Which governing law is customarily used on acquisitions?
Mergers & Acquisitions
Brazilian law is used in almost 100% of the deals. Having said that, it is possible to use foreign law in Brazil. The foreign law most frequently used is New York’s. The trick in these cases in Brazil is to agree on arbitration with a venue in the country. For technical reasons this makes the issuance of the arbitration award and its enforcement faster, as it does not need to go through a validation procedure at the Brazilian supreme court (the country is not a signatory of international conventions that make the enforcement or arbitration award issued outside the territory automatic).
For tender offers: the governing law can vary depending on the domicile of the purchaser. For example, if the purchaser is a U.S. entity, the agreements tend to be governed by New York law, whilst a UK purchaser would in all likelihood use UK law. For mergers: as mergers tend to be more of a US concept, the agreement and plan of merger is normally governed by New York law, however the statutory merger agreement is always governed by Bermuda law.
British Virgin Islands
It is typical for BVI law to govern a Plan of Merger and Articles of Merger whilst the law of the operative legal agreements in relation to the merger will usually be governed by BVI, New York or English law or by the law of the purchaser’s jurisdiction.
It is typical for Cayman Islands law to govern (i) in relation to a merger, the plan of merger, and (ii) in relation to a scheme of arrangement, the scheme document. In respect of a merger agreement or an equity purchase agreement, it is customary for them to be governed by either Cayman Islands law or the law of the purchaser’s jurisdiction (such as New York for merger agreement or England for equity purchase agreement).
ZL: Acquisitions in China shall be subject to mandatory provisions of Company Law, Securities Law and other applicable laws and the approval and consents from CSRC, Ministry of the Commerce and other related authorities are necessary to complete the transactions, therefore laws and regulations of mainland China are customarily used as governing law on acquisitions in China. Nonetheless, overseas transactions constituting a section of the acquisition is customarily governed by laws and regulations of the jurisdiction where the transaction is conducted.
Transactions in Finland are customarily governed by Finnish law and due to the stable legal environment such governing law has not been an issue with international parties either. In certain circumstances acquisition agreements have also been executed under English law or some other governing law, if the parties feel more comfortable in using such alternative governing law.
The governing law of a share purchase agreement regarding the acquisition of a German target is usually German law. However, it is in principle possible to have a non-German share purchase agreement and only the separate transfer of shares governed under German law. According to German law of conflicts assets are in principal transferred according to the law of the country in which the asset is located in an asset deal transaction. The asset deal agreement itself can, however, be governed by a different law. Company law questions such as transfer restrictions are mandatorily governed by German law if the target is a German stock corporation or limited liability company and has its seat in Germany.
A distinction must be made between the law governing the share purchase agreement and the transfer contract itself which concerns the actual transfer of securities. More specifically, Greek Law will always – and compulsorily – govern the latter, while the contracting parties may choose a different law governing the share purchase agreement. In cases where Greek Law is not chosen as the governing one, the parties tend to agree on either the law of the place of the legal seat of the acquirer, or on a neutral law (often English Law).
Acquisitions in Guernsey are most commonly governed by either the laws of the Island of Guernsey or the laws of England and Wales.
Isle of Man
Acquisitions in the Isle of Man are most commonly governed by either the laws of the Isle of Man or the laws of England and Wales.
M&A transactions involving assets located in Norway, or shares in Norwegian target companies, are customarily and predominantly governed by Norwegian law. Parties may occasionally agree that foreign law shall apply to share purchase agreements, however this is not common unless both seller and buyer are based outside Norway. Even though none of the contracting parties are domiciled in Norway, it is not uncommon to make Norwegian law applicable for the transaction, save for instances where both buyer and seller are domiciled in the same jurisdiction, in which case they then often prefer agreeing that the laws of their home state jurisdiction shall apply.
Norwegian law is based on the principle of freedom of contract, subject only to limited restrictions. Still, certain mandatory rules of Norwegian law would automatically apply on M&A transactions involving a Norwegian target (e.g. matters pertaining to securities trading, employment protection and legal protection of rights etc.). Consequently, foreign parties involved in a transaction in the Norwegian market will normally have to obtain Norwegian legal advice to determine their contractual rights and obligations. If several such mandatory Norwegian rules applies on a transaction, it may be in all parties’ interest to agree upon Norwegian law in order to avoid having to spend extra time and costs, at a later stage, on determining what rules of law that may apply on a specific contractual issue.
Typically, merger plans between Norwegian companies will more or less, with no exemption be governed by Norwegian law. Tender offers for shares listed on a Norwegian regulated market are effected through an offer document drafted in accordance with the Norwegian STA and will for all practical purposes also be governed by Norwegian law.
Use of English law is rather widespread in Russia, because a considerable number of Russian transactions are being implemented through an off-shore holding company.
Nowadays, however, after the Civil Code reform, use of Russian laws in M&A and joint venture transactions tends to become more common. This is driven by liberalisation of Russian law which is now becoming more understandable and comfortable for foreign investors and has been supplemented with such instruments as warranties, representations and indemnities. High profile of Russian laws in M&A transactions also is driven by the concept of exclusive jurisdiction of Russian state commercial courts over so called ‘corporate disputes’ the scope of which includes, inter alia, disputes in connection with title to shares / participation interests, matters involving encumbrances on such title, etc. Accordingly, where a transaction target is a Russian company, the parties have to pay attention to Russian laws in constructing the terms and conditions of the transaction.
