Reminder: Due Diligence is Not a Luxury

By: Maxime Cloutier

In the context of merger and acquisition transactions, certain purchasers still hesitate to perform a thorough due diligence review of the business they are purchasing. Their reluctance is understandable, as the due diligence process requires a considerable amount of time and resources.

However, in a recent judgement^[1], the Superior Court reminds us that due diligence is not a luxury.

It was thereby confirmed that the potential purchaser of a business still had the legal obligation to inquire about the status of such business in a diligent manner before its purchase, even if the seller had made false declarations concerning the business’ financial state and had knowingly manipulated its figures.

Conclusion: a purchaser cannot solely rely on the seller’s representations, whether they be verbal or contained in writing in a purchase agreement. Failure to make reasonable inquiries may result in an inexcusable error on the part of purchaser, meaning that he could have his right to be indemnified denied despite seller’s false representations.

If you wish to purchase a business, what does this mean for you? In order to make a sound decision towards the purchase of a business, you must ensure to have all of the financial, legal and operational information on hand related to this business, before making your decision.

KRB Lawyers has cutting-edge expertise in mergers and acquisitions with a team ready to assist you in all legal aspects of your transaction. We will adequately accompany you at every step of your deal, including your due diligence.

[1] Tubes et Jujubes centre d’amusement familial inc. c. Nemry, 2020 QCCS 674