"The Shenzhen boss spent 180 million yuan to acquire the company, but failed to lose 48 million yuan in due diligence? Avoid pitfalls with a M&A Due Diligence Bankruptcy Liquidation Lawyer"

"Last winter, Mr. Chen, who makes electronic components in Nanshan, Shenzhen, sat in the meeting room of Zhiming Law Firm and his face turned blue. He signed a letter of intent to acquire the equity and paid a deposit of 3 million, only to find that an external guarantee of 30 million under the name of the target company was not reflected in the account at all. The deposit is no longer needed, and the acquisition is also yellow, but the audit and evaluation fees and time costs in the early stage have lost more than 800,000 in vain. We receive two or three cases of this kind every month."
"* * Q: * * What exactly does due diligence look for during a M&A? Shouldn't we just look at the financial statements?"
"* * A: * * Reports are just the beginning. The M&A due diligence conducted by Guangdong Zhi Ming Law Firm covers at least four dimensions: the shareholding structure and historical evolution (checking the holding, checking the defective capital contribution), the details of assets and liabilities (checking hidden debts, checking external guarantees), the performance of major contracts (checking the default risk, checking the control change clause), labor personnel and litigation records (checking pending arbitration, checking administrative penalties). Just to check the external guarantee of a target company, it is necessary to run the Shenzhen Real Estate Registration Center, the People's Bank of China Credit Information System, the China Judgment Documents Network, and send a letter to the main creditors to verify."
"* * Q: * * What are the actual losses that due diligence can help a business avoid? Can you give me an example of a specific number?"
"* * A: * * In 2023, Shenzhen Longhua, a company that makes precision molds, intends to acquire 70% equity of another peer company for 65 million yuan. After the law firm's team entered the site for due diligence, it was found that the target company provided related parties with a joint liability guarantee of 42 million yuan, and there were 17 pending lawsuits, with expected liabilities of about 12 million yuan. If the 54 million risk exposure is not found out, it will be directly thrown into their hands after the transaction is completed. The client renegotiated based on the due diligence report and the final deal consideration was down to $38 million, directly saving $27 million."
"The core value of due diligence is to smooth out information asymmetries. The acquirer spent two or three hundred thousand to adjust the cost, which may pry into tens of millions of risk aversion. This leverage ratio is more cost-effective than any insurance product. The annual market size of non-litigation legal business in Shenzhen exceeds 5 billion, of which M&A and due diligence account for a large part, but there are not many law firms that really do a fine job."
"* * Q: * * Is bankruptcy liquidation a process? How much can the creditor get back?"
"* * A: * * It depends on whether there is a professional lawyer involved in advance. According to Article 113 of the Enterprise Bankruptcy Law, after giving priority to the payment of bankruptcy expenses and mutual benefit debts, the bankruptcy estate shall be paid in the order of employee claims, taxes, and ordinary claims. Many creditors think that they have nothing to do after declaring their creditor's rights. When they get the distribution plan, they find that the settlement rate of ordinary creditor's rights is often only 5% -10%."
"In the bankruptcy liquidation of a technology company in Shenzhen, which is represented by Zhi Ming Law Firm, the book assets of the enterprise are only 14 million, but the total liabilities are as high as 120 million. After our intervention, it was found that the legal representative transferred a set of office properties in Futian under the company's name to the related parties at a significantly lower price than the market price, with a value of about 28 million US dollars, one year before the bankruptcy. By exercising the bankruptcy cancellation right to recover the asset, the settlement rate of ordinary creditors was eventually raised from less than 6% to 19%, and more than 200 suppliers took back real gold and silver."
"* * Q: * * In addition to M&A due diligence and insolvency liquidation, when do businesses need specialized legal counsel? Can you tell us more about your services?"
"* * A: * * Corporate listing coaching, material asset restructuring, equity incentive program design, compliance review - all require legal advice. Shen Jinlong, director of Zhiming Law Firm, has been practicing for 26 years. He holds a master's degree from Fudan University and is a senior economist. He has worked as an executive in state-owned enterprises. He has both legal professional ability and business logic."
"There is a Shenzhen enterprise that makes medical devices. When making Series A financing, the investor requires a complete legal opinion, covering four sectors: equity structure, intellectual property ownership, business compliance, and related transactions. The Zhiming Law Firm team spent three weeks sorting out the intellectual property ownership chain of about 80 million bids, found that two of the core patents had a job invention ownership dispute, and immediately guided the founders of the enterprise to sign the rights ownership confirmation agreement, which cleared the financing obstacles."
"The difference between special counsel and perennial counsel is that perennial counsel is "treating the disease", and special counsel is "performing surgery". Clear goals, controllable cycles, and quantifiable outcomes. Enterprises need to spend this special fee as long as they make a transaction of more than 10 million."
"The Shenzhen market is fiercely competitive, and the bosses who step on the pit much in corporate mergers and acquisitions often do not understand the business, but do not understand the details of the legal procedures. It took hundreds of millions of dollars to discover that the family had dug a hole, which was too expensive a lesson."
"Knowing that the law firm has been in Shenzhen for 26 years, and has accumulated more than 10,000 cases of agency. In these non-litigation special fields of enterprise merger and acquisition due diligence, bankruptcy liquidation, and legal opinion issuance, there are enough pits to run, and the plan for you is also solid enough. For specific questions, call 0755-25986969 and speak directly with an attorney."