Which governing law is customarily used on acquisitions?
Mergers & Acquisitions (3rd edition)
Acquisitions of a Belgian target company 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.
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. Where a transaction is structured as a more straightforward share purchase, this is a question of preference for the contracting parties and will often be dictated who their lead counsel is and whether there is anything specific about the underlying business or assets effectively being acquired that would merit a departure from the law upon which lead counsel advises.
The governing law typically used in acquisitions is Colombian law. In larger deals or mega-deals, if there is an international element in the transaction (for instance, one of the parties is a foreign entity), New York law is commonly agreed. In this case, an international arbitration tribunal to protect the application of New York law in case of a claim is also frequently included.
a) Croatian joint-stock company
When the target company is a Croatian joint-stock company, Croatian law is customarily applied.
In cases where the target company is a joint-stock company with its registered seat in the EU member state, and the company’s shares have been approved for trading only on a regulated market in Croatia, non-Croatian law is applied, except for several provisions laid down by the Croatian Act on Takeovers of Joint Stock Companies (the provisions determining the percentage of voting rights and the obligation to publish the takeover bid, the exceptions from the obligation to publish the takeover bid, the conditions under which the target company’s management board or supervisory board may take measures that may hinder or disallow the takeover bid). In this case, the governing law is the law of the country in which the target company has its registered seat.
b) Croatian limited liability company
When the target is a Croatian limited liability company, Croatian law is mandatory applied for the mere share transfer and the share transfer agreement (STA) as prescribed by the Croatian Companies Act. However, a non-Croatian law can be applied for other commercial aspects of the transaction and accordingly for the share purchase agreement (SPA). Some specific situations regarding the application of the Croatian law in cases of cross-border mergers are regulated by the Croatian Companies Act.
- Among nationals, Ecuadorian law.
- Cross-border transactions: the acquiror usually propose its native law. New York law is the most common, English law follows.
Generally the parties of a private M&A share purchase agreement agree on Austrian substantive law and dispute resolution in Austria. For the mode of transfer, which is necessary for the transfer of shares in a limited liability company, Austrian law is mandatorily applied. This means that the share purchase agreement for such transfers needs to be in the form of a notarial deed.
This heavily depends on the parties involved. If both seller and acquirer are Czech entities, the agreement will be governed by Czech law. If any or both of the parties are non-Czech entities and/or non-Czech targets are sold together with a Czech target, the parties may choose another law to govern the main agreement (often in the form of a framework agreement) while the transfer in rem of the shares in the Czech target is sometimes effected by a separate short agreement subject to Czech law (so-called short-form SPA). Local requirements and formalities laid down by Czech law must be met in order to validly effect the transfer of the shares or other assets (e.g. real estate, patents, etc.).
The acquisitions of the business companies having its registered seat in the Czech Republic and publicly traded outside of the Czech Republic in the course of the public M&A transactions shall be governed by the conditions stipulated in the Act on Takeover Bids.
British Virgin Islands
It is typical for BVI law to govern a Plan of Merger and Articles of Merger whilst the law of the operative legal agreements in relation to the merger will usually be governed by BVI, New York or English law or by the law of the purchaser’s jurisdiction.
It is typical for Cayman Islands law to govern (i) in relation to a merger, the plan of merger, and (ii) in relation to a scheme of arrangement, the scheme document. In respect of a merger agreement or an equity purchase agreement, it is customary for them to be governed by either Cayman Islands law or, more commonly for cross border deals, the law of the purchaser’s jurisdiction.
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.
The law of the share purchase agreement may be agreed by the parties subject to eventual choice of law restrictions. Rights in rem over Greek assets are governed by the law of the situs of the asset.
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.
The governing law is most commonly either the laws of Jersey or the laws of England and Wales.
The laws governing the jurisdictions of both offeror and target company must be complied with.
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.
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.
Peruvian Corporations Law and Civil Code are customarily used in acquisitions. If the target company is publicly available, Peruvian Securities Market Law is also used in addition to other regulations applicable to the securities market transactions.
Generally, the governing law for acquisitions may be based on contractual stipulations subject to recognized limitations. For example, for acquisitions of real property, it is customary that the law governing the place where the property is found shall be followed. Parties are generally permitted to stipulate as that governing law shall be the law of the place where the judicial enforcement of the M&A will be sought in case of dispute (e.g., the law governing the target corporation). Nevertheless, Philippine law has a preference for stipulating Philippine law as the governing law for transactions. For example, Section 88 of the Philippine Intellectual Property Code makes it mandatory for acquisitions involving intellectual property rights to stipulate Philippine law as the governing 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.
