What are the key rules/laws relevant to M&A and who are the key regulatory authorities?
Mergers & Acquisitions (3rd edition)
The following (Belgian) regulation is typically relevant to M&A:
- the Belgian Companies’ Code for general principles of company law and laying down the procedures for (de)mergers; in June 2018, the Belgian government has introduced a bill, proposing a new Belgian Companies (and Associations) Code; the bill seeks to modernize the current corporate law regime in Belgium by simplifying where possible, creating flexibility and adapting to European evolutions and new trends; it is expected that the bill will be put to vote in Belgian parliament in the beginning of 2019; If approved, it is expected that the entry into force date will be May 2019;
- the Belgian Code of Economic Law, which contains rules on competition;
- public takeover bids are governed by the Takeover Bid Act of 1 April 2007 and its executing Royal Decrees of 27 April 2007 (i.e. the Takeover Bid Decree and the Squeeze-Out Decree), which have recently been amended with the purpose of modernizing the takeover regulation ;
- the Belgian Civil Code, which sets out the general principles of contract law;
- the Market Abuse Regulation will need to be taken into account in public M&A.
There are mainly two key regulatory authorities:
- the Financial Services and Markets Authority (FSMA), which is the relevant regulatory authority in respect to public takeover bids;
- the Belgian Competition Authority is the competent administrative body in relation to competition law.
Specific rules may apply (and the involvement of other regulatory authorities may be required) for M&A transactions in particular sectors, such as the financial sector (e.g. specific rules apply to (de)mergers of insurance companies or credit institutions and the energy sector).
The Companies Act 1981, as amended (Companies Act) is the principal piece of legislation governing companies in Bermuda and under which most companies in Bermuda are incorporated by registration. The provisions by which business combinations (either by merger, amalgamation or, in some instances scheme of arrangement) are effected in Bermuda are contained in the Companies Act. Provisions concerning the compulsory acquisition in connection with a share acquisition or business acquisition are also contained in the Companies Act. If the entity is a regulated entity and either registered under the Insurance Act 1978, as amended (Insurance Act) or the Investment Business Act 2003, as amended (Investment Business Act), these two acts may also be relevant to the transaction.
The regulatory authority responsible for registering a merger or amalgamation pursuant to the Companies Act is the Bermuda Registrar of Companies (RoC). In addition, the Bermuda Monetary Authority (BMA) may also: (i) be required to give permission from an ultimate beneficial ownership and exchange control perspective in the event there is an issue or transfer of shares in connection with the M&A transaction, unless a general permission already exists; and/or (ii) if such target or subsidiary (as applicable) is a BMA regulated and registered entity, be required to either be notified of or provide its approval to the change of control for the target or parent entities (as applicable).
There is no single rule or law that governs mergers and acquisitions but rather a set of rules that will apply depending on the nature of the target company and on the structure to be undertaken for the transaction. Some rules that govern M&A transactions include:
(i) Commercial Code, Law 222 of 1995 and Law 1258 of 2008, which are the set of rules that govern an M&A transaction from a corporate perspective;
(ii) Financial Statute and Decree 2555 of 2010, which govern the acquisition of financial institutions (including banks, insurance companies, insurance brokers and broker / dealers, among others);
(iii) Law 964 of 2005 and Decree 2555 of 2010, which govern the acquisition of publicly traded companies (including by means of a public tender offer); and
(iv) Law 1340 of 2009 and Resolution No. 88920 of 2017 issued by the Superintendence of Industry and Commerce, which governs the merger control regime.
In addition, the main regulatory authorities are the following:
(i) Superintendency of Companies (Superintendencia de Sociedades), which is the governmental entity that undertakes the surveillance of companies from a corporate and foreign exchange perspective;
(ii) Superintendency of Finance (Superintendencia Financiera), which is the governmental entity that undertakes the surveillance of financial entities (including banks, insurance companies, insurance brokers and broker / dealers, among others) and authorizes transactions related to publicly traded companies; and
(iii) Superintendency of Industry and Commerce (Superintendencia de Industria y Comercio), which is the governmental entity that undertakes the surveillance related to antitrust matters.
1.1 Key rules/laws
The acquisition of companies is regulated by a number of laws, depending on the specific type and form of the acquisition:
- The Companies Act (Zakon o trgovačkim društvima)
- The Act on Takeovers of Joint Stock Companies (Zakon o preuzimanju dioničkih društava)
- The Court Register Act (Zakon o sudskom registru)
- The Competition Act (Zakon o zaštiti tržišnog natjecanja)
- The Strategic Investment Act (Zakon o strateškim investicijskim projektima RH)
- The Civil Obligations Act (Zakon o obveznim odnosima)
- The Labor Act (Zakon o radu)
- The General Tax Act (Opći porezni zakon)
- The Income Tax Act (Zakon o porezu na dobit)
- The Act on Real Estate Transfers Tax (Zakon o porezu na promet nekretnina)
- The Court Fees Act (Zakon o sudskim pristojbama)
- The Act on Capital Markets (Zakon o tržištu kapitala)
- The EC Merger Regulation 139/2004 (Uredba EZ o koncentracijama)
- EU Directive on cross-border mergers of limited liability companies 2005/56/EC (Direktiva EU o prekograničnim spajanjima društava kapitala)
- Industry specific laws and regulations (e.g. the Banking Act (Zakon o bankama), the Act on Credit Institutions (Zakon o kreditnim institucijama), the Insurance Act (Zakon o osiguranjima), the Electronic Communications Act (Zakon o elektroničkim komunikacijama), etc.)
The basic legal framework regulating the Croatian M&A market and operations consist of three basic regulations: the Companies Act, the Act on Takeovers of Joint Stock Companies and the Competition Act. All these acts, as well as their subordinate and implementing by-laws and regulations, have been harmonized with the relevant EU regulations even prior to Croatia’s accession to the EU in 2013.
1.1.1 The Companies Act
During the long process of Croatian accession to its full EU membership, the Companies Act has been amended more than once, during which term it has been fully harmonized with the EU regulations on M&A, including (i) the 2009/109/EC Directive regarding the reporting and documentation requirements in case of mergers and divisions, as well as (ii) the 2005/56/EC Directive on cross-border mergers of limited liability companies.
As a general rule, the Companies Act differentiates two basic types of mergers: (i) one in which the companies involved in the transaction cease to exist and a new corporate entity is incorporated, being the legal successor of all involved parties (“spajanje”): and (ii) one in which only one of the companies involved in a merger continues to exist, being the legal successor of all involved parties (“pripajanje”). Also, the Companies Act incorporated the rules for implementing other types of statutory transactions, such as statutory spin-off, as well as the rules on European company Societas Europea and the European Economic Interest Group.
1.1.2 Act on Takeovers of Joint Stock Companies
The Act on Takeovers of Joint Stock Companies has duly implemented the 2004/25/EC Directive on takeover bids and regulates takeovers in a comparable manner to other EU member states. Within the last couple years, certain sections of the earlier takeover laws have been amended in an effort to improve shareholders’ protection in the takeover procedure and to provide clear and unambiguous rights and obligations of the acquirers. Public takeover bids for Croatian companies are relatively common. The Croatian legislation on takeovers provides for mandatory takeover offer once a person has acquired 25% shareholding in a public company. Public takeover bids for Croatian companies are relatively common. The program was initiated by the Croatian government in 2000 to privatize state-owned companies, which resulted in widespread public share ownership, with most large privatized companies being listed on the stock exchange in the last 20 years - this specific mandatory bid procedure has resulted in there being a large number of takeover bids relative to the size of the Croatian market. The current Croatian legislation on takeovers provides for a mandatory takeover offer once a person has acquired a 25% stake in a public company. As a general comment, the vast majority of the deals have involved friendly takeovers, with hostile takeovers are not dominant.
1.2 Key regulatory authorities
The Croatian Financial Services Supervisory Agency (HANFA) is a supervisory body whose scope and competence include supervision of financial markets, financial services and supervised entities providing those services. HANFA exercises supervision of business operations of stock exchanges and regulated public markets, companies authorized to provide investment services and perform investment activities, investment firms and securities issuers, brokers and investment advisors, tied agents, central clearing and depository company, insurance and reinsurance companies, insurance and reinsurance intermediaries, investment and pension fund management companies, pension insurance companies, investment and pension funds, Central Register of Insured Persons, Fund for Croatian Homeland War Veterans and Members of their Families, Retired Persons’ Fund and legal persons carrying out leasing and factoring operations unless they are provided by banks as part of their registered activities.
With respect to the takeover procedures: HANFA decides on the bidder’s request for approval of the publication of the takeover offer and monitors the application of the provisions of the Act on Takeovers of Joint-stock Companies and, in case of irregularities, imposes supervisory actions.
The Croatian Competition Agency (AZTN) has the official task of protecting consumers and creating equal conditions for all undertakings on the market. It ensures that undertakings behave in accordance with the applicable competition legislation and compete on the market with quality, price and innovation of their products and services. As a rule, the acquirer of the target company’s shares exceeding 51% is obliged to submit merger filing to AZTN at signing of the share purchase agreement (SPA), if the following criteria are cumulatively met:
(i) the total turnover (consolidate aggregate turnover) of all the undertakings – parties to the concentration, realized by the sale of goods and / or services in the global market, amounts to at least HRK 1 billion (approximately EUR 133,300,300) in the financial year preceding the concentration and in compliance with financial statements, where at least one of the parties to the concentration has its seat and / or subsidiary in Croatia;
(ii) the total turnover of each of at least two parties to the concentration realized in the Croatian national market amounts to at least HRK 100,000,000 (approximately EUR 13,300,300) in the financial year preceding the concentration and in compliance with financial statements.
