adminBefore signing a major contract, investing in a company, or entering a strategic partnership, businesses need to understand more than financial projections and sales presentations.
Legal history can also provide important information.
A company or individual may be involved in lawsuits, regulatory proceedings, contractual disputes, insolvency matters, or other legal issues that could affect a proposed relationship.
This is why litigation checks can form an important part of corporate due diligence.
What Is a Litigation Check?
A litigation check is an investigation designed to identify relevant legal proceedings involving a company or individual, subject to the availability and accessibility of appropriate records.
Depending on the jurisdiction and scope, research may identify:
- Civil litigation
- Commercial disputes
- Contract disputes
- Employment matters
- Insolvency proceedings
- Regulatory actions
- Other relevant court proceedings
The objective is to understand potential legal exposure.
Why Are Litigation Checks Important?
Understand Existing Legal Risks
A company involved in significant disputes may face financial or operational consequences.
Assess Potential Business Partners
Before entering a strategic relationship, legal history can provide additional context about the organization.
Support Investment Decisions
Investors may want to understand whether legal disputes could affect an investment.
Identify Patterns
A single dispute may be insignificant. Repeated disputes involving similar issues may warrant deeper investigation.
What Should a Litigation Search Look For?
Commercial Disputes
These can involve:
- Contract disagreements
- Payment disputes
- Partnership conflicts
- Supplier disputes
- Customer claims
Employment Litigation
Employment-related cases can sometimes provide information about workplace practices and organizational disputes.
Insolvency Proceedings
Financial distress can materially affect a proposed commercial relationship.
Regulatory Proceedings
Depending on the industry, regulatory actions can be important indicators of compliance risk.
Does Being Sued Mean a Company Is Untrustworthy?
No.
Businesses can become involved in legitimate disputes for many reasons.
For example, two companies may disagree over a contract even when both parties acted in good faith.
The important question is not simply:
“Has this company ever been sued?”
Instead, businesses should ask:
- What was the dispute about?
- Who initiated the case?
- What was the outcome?
- How recent was it?
- Is there a pattern?
- Is the issue relevant to the proposed relationship?
Context matters.
Litigation Checks as Part of Due Diligence
Litigation research should generally not be performed in isolation.
A comprehensive due diligence assessment may also examine:
- Corporate registration
- Ownership
- Directors
- Business operations
- Reputation
- Background information
- Compliance risks
- Physical presence
Combining different information sources can produce a more complete risk profile.
When Should Businesses Conduct Litigation Checks?
Litigation checks can be valuable before:
- Acquiring a company
- Investing in a business
- Signing major contracts
- Entering joint ventures
- Appointing strategic partners
- Onboarding major suppliers
- Extending significant credit
- Entering high-value commercial relationships
They can also be useful during periodic reviews of higher-risk relationships.
How Professional Litigation Due Diligence Helps
Legal databases and court records can vary significantly between jurisdictions.
A professional investigation can help organizations determine:
- Which records are relevant
- What information is available
- How findings should be interpreted
- Whether additional investigation is required
This can be particularly valuable for cross-border transactions.
Conclusion
Legal history can reveal information that is not immediately visible during normal business negotiations.
A properly conducted litigation check can help businesses identify relevant disputes and legal risks before making significant commitments.
However, litigation findings should always be interpreted carefully. A lawsuit is not automatically evidence of misconduct, and the details and outcome of each matter are important.
Before signing a major contract, making an investment, or entering a strategic partnership, contact Due Diligence Verifications to discuss litigation and corporate due diligence checks.
Frequently Asked Questions
What is a litigation check?
A litigation check involves researching relevant legal proceedings involving a company or individual.
Why conduct a litigation search?
It can help businesses identify legal disputes and other proceedings that may affect a proposed relationship.
Does litigation automatically mean a company is risky?
No. Each case should be evaluated based on its nature, outcome, timing, and relevance.
Can litigation checks be conducted internationally?
International checks depend on the jurisdiction and availability of relevant records.
When should I conduct litigation due diligence?
It is particularly useful before major investments, acquisitions, strategic partnerships, and high-value contracts.