Due to recent events surrounding the COVID-19 global pandemic, business forecasts around the world have taken a significant hit. As a result of this economic uncertainty, fewer transactions are being carried out and parties have had to back out of deals that were agreed upon prior to the crisis.
From an increasing number of bankruptcy projects to businesses now having to restructure financially, there now comes a greater need for thorough international corporate due diligence to assess the risks involved.
Bankruptcy and Financial Restructure: Addressing The Complexities of International Due Diligence Searches
In recent months, businesses and entities around the world have had to re-examine their credit positions in the face of bankruptcy, and possibly even turn to financial restructuring as a solution to surviving during this challenging period.
While financial restructuring is currently touching every part of the world, it’s important to note that the due diligence differs across jurisdictions. In these cases, international corporate due diligence searches are critical to verify the financial health and level of compliance of a company. The following are some of the more detailed complexities involved in due diligence searches.
Depending on the jurisdiction, not all information will be publicly available. If a transaction involves multiple entities across the globe, there will likely be a difference in the amount of information that can be publicly accessed. It is for the attorney to bear in mind that the quality and extent of the information available in one jurisdiction versus another could greatly differ due to the varying laws.
For instance, in common law countries such as Australia, documents can be easily retrieved with the court litigation or through PPSR (Personal Properties Securities Register - a UCC (U.S.) or Charges (UK) equivalent). Additionally, in the U.S and other common law countries, due diligence searches will often reveal what is publicly available, which might include bankruptcy proceedings against a company, liens and litigation judgements.
On the other hand, in civil law countries such as Luxembourg, often information that is entitled to the company itself or to authorised individuals, can only be accessed through law firms who can draft up a power of attorney to retrieve the information.
As you can see, it is important to equip yourself with the knowledge of what information is available in different countries in the event of a restructuring transaction.
Time frames for document retrieval and international due diligence searches can vary from country to country. Typically, this process can be longer outside of the U.S.
Tax lien searches outside the U.S tend to be unavailable as they aren’t normally public information. In jurisdictions where a tax lien search is available, this will typically require the authorisation or consent of the taxpayer, which comes in the form of a consent letter. In certain countries, this requirement will fall under GDPR regulations to authorise the tax lien search.
Attorneys should consider searching additional databases and registries to determine whether any bankruptcy or insolvency proceedings have been filed against a company.
While bankruptcy searches in the U.S. are done through a completely different database, in most European or non-U.S. countries, these types of searches can usually be obtained from the corporate registry in the country of incorporation. For instance, if a creditor or a member has initiated bankruptcy or liquidation proceedings against a company in the UK, it will be filed against the company’s records in the Companies Registry.
In the U.S., the good standing of a company is often treated separately from lien searches. This is because the perfection of security interests against a company is governed by a different statute (Uniform Commercial Code or UCC).
From an international perspective, if you’re trying to determine the health of a company for the purpose of a restructure or merger, the corporate health encompasses both the financial health and compliance health of a company. For instance, in the UK, in addition to a Certificate of Good Standing, corporate searches and lien searches are treated together as part of the international due diligence search because the registry is the same for both.
What Comes Next?
It’s clear that financial restructuring projects and bankruptcy proceedings are highly complex. As such, it is worth considering what added value can come from engaging with experienced, international public record due diligence professionals during this period of economic uncertainty.
Our team of local jurisdiction specialists work from strategic locations across the world to offer the international due diligence services you need. Contact us today to find out how we can help.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.