The significance of diligence

Last week a Scottish businessman was forced to resign after a crowdfunding pitch on the platform Crowdcube misled a total of £460,000 out of investors into their company. The director of the company Student Rents (LettingLord) had allegedly created fictional information about their employees that were listed as working for the company, in an attempt to secure funding. These team members’ profiles were actually stock photos and their online biographies were made up descriptions. The director also allegedly fabricated a fake buyout of another one of his ventures by AirBnB, again misleading potential investors. Crowdcube is now taking legal action against Student Rents in order to pay back the investors. 

This case highlights the importance of carrying out due diligence in any investment or acquisition. The proper execution is essential to protect the interests of purchasers and investors. It is also important for a business to consider this from the outset and ensure that its foundations are sound in order for it to grow.  An effective legal due diligence exercise would involve careful investigation of the legal aspects of a business such as share ownership, intellectual property and funding arrangements. When correct due diligence is not carried out, things can go pear-shaped.

These kinds of cases make it apparent how the correct execution of due diligence is as part of a legal transaction. It pays to work closely with an expert team that is able to carry out diligence effectively and efficiently so that it doesn’t catch you out in the future. Diligence in relation to investments is particularly important as it is crucial to know exactly what you are getting yourself into before investing cash – both the good and the bad aspects. Once effective diligence is carried out, you can then come to a sound conclusion as to whether to invest your money. The time spent on diligence is always time effectively used. Please get in touch if our corporate team can assist.