Six benefits of due diligence to legally protect your financial operations

May 29, 2023

Authors: Máximo Melo and Sebastián Jiménez

In any of your business transactions it is essential to carry out proper due diligence, especially in the financial sector. This process entails an exhaustive investigation and analysis of the people and assets involved in each transaction, in accordance with applicable Dominican laws and regulations on the matter. In this way, due diligence is invested with the legal certainty required for the operations of your company.

Protects against non-compliance or administrative sanctions
A due diligence guarantees that your financial operations comply with all the laws and regulations applicable to the type of transaction that you will develop, protecting the creditor and the other parties involved from a possible non-compliance or administrative sanction.

Promotes transparency and facilitates financing
Due diligence promotes transparency in its financial transactions, providing detailed information on the situation and prospects of the borrower to the parties involved. This strengthens the relationship between the parties and facilitates the financing process and the guarantees granted to secure credit.

Publicity and enforceability to third parties of your corporate documents
Pursuant to Law No. 479-08 on Commercial Companies and Individual Limited Liability Companies and Law No. 3-02 on Mercantile Registry; corporate documents (since its constitution and those carried out during the company’s good standing) must be deposited and registered with the Chamber of Commerce and Production corresponding to the registered office mentioned in the incorporation documentation.

Once the corporate documents are registered, they are invested with publicity and become enforceable against third parties. For this reason, in financial transactions, all meeting minutes reviewed or delivered to credit institutions must comply with said requirement.

Mitigates the legal risks of financing
Due diligence allows creditors to assess the risks associated with credit and its collateral. This includes reviewing the feasibility of creating and perfecting (and possibly executing) the guarantees granted by the borrower to secure credit. A solid risk assessment reinforces the parties to make decisions with correct knowledge of the facts and minimize the possible risks of financing.

Not carrying out proper due diligence leads to loss of time and monetary investment
A correct due diligence of the guarantees granted as security of the payment of a credit, reduces the legal risk of the credit institutions of a third party affecting their guarantees or, that there is an impossibility of their registration in the corresponding offices.

In practice, often project owners invest large amounts of money, without previously carrying out proper due diligence of the assets in which they are investing.

When the owners involve the legal advisers of the credit institutions, is when they carry out a detailed due diligence, which usually presents several situations that said owner was unaware of. Consequently, this entails a loss of valuable time and monetary investment for the parties involved.

Likewise, this usually happens in renewable energy projects, which generally -and depending on the energy matrix- require large areas of land acquired by investors, often without carrying out the corresponding due diligence.

At the time of structuring a credit transaction to develop or complete the energy project is when they carry out due diligence, which generally yields findings and situations that affect the properties and, which must be resolved for the granting of credit and the project development. The latter being the stage of the project, in which million-dollar expenses and investments have been incurred in.

Thorough due diligence ensures the success of your project
Due diligence is an essential component in any business or financing operation, since it identifies and promotes the mitigation of possible legal risks, guarantees compliance with the relevant legislation, fosters transparency and trust among the parties involved, and ensures the feasibility of constituting credit guarantees.

Carrying out exhaustive due diligence is vital to ensure the success of a project, the sustainability of financial operations and shaping the guarantees for the time when they agreed by the parties.