The Zagreb Stock Exchange (ZSE) enables a transparent, secure, efficient and sustainable trading of securities and maintains the highest level of quality of capital market services to meet the needs of shareholders, investors, members and all interested parties.
Commercial Courts register and publish corporate transactions, reorganizations and changes of companies’ corporate status in Commercial Court Registry.
The relevant legislation for M & A is contained in the Law of Regulation and Control of Market Power (Ley de Regulación y Control del Poder de Mercado) and its implementing regulations.
In matters of mergers and or spin-off´s, it is also relevant the Companies Law (Ley de Compañías).
It is also important to consider legislation in other legal bodies such as the following
- Civil Code (Código Civil);
- Tax Code and Law of Internal Tax Regime (Código Tributario y Ley de Regimen Tributario Interno)
- Monetary and Finance Organic Code (Código Orgánico Monetario y Financiero) in regards to financial/insurance companies that may be involved in M&A operations; also because this law regulates trust and other fiduciary agreements that may be involved in M&A operations;
- Commerce Code (Código de Comercio);
The competent authority in the matter is the Superintendence of Market Power Control (Superintendencia de Control del Poder de Mercado) which is the Ecuadorian Antritrust Authority;
- Superintendence of Banks;
- Superintendence of Companies, Securities and Insurance;
- Other public entities: In case that the target company has entered into public procurement contracts with public entities in Ecuador; the vast majority of such contracts will include provisions by which the transfer or assignment of Target shares require prior approval from the public entity.
Austrian law does not have one specific law regulating all issues on the acquisitions of companies, but rather various different statutes apply, depending on the specific type and form of an acquisition.
In particular, the following laws are relevant:
- Cartel Act (Kartellgesetz)
- Commercial Code (Unternehmensgesetzbuch)
- Commercial Register Act (Firmenbuchgesetz)
- Corporate Transformation Act (Umwandlungsgesetz)
- Demerger Act (Spaltungsgesetz)
- EC Merger Control Regulation (EG-Fusionskontrollverordnung)
- Employment Contract Adaptation Act (Arbeitsvertragsrechts-Anpassungsgesetz)
- EU Cross-Border Merger Act (EU Verschmelzungsgesetz)
- Federal Fiscal Code (Bundesabgabenordung)
- Foreign Trade Act (Außenwirtschaftsgesetz)
- General Civil Code (Allgemeines Bürgerliches Gesetzbuch)
- General Data Protection Regulation (GDPR), Regulation (EU) 2016/679 (Datenschutz-Grundverordnung)
- Joint Stock Corporations Act (Aktiengesetz)
- Income Tax Act (Einkommenssteuergesetz)
- Limited Liability Companies Act (Gesetz über Gesellschaften mit beschränkter Haftung)
- Minority Shareholder Squeeze-Out Act (Gesellschafterausschlussgesetz)
- Real Estate Transfer Tax Act (Grunderwerbssteuergesetz)
- Reorganisation Tax Act (Umgründungssteuergesetz)
- Stamp Duty Act (Gebührengesetz)
- Stock Exchange Act (Börsegesetz)
- Takeover Act (Übernahmegesetz)
- Rules regarding specific regulated industries (e.g., Banking Act (Bankwesengesetz), Insurance Supervisory Act (Versicherungsaufsichtsgesetz))
For asset deals, in particular the provisions of Article 1409 of the General Civil Code and Article 38 of the Commercial Code are pertinent. Article 1409 of the General Civil Code provides that a purchaser generally is jointly and severally liable with the seller towards the seller’s creditors for any liabilities of the acquired business having their origin prior to the acquisition. The purchaser’s liability is limited to the current net asset value of the acquired assets and applies in case the purchaser knew or should have known at the time of the purchase of the pre-existing liabilities. Article 1409 of the General Civil Code is mandatory law and cannot be waived or amended by contract. Liability can be reduced if the purchase price payable by the buyer is used to pay off the debts of the business sold.
In addition to Article 1409 of the General Civil Code also Article 38 of the Commercial Code contains special liability provisions for asset deals. Even if the buyer is not liable under the General Civil Code because, for example, the purchase price was used to pay off the debts of the business sold, the buyer still might be liable under the Commercial Code. Article 38 of the Commercial Code provides that a legal entity which acquires and continues a commercial business is liable for all debts the former owner incurred in the course of business conduct, meaning even those which are not contractually agreed to be taken over by the buyer. Unlike liability under Article 1409 of the General Civil Code, liability under the Commercial Code is not limited to the value of the acquired assets. Nevertheless, under Article 38 of the Commercial Code the seller and the buyer can agree to limit liability of the seller, such limitation of liability, however, being only valid if a timely notification to the commercial register is submitted or otherwise made public.
In addition, there are successor liability provisions under the Federal Fiscal Code, the General Social Insurance Act (Allgemeines Sozialversicherungsgesetz) and the Employment Contract Adaptation Act.
Regarding the transfer of shares in Austrian limited liability companies (Gesellschaft mit beschränkter Haftung), the Limited Liability Companies Act requires that the transfer be executed in the form of a notarial deed. Therefore, the involvement of an Austrian notary public or a notary public subject to a comparable regime (e.g., a German notary complying with equivalent standards in Austria) is necessary.
The key regulatory authorities in M&A transactions are regularly the antitrust authorities due to the relatively low thresholds, the broad definition of “concentrations” and the extensive interpretation of Austrian competence for merger clearances. In Austria, there are three authorities involved, the Federal Competition Authority (Bundeswettbewerbsbehörde), the Federal Antitrust Prosecutor (Bundeskartellanwalt) and the Cartel Court (Kartellgericht). Transactions need their clearance if the transaction (i) constitutes a “concentration” as defined in the Cartel Act (Kartellgesetz), which includes the acquisition of non-controlling minority shareholdings of 25% or more as well as joint ventures, (ii) does not fall in the scope of the EC Merger Regulation (ECMR), and (iii) exceeds the fairly low thresholds set by the Cartel Act. In addition, special calculation rules for group turnover apply by far exceeding the group companies included by the ECMR or classic group accounting, with more special rules on turnover calculation for the banking, insurance and media sectors.
The Austrian thresholds are: Option A: (i) The combined worldwide aggregate group turnover of all participating undertakings in the year prior to the transaction exceeds EUR 300 million; (ii) the combined aggregate group turnover of all participating undertakings in Austria was more than EUR 30 million; and (iii) the worldwide group turnover of at least two participating undertakings each exceeded EUR 5 million. The following exception applies: If (i) only one independent undertaking has a group turnover in Austria of more than EUR 5 million, and (ii) the other participating undertakings' combined worldwide aggregate group turnover does not exceed EUR 30 million.
Option B (new): (i) The combined worldwide aggregate group turnover of all participating undertakings in the year prior to the transaction was more than EUR 300 million; (ii) the combined aggregate group turnover of all participating undertakings in Austria exceeded EUR 15 million; (iii) the value of the consideration for the transaction is more than EUR 200 million; and (iv) the target company has significant operations in Austria. The FCA has issued guidelines on the calculation of the “consideration” together with the German Bundeskartellamt. Clearance takes four weeks in unproblematic cases. In-depth-investigation proceedings may take up to eight months.
Other relevant authorities are the Commercial Register Courts (Firmenbuchgerichte), which register and publish transactions and reorganizations in the Austrian commercial register, and the Financial Market Authority (Finanzmarktaufsicht), which reviews banking acquisitions.
The change in data protection law under the General Data Protection Regulation, Regulation (EU) 2016/679 (GDPR), which came into effect on 25 May 2018, also has had a significant impact on the due diligence process of M&A transactions. During a due diligence, there are potential risks of data and privacy breaches when seller is disclosing data to the buyer. There are a plethora of data protection issues under the GDPR that especially the seller needs to take into consideration, including in particular safeguarding the non-disclosure of personal data. Fines can be for the higher of EUR 20 million or up to 4% of the breaching company’s world-wide turnover.
A significant change that has affected public M&A transactions since 3 January 2018 was the introduction of the possibility of delisting in the Stock Exchange Act ("BörseG"), which was introduced to incorporate new EU investor protection and capital market transparency regulations. A prerequisite for such a delisting is the positive resolution of the Annual General Meeting with a qualified majority and the prior active official listing over a period of three years. In addition to this regular delisting, a so-called "cold delisting", i.e. delisting under company law, measures under company law such as mergers were also introduced. The motivation for such a delisting could be based on economic factors such as conflicts between the supply and demand sides or internal company initiatives to avoid the transparency rules and competitive disadvantages associated with stock exchange regulation.
