Strategic considerations on inbound investments

Strategic considerations on inbound investments
by M&A – how to get started as a foreign
investor and what foreign investors should expect
from local sellers in your jurisdiction
Corporate Acquisition and Joint Ventures Commission
Buenos Aires, 2013 – Working Session 3
General Report
Dr. Martin Imhof
Dr. Michael Lind, LL.M.
HEUKING KÜHN LÜER WOJTEK
Georg-Glock-Straße 4
40474 Düsseldorf, Germany
T: +49 211 600 55 246
[email protected]
BINDER GROESSWANG
Sterngasse 13
1010 Vienna, Austria
+43 (1) 534 80 - 470
[email protected]
31 May 2013
1.
INTRODUCTION
This General Report is intended to provide an overview on the key issues which
arise in foreign jurisdiction in relation to inbound investments and starting
business operations by foreigners. Out of the National Reports it summarizes the
specifics an investor must take care of when investing in a foreign jurisdiction.
This General Report is based on and considers the National Reports of the
following jurisdictions:
Argentina
Austria
Belgium
Brazil
Canada
China
Denmark
Estonia
France
Germany
Gibraltar
Italy
Japan
The Netherlands
Norway
Peru
Poland
Sweden
Switzerland
Spain
Turkey
The probably most important take away from the National Reports regarding
negotiation strategies is that there is no typical style of negotiations in the
jurisdictions reviewed. In fact, usually much depends on the circumstances of the
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specific case, in particular the respective bargaining powers of the parties
involved and the current market situation (i.e. whether the market for a specific
sector is buyer or seller friendly).
In relation to disclosure it is worth noting that pursuant to all National Reports it
is typically heavily negotiated whether and under which circumstances the reps &
warranties are qualified by the documents disclosed in the due diligence phase.
Further, the National Reports show that M&A transactions follow similar deal
structures in all jurisdictions. Internationally well-established standards have been
developed. M&A transactions are commonly structured either as share deals or as
asset deals. Both structures are permissible under the jurisdictions reviewed by the
National Reporters.
Even though we found that peculiarities did exist in certain jurisdictions, in
general, the drivers for the preferred deal structure and the involvement of a local
special purpose vehicle (SPV) are similar. Foreign investment rules and local tax
regulations are the most important reasons that cause differences and specificities
between different jurisdictions.
2.
NEGOTIATIONS AND CULTURAL CONSIDERATIONS
2.1
Which points are – in your jurisdiction - typically commercially agreed (e.g.
purchase price, earn out, percentage of shares to be acquired) prior to
involving lawyers and for what reasons? Are other advisors typically
involved at an earlier stage than lawyers?
Most National Reports stress that no two transactions are alike and that the
momentum when lawyers get involved therefore always depends on the individual
circumstances. In particular, the size of the deal seems to be crucial. In large scale
transactions legal advisors get involved at an early stage, whereby investment
banks and financial advisors are usually brought in on the transaction before the
lawyers.
The German Report additionally points out the difference between bilateral
negotiations and bidding procedures (auctions). Regarding the latter, lawyers
usually get involved at a very early stage.
In France, transfers of real property are subject to a statutory monopoly of French
notaries and notarised transfer deeds provide indication of ownership regarding
real property. Thus, depending on the assets to be transferred (i.e. a transaction
including real property) the French notary can be involved at an earlier stage than
lawyers.
The Swedish Report brings up that lawyers usually get involved at an earlier stage
in case of a long-term relationship with the client.
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However, the National Reports unanimous state that key commercial aspects, such
as the subject of the transaction, the approximate purchase price and the form of
consideration are those most likely to be agreed by the principles in advance of
the lawyers’ involvement. Once the rough transaction structure is determined and
the key aspects are to be confirmed in an initial document (LOI, MOU), these
documents are usually prepared by lawyers. Confidentiality Agreements and
NDAs on the other hand are often concluded between the parties in advance of the
involvement of lawyers, again depending on the deal size and structure.
2.2
In negotiations in your jurisdiction, which aspects are typically decided by
the principals and which are left for lawyers, investment bankers and other
advisors? What is the rational behind the usual practice?
The key commercial terms, such as exact transaction subject, purchase price, form
of consideration and possible purchase price adjustment mechanisms are usually
decided by the principals. It is then the lawyers’ task to provide input on risk
assessment in context of the legal due diligence findings, to prepare the first
contract drafts and to negotiate the details of the purchase agreement. In
particular, provisions regarding representations and warranties, conditions
precedent, termination clauses and closing mechanisms fall within the legal
advisors’ responsibility.
In other words, the principals decide on the main points and the basic structure of
the transaction, while it is then up to the lawyers to transfer these cornerstones
into a full contract.
As explicitly mentioned in the German Report, the rational to proceed in such
manner is to only start the cost- and time-intensive contract drafting process once
the principals have reached agreement on the key aspects or at least that it is
foreseeable that they will do so.
2.3
Which initial documentation (NDA, LoI, MoU, Heads of Terms, etc.) is
commonly used/agreed upon and which role do they play in your jurisdiction
from a commercial perspective and for the process of the transaction? Are
break-up fees and/or exclusivity rights usually agreed?
First of all it can be noted that the use of these initial transaction documents seems
to be common throughout all jurisdictions summarized by the individual National
Reports. However, there are certain differences regarding their content:

Confidentiality and Non-Disclosure Agreement
In order to access confidential information about the target company,
these agreements are usually signed at a very early stage, often even
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before legal advisors get involved. In Canada “standstill provisions”
preventing the receiver of the confidential information of making a
hostile bid for a certain period of time are sometimes included in respect
of public companies. The Turkish Report points out that due to
difficulties to prove actual damage, NDAs usually contain contractual
penalties for breach of the agreement. Confidentiality provisions are also
often included in the LOI.