Portuguese law usually governs the transaction documents in respect of the acquisition of Portuguese companies.
In case of a PTO, the prospectus and the offering process will necessarily be governed by Portuguese law.
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.
Use of English law is rather widespread in Russia, because a considerable number of Russian transactions are still 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.
Where the company being acquired is a South African company that will be operated and run in South Africa, South African law will likely apply. However, the parties may agree to be bound by the international law.
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 from using 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.
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).
Thai law. This is the case for all domestic transactions and some cross-border ones. In a cross-border transaction, Singapore arbitration (or another offshore arbitration venue) is commonly specified as a dispute resolution mechanism. Thailand does not enforce foreign judgments, but is a party to the New York and other arbitration conventions.
Most UAE companies incorporated outside a UAE free zone (i.e. ‘onshore’ companies) are regulated by the Federal Law concerning Commercial Companies (2/2015). Part 7 of the law sets out the rules for transformations, mergers and acquisitions.
There is also significant corporate activity within the numerous free zones established throughout the United Arab Emirates. The laws of the relevant free zones apply to companies established therein (ie, ‘offshore’ companies). However, the Companies Law also applies to offshore companies insofar as it is not varied by the relevant free zone rules and to the extent that offshore companies may undertake activities onshore.
Notwithstanding that UAE will apply to the process for effecting all acquisition transactions of UAE companies, parties are allowed to choose their preferred governing law for any agreements pertaining to an acquisition. As such, the governing law for a share purchase agreement may be, for example, English Law, although the law which governs the process of effecting any share transfer pursuant to such agreement will be UAE Law.
This depends on the bargaining position of the parties. If the parties are of equal bargaining position then it may be a neutral governing law.
20.1 Vietnam law is the governing law which is used most often 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, from the perspective of transaction implementation and the perspective of claims against parties whose assets are located primarily within Vietnam:
(i) the choice of foreign law may be regarded as being essentially meaningless (given the mandatory application of Vietnam law to the implementation of the transaction and the difficulty in procuring the consideration by Vietnam courts and/or arbitration tribunals of foreign law in claims scenarios); and
(ii) any benefits arising from the choice of foreign law are in most cases outweighed by the detriment.
20.3 Foreign governing law does, however, have material advantages from the perspective of claims which may need to be made against parties whose assets are primarily located in jurisdictions outside of Vietnam. The position of a claimant (for example, under a claim for breach of warranty or a claim against a specific indemnity) under the laws of more developed (particularly common law) jurisdictions is in most cases materially more advantageous than the position of that claimant under Vietnam law. Particularly where there is no requirement to have a foreign law judgment or arbitral award recognised and enforced within Vietnam (because the assets of the defendant are primarily located outside of Vietnam), there is a strong case to be made for the use of foreign governing law (particularly governing law from a well-developed common law jurisdiction).
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.
Where a purely domestic company is being purchased or invested in by a foreign buyer, the key transaction documents such as the share purchase agreement (SPA), the equity joint venture contact (not applicable in a full takeover) and the articles of association of the target company must be governed by PRC law. For cross-border M&A deals, parties may be able to choose the laws of another jurisdiction to govern the transaction documents, subject to the Law on the Laws Applicable to Foreign-related Civil Relations. The selection of the laws of a given jurisdiction to govern a share/equity purchase agreement will be determined based on several factors, including the deal structure, the nationality of the purchasing entity, the qualification of their legal counsel, etc.
Egyptian Law recognizes the principle of autonomy of the parties and thus parties to an acquisition may generally choose to have their contractual relationship governed by the applicable law they deem appropriate. The most common choice of law to govern acquisitions in Egypt is Egyptian law. However, in certain cases, acquisition transactions are governed by foreign laws such as English Law or French law.
Acquisitions in Guernsey are most commonly governed by either the laws of the Island of Guernsey or the laws of England and Wales.
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 law or New York law are both popular choices amongst contracting parties.
The law customarily used on UK acquisitions is English law.
Acquisitions in Cyprus are governed by Cyprus Law as well as by English common law principles.
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 property 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 of a Hungarian company 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.
Acquisition agreements are customarily governed by Slovenian law. They can also be governed by foreign law, for example the law of the acquiring or target company, or the law of a neutral third country; however, in such cases some obligatory rules of Slovenian corporate law apply nonetheless, for example certain rules on the transfer of shares from the Companies Act (ZGD-1) and the Book Entry Securities Act (ZNVP-1), the Market in Financial Instruments Act (ZTFI-1) and the Takeovers Act (ZPre-1). Other contractual elements such as for example liability, warranties and indemnification can be regulated by foreign law.