Compliance Due Diligence (CDD) is one of the common types of legal due diligence that enterprises need to perform throughout their operations. Especially for manufacturing enterprises, it requires regular review of strict regulations on environmental protection. In the article below, the important contents to note during the process of compliance due diligence of enterprises will be presented by Viet An Law for you to have a preliminary understanding of this service.
Who needs to perform compliance due diligence in Vietnam?
- M&A transactions: The buyer is usually the one who has to assess whether the seller’s company has fully complied with legal regulations before deciding to invest in buying part/all of the company.
- In normal operations: the Company itself has activities that need to be assessed (this assessment work can also be called Legal Audit).
Subject of compliance due diligence
In addition to the target companies that are subject to compliance audits in M&A transactions, compliance audits are more frequently conducted within the companies themselves, whose activities need to be audited, with the aim of self-reviewing and evaluating the internal control system. From there, the audit entity can check and improve the legal compliance of its company, enterprise, or the transaction it is aiming for.
Content of compliance due diligence
Compliance due diligence in M&A transactions
- Internal compliance control (structure, objectives, responsibilities of the compliance control department, internal compliance rules, and sanctions);
- Periodically check the system for compliance with internal regulations/rules/regulations and provide related training;
- Internal complaints and denunciations;
- Business model (relationships with major partners);
- Compliance records: investigations, sanctions decisions of specialized and local management agencies.
Compliance assessment in normal operations
The appraisal content can include all aspects related to the company’s business and production activities, such as licenses, labor, taxes, environment, production, etc.
- Maintain sufficient business conditions for conditional business line;
- Business license issuance process is in accordance with authority, procedures, and law;
- Terms of specialized business sub-licenses;
- Compliance with specialized laws and necessary professional certificates of personnel when there is a transfer/restructuring;
- Comply with regulations on annual reporting of operations, taxes, and finances under law;
- Legality of labor regulations / collective labor agreements in terms of content and form, registration procedures with state agencies;
- Work permits of company employees and financial obligations related to labor, especially foreign labor.
- Check signs, waste treatment systems, hazardous waste, fire protection, radiation safety, and other systems according to environmental protection laws…
Legal basis for compliance due diligence in Vietnam
- International treaties (WTO commitments, AFAS, etc.) for transactions with foreign investment
- Law on Investment
- Law on Enterprise
- Competition Law (Economic concentration)
- Labor Code (contract, minimum benefits for employees, labor regulations, collective labor agreement, work permit)
- Civil Code (contract part)
- Commercial Law (contract part)
- Related specialized laws: Education Law, Law on Real Estate Business, Land Law, Insurance Business Law, etc.
Why is compliance due diligence necessary?
- Compliance with laws and internal regulations
- Correct existing and potential violations
- Minimizing legal consequences that may arise from non-compliance
- Learning from experience in legal compliance activities
What are the results of the compliance due diligence process?
A legal review report will be issued after the completion of a phase or the entire compliance due diligence process. Some preliminary reports are often prepared when serious legal issues are discovered for the requesting party to assess the situation before proceeding further with the transaction or operation during the year.
This report is usually drafted by a qualified lawyer to fully demonstrate the legal risks that the enterprise is facing, thereby proposing post-appraisal solutions.
Above are some of the contents that businesses need to pay attention to when performing compliance due diligence in Vietnam. Now, this is an important procedure with high expertise and deep understanding of current legal regulations. Therefore, seeking legal assistance from specialized lawyers is necessary to reduce the burden of time and finance for enterprises. If you have any needs, please contact Viet An Law for timely and effective support in using the service.