Letter of Intent, Memorandum of Understanding, Term Sheet
LOIs and MOUs focus on the economic terms of the transaction.
Frequently they also set out legal aspects that are central to the contract.
Almost all National Reports highlight that these agreements are usually
non-binding agreements (except for provisions regarding confidentiality,
venue or applicable law). This is particularly true for Germany and
Austria, where most share purchase agreements have to be notarized to
be valid, having the consequence that the binding effect of a nonnotarized LOI is very limited.
In Spain on the other hand, the binding effect of such initial
documentation depends on the level of detail included and whether these
in case the details are considered sufficient enough to complete the
transaction LOIs shall be considered as legally binding pre-contracts
which also entail a duty of good faith. A breach of this duty may give rise
to indemnity claims. This concept of ‘pre-contractual good faith’ is not
determined by statutory law, but has been developed by case-law.
The French Report points out that foreign investors must ascertain that
initial documentation is not considered as final (i.e. no conditions
precedent), since the agreement could then otherwise be construed as
enforceable pursuant to French law.

Exclusivity Agreement
Exclusivity provisions are often included in the LOI or the MOU. They
are common in Germany, Austria, Poland, Norway, Denmark or Canada,
but only occasionally agreed in Japan and Argentina. In Japan there is a
Supreme Court ruling from 2004 regarding the enforceability of
exclusivity clauses. Obviously the Supreme Court admitted the overall
effectiveness of exclusivity agreements, but did not grant the requested
provisional injunction after considering the circumstances in this
particular case and the balance of interests of the parties involved.

Break-Up Fees
While break-up fees are very common in Canada, they rather constitute
the exception in other jurisdictions (Germany, Austria, Argentina, Japan,
Denmark). In Canada break-up fees are a matter of serious negotiation in
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most transactions and typically range between 2 % - 4 % of the deal
value.
In Switzerland break-up fees have become rather rare in private
transactions, but are sometimes agreed in public acquisitions. The reason
might be that, compared to private acquisitions, public acquisitions are
cost-intensive for the offer or and the probability of a third party
interfering with a competing offer is particularly high. Break-up fees are
generally admissible in this context to the extent that it does not interfere
with the shareholders' freedom of choice and does not deter third parties
from launching a competing offer.
In China term sheets tend to provide for break-up fees, whereas LoIs do
usually not.
2.4
What can be considered as a typical negotiation strategy of sellers in your
jurisdiction? In particular:

Are “big points” usually agreed at early stages or are they left for the end of
the negotiations? Please explain the rational behind your answer.
The tenor from all National Reports is that big points are usually agreed at a
very early stage of the transaction. However, it sometimes happens that key
aspects, for which no consent can be reached at an early stage, are
intentionally left open at the beginning and are revisited further down the line
of negotiations. In this case the negotiation process functions as a relationship
building process.
The rationale behind agreeing on big points at an early stage is that the
negotiation and drafting process is very time- and cost consuming and neither
party wants to risk spending a lot of time and money on a deal which
ultimately is not closed due to an unsolvable disagreement between the
parties.

Is it typical that points that have been agreed are re-opened at a later stage?
If yes, for what reasons? Does this sometimes also happen in relation to
points that are dealt with in initial documentation (NDA, LoI, MoU, Heads of
Terms, etc.)?
According to almost all National Reports, the parties usually stick to the
points agreed earlier during the transaction. This is particularly true, if these
points have already been confirmed in some kind of initial documentation
(LOI, MOU). Trying to re-open negotiations on such topics without any
apparent necessity would be very uncommon and could even be considered as
rude in some cultures (Japan).
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Only in case unexpected findings arise during the due diligence process
which have a significant impact on the circumstances of the transaction, the
buyer may re-open negotiations on topics which have already been agreed at
an earlier stage. Under these conditions it doesn’t make a difference whether
the point has been confirmed in the LOI or MOU.
The Spanish Report points out that in deals, where legal advisors do not
participate until the initial documentation has been agreed and signed, big
points might also be re-opened as a consequence of clients not being aware of
the legal implications of some of the terms initially agreed.
In Switzerland, principals and advisors may react rather harsh to the other
party's strategy of re-opening negotiations on already agreed big points at a
later stage for no obvious reason.

Are sellers typically willing to give up points easily which are not important
for them or are they fighting for such points in order to trade them off against
other points which are more important for them? Please explain the rational
behind either strategy.
The approach a seller takes very much depends on the strength of his
bargaining power. In case the seller has a number of attractive bidders, he will
adopt a rather aggressive strategy. The opposite will be true, if the transaction
market is a buyer-friendly one. Furthermore, the negotiation strategy to some
extent also depends on the individual personality of the lawyers involved.
Having said this, some general differences can be noted in the various
cultures. While in Argentina and China sellers always perform a though
struggle regardless of what importance a specific point actually has in order
to trade them off against other points, Japanese sellers are more prone to give
up points easily in order to narrow down issues during the negotiation process
at an early stage. German Parties tend to adopt reasonable positions and not to
be overly aggressive. In Poland in the vast majority of cases parties are
fighting for essential issues and are more willing to give up less important
points, to successfully close the negotiations.

