The process of gathering important information (usually commercial, financial and legal information) about a company, a business or assets. Due diligence is often conducted in a number of different contexts.

On any significant proposed acquisition of a business or assets (including an acquisition of shares in a company or an interest in real property), the prospective buyer (and any other parties with an interest in the transaction) will need to decide at what price and on what terms the proposed acquisition represents a sound commercial investment. The purpose of due diligence, which is usually carried out by the potential buyer, is for the buyer to obtain and review sufficient information about the target asset, business or company to form a view on those matters before committing to the purchase. The information about the target is usually made available by the seller in a data room.

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Due diligence is usually carried out in respect of any offer of securities under an offer document by a specially appointed due diligence committee.

The role of the committee is to undertake all reasonable enquiries in relation to the offer and ensure that the offer document complies with the standards of disclosure required by law and the Australian Securities and Investments Commission. For more information, see Practice notes, overview, Initial public offerings of equity securities by companies: Due diligence and Equity fundraising: disclosure requirements.

If a due diligence process is carried out in respect of an offer under a prospectus, the company and its advisers may be able to rely on the due diligence defence if the prospectus is ultimately found to be defective. For more information, see Equity fundraising: disclosure requirements: Due diligence defence for prospectuses (reasonable inquiries and reasonable belief).