Background
The client, a leading renewable energy firm, sought to acquire a controlling stake in a mid-sized Nigerian energy company to expand its footprint in Africa’s burgeoning renewable energy sector. The deal presented an opportunity to capitalize on Nigeria’s energy transformation goals. As part of the transaction, the investor required a comprehensive legal due diligence review to assess the target’s legal, operational, and compliance risks.
Challenges
Balogun Harold was engaged to conduct the legal due diligence, identify potential deal risks, and propose solutions to mitigate them. Upon the completion of the legal due diligence exercise, a number of issues were identified, including:
- Corporate Governance Structure Issues: The legal due diligence revealed that the target lacked a formalized governance framework. Key shareholder decisions were undocumented, and there were irregularities in board composition and meeting minutes. Certain directors had overlapping roles in competitor companies, creating potential conflicts of interest.
- Regulatory Non-Compliance: The legal due diligence revealed that the target had failed to comply with several regulatory requirements, including unfiled returns with the Corporate Affairs Commission (CAC) and unpaid levies to the industry regulator. Licenses required for operation were also expired.
- Land Ownership and Title Defects: The legal due diligence revealed that the target operated on some parcels of land used for renewable energy projects, but some of the land titles were either incomplete, unregistered, or under dispute, exposing the client to potential litigation.
- Debt and Liabilities: The legal due diligence revealed that the target company had undisclosed debts, including loans secured against key assets. There were ongoing tax disputes with the Federal Inland Revenue Service (FIRS) over arrears and penalties.
- Intellectual Property (IP) Ownership: The legal due diligence revealed that the company’s proprietary software was developed by an external contractor without clear assignment agreements, raising doubts about IP ownership.
Our Approach
Upon the Client’s request, we provided post-diligence support helping to meet post closing conditions which includes:
(a) Corporate Governance Reforms: We advised on immediate restructuring of the board to eliminate conflicts of interest. We assisted in drafting updated governance policies, including shareholder agreements and board charters. We recommended and documented a framework for transparent decision-making processes.
(b) Regulatory Compliance: We worked closely with in-house counsel to resolve outstanding filings and penalties with the CAC & the industry regulator. We facilitated the renewal and proper documentation of expired operational licenses and provided a compliance roadmap to ensure future adherence to regulatory obligations.
(c) Land Ownership and Title Resolution: We worked closely with in-house counsel to rectify title issues by registering unregistered titles and resolving disputes through negotiated settlements.
(d) Debt Restructuring and Liability Mitigation: We worked closely with in-house counsel and tax consultants to renegotiate debt terms with creditors to secure more favorable repayment schedules. We helped to resolve outstanding tax disputes and negotiated reductions in penalties.
(e) Securing IP Ownership: We worked closely with in-house counsel to help negotiate and draft IP assignment agreements with the external contractor to secure ownership of the proprietary software. We ensure the registration of all relevant IP with the Trademarks, Patents and Designs Registry in Nigeria.
Key Takeaways
Conducting legal due diligence in a complex frontier market like Nigeria requires a multi-disciplinary approach that addresses regulatory, operational, and reputational risks.