Are sellers generally speaking willing to give in a lot compared to their
starting position or is there starting position close to what they would like to
agree on in the end (e.g. if a seller’s aim was to end up with a cap for claims
under reps & warranties of 30% of the purchase price, would the seller
typically start negotiations rather with an offer of 25% or an offer of 10%)?
Please explain the rational behind either strategy.
As explained under the previous question, the seller’s strategy very much
depends on his bargaining power, the transaction market and the overall
circumstances. Again, depending on the underlying culture, sellers in some
jurisdictions might overall have a rather aggressive approach, compared with
sellers from other jurisdictions. The Turkish Report emphasizes that the
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transaction market in Turkey is a seller-friendly market, while the Japanese
Report states that the starting position is likely to be close to what will be
agreed at the end. The latter is also true for Argentina.
The details provided in the National Reports, however, do not allow for an
extensive comparison since they all agree that the starting point of a seller
always depends on the overall circumstances under which he is selling the
target company and for that reason no default picture or default negotiation
strategy of a typical seller can be described.
2.5
Are there any other peculiarities of negotiating M&A transactions in your
jurisdiction which a foreign investor needs to be aware? Please also state the
reasons for such peculiarities.
The German Report points out that German sellers tend to adopt a rather direct
negotiating style and set great store by compliance with the rules and the time
frame. If a German seller lays down specific targets to be met in a bidding
procedure, the investor will be well advised to adhere closely to these and not to
trust that the seller will not take things all that seriously.
The Turkish Report highlights that their legal system is similar to the civil law
system rather than the common law system. In this sense, some of the rights or
obligations which have already been granted by laws and on the contrary some of
the rights which are in breach of applicable laws have to be considered before
starting any negotiations. For example, pre-emption rights are currently granted to
all shareholders by laws and these rights cannot be restricted unless otherwise
permitted by laws. In this regard, any negotiation pertaining to the restriction of
such rights against law or on the contrary any negotiation for the protection of
pre-emption rights would be worthless.
In Japan the decision making process might be considered as slow. This is
because a decision-making process of a Japanese company is different from that
of foreign companies. Japanese companies tend to take a consensus approach
called ringi system to make a corporate decision. In this ringi system a department
in charge of the negotiations will go around all the relevant departments to obtain
their consents before making the final decision. Therefore, a foreign party
conducting a negotiation with a Japanese seller should expect that extra time may
be required to close the deal with the Japanese seller.
Foreign investors in Brazil must be aware that it is very common in Brazil that
companies are not completely in accordance with the international accountancy
standards and do not comply with labor and tax regulations and sometimes do not
have compliance rules.
In Austria the parties should be aware of the “culpa in contrahendo” concept,
where the negotiating parties have certain duties of transparency and disclosure of
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information which require them to not mislead the other party before concluding a
legal agreement. A breach of those duties may lead to liability for damages caused
by the breach.
In France parties frequently and quite rightly feel that most of the relevant issues
are sufficiently covered in the applicable legislation and do not need to be covered
in detail in the written agreement between the parties (unlike in Anglo-American
jurisdictions for instance). For this reason, M&A contracts prepared in a French
domestic context tend to be less detailed than those concluded in an AngloAmerican context. Thus, a French seller confronted with detailed and sometimes
massive documentation proposed by a foreign potential purchaser may feel that
the latter is paying unnecessary attention to details which are already covered
under French law. This source of mutual misunderstanding may clearly jeopardize
or delay the transaction.
In Spain foreign investors should be aware that depending on the deal and its
target some special rules may apply relating to foreign investments in certain
sectors and in particular in air transport, radio, minerals and raw materials of
strategic value and mining rights, television, gambling, telecommunications,
private security, the manufacture distribution or trading in armaments and
explosives for civilian use as well as activities connected with National Defence.
In the Netherlands the principle of reasonableness and fairness entails that,
however thoroughly a contract is drafted, courts may still take liberty in
interpreting contract language if (in their opinion) circumstances so dictate.
Courts may, according to circumstances, either widen the application of certain
contract provisions to situations not explicitly arranged for in the contract
(although rarely) or exclude certain provisions from applying (very rarely). There
is a noticeable trend in Dutch case law for courts to be increasingly strict in
adhering to contract language, especially for professional parties that were
represented by lawyers when concluding the relevant contract, but corrections due
to reasonableness and fairness still appear in the courts’ verdicts.
3.
DISCLOSURE
3.1
Which information is typically / by law required to be available publicly (in
particular information disclosed with the commercial registry, disclosure of
annual accounts, disclosure pursuant to stock exchange rules)?
All jurisdictions dealt with in the National Reports provide for some sort of public
register, where the main details about a company can be accessed. Usually, there
are various different registers providing different information.
The kind of information disclosed is very similar to a large extent, but still differs
from jurisdiction to jurisdiction. For that reason the information provided in the
National reports can hardly be summarized.
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However the following details are made available in almost all jurisdictions:

company name

legal form of the company

address and seat

date of incorporation

purpose of the company’s business

company officers/managing directors and their powers of representation

share capital

articles of incorporation
Additionally, most jurisdictions provide for some form of mandatory disclosure in
the media designated for the publication of company announcements in case of
extraordinary events (eg capital increase, takeover, insolvency).
3.2
Which information does an investor at the beginning of an M&A transaction
typically receive and which information is typically held back by the seller
and only disclosed at a later stage? Which information is usually only
provided for in the “red data room” / the confirmatory due diligence? Please
also state the reasons for the usual practice.
Disclosed from the outset is typically only the information necessary for the
potential buyer to establish the economic parameters of his offer. This is
particularly true for a bidding process, where the necessary information is usually
disseminated in the form of an information memorandum setting out the key
economic data, the business set up and its structure.
Once the potential buyers have been narrowed down or an initial document (LOI,
MOU) has been signed, usually access to a data room is granted, containing all
information that is important for deciding whether or not to proceed with the
transaction.
Most National Reports agree that sensitive commercial information, such as
customer and supplier agreements, are usually held back until the end of the
transaction, especially when the potential buyer is a competitor. Also details
regarding employees are typically not disclosed from the very beginning.
Especially in Japan the list of information to be held back seems to be extensive
(customer information, employee names, large debts, litigation risks).
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3.3
How do sellers usually provide information to potential buyers in your
jurisdiction? Are physical or electronic data rooms common? In case of
physical data rooms, where are they usually located, at the premises/offices of
the seller or at the offices of a law firm? Why? Who organizes the data room,
the seller itself, advisors of seller or external data room providers?
It is obvious from the National Reports that nowadays the documents for due
diligence are disclosed in a virtual/electronic data room in most cases. Only in
small transactions physical data rooms are still established. For reasons of
confidentiality they are then commonly set up in the offices of the seller’s
advisers. Basically this is also true for China. The Chinese Report, however,
emphasizes that seller’s material and sensitive information is often physically
provided to the buyer.
The data room is usually assembled by the seller, being supported by his advisors.
Sometimes a due diligence request list is provided by buyer.
Overall no significant differences between the individual jurisdictions can be
noted in this regard.
3.4
Is information disclosed in data rooms typically well structured and
comprehensive? Please also explain why your answer is yes or no.
Whether the information provided in the data room is well structured and
comprehensive depends on the individual circumstances. According to the
National Reports the quality of the data room differs, depending on whether an
investment bank is involved, whether the buyer provided a document request list
and on how much time and experience the seller had in putting up a data room.
Overall we had the impression that most National Reporters were satisfied with
the structure of their data rooms. Only the Japanese Report pointed out some
quality doubts.
3.5
What are common terms provided for in an asset / share purchase agreement
in relation to information disclosed / not disclosed and for which reasons? In
particular:

Are typically claims by buyer barred or affected in their amount, if he had
actual knowledge on the facts amounting to a breach of reps & warranties /
indemnities?
The question whether the representations & warranties are qualified by the
documents disclosed in the data room seems to be a strongly negotiated point
in all jurisdictions:
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

In Germany the buyer must accept, at least to a certain extent, that the
information disclosed in the data room may be invoked against him. This
applies in particular to breaches of warranty that the buyer is aware of at
the time of signing. In this context there is often discussion over whether
only actual knowledge of the facts or also grossly negligent ignorance of
said facts excludes warranty claims.

In China considering that it is extremely difficult to prove buyer’s
knowledge, a party would not be barred from bringing a claim against
breach of representations and warranties under PCR law even if it had
actual knowledge on the facts, or did not know such breach due to its
gross negligence.

In Japan there is a court precedent of the Tokyo District Court as of 2006
holding that a buyer is barred from bringing a claim of a breach of
representations and warranties, if he had actual knowledge on the facts
amounting to a breach of representations and warranties, or did not know
such breach by his gross negligence. In practice, it is common to
incorporate a provision in the definitive agreement stating that parties’
awareness obtained in the course of the transaction does not affect
effectiveness or scope of the representations and warranties. It is still not
clear, however, how such provision will be viewed by the court in each
individual case.

In Brazil it is normally provided that sellers acknowledge that buyers are
entering into agreements in reliance on representations and warranties.
However, buyers tend to provide in agreements that the rights and
remedies of buyers in respect of representations and warranties of sellers
shall not be affected by any knowledge of buyers as a result of buyers’
due diligence.

In Austria a seller will typically require that warranty claims based on
facts or circumstances which were disclosed in the data room are barred.
However, claims based on indemnities are usually not barred in such case
as indemnities would typically try to cover risks identified during the due
diligence process.

According to Norwegian contract law and most SPAs the purchaser will
not be in position to make any claims based on matters that the purchaser
was aware of prior to closing.

In Spain full knowledge by the buyer of any fact or circumstance that
might turn into a breach of reps & warranties would prevent him to claim
further indemnities.
Are usually provisions included stating that the entire data room is disclosed
against the reps / warranties? Is the requirement of specific disclosure
common for certain fundamental reps (such as title, capacity and solvency)?
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The answers to this question differ strongly within the individual National
Reports; often no statement was made. However, please find an excerpt of
some jurisdictions below:


In Austrian purchase agreements such provisions are very common. The
detail of disclosure required to exempt the seller from liability is often
heavily negotiated as seller will want every fact or circumstance
disclosed in the data room as being deemed disclosed and buyer will
want only specific disclosures, being as detailed as possible, to be
liability exempting. The requirement of specific disclosure for certain
fundamental representations (such as title, capacity and solvency) is not
common in Austria.

In Japan it is not common to have a provision stating that the entire data
room is disclosed against the reps & warranties. A seller may want to
have such provision, but a buyer would insist that such provision should
not be included in the definitive agreement since it is difficult to carefully
check and analyze all the information in the data room, and its risk under
the time pressure of the transaction.

In Turkey sellers sometimes request the attachment of entire due
diligence lists and documents to the definitive agreement. However, most
commonly, they present detailed disclosure letters.

Pursuant to non-mandatory statutory Swiss law, the seller is not liable for
defects known to the buyer at the time of the purchase. This rule is
typically replaced by a regime pursuant to which the buyer is held to only
have knowledge of all information fairly disclosed in the data room. All
information so fairly disclosed in the data room will be held against the
representations and warranties with the exception of title and capacity
(and, in case of a share purchase agreement, also valid existence and
capital structure) which are typically subject to specific disclosure.
Is the disclosure required to be “fair” (i.e. enable a reasonable buyer to
identify the nature and scope of the matter disclosed) in order for it to qualify
the reps & warranties?
In purchase agreements in France, Spain, China, Austria, Japan, Turkey,
Switzerland and Germany, provisions can usually be found requiring
disclosure to be clear, not misleading and at least enable a buyer to identify
the nature and scope of the matter disclosed. Under the Turkish Civil Code
there is a provision requiring disclosure to be fair (good faith clause).