(a) Applicable rules/laws:
The key laws of M&A in the Czech Republic form the Civil Code (Act No. 89/2012 Coll., as amended) together with the Business Corporations Act (Act No. 90/2012 Coll., as amended). Depending on the type of transaction, various other rules may apply such as inter alia the following:
- Act on Transformations of Business Companies and Cooperatives (Act No. 125/2008 Coll., as amended, hereinafter “Transformations Act”);
- Act on Takeover Bids (Act No. 104/2008 Coll., as amended);
- Capital Market Undertakings Act (Act No. 256/2004 Coll., as amended);
- Act on Bankruptcy and Modes of its Solution (the Insolvency Act) (Act No. 182/2006 Coll., as amended);
- Act on the Protection of Competition (Act No. 143/2001 Coll., as amended);
- Cadastral Act (Act No. 256/2013 Coll., as amended);
- Labour Code (Act No. 262/2006 Coll., as amended); and
from time to time, the specific rules/laws and other legislation apply with regard to the terms and conditions of the concerned M&A transaction, e.g. specific sector rules in regulated industries such as banking, healthcare, insurance, telecommunication or media.
(b) Regulatory authorities:
With regard to the specific terms and conditions of the M&A transactions, the following key regulatory authorities may be involved in the course of a transaction:
- Czech National Bank as the main regulatory and supervisory authority in the capital and financial markets as well as during the bidding process according to the Act on Takeover Bids;
- Czech Office for the Protection of Competition / European Commission if a merger clearance is required;
- Further sector-specific authorities, such as Czech Telecommunication Authority, Industrial Property Office.
The commercial courts further register some processes and documents related to the M&A transactions with the publicly accessible Czech commercial register and collection of deeds.
British Virgin Islands
Sources of Regulation
The primary source of law relevant to M&A in the British Virgin Islands (BVI) is the BVI Business Companies Act 2004, as amended (the Act).
The Act permits mergers between:
- BVI companies incorporated and registered under the Act; and
- a BVI company or companies incorporated under the Act and a foreign company or companies (assuming this is permissible under the applicable foreign law).
In the case of a merger between a parent and one or more of its subsidiaries, a simplified procedure is available under the Act.
The Act also permits mergers through plan of arrangement or scheme of arrangement and provides for a minority squeeze-out procedure.
There are change of control rules applicable to entities regulated by the British Virgin Islands Financial Services Commission under the relevant financial services legislation, including the Banks and Trust Companies Act, 1990 and the Insurance Act, 2008.
Sources of Regulation
The primary sources of regulation of Cayman Islands M&A are (i) the Companies Law (2018 Revision), as amended (the “Companies Law”), (ii) the Limited Liability Companies Law (2018 Revision), as amended (the “LLC Law”), and (iii) the common law.
- statutory mergers/consolidations, amalgamations and reconstructions by way of a scheme of arrangement are available for more complex mergers (with schemes of arrangement usually used in the context of a restructuring). Mergers and consolidations require the approval of the requisite majorities of shareholders and any secured creditors and are governed by Part XVI of the Companies Law and Part 10 of the LLC Law. Schemes of arrangement require the approval of the requisite majorities of shareholders or creditors, as the case may be, and by an order of the Cayman Islands court under section 86 or 87 of the Companies Law or section 42 or 43 of the LLC Law (as applicable); and
- section 88 of the Companies Law and section 44 of the LLC Law provide a limited minority squeeze-out procedure which may be used in connection with a contractual acquisition of equity.
Different Rules for Different Types of Company
Except to the extent described below with respect to companies listed on the Cayman Islands Stock Exchange (the “CSX”), there are not different rules for different types of company.
The Cayman Islands does not have a prescriptive set of legal principles specifically applicable to ‘take-overs’, ‘going private’ or other acquisition transactions (unlike certain other jurisdictions such as, for example, Delaware).
While there is no specific Cayman Islands statute or regulation concerning the conduct of M&A transactions, where the target’s equity securities are listed on the CSX, the CSX Code on Takeovers and Mergers and Rules Governing Substantial Acquisitions of Shares (the “Code”) will apply. The Code exists principally to ensure fair and equal treatment of all shareholders, and provide an orderly framework within which takeovers are conducted.
There are change-of-control rules applicable to entities in regulated sectors, including those regulated by the Cayman Islands Monetary Authority under the Banks and Trust Companies Law (2018 Revision), the Companies Management Law (2018 Revision), the Insurance Law, 2010, as amended or, with respect to mutual fund administrators, the Mutual Funds Law (2019 Revision). In addition, ownership and control restrictions apply to certain entities regulated by the Information and Communications Technology Authority Law (2019 Revision).
The key M&A legal provisions can essentially be found in the French Civil Code (Code civil), Commercial Code and Monetary and Financial Code (Code monétaire et financier).
Spawned by the Napoleonic codification, the French Civil Code still sets out the basic principles of company law and contract law that has however been recently modernized by an ordinance of February 10, 2016, complemented by a ratification law that entered into force on October 18, 2018.
Provisions of the French Commercial Code and Monetary and Financial Code, beyond the general principles, detail the specific set of rules relevant to commercial companies for the different types of legal structures.
In addition to these standard sources, European Union law has acquired a central place, particularly, through the assertion of the freedom of establishment principle by the Court of Justice as well as by the directive on cross-border mergers of limited liability companies or the takeover directive for example. Furthermore, through its growing regulatory power, the Financial Markets Regulator (Autorité des Marchés Financiers or AMF) has increased its clout: it is the French supervisory authority for public offers and its general regulation frames market practices. The French Competition Authority (Autorité de la concurrence or FCA) and the French Ministry of the Economy (including via a strengthened FDI supervision) play also an important role in M&A transactions.
Provisions affecting mergers and acquisitions are spread in an impressive number of laws.
On 13 June 2018, Law 4548/2018 on the reform of the law on public limited companies (sociétés anonymes) was published in the Government Gazette; this law came into force on 1 January 2019 (hereinafter “Law 4548/2018”). It entirely replaces the old codified Law 2190/1920, except for the chapters dedicated to mergers, reverse mergers and transformations of Greek sociétés anonymes (SAs), (and certain other provisions). The chapter on mergers, etc. is expected to be replaced by a new regulatory framework on corporate mergers, already introduced to Parliament for discussion and voting as of 11 February 2019 by the Minister of Economy and Development. The Draft bill “On Corporate Transformations,” (hereinafter “Draft Law”), on which the public consultation was concluded already as of 25 October 2018, relaxes a number of restrictions in the field of corporate transformations by allowing, for example, different forms of companies to merge and all kinds of corporations and not just sociétés anonymes to be split, while also establishing a clearer legislative framework in relation to the transformation of partnerships companies to sociétés anonymes.
Law 3777/2009, implementing the cross-border merger Directive 2005/56/EC is also relevant, while Law 3461/2006 transposing Directive 2004/25/EC and Law 3556/2007 transposing the Transparency Directive 2004/109/EC in relation to information obligations in cases of acquisition of significant holdings in listed companies also apply to listed companies, along with Law 4443/2016 on market abuse. Further laws regulating special types of companies also contain specific M&A provisions, such as Law 4072/2012 on private limited companies (PCs), Law 3190/1955 on limited liability companies and Law 2515/1997 on mergers between credit institutions.
Law 3959/2011 regulates competition law aspects related to concentrations and applies in conjunction with the EC Merger Regulation 139/2004. The laws offering tax neutrality to transactions are of significant importance, as they have facilitated numerous M&As and corporate transformations in Greece. Tax incentives are principally provided by Legislative Decree 1297/1972, Law 2166/1993 and Law 4172/2013 (the Income Tax Code). Certain tax benefits and motives will remain in force even after the Draft Law comes into force, if ever. All other provisions of the aforementioned Laws will be abolished by the Draft Law after it comes into force, especially as regards the conditions, the process of transformation and the results thereof.
Greece does not have a specialised M&A market regulator. Specific issues regarding takeover bids are regulated by the Hellenic Capital Market Commission (HCMC), while concentration matters are dealt by the Hellenic Competition Commission. For transactions in regulated markets, such as financial institutions including insurance companies, or licensed entities as, e.g. in the energy sector, the sector-specific authorities are also in charge.
The law with the most relevance to M&A in Japan is the Companies Act.
And, the following laws, rules and regulations are also important:
- The Financial Instrument and Exchange Act (the “FIEA”);
- The Act on Prohibition of Private Monopolization and Maintenance of Fair Trade (the “Anti-Monopoly Act”); and
The Foreign Exchange and Foreign Trade Act (the “FEFTA”).
In addition to these laws, rules and regulations, there are specialized laws that regulate certain specific business segments such as banking, insurance and broadcasting.
The Legal Affairs Bureau, one of the local organizations of the Ministry of Justice, is responsible for the commercial registry of companies. The Financial Services Agency and the Japan Fair Trade Commission are the key regulatory authorities in the enforcement of the FIEA and the Anti-Monopoly Act, respectively, and there are other competent authorities tasked with supervising specific business segments.
Publicly traded or listed companies are also subject to the supervision of the relevant stock exchange on which their shares are listed in compliance with the applicable rules and regulations of such stock exchange.
The key laws governing M&A in Jersey are:
- Part 18 (Takeovers), Part 18A (Compromises and Arrangements) and Part 18B (Mergers) of the Companies (Jersey) Law 1991;
- The UK City Code on Takeovers and Mergers (Takeover Code);
- The Competition (Jersey) Law 2005.
