“Due diligence” is a term used for a number of concepts, involving either an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. It’s knowing who you are doing business with prior to doing business with them.
A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for an acquisition.
Due diligence can be defined as:
1. The examination of a potential target for merger, acquisition, privatization, or similar corporate finance transaction normally by a buyer.
2. A reasonable investigation focusing on material future matters.
3. An investigation on the current practices of process and policies.
4. An examination aiming to make an acquisition decision via the principles of valuation and shareholder value analysis.
Information security due diligence is often undertaken during the information technology procurement process to ensure risks are known, managed and during mergers and acquisitions, due diligence reviews, to identify and assess the business risks.
Due diligence in civil procedure is the idea that reasonable investigation is necessary before certain kinds of relief are requested.
For example, duly diligent efforts to locate and/or serve a party with civil process is frequently a requirement for a party seeking to use means other than personal service to obtain jurisdiction over a party. Similarly, in areas of the law such as bankruptcy, an attorney representing someone filing a bankruptcy petition must engage in due diligence to determine that the representations made in the bankruptcy petition are factually accurate. Due diligence is also generally a prerequisite to a request for relief where civil litigants are permitted to conduct pre-litigation discovery of facts necessary to determine whether or not a party has a factual basis for a cause of action.
In civil actions seeking a foreclosure or seizure of property, a party requesting this relief is frequently required to engage in due diligence to determine who may claim an interest in the property by reviewing public records concerning the property, and sometimes, by a physical inspection of the property that would reveal a possible interest in the property of a tenant or other person.
Due diligence is also a concept found in the civil litigation concept of a statute of limitations. Frequently, a statute of limitations begins to run against a plaintiff when that plaintiff knew or should have known had that plaintiff investigated the matter with due diligence, that the plaintiff had a claim against a defendant. In this context, the term “due diligence” determines the scope of a party’s constructive knowledge, upon receiving notice of facts sufficient to constitute “inquiry notice” that alerts a would-be plaintiff that further investigation might reveal a cause of action.
In criminal law, due diligence is the only available defense to a crime that is one of strict liability (i.e., a crime that only requires an “Actus Reus” and no “Mens Rea).” Once the criminal offence is proven, the defendant must prove on balance that they did everything possible to prevent the act from happening. It is not enough that they took the normal standard of care in their industry, they must show that they took every reasonable precaution.
Due diligence is also used in criminal law to describe the scope of the duty of a prosecutor and to take efforts to turn over potentially exculpatory evidence to (accused) criminal defendants.
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