Is usually a representation of seller included that the disclosed information is
correct and complete, is not misleading and presents a true and fair view of
the business, assets and liabilities, financial position and earnings position of
the target?
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The answers to this question differ strongly within the individual National
Reports; often no statement was made. However, please find an excerpt of
some jurisdictions below:

In Poland practice shows that virtually all negotiated M&A agreements
include the seller’s representation that all information is true, accurate,
complete and not misleading. With respect to financial information
representations and warranties typically provide that financial statements
present a fair view of the target’s standing both in terms of liabilities and
earning positions.

In Canada, a buyer may attempt to include a “full disclosure”
representation and warranty that provides that the seller state that no
documents furnished by the seller contains any untrue statement of a
material fact or omits to state any material fact necessary to make
information not misleading to a prospective purchaser seeking full
information as to the seller, its properties and assets. The seller will
generally resist this on the basis that it is up to the purchaser, through its
due diligence investigations, to specify through the drafting of specific
warranties, which matters are of importance. This tension results in
representations and warranties being quite extensive, with carve outs for
material variations set out clearly either within an acquisition agreement,
in schedules or in a separate disclosure letter.

In Germany, the buyer often tries to obtain a warranty from the seller to
the effect that all the disclosed information is correct, complete and not
misleading. However, due to the obvious risk for the seller that some
disclosed information may not be entirely complete, the seller frequently
(successfully) refuses to give such a warranty at all or the warranty is
made subject to knowledge and restricted substantively. Such warranties
are more common in small-size transactions and allow to significantly
reduce the reps & warranties section in the SPA.

In China and Turkey such a representation of the seller is very common.

