Lesson 1: Contract parties

When reviewing a contract as part of a due diligence, you will need to identify the contract parties.

Overview

Commonly, parties enter into a contract in one of the following ways (not an exhaustive list):

1. as a person or individual (acting alone or acting as a trustee for and on behalf of a trust)

2. as an organisation such as a company, partnership, or joint venture (in its own name or acting as a trustee for and on behalf of a Trust)

It is important to identify the contract parties for the following reasons:

1. Determine which rights and obligations apply to each party

2. Determine whether the contract parties are a Target Company

3. Evaluate quality of the counterparties to perform the contract

4. Determine if the parties are related

Double check the contract party details

Public register searches

You can check the company numbers in the contract by searching public registers. For example, in Australia, you can confirm:

• The Australian Company Number (“ACN”) is correct here.

• The Australian Business Number (“ABN”) is correct here.

If your search reveals that the company number in the contract is different to the register, you should speak with your supervisor about how they prefer you to record that discrepancy.

Check for name changes

After searching the ABN in the contract, you might discover that the name of the company in the contract is different from the company name in the register.

In these circumstances, check with your supervisor how they prefer you to record the change of name (e.g. your client might find it useful for you to reference their current name followed by their former name in brackets).

What is the target company’s “role” in this contract?

Overview

If the target company or a subsidiary is a party to the contract, ascertain their “role” within the contract. Sometimes their “alias” is their role, but not always.

Some example “roles” include (non exhaustive):

• In a lease, tenant, landlord and sometimes, a guarantor

• In a loan, borrower, lender and sometimes, a guarantor

• In an employment contract, employer and employee

• In a commercial contract, a supplier and buyer

By knowing this, we can make quick assumptions about the Target Company or a target group company, such as:

• if the Target Company is a Tenant, we know it is responsible for paying rent and it doesn’t own the property;

• if the Target Company is a Borrower, we know it has loaned some money from a lender and it will likely need to repay the loan;

• if the Target Company is an employer, it might have accrued liabilities owing to its employees.

When reviewing the contract, you should also review it from the perspective of the rights and obligations of the group company and whether they are market standard.