Which governing law is customarily used on acquisitions?
Mergers & Acquisitions (2nd edition)
The businesses and assets of an Offshore Entity would normally be held outside of an offshore jurisdiction. As such, the governing law of the agreements for the sale and purchase of an Offshore Entity would typically be the jurisdiction that the business or assets are located. In Hong Kong, such acquisition documentation is typically governed by the laws of Hong Kong or the People’s Republic of China, although English or New York law is also a popular choice amongst contracting parties.
Customarily, the parties agree to Austrian substantive law and also agree to dispute resolution in Austria.
The law customarily used on UK acquisitions is English law. Where the transaction is a Scottish transaction, Scottish law can be the governing law.
Bulgarian law is generally used for acquisition of Bulgarian companies, however, it is not uncommon for structuring transactions or some aspects of transactions under the laws of the country in which holding companies are registered or other key elements of the transaction are based. Generally, corporate law aspects of the transaction must be governed by Bulgarian law, where the target is a Bulgarian company, thus share transfer, mergers, spin-offs and other corporate reorganizations are perfected under local rules.
Contracting parties may choose a different law governing the share purchase agreement or the specific agreement by means of which the shares or assets are being transferred, if there is an international element in the agreement (for instance a foreign party is a party to the agreement and one of the principal obligations is performed abroad). In cases where Colombian law is not chosen as the governing law, the parties tend to agree on New York law.
Notwithstanding the above, Colombian law will always govern the corporate formalities to legally transfer shares or transfer certain assets (such as real estate).
French law is customarily used on acquisitions but we are not reluctant to pick a foreign law, since we are in a civil law environment.
New Zealand law.
English law and Egyptian law customarily govern acquisitions documentation. Further, parties usually agree to arbitration as dispute resolution for enforceability purposes since Egypt is a party to the New York Convention on the Enforcement of Arbitral Awards.
It is typical for Cayman Islands law to govern (i) in relation to a merger, the plan of merger, and (ii) in relation to a scheme of arrangement, the scheme document. In respect of a merger agreement or an equity purchase agreement, it is customary for them to be governed by either Cayman Islands law or the law of the purchaser’s jurisdiction.
Italian law normally governs acquisitions of Italian target companies
The parties can choose the governing law for the transaction documents. The laws of Ireland would typically govern the Rule 2.5 announcement, the offer document, the transaction agreement, irrevocable undertakings etc. However, it is possible for documents to be governed by the laws of other jurisdictions.
Brazilian law is used in almost 100% of the deals. Having said that, it is possible to use foreign law in Brazil. The foreign law most frequently used is New York’s. The trick in these cases in Brazil is to agree on arbitration with a venue in the country. For technical reasons this makes the issuance of the arbitration award and its enforcement faster, as it does not need to go through a validation procedure at the Brazilian superior court (the country is not a signatory of international conventions that make the enforcement or arbitration award issued outside the territory automatic).
Acquisitions in Cyprus are governed by Cyprus Law as well as by English common law principles.
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.
As discussed above, M&A activity in the U.S. falls under the purview of federal and state securities and antitrust laws, state corporation laws, and laws regulating the particular industry the parties operate in (e.g., insurance, telecommunications). In addition to these laws, which provide the general framework in which deals must be accomplished, transaction agreements and other ancillary contracts almost always contain a provision stipulating which state law governs the contract as well as any disputes that may arise with respect thereto. The majority of private transactions stipulate that either New York or Delaware law will govern. In public company transactions, the law of incorporation of the target company typically governs and, if not, the law of the target company will govern the merger provisions with New York or Delaware law governing the remainder of the contract.
Private transactions where the ultimate target company is a Swedish entity will generally be carried out under Swedish law and in our experience this is accepted by international parties. There are, however, no legal requirements that would prevent the parties to use other governing laws if that is preferred.
The transaction documentation is normally drafted in the English language, at least when one of the parties (or the involved financing banks etc.) are non-Swedish and there are no requirements to provide translations of the transaction documentation into Swedish.
For Swedish law transaction documents the arbitration rules of the Arbitration Institute of the Stockholm Chamber of Commerce is normally used as dispute settlement venue.
Public transactions involving a target company listed on a Swedish exchange (or similar) are normally governed by Swedish law.