In Japan the representations of a seller normally includes a provision that
the disclosed information is correct and complete, and is not misleading,
and does not omit any material information which may have effect on the
company and its business.
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4.
DEAL STRUCTURES FOR INBOUND M&A TRANSACTIONS
4.1
Do foreign investors in your jurisdiction typically prefer asset or share deals?
Please list in short and general terms the most important aspects for taking
this decision.
The decision to structure inbound M&A transactions as a share deal or an asset
deal depends on various different economic and legal considerations and under all
jurisdictions reviewed, the specific case needs to be considered. Key drivers are
timing, ease of implementation, tax and labor law considerations and the smooth
continuation of the target’s business.
In all jurisdictions reviewed, share deals are considered as simpler and quicker to
complete as they avoid many of the legal and practical difficulties associated with
the transfer of particular assets and the common requirement of obtaining the
consent of third parties and authorities in order to transfer contracts, permits and
licenses from the target to the buyer. The business operations can be continued as
they are and without any major disruption. However, in cases of share deals, all
risks and contingent liabilities related to the business’ previous operations remain
contained in the target company and are thereby taken over by the buyer. Under
Belgian law, foreign investors must observe the rules on financial systems that
impose important limitations in relation to the financing of the transfer of the
shares by the target company (for instance by providing loans and/or guarantees in
view of the acquisition of its own assets).
According to all National Reports, an important advantage of an asset deal is that
the buyer has the right to choose the specific assets and liabilities it prefers to
acquire. This cherry-picking allows the buyer to avoid the risk of hidden liabilities
by excluding certain assets and liabilities. However, certain jurisdictions hamper
or limit the advantages resulting from cherry-picking.
For instance, Austrian law provides for the automatic transfer of liabilities with
the transfer of underlying assets. According to Article 1409 of the Austrian civil
code, the purchaser is liable for any pre-existing debts of the acquired business
that he knew or should have known about. This provision is mandatory, but the
extent of the liability is limited to the value of the acquired asset. A liability for
any pre-existing debts of the acquired business also flows from Article 38 of the
Austrian commercial code. The extent of the liability is not limited. Even though
the liability can be excluded by agreement, such an exclusion of liability becomes
only valid towards third party creditors if it is registered in the commercial
register or otherwise made public or directly notified to the creditor.
In contrast to Austrian law, Argentinian law protects the buyer against hidden
liabilities if the asset deal is executed in accordance with acts number 11, 8, 6, 7
and other federal and provincial tax regulations. As a result of these provisions,
the buyer can benefit from the limitation of commercial and fiscal liabilities.
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Japanese law also provides for certain protections of the buyer. If a transaction is
to acquire only a part of the business or only specific assets of the seller, foreign
investors in Japan typically conduct a transaction by an asset deal. The Japanese
Companies Act provides for a corporate separation procedure (Kaisya Bunkatsu).
Under these procedures, assets and liabilities concerning the target business can
be transferred to the buyer by the effect of laws without obtaining consent of third
parties and therefore the corporate separation procedure is regarded as an easy and
efficient transaction structure.
The fact that in an asset deal, the assets and liabilities to be transferred must be
specified is generally considered to be a disadvantage. Under Polish law, the
structuring of a transaction as an asset deal also has a negative impact on the
structure of the purchase agreement. For example, under Polish law, the transfer
of real estate cannot be subject to conditions precedent and therefore a preliminary
agreement must be concluded initially, and only once all closing conditions are
met, the main agreement regarding the transfer of the title and the real estate can
be executed.
Moreover, some of the National Reports highlight the fact that the involvement of
real estate in asset deals causes significant delays in the completion of the
transaction, as administrative procedures need to be observed.
4.2
Is the use of a local SPV for the acquisition required / advisable? If not, what
are the local alternatives? What is the rational behind the usual practice?
It is apparent from the National Reports that local SPVs are not usually required
by law. However, under certain circumstances, conducting the acquisition through
an SPV might be attractive and advisable. This applies in particular with respect
to tax matters. The use of a local SPV simplifies taxation issues and allows the
implementation of a fiscal unit.
From a commercial perspective, the use of a local SPV allows the new investment
to be treated as a separate business unit and reduces the investor’s liability to the
funds of the SPV.
SPVs can in particular be formed in context with asset deals. Furthermore, private
equity transactions are usually carried out by use of a local SPV. In private equity
transactions, the transaction is financed through the SPV by funds obtained from
third parties/banks and the SPV becomes heavily indebted as a result. The SPV is
then merged with the target company which then repays the debt. In this way, the
purchase price can be financed by the funds of the target.
In Belgium, in cases of share deals, an individual selling of an important
shareholding in a company (for instance family-owned company) only benefits
from a tax exemption on his/her capital gains if the shares are sold to an EU
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company. In this type of transaction, which is quite common in Belgium, the
seller will usually insist on selling the shares only to an EU company. Non-EU
investors will then typically have to incorporate a local SPV. In addition, in
France, the use of a French SPV for the acquisition is often advisable. If a foreign
investor, for instance, wishes to reinvest the profits in the business and/or if the
profits are to be invested in another M&A transaction in France, the incorporation
of a French holding company would be highly recommended to act as a dividend
trap. The local SPV would receive the dividend free of tax from the business
carried on. Additionally, using a French SPV partly funded by debt and forming a
tax group with the target company may allow the interest paid by the SPV to be
offset against the operating profits of the target.
The so-called “plan of arrangement”—a transaction structure often used in
Canada for friendly acquisitions—is an interesting and exceptional structure with
respect to the jurisdictions reviewed in this General Report. In order to effect the
plan of arrangement, a foreign buyer must create a Canadian subsidiary that, upon
approval of the plan of arrangement by the shareholders and the courts, merges
with the existing Canadian entity. An arrangement is a court approved transaction
governed by corporation legislation and requiring target shareholder approval.
Arrangements have a number of advantages over takeover bids. In particular, they
can facilitate dealing with multiple classes of securities, provide for acquisition of
100% of the target without the need for exercise of compulsory acquisition rights
or a second stage transaction and, if securities of the purchasers are to be offered
to US-shareholders of the target, provide an exemption under US securities law
from the requirement to register the securities. According to a survey, about 78%
of the target-supported transactions were completed by way of a plan of
arrangement.
In China, the use of a local SPA can be helpful, as such SPA is regarded as
domestic company and therefore governmental approvals that foreign investors
need to directly acquire interests in a domestic company may not be required.
4.3
Which (legal form of the company) is most common for SPVs established in
your jurisdiction? Please shortly describe their legal structure. What are the
pro’s and con’s of this legal form and what characteristics make them
suitable for the use as investment vehicle?
In all jurisdictions the most common legal form for a SPV is the private limited
liability company (the LLC). LLCs are separate individual legal entities and limit
the liability of their shareholders. In China even statutory law stipulates that
foreign-capital enterprises shall be organized as a LLC, whereas other forms can
be chosen subject to governmental approval. Depending on the jurisdiction, LLCs
can be established by one or two shareholders or require a certain minimum share
capital (or none at all). In most jurisdictions, there are no restrictions on foreigners
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becoming a shareholder of an LLC, except for restrictions under foreign
