Which governing law is customarily used on acquisitions?
Mergers & Acquisitions (2nd edition)
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.
Under Myanmar law, parties are free in principle to choose any foreign law as the governing law of an agreement, subject to the operation of any applicable mandatory rules. In practice, state-owned enterprises and Myanmar government agencies will rarely agree to a choice of foreign governing law, and Myanmar private parties also prefer that Myanmar law applies to the transaction agreements. For agreements that are subject to scrutiny under the MIL, the MIC will generally require a choice of Myanmar law.
However, rights in rem over Greek assets are governed by the law of the situs of the asset. The law of the share purchase agreement may be agreed by the parties subject to eventual choice of law restrictions.
For national deals, i.e., in cases where a German GmbH or German Stock Corporation is acquired, German law is customarily used. If requested by the seller or buyer, it is also possible to have a share purchase agreement governed by foreign law (e.g., the governing law of the seller or the buyer). The transfer in rem of the shares must, however, be governed by German law and local requirements and formalities must be met to validly effect the transfer of the shares or other assets.
Acquisitions in Belgium are usually governed by Belgian law.
Parties may opt for foreign law to govern the deal.
Certain issues will, however, be mandatorily governed by Belgian law, notably in case of a public offer relating to a Belgian publicly traded target company.
20.1 Vietnam law is used almost exclusively in connection with Vietnam M&A transactions (that is, where the target company whose equity is being transferred is domiciled in Vietnam).
20.2 Although in some cases the choice of foreign law may be a theoretical possibility, in practical terms:
- the choice of foreign law may be regarded as being essentially meaningless (given the mandatory application of Vietnam law to the transaction); and
- any benefits arising from the choice of foreign law are in most cases outweighed by the detriment.
While parties in private M&A transactions are generally free to choose the governing law, it is customary that a share purchase agreement relating to a Swiss target company will be governed by Swiss law. The same holds true for asset deals. A public tender offer for a Swiss company listed in Switzerland or a foreign company with a main listing in Switzerland is governed by Swiss takeover laws and regulations (in particular FMIA and TOO).
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 and certain accredited arbitration institutions 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.
In practice we have seen Romanian law and English law as governing laws of the acquisition documentation. Other laws (e.g. Austrian) are also occasionally used.