The key regulatory authorities are:
The UK Takeover Panel (Panel) has been appointed by the Companies (Appointment of Takeovers and Mergers Panel) (Jersey) Order 2009, made under Article 2 of the Companies (Takeovers and Mergers Panel) (Jersey) Law 2008, to carry out certain regulatory functions in relation to takeovers and mergers under Jersey law that fall within the ambit of the Takeover Code. The Takeover Code applies to offers for companies, other than open-ended investment companies, registered (and having their registered office) in the UK, the Channel Islands or the Isle of Man, where those companies have any of their securities admitted to trading on a regulated market in the UK or on any stock exchange in the Channel Islands or the Isle of Man. The Takeover Code also applies to offers for public companies and, in certain limited circumstances (relating to previous listings, marketing arrangements and issue of prospectuses), private companies, which have their registered offices in Jersey and which are considered by the Panel to have their place of central management and control in the UK, Channel Islands or Isle of Man.
The prior approval of the Channel Islands Competition and Regulatory Authorities will be required where the share of supply or purchase of one or more parties to a merger in any product or service exceeds relevant thresholds as set out in the Competition (Mergers and Acquisitions) (Jersey) Order 2010.
The consent of the Jersey Financial Services Commission will be required if the merger or acquisition involves entities carrying on a regulated activity in Jersey (which includes banking, insurance, funds, trust or fiduciary business) or if variation is needed of a consent issued to the target company pursuant to the Control of Borrowing (Jersey) Order 1958.
Mergers and acquisitions are governed principally by the Companies Act 2001, Securities Act 2005 and the Competition Act 2007.
The institution and regulatory bodies regulating mergers and acquisitions are Registrar of Companies (ROC), the Financial Services Commission (FSC) and the Competition Commission.
The main laws governing business combinations are the 2017 Myanmar Companies Law (MCL), the 2016 Myanmar Investment Law (MIL) and the 2015 Competition Law.
The MCL was passed on 6 December 2017 and entered into force on 1 August 2018, replacing the 1914 Myanmar Companies Act (MCA). It modernised the MCA (for example, improving companies’ ability to manage their capital structure) and removes some barriers to foreign investment.
Importantly, companies incorporated under the MCL (as under the MCA) are classified as either a “foreign company” or a “Myanmar company”. This distinction is important as there are a number of legal and practical restrictions to foreign companies doing business in Myanmar. For example, the 1987 Transfer of Immoveable Property Restriction Law (TIPRL) in practice has prohibited the transfer of immoveable property to, or its acquisition or lease for more than one year by, a foreign company, limiting such companies’ participation in mergers and acquisitions in sectors involving significant land use (such as agriculture or construction). However, while under the MCA, a Myanmar company was defined as a company with no foreign shareholding, under the MCL up to 35 per cent foreign shareholding is permitted in such companies.
The MCL also abolishes the requirement for foreign companies to obtain a permit to trade, required under section 27A(3) of the MCA for a foreign company to carry on business in Myanmar, and which in practice, was only very rarely given for foreign companies intending to engage in trading activities.
Foreign investment regulations
The MIL, which was passed on 18 October 2016, also simplified and deregulated the investment regime in Myanmar. It combined the previous local and foreign investment laws into one law and provided for a streamlined investment approval process. Generally, a permit will be required under the MIL from the Myanmar Investment Commission (MIC), which administers the MIL, for large-scale projects, including investments that are strategically important, capital intensive, have a large potential impact on the environment or local community, use state-owned land and other designated investments. MIC approval will also be required for the direct or indirect acquisition of a majority of shares or controlling interest in a company with an MIC permit or endorsement (described in question 22 below).
In terms of the restrictions under the TIPRL noted above, the MIL permits foreign investors with an approval under the MIL to lease land for an initial term of up to 50 years (with two extensions of 10 years each). Such approval under the MIL may be in the form of an MIC permit or endorsement, together with a land rights authorisation. MIC endorsements were introduced in the MIL as a streamlined approval where an MIC permit was not required. However, while they are easier to obtain than an MIC permit, they have not proved as streamlined an approval in practice as originally envisaged, and the MIC generally requests detailed documentation as part of endorsement applications, based on the application process for MIC permits.
MIC issued the 2017 Myanmar Investment Rules (MIR) on 30 March 2017 setting out the process of obtaining approval under the MIL, and Notification No 15/2017 titled List of Restricted Investment Activities in relation to section 42 of the MIL (Negative List) on 10 April 2017, setting out the types of investments that are restricted to foreign investment, require approval of a Myanmar government ministry or may only be made through a joint venture with a Myanmar company. While the Negative List was intended to be a comprehensive list of all such restrictions, it has not proved to be so in practice, and legal advice should be obtained on the specific restrictions applicable to particular mergers and acquisitions.
Myanmar’s Competition Law entered into force on 24 February 2017. This law prohibits collaborations that ‘intend to raise extremely the dominance over the market’, or lessen competition in a limited market; or would result in a market share above the prescribed amount.
Business combinations prohibited under the Competition Law may be exempt in certain circumstances, including if the acquired business is at risk of insolvency or if it will promote exports, technology transfer or productivity. However, it is not yet clear how its requirements will be applied in practice.
The Ministry of Commerce (MOC) issued the Competition Rules, set out in Notification No 50/2017, on 9 October 2017 providing primarily for the establishment of the Myanmar Competition Commission (Commission), which was then established on 31 October 2018 under Notification No 106/2018 of the Myanmar Government. The Commission is expected to administer the Competition Law, and clarify its operation. In December 2018, the MOC published Form 1, which provides for the submission of complaints under the Competition Law to the Commission.
Myanmar passed the Securities and Exchange Law in 2013 (SEL) and established the Yangon Stock Exchange (YSX) pursuant to that law in 2015. However, the YSX is still developing as a stock exchange, and there are currently only five listed companies.
An impediment to the growth of the YSX is the restriction on foreign participation. Under Instruction 1/2016 of the Securities and Exchange Commission of Myanmar (SECM), foreign companies cannot trade on the YSX. Since the implementation of the MCL, the YSX and SECM have been working to permit foreign trading on the YSX, however it is not yet clear when this will be finalised.
The key regulatory authorities applicable to mergers and acquisitions are the Directorate of Investment and Company Administration (Dica), which administers the MCL, MIC, YSX, SECM and Commission.
The key corporate specific legislation governing M&A in the Norwegian market is primarily the Private Limited Liability Companies Act (1997) (the "LLCA"), the Public Limited Liability Companies Act (1997) (the "PLLCA") and the Partnership Act (1985). Further, public companies whose securities are listed on the Oslo Stock Exchange or another regulated market in Norway are also subject to the Securities Trading Act (2007) (the "STA"), the Securities Trading Regulation (2007) and the EU Regulation No 600/2014 on markets in financial instruments..
In addition to the above-mentioned corporate framework, business transactions will on a case by case basis be supplemented by various and more general provisions found in, inter alia, the Contract Act (1918) (which applies to almost any contract), the Sales of Goods Act (1988), the Income Tax Act (1999) and the Accounting Act (1998) (both pertaining to transactional tax considerations) and the Working Environment Act (2005). Further, the Competition Act (2004) provides regulations on, and the procedure to intervene against, anti-competitive concentrations. Companies that are active in the Norwegian market (generally in larger transactions) must also consider and abide by the merger control provisions set out in the EEA Agreement.
The primary regulators governing the M&A activity in Norway are the Financial Supervisory Authority (Finanstilsynet) (FSAN), the Norwegian Competition Authority (the "NCA"), the Ministry of Finance, the Ministry of Justice and the Ministry of Trade, Industry and Fishery.
The main and complementary rules of Peruvian law relevant to mergers and acquisitions operations can be found in:
- Corporations Law approved by Law N° 26887, as amended (Ley General de Sociedades).
- Civil Code approved by Legislative Decree N° 295, as amended (Código Civil).
- Regulation of the Companies Register approved by Resolution N°200-2001-SUNARP-SN (Reglamento del Registro de Sociedades).
- The Peruvian Securities Market Law, approved by Supreme Decree N° 093-2002-EF, as amended (Texto Único Ordenado de la Ley de Mercado de Valores).
- Tender Offer Regulations approved by CONASEV Resolution N°009-2006-EF-94.10. as amended.
- Economic Group Regulations, approved by SMV Resolution N° 019-2015-SMV/01 (Reglamento de Propiedad Indirecta, Vinculación y Grupos Económicos).
- Market Abuse Regulations, approved by SMV Resolution N°005-2012-SMV-01, as amended (Reglamento contra Abuso de Mercado - Normas sobre Uso Indebido de Información Privilegiada y Manipulación de Mercado).
Likewise, the relevant regulatory authorities are the following:
- Superintendency of the Public Registries
- Superintendency of the Securities Market
- Superintendency of Customs and Tax Administration
Additional rules may apply if one of the participants of the M&A transaction is an entity regulated under a special legal framework, such as banks or other financial entities, which are supervised by the Peruvian Superintendency of Banks, Insurance and Pension Funds.