investment rules. However, in some jurisdictions, LLCs are not allowed to be
fully managed by foreigners and at least one local managing director is required.
The most important advantage of an LLC is that the legal personality of the LLC,
as well as its assets and liabilities, are separated from those of its individual
shareholders. The company is liable for its debts to the full extent of its assets,
though this liability does not extend to the personal assets of its shareholders.
LLCs do usually have at least two corporate bodies, namely the management
board and the general meeting of shareholders. The structure of the company
differs between individual jurisdictions, in particular according to whether the
jurisdiction provides for a one-tier board or a two-tier board system.
Under most of the jurisdictions and subject to limitations under the articles of
association, shares in a LLC are fully transferable which allows a flexible and
simplified transfer of the ownership in the company.
4.4
What are typical structures to maintain seller’s exposure in relation to the
future profits of the target (e.g. earn out, vendor loan, maintaining minority
stake)? For which reasons are certain structures more common than others?
No clear picture emerges from the National Reports with respect to the typical
structures used to maintain the seller’s exposure in relation to the future profits of
the target. The use of earn-outs, vendor loans or the maintenance of a minority
stakes by the seller mainly depends on local habits. Whereas, for instance, the
introduction of an earn-out provision is by far the most commonly used structure
to secure the seller’s exposure to future profits of the target in Austria and Turkey,
earn-out provisions are not commonplace at all in Belgium. These divergent
common practices are even more interesting as both Austria and Belgium are
members of the European community, and both jurisdictions can be considered
similar in their basic structure. This illustrates how different local common
practice can be.
The same is true with respect to the use of vendor loans or the maintaining of a
minority stake in the target company. Whereas both these structures, as well as
earn-outs, are rarely used in Egypt, minority stakes are at least sometimes used to
maintain the seller’s exposure to the profits of the target in Japan. All in all, if
M&A transactions provide for a structure to maintain seller’s exposure in relation
to the future profits of the target, the commonly used structure is the
implementation of an earn-out. However, even in jurisdictions where earn-out
provisions are common, they are only included in specific cases in a minority of
transactions.
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4.5
What are typical methods (e.g. bank / ultimate parent guarantees, set-off
structures, escrow structures other form of security) to secure seller’s
obligations under a share / asset purchase agreement (in particular payment
obligations for breach of reps & warranties or indemnities etc.)? For which
reasons are certain structures more common than others?
In all M&A transactions around the world it is common to secure the seller’s
obligations in share and asset deals. The most common methods are the set-up of
an escrow, hold backs/deferred purchase price payment, bank guarantees/letters of
credit as well as parent guarantees. Clear favorite in most of the jurisdictions are
escrow structures.
In some jurisdictions, for instance Switzerland, the right of the purchaser to set off
its future payment obligations (e.g. in case of an earn-out) against warranty claims
is also commonly seen.
The payment of a certain part of the purchase price to an escrow account offers
the purchaser a rather high degree of security and is easier to accept for a seller
than a deferred payment or a bank guarantee. A peculiarity under Belgium law is
that contrary to Anglo-Saxon practice, an escrow account may not be enforced
against other creditors when the account holder becomes bankrupt. This may also
apply if the escrow account is held jointly by the buyer and the seller. As a
solution, buyer and seller can agree that the escrow account is automatically
pledged in favor of the buyer in case of bankruptcy of the seller.
It is apparent from most National Reports that the most critical issue besides the
structure of the security is the amount to be secured. None of the National Reports
can give a general or common rule. They are consistent in so far as the amount to
be secured is subject to commercial negotiations and the particulars of the
individual transaction.
4.6
What are the typical methods (e.g. bank / ultimate parent guarantees, escrow
structures) to secure purchaser’s obligations under a share / asset purchase
agreement (in particular payment of the purchase price at closing and
payment of an earn out)? What are the reasons for applying certain
structures more often than others?
Specific securities for purchaser’s obligations under a share/asset purchase
agreement are seen less than securities for warranty or indemnification claims in
all jurisdictions reviewed under this General Report. The transfer of the title in the
shares or the assets is usually subject to the full payment of the (initial) purchase
price but, for instance as in France, sellers do not ask for any specific guarantee
for the payment of the purchase price at closing.
This might be different if seller and purchaser agree on an earn-out or a vendor
loan. In these cases, parent and bank guarantees are the most common securities.
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4.7
Which role do reps and warranties play in asset / share purchase agreements
in your jurisdiction? How detailed is the catalog of reps and warranties
usually used in your jurisdiction? Is there any specific “local” warranty
commonly included in a local purchase agreement a foreign investor should
be aware of?
The National Reports demonstrate that representations and warranties play an
important role in M&A transactions, in both share deals and asset deals. In
international transactions in particular, asset and share purchase agreements do
contain standard catalogues of representations and warranties which are adapted
to the specific transaction. Specific “local warranties” are not at hand, however,
representations and warranties relating to the compliance with specific local
legislation including local case law are common.
Even though standard catalogues of representations and warranties are also typical
in the continental law jurisdictions, the comprehensive Anglo-Saxon approach in
requesting an exhaustive set of (proposed) representations and warranties is
sometimes viewed as “over the top” by parties from continental law jurisdictions.
A typical catalogue of reps and warranties covers matters such as: (i) seller’s
capacity to execute the transaction and seller being in good standing; (ii)
unrestricted illegal and beneficial ownership of the shares/assets and further
corporate issues related to the target; (iii) assets, liabilities and financials of the
target; (iv) taxes and social security matters; (v) inventories receivables, main
agreements (customer/supplier); (vi) intellectual property rights; (vii)
employment; (viii) insurance; (ix) environmental and regulatory permits and
issues; (x) real estate and leases; (xi) pending and threatened claims and disputes;
and (xii) full disclosure and, depending on the structure of the target, intra-group
arrangements and arrangements with shareholders and directors.
The catalogue of representations and warranties is commonly limited in certain
transaction structures, in particular in cases of management buyouts or in private
equity transactions. In all reviewed jurisdictions, the asset/share purchase
agreement provides for an independent warranty/damage claim regime that
overrules statutory provisions on warranties and breach of contract. In particular,
in continental law jurisdictions, certain mandatory rules, for instance claims based
on the seat, cannot be excluded and to apply in addition to the contractual regime.
Representations and warranties granted by the purchaser are limited. Most
National Reports only refer to the good standing of the purchaser and its capacity
to perform and execute the transaction.
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4.8
Are there any other peculiarities in relation to deal structures in your
jurisdiction which a foreign investor needs to be aware? Please also state the
reasons for such peculiarities.
In all jurisdictions reviewed by the National Reporters, the deal structure is highly
influenced by the local tax laws the foreign investor should give particular
attention to. In the continental law jurisdictions, the National Reporters
additionally noted that a foreign investor should bear in mind that certain
remedies were available even in the absence or in addition to the contractual
warranty regime.
Furthermore, in some jurisdictions, such as Germany, the share/asset purchase
agreement may be subject to notarization or other form requirements that need to
be obtained to become a binding agreement and cause additional costs.
Local employment law, in particular employee participation rights, must also be
observed in certain jurisdictions and may have an impact on the deal structure.
Moreover, in certain jurisdictions, for instance in Argentina and the Netherlands, a
