Due Diligence in Colombia

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What is Due Diligence ?

It is a term that translates into due diligence. It is not expressly regulated in Colombia, but it must comply with existing regulations on certain matters, such as Law 222 of 1995, which regulates mergers of companies, and the regulations established by the Colombian Financial Superintendency.

As it is not an expressly regulated term, there is no exact date of creation, however it has been implemented for several decades. Nowadays, it has become particularly relevant due to the growing complexity of commercial transactions and the need to assess and manage the risks associated with them.

This is a process of analysis and collection of information that is carried out or required by a person, whether legal or natural, when interested in investing in a company, buying it or merging (the latter only for legal entities). Through this information analysis, the person seeks to determine the risks and opportunities that the company has and to know in greater depth its accounting, commercial and financial status in order to make an informed decision and minimize risks.

How is the Due Diligence done ?

For this process to take place, the person must have a clear interest in the company to be analyzed and there must be prior negotiations in order to be carried out. This process is carried out by a group of lawyers, accountants, auditors and specialized consultants, in order to evaluate the risks and opportunities presented by the company in different areas such as commercial, financial, fiscal, legal, labor, among others. This group of experts must act with due diligence and in accordance with the codes of ethics.

There is a confidentiality agreement between the seller and the interested party that must be complied with by both parties in order to prevent information about the company under analysis from being disclosed. During the process, the seller or owner of the company in question is obliged to provide all the information required by the interested party and must always act in good faith. In the event that the seller gives false information or withholds information from the interested party, the latter may claim nullity of the contract.

The process ends with a report on the status of the company by those in charge of conducting the investigation. Based on this report, the parties may add modify the contract by adding new clauses. They can also start negotiations again or the interested party can withdraw from the purchase, investment or merger with the company under study.

The duration of the due diligence process can vary from one month to one year. There is no set duration time as it depends on several factors:

  • The size and complexity of the company being evaluated.
  • The amount of information being evaluated and its quality.
  • The number of areas owned by the company that need to be evaluated.
  • The number of parties involved in the negotiation.
  • Providing information in a timely manner.
  • The legal and regulatory requirements that must be taken into account.

This process can be faster when the company provides information in a clear and timely manner to those who are studying it. It is recommended that this process be carried out with all the resources and time necessary to ensure that a complete and accurate assessment of the information is made.