Implementation of the Principle of Duty of Care in Contractual Due Diligence

The article discusses the implementation of the principle of due diligence in conducting contractual due diligence. Initially, this principle was focused on identifying cases where an organization received an unjustified tax benefit by interacting with an unreliable counterparty. In today’s environment, the principle of due diligence requires an organization to verify the legitimacy of its counterparties, assess their financial situation, obtain information about their business reputation, and identify any violations of environmental laws. By adhering to the principle of due diligence, organizations can conduct a comprehensive assessment of potential business partners to determine their reliability. Cooperation with an organization that does not have the necessary resources or is a fly-by-night company can lead to financial losses, fines, penalties, and damages. Moreover, the following principle is applied in various areas of contractual due diligence. During financial and accounting due diligence, the principle of due diligence allows for the identification of hidden debts and obligations of a potential partner, as well as the detection of inflated financial indicators. In the context of tax due diligence, the identification of relevant violations allows for the inclusion of provisions in the contract that can compensate for potential losses. The principle of due diligence in legal and management due diligence allows for the assessment of the legitimacy of a counterparty’s activities. When carrying out other types of due diligence (reputation, information, environmental, and marketing), it is also necessary to check the counterparty in order to collect information about the counterparty’s experience, its position in the market, its transparency, and possible violations of environmental laws. This is why it is important to follow the principle of due diligence.