The key Philippine laws on M&A are: (a) the Corporation Code as the Philippines’ general law on corporations and M&As; (b) the Securities Regulation Code (“SRC”) which imposes additional requirements for M&As involving listed companies for the protection of stockholders; (c) the Foreign Investment Act of 1991 (“FIA”) as well as certain provisions of the Philippine Constitution and other laws which impose foreign ownership limits in certain Philippine industries; and (d) the Philippine Competition Act (“PCA”) which is a relatively recent legislation requiring merger clearances prior to the consummation or implementation of M&As.
The Securities and Exchange Commission (“SEC”) is the national government regulatory agency that implements the Corporation Code, SRC as well as the foreign ownership limits under the FIA through its regulatory power over all corporations. Regulated or nationalized industries under the FIA are defined by the Office of the President through its promulgation of the Foreign Investment Negative Lists. Under the most recent Foreign Investment Negative List (Exec. Order No. 65, S. 2018), internet businesses can now have 100% foreign equity ownership. Contracts for construction and repair of locally funded public works now have a 40% foreign equity cap which was previously set at 25%. Meanwhile, insurance adjustment companies, lending companies, financing companies, and investment houses were delisted.
The Philippine Competition Commission (“PCC”) is the regulatory and quasi-judicial agency tasked to implement the PCA. Its primary function is to review and clear M&As which meet Size of Party and Size of Transaction Thresholds. It also has jurisdiction to hear and decide cases involving the validity of M&As and penalize anti-competitive acts, such as abuse of dominant position, bid rigging and price fixing.
The Bureau of Internal Revenue (“BIR”) also plays a part in M&As through the issuance of tax clearances necessary for the transfer of shares and other assets to the acquirer. M&As involving regulated industries usually require the endorsement or approval of certain government agencies. For example, M&As involving banks require the prior approval of the Bangko Sentral ng Pilipinas (“BSP”) and is subject to the rules and procedures contained in the BSP’s Manual of Regulations for Banks.
Isle of Man
In the Isle of Man a company may be incorporated under either the Isle of Man Companies Acts 1931-2004 (1931 Act) or the Isle of Man Companies Act 2006 (2006 Act). The Act under which a company is incorporated will provide the legal framework for its operation in all areas including any merger and acquisition (M&A).
The United Kingdom (UK) City Code on Takeovers and Mergers (Takeover Code) extends to the Isle of Man and applies in relation to certain Isle of Man listed companies. The Takeover Code will apply to a company which has its registered office in the Isle of Man in the following situations:
(a) if the company has its securities admitted to a regulated market or multilateral trading facility (i.e. AIM) in the UK or on any stock exchange in the Channel Islands (CI) or Isle of Man;
(b) where the company is a public or private company and is considered by the Panel on Takeovers and Mergers (who administer the Takeover Code) to have their place of central management and control in the UK, CI or Isle of Man (the Residency Test).
In situations where the Residency Test is met, a further set of requirements would then need to be satisfied in order for the Takeover Code to apply if the company was a private company. The requirements are:
i. that the company’s securities have been admitted to trading on a regulated market or a multilateral trading facility in the UK or on any stock exchange in the CI or the Isle of Man at any time during the 10 years prior to the relevant date; or
ii. dealings and/or prices at which persons were willing to deal, in any of the company’s securities have been published on a regular basis for a continuous period of at least six months in the 10 years prior to the relevant date; or
iii. any of the company’s securities have been subject to a marketing arrangement (as described under the Companies Act 2006 (of Parliament);
iv. they have filed a prospectus for the offer, admission to trading or issue of securities with the registrar of companies or any other relevant authority in the UK, the CI or the Isle of Man at any time during the 10 years prior to the relevant date.
As companies incorporated under the 2006 Act cannot be classified as public or private in the same way as under most other companies legislation, the Takeover Code treats these as private companies. A company incorporated under the 2006 Act will only be treated as being subject to the Takeover Code when the above criteria set out at paragraph i – iv above apply.
The main set of rules applicable to M&A transactions in Portugal are the Portuguese Civil Code, Companies Code, Securities Code and Commercial Code.
CMVM is the Portuguese securities market regulator (“CMVM”) that oversees, amongst others, public M&A. Sector specific regulators may also be relevant in M&A deals.
Key rules/laws: Civil Code, Companies Law No. 31/1990, Capital Markets Law No. 297/2004, Competition Law No. 21/1996
Key authorities: Commercial Registry Office, Competition Council (merger control), National Bank of Romania (banks and non-bank financial institutions), Financial Supervision Authority (capital markets, insurance, pensions)
The main document regulating the M&A sector in Russia is the Civil Code of the Russian Federation (Part 1) dated 30 November 1994 No. 51-FZ, which has recently undergone substantial reform aimed, inter alia, at liberalisation of legal regulation of the M&A sector and, generally, corporate and contract law.
Depending on the form of the target Russian company, Federal law ‘On joint-stock companies’ or Federal law ‘On limited liability companies’ also will apply to a transaction in question.
An important part of M&A regulation is set forth in Federal law ‘On protection of competition' dated 26 July 2006 No. 135-FZ.
Specific M&A relevant provisions can be found in other laws and regulations, such as Federal law ‘On securities market’ dated 22 April 1996 No. 39-FZ, Federal law No. 57-FZ ‘On procedures for foreign investments in companies of strategic importance for national defence and state security’ dated 29 April 2008 and Federal law No. 160-FZ ‘On foreign investments in the Russian Federation’ dated 9 July, 1999.
The Federal Antimonopoly Service of the Russian Federation (FAS) is responsible for control over compliance with antimonopoly legislation, legislation in the field of natural monopolies’ activity and legislation on foreign investments in Russia. FAS may also issue decrees or regulations related to some procedural aspects of M&A transactions.
A wide range of powers is being exercised by the Central Bank of Russia starting 1 September 2013. Since that time, it has been responsible for adoption of regulations, control and supervision over all financial markets.
Finally, over the last several years the Supreme Court of the Russian Federation has been quite active in issuing rulings containing an official interpretation of various provisions of corporate and contract laws.
The Companies Act No 71 of 2008 (Companies Act) has regulated all takeover and public M&A activity in South Africa since 1 May 2011. The Companies Act and the regulations thereto contain provisions regulating takeovers and mergers. These are collectively known as the Takeover Regulations and will apply to all public companies, but only certain private companies. Takeovers are regulated by the Takeover Regulation Panel (TRP) established under the Companies Act.
The Financial Markets Act No 19 of 2012 (FMA) is also a key statute and, among other things, contains the South African Insider Trading and Market Abuse Legislation. Alongside the FMA, the recently enacted Financial Sector Regulation Act No 9 of 2017 (FSRA) aims at restructuring the financial regulatory system in South Africa whilst increasing and reinforcing stability in the financial sector. This statute should be considered when implementing a M&A transaction in the financial services sector. The the Prudential Authority and Financial Sector Conduct Authority (along with the JSE (as defined below) where applicable) are the regulatory authorities designated to enforce the aforementioned legislation.
The Listing Requirements of the Johannesburg stock exchange, operated by the JSE Limited (JSE), apply if:
1.1. The bidder’s or target’s shares are listed on the JSE. Under the Listing Requirements, the bidder’s shareholders must approve an acquisition if the offer consideration (and/ or dilutionary effect) is larger than 25% of the market capitalisation of the bidder.
1.2. Any new shares being offered as part of the bid consideration are to be listed on the JSE.
Competition law (anti-trust law) in South Africa is somewhat unique as, unlike in other jurisdictions, the Competition Act No 89 of 1998 (Competition Act) requires, in addition to a substantial impact on competition, that the competition authority review public interest objectives as part of the assessment of competition issues in relation to a merger. Pre-implementation approval under the Competition Act is mandatory for all transactions categorised as “intermediate” and “large” mergers. A merger is defined in detail in the Competition Act and is given further meaning through case law, but entails, in essence, the acquisition of control by one firm over another. A particular merger will require notification to the South African Competition Authorities in the prescribed manner and form where the requisite jurisdiction is present (that is, the transaction constitutes economic activity in or having an effect within South Africa), and that the applicable monetary thresholds are satisfied (based on the turnover and asset values attributable to the transaction parties).
The key laws relating to M&A in Sweden are the Swedish Companies Act setting out the rules for Swedish limited liability companies (the entity form used for the vast majority of enterprises) and the Swedish Competition Act. In addition thereto, legislation relating to contracts law, employees, securities and the relevant industry are naturally also of relevance (such as financial supervisory regulations for banks, insurance companies and other entities in the financial sector).
Further, with respect to transactions concerning a publicly listed company, the Swedish Stock Market (Takeover Bids) Act, the Swedish Financial Instruments Trading Act, the Swedish Securities Market Act and the Swedish Market Abuse Act constitute important legislation. In addition, the Swedish Takeover Rules set forth rules that must be complied with in the event of a takeover offer (it can be noted that the Takeover Rules also apply to mergers and quasi-mergers). Naturally, the EU Market Abuse Regulation (MAR), and the Swedish Supplemental Provisions for the EU Market Abuse Regulation Act, are also applicable (in relevant parts) in case of a public transaction.
