Counterparty due diligence: what an asset review misses

By Steven Tan, YUVORA · 2026-10-09 · 8 min read

A favourable asset price does not survive a counterparty who cannot deliver. Most verification focuses on the asset and leaves the party unchecked.

The counterparty is part of the asset

A structured decision review is a written, independent analysis of one pending decision: four assessment dimensions, two or three scenario paths, and the list of what has to be evidenced before you commit. One of those four dimensions is the counterparty, and it is the one most often treated as a formality. In practice the party is part of what you are buying: their ownership decides who can direct them, their existing obligations decide what they can still promise you, and their payment behaviour decides what your remedy is worth if the arrangement goes wrong.

The working numbers are short. A scoping request is answered within 24 hours, a written memo is delivered in 48 hours, and one follow-up exchange is answered within 72 hours of delivery — which is why counterparty findings are useful three weeks out and merely documented three days out.

Five questions about the party

1. Who owns and controls them? Not the brand on the website — the registry entry, the ultimate beneficial owners, and anyone with a right to direct the entity.
2. What are they already committed to? Existing debt, exclusivity, licences, joint ventures and off-balance obligations that limit what they can deliver to you.
3. Who else has to consent? Parent companies, lenders, regulators or family holders who can stop the arrangement after you have committed.
4. What is their record on promises? Filed accounts, delivery records, litigation and arbitration history, and references from parties with no incentive to please you.
5. What happens if the principal leaves? Key-person dependence is the most common cause of a relationship that works for one year and fails in the second.

Where counterparty risk hides

• Ownership that changed recently — a new controlling holder usually means new incentives that have not yet shown up in behaviour.
• Related-party transactions — revenue or costs routed through entities connected to the owners.
• Licences and registrations — a permission that belongs to a company you are not contracting with, or that expires inside your term.
• Litigation and enforcement history — patterns matter more than single events.
• Payment behaviour — in the trade references you can actually reach, not the list the counterparty supplies.
• Concentration — a party whose revenue depends on one customer will behave accordingly when that customer moves.

Evidence versus assurance

Every claim about a counterparty falls into one of three categories, and the distinction should be written down rather than remembered:

• Evidenced — a registry entry, a licence register, a filed account, a court record, or a third party who has transacted with them and has no interest in your decision.
• Assumed — plausible, consistent with everything else, and unverified. This is the dangerous middle, and it is where most counter-party surprises live.
• Unverifiable — the claim cannot be checked from where you sit. It becomes a condition precedent or it is priced into the terms.

Four steps, in order

1. Step 1 — Identify the contracting entity precisely. Name, registration number, jurisdiction. If that is unclear, nothing else can be verified.
2. Step 2 — Pull the public record. Ownership, filings, charges, litigation. Two hours of registry work answers more than two weeks of correspondence.
3. Step 3 — Test two promises against outside sources. Choose the two that carry the commercial case, and try to evidence them from outside the counterparty.
4. Step 4 — Convert the residue into terms. Anything still assumed becomes a condition, a milestone payment, or a warranty with a remedy attached.

A structural review versus a background check

A background check looks backwards for adverse history and stops there. A structural review asks what the party's incentives and constraints are: who can direct them, what they are already committed to, and what they cannot deliver without someone else's consent. The two overlap on litigation history and diverge on everything that decides how the relationship behaves in year two. Where the counterparty sits in another jurisdiction, the UNIDROIT Principles of International Commercial Contracts are a useful reference for which questions normally have settled answers, and the twelve-question protocol set out by Kahneman, Lovallo and Sibony in Harvard Business Review remains the clearest published checklist for interrogating a proposal before it becomes a commitment.

Where people get this wrong

• Verifying the asset and assuming the party. The most common single error in a cross-border transaction.
• Accepting the counterparty's own reference list. Curated references are a marketing document.
• Checking litigation but not charges. Registered security over the assets you are relying on is discovered in filings, not in courtroom records.
• Leaving key-person risk out of the model. A relationship that depends on one individual is a different asset from one that does not.

What to do next

Take the two claims that would change your answer if they were false, and try to evidence them from outside the counterparty. If neither can be evidenced before the payment date, the arrangement needs a condition rather than optimism — and the twelve questions are the fastest way to find out which one applies.