land and structure Tax Act
Municipality Tax Act

31. Double taxation agreements taxation of income taxation of capital
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Revenue Code
personal income tax,
corporate income tax
value added tax
specific business tax
stamp duty
Double taxation agreements
taxation of income
taxation of capital

32. Examples of frequent opinions on laws and regulations
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Examples of frequent opinions on laws and
regulations
opinion on foreign shareholding
opinion on ownership and mortgage of land and building
opinion on creation and enforcement of security
opinion on investment promotion
opinion on joint venture and consortium
opinion on bankruptcy and liquidation

33. Opinion on use of a branch, an office or a subsidiary
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Tax opinions
Opinion on use of a branch, an office or a subsidiary
opinion on share purchase
opinion on asset purchase
opinion on sale of goods and provision of services
opinion on royalty and service fees
opinion on dividend and interest
opinion on dividend and capital gains

34. Memorandum of understanding Term sheet sale and purchase agreement
SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS
Legal Documentation
Memorandum of understanding
Term sheet
sale and purchase agreement
shareholders agreement
joint venture agreement
loan agreement
security agreement

35. III. AVOIDING PITFALLS AND
SOLUTIONS

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

37. III. 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

38. AVOIDING PITFALLS AND SOLUTIONS
Solutions to Problems
Detailed representations and warranties
strict undertakings
escrow agreement
right of first refusal
tag-along or drag-along provision
indemnification
events of default – cross default , negative pledge, material adverse change
termination
Governing law
Arbitration or ligation

39. IV. CASE STUDY

40. lease of land owned by a state enterprise
IV. CASE STUDY
Case study
lease of land owned by a state enterprise
2 sets of bank accounts- on balance sheet bank accounts and off-balance sheet bank account
Related transactions
Acquisition or disposition of assets
Licences have not been renewed

41. Thank you for your attention
SIAM CITY LAW OFFICES LIMITED 183 Rajanakarn Building, 20th Floor, South Sathorn Road,
Bangkok 10120, Thailand
Tel: (662)
Fax: (662)