The Swedish Securities Council is one of the key regulatory authorities as concerns public deals. The Swedish Securities Council is a private body made up of representatives of various organisations with the main purpose of ensuring compliance with good practice on the Swedish securities market. Under the Swedish Takeover Rules, the Swedish Securities Council has been given the power to issue statements and rulings on points of interpretation and grant dispensation from compliance with the rules and, further, it is authorised to issue statements and rulings on matters arising under the Swedish Stock Market (Takeover Bids) Act. In addition to the Swedish Securities Council, the key regulatory authorities are the Swedish Financial Supervisory Authority, the Swedish Competition Authority and the Association for Generally Accepted Principles in the Securities Market.
The key source of law relevant to private M&A is the Swiss Code of Obligations. For companies listed on a Swiss stock exchange, the Financial Market Infrastructure Act ("FMIA") contains specific rules on the disclosure of shareholdings, public tender offers, as well as insider dealing and market manipulation. The provisions of FMIA are specified in three implementing ordinances, the Financial Market Infrastructure Ordinance ("FMIO"), the Financial Market Infrastructure Ordinance by FINMA ("FMIO-FINMA") and the Takeover Ordinance by the Swiss Takeover Board ("TOO"). Companies listed on the SIX Swiss Exchange ("SIX") are also bound by, among others, the Listing Rules, the Directive on Ad hoc Publicity, the Directive on Management Transactions and the Directive on Delisting. Statutory mergers are governed by the Swiss Merger Act.
The supervising authority on public tender offers is the Swiss Takeover Board ("TOB"). The TOB issues binding decisions relating to any public tender offer. Decisions of the TOB can be appealed before the Swiss Financial Market Supervisory Authority FINMA ("FINMA"). Against FINMA's decisions an appeal can be lodged with the Federal Administrative Court. The decisions of the Federal Administrative Court are final and cannot be appealed.
Other key regulatory authorities include the Swiss Competition Commission ("COMCO"), which is the authority for merger filings, and FINMA, which supervises companies that are active in the financial sector (banks, insurance companies, funds). Approvals from other authorities may be required in transactions in sectors that require a permit or licence (e.g. telecommunications, gambling, radio broadcasting or aviation).
The following are the Thai laws which are generally relevant in M&A activities and the governmental authorities in charge of them:
- The Thai Civil and Commercial Code, as amended (the “CCC”) - The Ministry of Commerce (the “MoC”) is the regulatory authority for this legislation. The CCC is relevant where an acquirer or a target company is a private company;
- The Thai Public Limited Company Act B.E. 2535 (1992), as amended (the “PLC Act”) - The MoC is the regulatory authority for this legislation. The PLC Act is relevant where an acquirer or a target company is a public company;
- The Securities and Exchange Act B.E. 2535 (1992), as amended, including various notifications (such as disclosure requirements and takeover regulations) issued under it - The Securities and Exchange Commission (the “SEC”) is the regulatory authority for this legislation;
- The Foreign Business Act B.E. 2542 (1999) (the “FBA”) - The MoC is the regulatory authority for this legislation. The FBA contains the limitations and restrictions for a foreigner to conduct business in Thailand; and
- The Trade Competition Act B.E. 2560 (2017) including notifications issued under it - The Office of Trade Competition Commission is the regulatory authority for this legislation.
In addition, there are other different regulators for each business sector who have power to regulate each relevant business sector.
- The National Broadcasting and Telecommunications Commission is the regulatory authority for the business in telecommunications and broadcasting and television sector;
- The Energy Regulatory Commission is the regulator for mergers of businesses in the energy sector;
- The Bank of Thailand is the regulatory authority for mergers of financial institutions; and
- The Office of Insurance Commission is the regulator for mergers among insurance companies.
- The Investment Promotion Act B.E. 2520 (1977), as amended, including various notifications issued under it. The Board of Investment of Thailand is the regulatory authority for this legislation.
The M&A market is regulated by UAE Federal Law No. 2 of 2015, concerning Commercial Companies, and its ancillary legislation (the “Companies Law”). On 23 September 2018, the UAE issued Federal Law No. 19 of 2018, concerning foreign direct investment (the “FDI Law”). This FDI law provides the framework for foreign shareholders to own 100% of onshore companies in certain sectors.
Listed companies are regulated by the mandatory Corporate Governance Code and other circulars and regulations issued by the Securities and Commodities Authority ("SCA"). Companies incorporated in the Dubai International Finance Centre ("DIFC") free zone are regulated by the Dubai Financial Services Authority ("DFSA"), whose regulatory mandate covers financial services and any activity undertaken by DIFC entities, while there are other relevant regulations which affect other Free Zone companies and their establishment and operation.
In addition to not applying to offshore companies, the Companies Law does not apply to the following companies, provided that a special provision to that effect is included in the company’s memorandum and articles of association:
(a) companies that are excluded by a Federal Cabinet resolution or special federal law;
(b) companies wholly owned by the Federal government, a local government or any other companies wholly owned by such companies; and
(c) energy or infrastructure companies in which the Federal government or a local government directly or indirectly holds 25% of capital.
Relevant rules may also impact M&A activity in certain sectors – for example, Ministry of Health regulations, and relevant regulations in particular Emirates, will affect activity in the healthcare sector and Central Bank regulations will affect activity in the banking sector.
The key laws and rules depend on various factors such as the nature of the entity—whether it is private or public or public listed, whether it is a company, a partnership or a limited liability partnership; whether it is an Indian or a foreign entity etc. However, generally speaking the following key laws apply especially in the cross-border context:
(i) The Companies Act, 2013 (the “Companies Act”),
(ii) The Limited Liability Partnership Act, 2008,
(iii) The Competition Act, 2002,
(iv) The Securities and Exchange Board of India Act, 1992,
(v) The Securities Contract Regulation Act, 1956,
(vi) The Income-tax Act, 1961,
(vii) The Foreign Exchange Management Act, 1999, and
(viii) The Insolvency and Bankruptcy Code, 2016
Similarly, generally speaking, the key rules are as follows:
(i) The Companies (Restrictions on Number of Layers Rules), 2017,
(ii) The (Prospectus and Allotment of Securities Rules), 2019,
(iii) The (Share Capital and Debentures) Rules, 2014,
(iv) The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016,
(v) The Companies (Registered Valuers and Valuation) Rules, 2017,
(vi) The Foreign Exchange Management (Transfer or Issue of Security By a Person Resident Outside India) Regulations, 2000,
(vii) Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations 2004,
(viii) The Foreign Exchange Management (Cross Border Merger) Regulations, 2018,
(ix) The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the “Takeover Code”),
(x) Securities and Exchange Board of India (Buy-back of Securities) Regulations, 2018,
(xi) SEBI (Prohibition of Insider Trading) Regulations, 2015,
(xii) The Competition Commission of India (Procedure In Regard to the Transaction of Business Relating to Combinations) Regulations, 2011.
The key regulators are:
(i) The Securities and Exchange Board of India (“SEBI”),
(ii) The Competition Commission of India,
(iii) The Reserved Bank of India, and
(iv) The National Company Law Tribunal (“NCLT”).
In addition, there are be sector specific M&A regulations and regulators applicable to sectors such as the insurance sector, telecom sector, etc. Also, other general laws that may have relevance to M&A in India, are laws relating to intellectual property, contract law, arbitration law, etc.
1.1 In relation to all types of Vietnam-domiciled target companies, M&A transactions in Vietnam are primarily regulated by:
(i) the Law on Enterprises (2014) and its implementing legislation (the Law on Enterprises), from a general corporate law perspective; and
(ii) the Law on Investment (2014) and its implementing legislation (the Law on Investment), from a general investment law perspective.
1.2 In the context of listed and unlisted public companies, the Law on Securities (2013) and its implementing legislation (the Law on Securities) are of fundamental importance and in many cases apply in precedence to the Law on Enterprises and/or the Law on Investment. The Law on Securities is also of fundamental importance in relation to target companies which are licensed under the Law on Securities, such as funds management companies or securities brokerage and advisory companies.
1.3 Other industry sector-specific laws also contain specific provisions regulating M&A transactions occurring within the relevant industry sectors, which are also of fundamental importance. Key indicative examples include:
(i) the Law on Credit Institutions (2010) and its implementing legislation (the Law on Credit Institutions), in the context of the banking and finance sector; and
(ii) the Law on Real Estate Business (2014) and its implementing legislation (the Law on Real Estate Business), in the context of the real estate sector.
1.4 International treaties of which Vietnam is a member are also crucial and must always be considered in relation to any Vietnam-based M&A transaction (albeit to a lesser extent in relation to listed or unlisted public target companies). Most important amongst these international treaties is the market access commitments made by Vietnam to the WTO upon accession in 2006 (the WTO Commitments). In many cases the WTO Commitments are the key source of foreign ownership restrictions and related market access rules.
1.5 It is also often necessary for parties to consider other broadly-applicable laws such as, for example, the Law on Competition (2004) and its implementing legislation (the Law on Competition) (from a merger control perspective). A new Law on Competition was enacted in 2018 and will come into force on 1 July 2019, which will give rise to a number of important changes from the perspective of merger control law in Vietnam.
