Drafting a legal due diligence report
Legal due diligence is the foundation of any acquisition. A well-structured report identifies material risks, informs price negotiations, and shapes warranty and indemnity coverage in the sale agreement. Consistency in approach saves time and reduces the chance of missing something important.
This is an 8-step workflow for preparing a legal due diligence report for an Australian transaction. It covers scoping the review, analysing the data room, identifying material risks, and producing a structured report for the client.
Before you start
- Engagement letter confirming the scope of the due diligence review
- Access to the data room (virtual or physical)
- Due diligence request list issued to the target or vendor
- Background on the transaction structure and key commercial terms
The workflow
Define the scope and materiality thresholds
Agree with the client on the scope of the review, the materiality thresholds for flagging issues, and any areas of particular concern. Document the scope in writing to manage expectations.
Review corporate structure and constitution
Verify the target company structure, ASIC extracts, shareholder registers, and the company constitution. Identify any pre-emptive rights, change of control provisions, or consent requirements.
Analyse material contracts
Review key commercial contracts (customer, supplier, partnership, JV). Identify change of control clauses, termination rights, unusual obligations, and any contracts that would not survive the transaction without consent.
Review employment and workplace matters
Analyse employment contracts, enterprise agreements, contractor arrangements, and any pending workplace disputes. Calculate employee entitlement accruals and identify Transfer of Business implications.
Examine property, IP, and regulatory compliance
Review real property leases, IP registrations and licences, regulatory permits, and environmental compliance. Flag any title defects, expiring licences, or compliance gaps.
Assess litigation and disputes exposure
Review current and threatened litigation, regulatory investigations, and historical disputes. Assess the potential financial exposure and whether any matters require specific indemnity coverage.
Identify tax risks and compliance gaps
Review tax returns, BAS lodgements, ATO correspondence, and any private rulings. Identify outstanding tax liabilities, carried-forward losses, and potential tax risks relating to the transaction.
Draft and deliver the due diligence report
Compile findings into a structured report with an executive summary, risk matrix (red/amber/green), detailed findings by category, and recommendations. Include a list of documents not provided and outstanding queries.
What you will have at the end
A completed legal due diligence report with an executive summary, categorised findings, risk matrix, and actionable recommendations. The report informs the client on whether to proceed, what price adjustments to negotiate, and what warranty/indemnity protections to seek.
Common issues
- Incomplete data rooms where key documents are missing or outdated
- Not setting clear materiality thresholds, leading to over-reporting minor issues
- Missing change of control clauses in material contracts
- Underestimating employee entitlement accruals
- Not following up on outstanding data room queries before finalising the report
Run this workflow on a real matter
Quillio reviews data room documents in minutes — flagging change of control clauses, unusual contract terms, and compliance gaps across hundreds of documents. See /practice-areas/commercial-lawyers or start a free trial.
This workflow covers standard legal due diligence for Australian transactions. Specialist areas (environmental, tax, IT) may require separate workstreams with subject-matter experts.
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Quillio can run this workflow on a real matter, with citations to current AU authority on every step. The free trial requires no credit card.
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