Due diligence for private M&A transactions in Singapore

Due diligence and disclosure

What is the typical scope of due diligence in your jurisdiction? Do sellers usually provide due diligence reports to prospective buyers? Can buyers usually rely on due diligence reports produced for the seller?

Due diligence provides prospective buyers with the opportunity to evaluate the legal, financial, tax and commercial position of the target company, business or assets.

Due diligence is often divided into legal, financial, tax and accounting due diligence exercises, and is carried out by the appropriate advisers. Legal due diligence will generally cover the following information in relation to the target (and the extent of legal due diligence may depend on the buyer’s budget restrictions as well as time constraints):

• corporate information (such as title to shares, the constitution and share capital structure of the target);
• regulatory approvals;
• licences or permits held by the target or its subsidiaries which prohibit or restrict a change in control of the target and its subsidiaries or which impose shareholding thresholds or foreign ownership limits;
• contracts with suppliers, customers and employees (in particular, whether there are change of control provisions or restrictions on transfer or assignment);
• information relating to the target’s assets (including intellectual property, real properties and leases) and liabilities, including whether the target has title to the assets;
• banking and financing (in particular, whether there are financial covenants and change of control provisions);
• employee matters (eg, employee share plans and other benefits);
• insurance;
• litigation that the target is involved in or may potentially be involved in; and
• whether a change in control of the target will lead to an obligation to make a takeover offer (or its equivalent in the relevant foreign jurisdictions) of any of its listed subsidiaries or associated companies.

The scope of legal due diligence would be customised to reflect the prospective buyer’s concerns with respect to the target company, business or assets and industry practices.

It is uncommon for sellers to provide vendor due diligence reports to prospective buyers in private M&A transactions in Singapore. Where vendor due diligence reports are provided by the sellers to prospective buyers, it is typically in connection with a controlled auction process of sale. In such instances, buyers would typically not be able to rely on due diligence reports produced for the seller.

Can a seller be liable for pre-contractual or misleading statements? Can any such liability be excluded by agreement between the parties?

A seller can be liable for pre-contractual misrepresentations although, except with respect to fraudulent misrepresentations, sale and purchase agreements usually limit a seller’s liability to claims for breach of contract and exclude liability for pre-contractual and misleading statements.

What information is publicly available on private companies and their assets? What searches of such information might a buyer customarily carry out before entering into an agreement?

Singapore-incorporated companies are required to make extensive filings with ACRA. Publicly available information on Singapore-incorporated companies include:

• details on share capital, and any change in or transfer of share capital;
• particulars of directors and shareholders;
• business profiles;
• company information such as: (i) dates and descriptions of lodgements such as annual returns (which include certain financial statements); (ii) the company’s constitution; (iii) details of changes to the company’s directors; and (iv) name changes;
• the register of charges over the company’s assets; and
• the register of members.

Details of the ownership of real property and registered leases, and encumbrances on the property (such as mortgages and caveats lodged against the real property) can be obtained from SLA’s Integrated Land Information Service.

Details of registered intellectual property, namely patent, trade mark and registered design, can be obtained from the Intellectual Property Office of Singapore’s online portal.

Searches of the information mentioned above are customarily carried out by the buyer before entering into a sale and purchase agreement. Litigation, bankruptcy and winding-up searches are also typically conducted to determine if there are any ongoing or former claims that may have been made for or against the target company, or winding-up proceedings or petitions against the target company.

What impact might a buyer’s actual or deemed knowledge have on claims it may seek to bring against a seller relating to a transaction?

A buyer’s actual or deemed knowledge at the time of entering into an acquisition may preclude claims being brought against the seller in respect of the relevant representations and warranties. However, as this point has not yet been fully tested under Singapore law, the practical approach is for the buyer to raise such matters with the seller prior to signing and to seek contractual protections via indemnities or a reduction in the purchase price.