1.6 The key (but not the only relevant) regulatory authorities in relation to Vietnam-based M&A transactions include:
(i) the Ministry of Planning and Investment (at central Government level) (the MPI) and the various relevant Departments of Planning and Investment (at municipal or provincial level) (the DPI);
(ii) the Ministry of Industry and Trade (at central Government level) (the MOIT) and the various relevant Departments of Industry and Trade (at municipal or provincial level) (the DOIT), as well as the various competition regulatory authorities, which fall under the jurisdiction of the MOIT;
(iii) the State Securities Commission (the SSC), in the case of listed or unlisted public target companies, or other types of companies licensed under the Law on Securities; and
(iv) the State Bank of Vietnam (the SBV), which, amongst other important functions, regulates foreign exchange control in Vietnam (foreign exchange control laws being of fundamental importance in relation to any vendors or purchasers being foreign citizens or foreign-domiciled companies or other organisations).
In the U.S., both the federal government and state governments regulate matters relevant to M&A.
At the federal level, M&A activity is subject to the federal securities laws, principally the Securities Act of 1933 (the Securities Act) and the Securities Exchange Act of 1934 (the Exchange Act). The Securities and Exchange Commission (SEC) is the federal agency charged with enforcing the federal securities laws and has promulgated extensive rules and regulations under both the Securities Act and Exchange Act. The Securities Act governs the offer and sale of securities, and so potentially applies to any transaction in which securities are being purchased, sold or exchanged, including M&A transactions. The Exchange Act deals with, among other things, ongoing reporting obligations for public companies, tender offers, proxy statements and shareholder obligations to disclose ownership and transactions with respect to shares of public companies. All M&A transactions must also comply with the federal antitrust laws, which are enforced by the Antitrust Division of the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC). Acquisitions by non-U.S. entities are also potentially subject to review by the Committee on Foreign Investment in the U.S. (CFIUS).
In the U.S., corporations are incorporated under the laws of a particular state (rather than federal law). As a result, state law principally addresses matters such as the formation and dissolution of corporations, duties of boards of directors, mergers and other forms of business combinations, shareholder voting requirements, shareholder meetings and amendments to organizational documents. State law relevant to corporations consists of both the state corporation statutes enacted by state governments as well as common law arising out of judicial decisions. Though state laws relevant to corporations have many common elements across states, there are significant differences among them (particularly with respect to matters such as business combinations and the obligations of directors in connection with M&A activity). Because many major U.S. corporations are incorporated in Delaware, the Delaware General Corporation Law (DGCL) and the common law embodied in decisions of the Delaware courts are generally the most important and influential state corporation law. However, on key matters relevant to M&A activity, a number of states have diverged from Delaware and so it is necessary to consider the law of the state of incorporation of the relevant companies in connection with a transaction.
Companies in certain industries such as banking, power and utilities, insurance, airlines, media and telecommunications may also be covered by specific state and federal regulatory regimes.
The key rules governing M&A activity in the PRC include:
- the PRC Company Law, the PRC Contract Law and various judicial interpretations of the Supreme People’s Court;
- the current foreign investment regulations, including the Provisions for Guiding the Foreign Investment Direction, the Catalogue for the Guidance of Foreign Investment Industries (2017 Revision), the Special Administrative Measures for Access of Foreign Investment (Negative List) (2018 Edition), and Special Administrative Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones (2018 Edition), together with their implementing rules;
- Chinese outbound investment regulations;
- PRC foreign exchange laws and regulations;
- company registration laws and implementing rules;
- the PRC Enterprise Income Tax Law and its implementing rules; and
- anti-trust–related laws, including the Anti-Monopoly Law and the Guiding Opinions of the State Administration for Market Regulation on the Declaration of Concentration of Business Operators (2018 Revision).
In general, the key regulatory bodies governing M&A activity in the PRC include:
- the State Administration for Market Regulation (SAMR);
- the State Administration of Taxation (SAT);
- with respect to outbound, inbound and cross-border M&A, the Ministry of Commerce (MOFCOM), the National Development and Reform Commission (NDRC) and the State Administration of Foreign Exchange (SAFE);
- with respect to public M&A, the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE); and
- with respect to anti-trust issues, the Anti-Trust Bureau of the SAMR (which recently replaced MOFCOM in respect of anti-trust matters).
In addition, industry-specific regulators, such as the Ministry of Industry and Information Technology (MIIT) on telecoms and IT sectors, Ministry of Education, the National Medical Products Administration, and the National Radio and Television Administration, may promulgate rules governing M&A activity in specific industries.
The key laws relevant to M&A are the following:
- The Companies Law No. 159 for the year 1981 and its Executive Regulations, as amended (the “Companies Law”);
- The Capital Market Law No. 95 for the year 1992 and its Executive Regulations, as amended (“CML”) the Listing and Delisting Rules of the Egyptian Exchange and its executive procedures, as amended (“Listing Rules”); and
- The Egyptian Competition Law No.3 for the year 2005 as amended (“Competition Law”).
- The Investment Law No. 72 for the year 2017 (“Investment Law”)
The key regulatory authorities relevant to M&A are as follows:
- The Financial Regulatory Authority (“FRA”);
- The Egyptian Exchange (“EGX”);
- The General Authority for Investment and Free Zones (“GAFI”); and
- The Egyptian Competition Authority (“ECA”).
The Companies (Guernsey) Law, 2008, as amended (Guernsey Companies Law) provides the legal framework for a Guernsey company’s operation in all areas, including any merger and acquisition (M&A) of a Guernsey company.
The UK Panel on Takeovers and Mergers (Takeovers Panel) regulates takeovers and mergers in Guernsey that fall within the ambit of the UK City Code on Takeovers and Mergers (Takeover Code). The Takeover Code will apply to a Guernsey company when either:
- the company’s securities are admitted to trading on a regulated market or multilateral trading facility (MTF) in the UK or on any stock exchange in the Channel Islands or the Isle of Man; or
- if the company has its place of central management and control in the UK, Channel Islands or Isle of Man and one or more of the following apply:
- any of its securities have been admitted to trading on a regulated market or MTF in the UK, Channel Islands or Isle of Man at any time in the last 10 years;
- dealings or prices for dealings have been published for a continuous period of at least 6 months in the previous 10 years;
- any of the company’s securities have been subject to a marketing arrangement as defined under UK Companies legislation at any time in the previous 10 years; and
- the company has publicly filed a prospectus with the Registrar of Companies or any other relevant authority in the UK, Channel Islands or Isle of Man at any time in the previous 10 years.
The Takeover Code does not apply to open-ended investment companies.
If the M&A involves a business which is regulated in Guernsey (this includes banks, insurance companies, investment businesses and trust and fiduciary businesses), the consent of the Guernsey Financial Services Commission (GFSC) will be required. Change of control notifications may also need to be made where a parent undertaking of a GFSC licensed entity is acquired or subject to a merger.
The Channel Islands Competition and Regulatory Authorities (CICRA) regulate any merger or acquisition which satisfies a turnover test relating to turnover arising in Guernsey and the Channel Islands.
The Registrar of Beneficial Ownership of Legal Persons in Guernsey will also have to be notified of any relevant change in the particulars of the beneficial owners (unless such entity is regulated by the GSFC or falls subject to another exception). None of this information is made availiable to the public.
Hong Kong is a key financial hub, more generally for the wider Asia-Pacific region and specifically for investments into and out of China. Offshore companies are involved in a significant number of Chinese and other Asian corporate structures and in cross-border corporate transactions. Cayman, BVI and Bermuda are the most popular offshore jurisdictions for these purposes.
The primary sources of M&A law and regulation involving an Offshore Entity are the respective company or partnership legislation and the common law of the relevant jurisdiction where the Offshore Entity is domiciled. Specifically:
(a) for Cayman Islands entities: (i) Companies Law (2018 Revision) – for Cayman Islands companies; (ii) Limited Liability Companies Law (2018 Revision) – for Cayman Islands limited liability companies; (iii) Exempted Limited Partnership Law (2018 Revision) – for Cayman Islands exempted limited partnerships and (iv) other legislation particularly if the entity is regulated as a matter of Cayman law.
(b) for Bermuda entities: (i) Companies Act 1981 (as amended) – for Bermuda companies; (ii) Limited Liability Companies Act 2016 – for Bermuda limited liability companies; (iii) Exempted Partnerships Act 1992 (as amended) – for Bermuda partnerships, and (iv) other legislation particularly if the entity is regulated as a matter of Bermuda law.
(c) for BVI entities: (i) the BVI Business Companies Act 2004 (as amended) – for BVI companies; (ii) the Partnership Act, 1996 and the Limited Partnership Act, 2017 – for BVI partnerships, and (iii) other legislation particularly if the entity is regulated as a matter of BVI law.
In Hong Kong, companies incorporated in the Cayman Islands and Bermuda as exempted companies are widely used as the listing vehicle for corporate groups listed on the Stock Exchange of Hong Kong Limited (the “SEHK”), whereas companies incorporated in the BVI are often utilized as private holding companies. As a consequence, a listing on the SEHK subjects the listing vehicle (the “Offshore Listing Vehicle”) to the listing rules of the SEHK (the “Listing Rules”). Further, as required by the Listing Rules, the provisions of the Codes on Takeovers and Mergers and Share Repurchases (the “Takeover Code”) will be required to be complied with in cases of takeovers, mergers, share buy-backs and acquisitions involving a public company under the Takeover Code, which includes an Offshore Listing Vehicle, as well as certain unlisted companies with a significant number of Hong Kong shareholders.