There are broadly three approaches in the Saudi market to the selection of governing law and accompanying dispute resolution provisions. Such selection will depend on the key motives of the parties to the transaction.
- The most common choice is that Saudi law be the governing law, with Saudi courts or Saudi arbitration as the dispute resolution mechanism. This will be the preferred approach where the majority of the parties and/or their assets are situated in the Kingdom.
- A common alternative is for transaction documents to be governed by English law with arbitration in accordance with recognised international rules (such as the LCIA or ICC rules), and a provision allowing for enforcement against assets outside the Kingdom. This approach is customarily adopted where the parties' most likely recourse is to enforce against assets held abroad. Enforcement against assets within the Kingdom remains subject to compliance with the principles of Sharia, notwithstanding recent legislative attempts to improve the enforceability of foreign awards in the Kingdom.
- Another option is for parties to adopt Saudi law as governing law, with GCC arbitration as a dispute resolution mechanism. This will allow for enforcement against assets held in the Kingdom and in other State signatories to the Riyadh Convention. While enforcement within the Kingdom again requires any arbitral awards to be compliant with Sharia law, there is arguably a greater chance of this taking place if the governing law is Saudi law and the arbitration venue is closer to home.
When the target company is a Japanese company, it is common for Japanese law to be designated as the governing law of the share purchase agreement. While it is possible for the parties to choose a foreign law as the governing law, it is very rare in practice, and there are limitations on such choice of law anyway, as Japanese law (Companies Act) will govern certain matters related to the share transfer such as the effectiveness of the transfer of shares of the company issuing share certificates, even if the parties agree otherwise in the share purchase agreement.
Thai law. This is the case for all domestic transactions and some cross border ones. In a cross border transaction Singapore (or other offshore arbitration venue) arbitration is commonly specified as a dispute resolution mechanism. Thailand does not enforce foreign judgments, but is a party to the New York and other arbitration conventions.
Customarily, the parties agree to Austrian substantive law and also agree to dispute resolution in Austria.
Transactions involving shares in listed or regulated entities are generally governed by Maltese law. Similarly, local and cross-border mergers are implemented in accordance with the provisions set out in the CA. However, as Maltese corporate law is heavily modelled on its English counterpart, it is not uncommon for medium and large scale acquisitions involving private entities to be governed by English law. Acquisition documents governed by the laws of Malta also draw inspiration from their English law counterparts especially in the area regarding representations and warranties.
As discussed above, M&A activity in the U.S. falls under the purview of federal and state securities and antitrust laws, state corporation laws, and laws regulating the particular industry the parties operate in (e.g., insurance, telecommunications). In addition to these laws, which provide the general framework in which deals must be accomplished, transaction agreements and other ancillary contracts almost always contain a provision stipulating which state law governs the contract as well as any disputes that may arise with respect thereto. The majority of private transactions stipulate that either New York or Delaware law will govern. In public company transactions, the law of incorporation of the target company typically governs and, if not, the law of the target company will govern the merger provisions with New York or Delaware law governing the remainder of the contract.
Vietnamese law is in most cases used to govern definitive transaction documents in the context of Vietnam-based M&A transactions. Although the choice of foreign governing law is in some cases possible, for a number of reasons such choice is usually undesirable.
The laws governing the jurisdictions of both offeror and target company must be complied with.
The governing law is most commonly either the laws of Jersey or the laws of England and Wales.
For local deals, Romanian law. For cross border deals, a mixture of foreign law, and Romanian law is used.
New Zealand law.
Acquisitions in the UK are almost invariably governed by English law.
In our experience, the governing law in most acquisitions of Spanish companies’ shares and/or business is the Spanish law.
Nevertheless, Spanish regulations are flexible and permit the election of governing law to acquisition or purchase agreements. In this sense, it is common to expressly agree the exclusion of the application of the Spanish Civil Code (Código Civil) to a transaction and any complementary Spanish regulation that might be applicable to the acquisition, in order to state that the acquisition agreement shall be governed specifically by the terms and conditions expressly agreed therein. Alternatively, the parties may agree that the terms and conditions of the agreement shall be governed by a foreign regulation, as long as a link exists between the elements of the agreement and such foreign regulation (i.e. applicable foreign regulation due to the nationality of any of the parties or its the parent company, on international transactions, if required by the financing banks, etc). Notwithstanding the above, in any event, the Spanish mandatory rules and regulations must be followed and those include, among others, the formal requirements to fulfil the transfer the ownership of the shares.
Pursuant to the Turkish conflict of laws rules, the law explicitly designated by the parties shall govern the contractual obligation relations, to the extent that the provision of the foreign law to be applied is not openly contrary to the public order of Turkey. In case of an M&A transaction, although the transfer of the ownership of shares shall be in any case governed by Turkish law, the rest of the contractual provisions can be submitted to a foreign law. While it is not uncommon to have share purchase agreements governed by Turkish law, the parties may also customarily prefer to apply Swiss law (due to its impartial character and similarity with Turkish law) or the English, French or German law (especially if the acquirer originates from one of these countries).