Under Philippine law, the contracting parties are free to agree and stipulate on the governing law of their contract, subject to certain exceptions, such as that the choice of law must have a substantial connection to the parties or to the transaction. We have thus seen acquisitions agreements governed by foreign laws and by Philippine laws in equal number. However, in respect of agreements relating to the governance of Philippine companies (e.g., shareholders agreements), it has been more usual for such agreements to be governed by Philippine law since, regardless of the governing law of such agreements, corporate governance of Philippine companies remain to be principally governed by Philippine law.
Acquisitions in Guernsey are most commonly governed by either the laws of the Island of Guernsey or the laws of England and Wales.
In share transfer or business transfer agreements, the parties to an acquisition are free to select the laws of a jurisdiction other than Japan to be the governing law for such agreements. However, the laws of Japan have been selected by most parties to be the governing law in such agreements, because the effects of the Companies Act cannot be completely eliminated from such agreements. Certain matters, e.g., the validity of the share transfer, are determined in accordance with Japanese law, regardless of what law is chosen as the governing law in the agreement.
On the other hand, an agreement concerning a statutory corporate reorganization, such as a merger agreement, a demerger agreement, and a share exchange (kabushiki koukan) agreement, must satisfy the requirements provided in the Companies Act and such requirements must be governed by Japanese law.
Isle of Man
Acquisitions in the Isle of Man are most commonly governed by either the laws of the Isle of Man or the laws of England and Wales.
The laws governing the jurisdictions of both offeror and target company must be complied with.
For tender offers: the governing law can vary depending on the domicile of the purchaser. For example, if the purchaser is a US entity, the agreements tend to be governed by New York law, whilst a UK purchaser would in all likelihood use UK law. For mergers and amalgamations: as mergers tend to be more of a US concept, the agreement and plan of merger is normally governed by New York law, however the statutory merger or amalgamation agreement is always governed by Bermuda law.
British Virgin Islands
It is typical for BVI law to govern a Plan of Merger and Articles of Merger whilst the law of the operative legal agreements in relation to the merger will usually be governed by BVI, New York or English law or by the law of the purchaser’s jurisdiction.
The governing law is most commonly either the laws of Jersey or the laws of England and Wales.
Parties usually prefer Turkish law for deals involving target companies incorporated in Turkey. In cases where international investors tend to choose English law in transaction documents such as the shareholders’ agreement, there is a risk that certain provisions conflict with the target company’s articles of association which is governed by Turkish law. Therefore it is advisable that Turkish law is the governing law for target companies incorporated in Turkey. An alternative could be Swiss or German law, which are both continental civil law jurisdictions like Turkey.
The parties can choose the governing law for the transaction documents. Acquisitions are generally governed by Nigerian law and in some cases, English law. Where English law is the governing law, Nigerian law still applies to the transfer mechanism.
The general position under Hungarian law is that the parties are free to choose the governing law in their own discretion. However, no foreign law may be stipulated if the transaction does not have a significant foreign element. That is, two Hungarian parties contracting for a Hungarian asset laying in Hungary cannot agree to submit the transaction to foreign law. Also, the rules of Hungarian international private law must be observed upon choosing the governing law. In addition, the mandatory provisions of Hungarian law relating to the share to be acquired shall be applied irrespective of the personal law of the parties or the governing law stipulated by them. Such mandatory rules include the procedure and formalities for transferring title to the shares, the effect of the transfer, registration and disclosure requirements etc.
In case of the acquisition of a public company by way of a public takeover bid, the supervising authority of the public takeover bid is the authority of the country where the target company’s shares were first listed. If the shares were listed in more countries at the same time, the target may choose the supervising authority. In principle, the governing law of the public takeover bid will be the law of the country of the authority supervising the public takeover bid. However, if the public takeover bid is supervised by the Hungarian authority, but the target company’s registered seat is outside Hungary, certain essential aspects of the public takeover will still be governed by the law of the country of the registered seat instead of Hungarian law.
Hence, it is reasonable to use Hungarian law as the governing law of the transaction if the share of a Hungarian target company is concerned unless a specific characteristic of the individual transaction leads to the stipulation of foreign law. Parties tend to stipulate foreign law for the transaction if, for example, the Hungarian transaction is part of an international transaction affecting several jurisdictions and the parties wish that the entire global transaction to be governed by the same (foreign) law, or if the parties would want to use a certain legal structure or instrument which is not feasible under Hungarian law but under the selected foreign law.