Other legislation of Hong Kong, such as the Banking Ordinance, the Insurance Ordinance and the Securities and Futures Ordinance, may be applicable for companies in the relevant areas.
The Companies Act 2006 and the common law of contract provide the basis for the sale and purchase of companies and other corporate entities in the United Kingdom. For takeovers of public companies which have their registered offices in the UK, the Channel Islands or the Isle of Man and which are considered by the Panel on Takeovers and Mergers (the “Panel”) to have their central place of management and control in these jurisdictions, the City Code on Takeovers and Mergers (the “Code”) will apply. The Code will also apply to certain private companies in limited circumstances, for example where any securities of such company have been admitted to trading on a regulated market or a multilateral trading facility (for example, AIM) in the United Kingdom or on any stock exchange in the Channel Islands or the Isle of Man at any time during the previous ten years.
The Code consists of a set of statutory principles (which aim to ensure the fair and equal treatment of all shareholders of the target company) and rules (which seek to apply the principles). The predominant aim of the Code and the principles is to provide a set of good commercial practice in relation to takeovers of those companies to which the Code applies and the fair and equal treatment of all shareholders. The Code is sufficiently flexible in its application, it is the spirit of the Code which should be adhered to rather than its content, and this ensures its application in scenarios not expressly covered by the rules.
In addition, other UK legislation that is likely to be relevant for an M&A transaction is the Financial Services and Markets Act 2000 (which provides an overarching framework for financial services legislation and regulation in the UK and covers public offers of securities, listing and invitations to enter into securities transactions), the Criminal Justice Act 1993 (which, along with the Market Abuse Regulation, covers restrictions on insider dealing and provisions to prevent market abuse in relation to the securities of publicly traded companies) and the Financial Services Act 2012 (which covers misleading statements and market manipulation).
The Listing Rules and the Prospectus Rules could also be relevant where a listed bidder is seeking to offer its securities to the public in the UK or admit such securities to trading on a regulated market as consideration in an acquisition and will regulate the information that the bidder will need to prepare and provide in connection with an offer of those securities. In addition, depending on the size of the transaction in question, the Listing Rules may require certain approvals to be sought and provided from both the target company and the listed bidder (e.g. shareholder consent).
If the M&A transaction gives rise to a merger control or antitrust issue, the Enterprise Act 2002 could apply, as could the EU Merger Control regime or applicable merger control regimes in other relevant jurisdictions, with the Competition and Markets Authority (“CMA”) (or the equivalent national or European authority, as applicable) investigating such issues.
The main legal framework for M&A transactions (both for private and public companies) in Cyprus is provided by English common law principles as well as by statutory provisions, primarily, the Cyprus Companies Law, Cap 113 as subsequently amended (the “Companies Law”) and the Control of Concentrations between Enterprises Law of 2014 (Law 83(Ι)/2014) (the “Concentrations Law”).
In particular, the Companies Law regulates the procedure to be followed in mergers, schemes of arrangement and amalgamations which in principle entails obtaining the approval from the shareholders and creditors of the merging companies as well as the sanctioning of the transaction by the competent Court.
Furthermore, M&A transactions involving Cyprus public companies and companies listed in the Cyprus Stock Exchange are also regulated by the following rules/laws:-
- The Public Takeover for the Acquisition of Shares in a Company and Related Matters Law, Law 41(I)/ 2007 (the “Public Takeover Law”);
- The Securities and Cyprus Stock Exchange Law of 1993 (as amended) (the “Stock Exchange Law”);
- The Transparency Requirements (Securities Admitted to Trading on a Regulated Market) Law of 2007;
- The Insider Dealing and Market Manipulation (Market Abuse) Law of 2005; and
- The Cyprus Corporate Governance Code.
The key regulatory authorities designated to regulate M&A in Cyprus are the Cyprus Securities and Exchange Commission (the “CYSEC”) and the Commission for the Protection of Competition (the “CPC”).
It must, however, be noted that, subject to their industry sector and business activities, both private and public companies may also be subject to regulatory controls during M&A from industry specific regulatory authorities and regulatory regimes (i.e. in case the target company is a credit institution, M&A authorisations may be required from the Central Bank of Cyprus).
Key rules and laws Legal provisions applicable to all forms of M&A transactions are included in Act V of 2013 on the Civil Code (Civil Code) containing the general rules of Hungarian civil law, the Hungarian law of contract as well as general and specific rules applicable to all forms of legal entities including companies. Besides the above, the Civil Code also contains high level, generally applicable rules on the transformation, merger and demerger of companies making it the fundamental source of law relating to M&A transactions.
More specific legal provisions applicable to transformations, mergers and demergers of companies are set forth in a separate piece of legislation, Act No. CLXXVI of 2013 on the Transformation, Merger and Demerger of Certain Legal Persons (Transformation Act). Among others, the Transformation Act contains the prerequisites of transformations, mergers and demergers, the procedures to be followed in case of transformations, mergers and demergers, as well as the transparency, reporting and audit requirements applicable to these sorts of corporate transactions. The Transformation Act prescribes specific rules for companies limited by shares, especially in respect of audit and management reports.
Specific corporate changes resulting from mergers and acquisitions are registered in Hungary by the competent court of registration. The relevant procedure (including documentation and publication requirements) is regulated by Act V of 2006 on Public Company Information, Company Registration and Voluntary Liquidation (Company Procedures Act).In addition to the Civil Code,the Transformation Act and the Company Procedures Act, Act CXL of 2007 on Cross-Border Mergers of Limited Liability Companies ( Cross-Border Mergers Act) applies in cases where at least one of the companies participating in a merger is not domiciled in Hungary but in another member state of the European Union. The Cross-Border Mergers Act serves the implementation of Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005.
Act CXX of 2001 on the Capital Market (Capital Market Act) contains essential rules on issuing and offering securities. The provisions of the Capital Market Act may be relevant if the company concerned with the transaction is a company limited by shares. In respect of publicly traded companies, the Capital Market Act sets forth specific provisions for the acquisition of participations in public companies limited by shares, in particular reporting obligations, IPOs and minimum offer prices. Public purchase offers and M&A activity relating to public companies is controlled and approved by the Hungarian National Bank since 2013. Act CXXXIX of 2013 sets out the scope of activity and the procedural rules applied by the Hungarian National Bank.
Act LVII of 2018 on national security screening of foreign investors, a relatively new legislation adopted in 2018, has provided room for certain state control over M&A transactions in the strategic sectors listed in the Act. The operation of this new law in practice will be seen in the coming months.
Detailed rules on disclosure and publication obligations of publicly traded companies can be found in Decree 24/2008 (VIII.15.) of the Minister of Finance and the Stock Exchange Rules published by the Budapest Stock Exchange contain further detailed provisions to be observed by publicly traded companies.
Besides the above acts and laws, a significant part of foreign investments in Hungary are also protected by way of bilateral investment treaties (BIT). BITs grant basic rights to foreign investors in compliance with international standards, and enable foreign investors to seek remedy before international forums if their right to fair and equitable treatment should be violated.
Key regulatory authorities. The main authority supervising the legal compliance of M&A transactions is the court of registration having competence for registering certain corporate changes resulting from the transaction. In addition, special rules apply to mergers and acquisitions of companies engaged in regulated industries such as the energy, media and financial sectors. The acquisition or transformation of such companies may require the prior approval of the competent regulatory bodies, setting further preconditions and documentation requirements for carrying out a successful transaction. Competent authorities for the mentioned sectors include the Hungarian Energy and Public Utility Regulatory Authority, the National Media and Infocommunications Authority and the Hungarian National Bank, respectively. Irrespective of the industry or sector concerned, mergers and acquisitions reaching a certain market threshold shall be reported to, or approved by, the Hungarian Competition Authority (GVH). The reporting obligations and the rules of approval are set forth in Act LVII of 1996 on the Prohibition of Unfair Trading Practices and Unfair Competition (Competition Act). The authority proceeding upon the national security screening of foreign investors, and approving their acquisitions in certain strategic sectors, is the competent minister of the Hungarian Government.
The Qatar Financial Markets Authority (QFMA) and the Ministry of Commerce and Industry (formerly known as the Ministry of Economy and Commerce) are the regulators in this regard. The Qatar Central Bank (QCB) is also involved where a merger or an acquisition involves a financial institution. The Qatar Stock Exchange (QSE) also administers listed companies. The key laws/regulations are comprised of:
(a) Law No. (8) of 2012 (QFMA Law);
(b) Law No 11 of 2015 (the Commercial Companies Law);
(c) The QFMA Mergers and Acquisition Rules;
(d) The QSE Rulebook;
(e) Law No. 13 of 2002 (the QCB Law);
(f) QCB Instructions to Banks; and
(g) Law No. 19 of 2006 (the Law on Protection of Competition and the Prevention of Monopolistic Practices).
The key rules/laws relevant to M&A are the Companies Act (ZGD-1), the Takeovers Act (ZPre-1), the Market in Financial Instruments Act (ZTFI-1), the Book Entry Securities Act (ZNVP-1), the Prevention of Restriction of Competition Act (ZPOmK-1) and the Ljubljana Stock Exchange Rules.
The key regulators are the Slovenian Competition Protection Agency (AVK) and the Securities Market Agency (ATVP).