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“The team was recently visible advising on a number of pharmaceutical cases. Sources agree that the team is “moving in the right direction” and are particularly impressed by its work in the pharmaceutical sector”.


Lawyers share their strangest due diligence experiences


Author: Svitlana Tuchynska
Source: Kyiv Post

Mice that have eaten away at company documents. Counting pigs on the farm. Being locked up in a client’s office at night. Clients who refuse to pay for due diligence services because lawyers talk them out of converting a landmark building into office space.

These are some of the oddest cases that Ukrainian lawyers face while conducting due diligence work. Bogdan Borovyk, a partner at international law firm Beiten Burkhardt in Kyiv, still laughs when he recalls his case of due diligence for a shipbuilding company in Crimea.

«Foreign investors were interested in the company. We requested documents from the shipbuilder and received a reply that they are unable to send part of these documents because they were eaten by mice. To prove it, the company sent us scanned copies of the documents, or rather what remained of them. They really looked like they were eaten by mice», recalled Borovyk. The mice-eaten documents weren’t a deal breaker, he added, though his client did use it in negotiations.

Due diligence is far from being a nine-to-five job, lawyers told the Kyiv Post.

«One has to be available for clients at all times, sometimes skipping lunches and even sleep. Once we did due diligence of a national clotliing shop chain for an Arabic businessman who was interested in buying it», said Larysa Marchenko, senior manager at Ernst & Young Ukraine. «After the shops closed at 9 p.m. our job on counting stock began. We were working until the shop re-opened at g a.m.».

Unusual locations also come with the job.

«A case I remember vividly is when we did due diligence for an investment fund that was buying a share in a farming business», said Marchenko. «We had the task of counting the population 011 the pig farm. As we have learned, the pigs are all divided by functions – there are sows, boars, others are kept for slaughtering».
«This was a rather unusual task, but also quite complicated as the pigs move all the time and it is not easy to count them», said Marchenko with laughter.

Many situations derive from a client’s lack of understanding what due diligence really is, lawyers explain. In this case a client’s reaction can be quite unexpected.

«We did due diligence for a client, a typical (rich) ‘new Ukrainian’ who was eager to sell his pharmaceutical company. Our goal was to find potential risks in the business that can scare off buyers. And we found many», said Borovyk. «The client looked at the results, shook his head and went on to hire another firm who just sat there with him trying to diminish all the risks we revealed».

When due diligence results run counter to a client’s beliefs, they might even refuse to pay for work. Maksym Kopeychykov, a partner of Ilyashev and Partners firm recalled a case when a client wanted an assessment done on whether to convert a building in the city center into office space.

«Our advice was quite categorical – to not buy the building. There were many reasons, one of them is that the building was listed in the heritage monuments list and was located in the conservation zone right near a national heritage monument, which is very restrictive», said Kopeychykov. «The client was appalled and said that he would not pay us for this kind of due diligence. We negotiated for seven or eight months, we even had to bring in the old client who brought him in and have him explain that our job is not to justify his opinion but to reveal risks. He did pay after all».

But counting pigs and dealing with outraged clients is nothing compared to dealing with the Security Service of Ukraine (SBU) and other government bodies. Alexander Borodkin, a partner at Vasil Kisil & Partners recalls when a client, a large bank, unexpectedly acquired a residential construction project.

«They gave out a loan to a construction company which went bankrupt, thus a large uncompleted residential development near Kyiv became the bank’s property. However, this was a very troubled asset as many of the investors who bought apartments (in advance) went to the general prosecutor and the courts», said Borodkin.
«The SBU opened a criminal case, seized all documents and froze the site. Thus, the bank became an owner without any documents and proper information about the asset. We and the bank were working really hard to restore the documents, to receive copies from various bureaucratic bodies. We had to meet with the bank several times a week to check who succeeded in scooping out which document. We joked that we invented a new type of due diligence – an interactive one».

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