As capital intensive businesses, many agribusinesses need access to more funds to grow. However, as a first step towards raising funds in today’s challenging business environment it is essential to make sure your business is investment ready from a legal perspective.
Investors looking to make an investment in your business are likely to have certain expectations. Having your legal affairs in order can potentially enhance the standing of your investment proposal and assist you to build credibility with potential investors. Unresolved legal problems can be a red flag which may discourage an investor from taking a closer look at an investment opportunity you are presenting to them.
We therefore recommend that any agribusiness seeking capital takes the appropriate action to make sure their organisation is ready to undergo a due diligence process, as this can ultimately facilitate a smoother and quicker transaction.
There are a number of things that your business can do to ensure that it is appropriately prepared for legal due diligence carried out by a third party. Some key issues to consider in this context include (without limitation):
- Corporate structure – are you investment ready?
In what vehicle is the investment being made and is any restructuring needed?
Some issues to consider include: If you need to move assets, is this practical? Can a company hold a relevant land tenure you wish to move? Is a ministerial consent needed which may be difficult to obtain? Are there stamp duty or other tax issues to consider?
- Existing financing – how does it impact?
What security interests have been registered which may need to be considered and what consents are needed?
Some issues to consider include: Have you searched the PPS Register and discussed the transaction with existing financiers? A search of the PPS Register can reveal security interests have been registered which may even come as a surprise to you.
- Have your assets been appropriately legally protected?
Has legal title to assets been appropriately perfected?
Some issues to consider include: Have interests in land been appropriately registered and has intellectual property been adequately protected? Have water rights been secured?
- Are key contractual arrangements appropriately documented?
Have you reviewed your key contractual arrangements and how will they be viewed by an investor?
Some issues to consider include: Do unwritten contracts need to be documented? Do contracts due to expire need to be renewed or renegotiated on better terms? Are revenue streams or costs appropriately locked in? Is back to back contract risk covered? Is hedging needed?
- Are appropriate arrangements in place in relation to employees?
Will an investor be comfortable with the arrangements you have in place with employees?
Some issues to consider include: Do contracts need to be put in place and is there compliance with applicable awards? Are appropriate work health and safety policies and procedures in place? Are key employees on suitable contracts?
- Do you comply with applicable laws and statutory licensing requirements?
Have you considered the extent of compliance with applicable laws and licensing obligations and are there any material issues to be addressed?
Some issues to consider include: What statutory licences are needed and have they been obtained and complied with? Have building, planning and environmental approvals and consents been obtained and have relevant laws been complied with? (For example - are there any material issues to consider in relation to asbestos or environmental contamination?)
- Are you appropriately managing litigation claims?
Is litigation risk likely to be of concern to a potential investor?
Some issues to consider include: What litigation claims have been made or threatened and how have these risks been managed? What insurance arrangements are in place in relation to key risks?
- What is the quality of your record keeping?
Is your record keeping up to scratch?
Some issues to consider include: Are records required to be kept by law appropriately maintained? Does your system for record keeping enable you to provide any records or documents an investor may request?
Understanding, and taking action to appropriately deal with, those legal issues which are likely to give rise to concern to potential investors is essential to putting your best foot forward when seeking capital. We recommend working closely together with your advisors from an early stage in your planning, as effective preparation can ultimately make a real difference to your capital raising.