seller is obliged to disclose all information that might be of interest of a neutral
(third) party purchaser. The obligation of seller to disclose information often
overwrites the buyer’s obligation to investigate the target and its business.
5.
FORMALITIES AND RESTRICTIONS ON (INBOUND) INVESTMENTS
THROUGH M&A TO BE CONSIDERED FROM THE START ONWARDS
5.1
Which local notifications/approvals/permits are required to start business
operations in your jurisdiction (trade license, tax registration, etc.)?
Foreign investors usually have the choice to start business operations in foreign
jurisdictions either by opening a branch office, which has no legal personality, or
by incorporating a separate legal entity under local law. If the option of a
commercial company with legal personality is chosen, it is necessary in almost all
of the jurisdictions reviewed by the National Reporters to apply for registration
with the local trade office, the provincial or federal taxing authorities and the
social security entities.
From most of the National Reports it is clear that foreign companies must also file
and register certain information and actions with the commercial register, for
instance a copy of the articles of the company.
Furthermore, in almost all of the jurisdictions most business activities require a
trade license. Such a trade license needs to be obtained prior to the start of the
business and might require, depending on the business conducted, a member of
management to provide evidence of certain academic and/or practical
qualifications. Some businesses, such as gaming and lottery or carrying of goods,
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or businesses within the finance or energy sector, need (additional) special
licenses (see below section 4.2).
In addition, in some jurisdictions such as Belgium and Poland, every trading
company must have a domestic bank account.
In China, in addition, foreign-invested companies require an governmental
approval (Certificate of Approval) and a Foreign Exchange Registration
Certificate. Furthermore, an Organization Certificate Code is issued to Chinese
companies certifying that the company is organized under the laws of China.
5.2
Are permits / approvals required in order to acquire a business / (significant)
share in certain sectors (e.g. banking, insurance, utilities), irrespective of the
investor being local or foreign? Please explain in brief and general:
Many business sectors require some form of permit or governmental approval. In
particular, if the business involves physical operations, a number of local
municipal permits, such as environmental permits, will be required.
Certain sectors require an approval from the central government or notification to
a central government agency. The financial sector, including for instance banking,
credit institutions, insurance and investment services, fund management
companies and pension fund companies, is a typical sector in which this is the
case. However, a number of other different sectors are also subject to specific
permits or approvals, such as the import and export sector; transport logistic
operators; bunkering and port, oil and gas industries; electricity and gas
transportation and distribution; mining; forestry; the media and broadcasting
sector; telecommunications; the gaming sector; the health and pharmaceuticals
sector; the hotel, catering and tourism sector; and the tobacco and spirit industries.
As a general rule in all jurisdictions reviewed by the National Reporters, permit
requirements apply equally to foreign and local investors.
Of all jurisdictions reviewed by the National Reporters, the financial sector is one
of the most regulated sectors. The relevant financial supervisory authority must be
notified in advance for the planned aquisiton to be approved. The same applies to
increasing the qualifying participation when the participation equals or exceeds a
certain limit of the voting rights or share capital in a banking, financial services or
insurance company.
It is apparent from most of the National Reports that the financial supervisory
authority of the relevant jurisdiction must be notified if the intended acquisition or
increase equals or exceeds a limit of 5%, 10%, 20%, 33.33% or 50% of the voting
rights or share capital. In some jurisdictions, such as Egypt, Japan and
Switzerland, the merger or acquisition must be reported to the Financial
Supervisory Authority of the respectrive country prior to the consummation of the
transaction.
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The Financial Supervisory Authority may prohibit the acquisition within 30 to 90
days, if, inter alia, the investor seems to be unreliable or might have use illegal
funds for the acquisition; if the banking, financial services or insurance company
seems unlikely to abide by regulatory requirements in the future; if the company
would become controlled by a foreign parent company not subject to effective
supervision; if money laundering or the funding of terrorism have been detected in
connection with the intended acquisition; or if the investor lacks financial solidity.
Furthermore, most National Reports demonstrate that if certain thresholds are
crossed, parties are required to provide the relevant competition authority with
detailed information about the transaction, so that the authority may determine
whether the transaction will, or is likely to, substantially prevent or lessen
competition in the relevant market. In Turkey and many other jurisdicitions,
mergers and acquisitions shall be notified to the Turkish Competition Authority to
obtain permission prior to the completion of the transaction. Until the required
authorization has been obtained, the agreement cannot enter into force and does
not have any legal effect.
Furthermore, the Egyptian National Report clarifies that in the event of
acquisition of more than 10% of the shareholding of an Egyptian bank the prior
approval of the Central Bank of Egypt is required.
The timing and difficulty of obtaining the necessary authorizations in order to
operate, depends on several factors, such as the amount and the complexity of the
documents that each specific law requires be filed, and the efficiency of each
relevant agency. Permission to be granted or the approval procedure might last
between 30 and 90 days – as long as a well prepared application or complete
notification in written form is provided.
5.3
Are there any foreign investment regulations, which apply exclusively to the
acquisition of a business / (significant) share by foreign investors or by
investors from certain jurisdictions, but not for locals? Please explain in brief
and general.
It can be concluded from most of the National Reports that foreign investors are
treated on a non-discriminatory national basis. Foreign firms may participate in
government-financed and/or subsidized research and development programs on a
national treatment basis. As a general rule, foreign direct investment may take
place without restrictions and screening.
Ownership restrictions apply to a few sectors only, primarily sectors concerning
internal and external national security: in particular the defence equipment
industry and security services; sectors concerning public security and public
policy including procurement and crisis preparedness; the aviation sector; and the
media, TV and broadcast sector.
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For instance, in Austria the (direct) acquisition of 25% or more or a controlling
interest in an Austrian business engaged in the abovementioned industry sectors
by non-EU/EFA and non-Swiss persons needs to be approved by the Austrian
Ministry of Economic Affairs. Prohibitions applicable to indirect acquisition of
third-country nationals are possible as well, provided that there are legitimate
grounds for suspicion of serious threats to public security and the Austrian
Ministry of Economic Affairs decrees accordingly.
Similar restrictions are apparent in the German National Report. If a nonEU/EFTA investor acquires – directly or indirectly – 25% or more of the voting
rights in a German target enterprise, the German Ministry of Economics and
Technology shall be empowered to review and, for reasons of public order or the
security of Germany, prohibit or restrict the investment. This empowerment is not
limited to specific industry sectors, but shall be valid for any industrial trade
sector in Germany.
Indeed, in Canada investments by non-Canadians to acquire control over existing
Canadian businesses or to establish new ones are either “reviewable” or
“notifiable” under the Investment Canada Act. In particular, the Canadian
government uses thresholds to determine whether the transaction is reviewable.
These thresholds are set relatively high for an investor from a WTO-country or for
an investor who is controlled by persons who are residents of WTO member
countries, in comparison to an investor who is not from a WTO country. A
transaction that is deemed to be reviewable may not be completed until the
government is satisfied that the investment is likely to be of “net benefit to
Canada”. If a transaction is notifiable, the non-Canadian investor is required to
provide limited information on the identity of the parties to the transaction, the
number of employees of the business in question and the value of its assets.
Furthermore, the Brazilian National Report shows that foreign investments
generally must be registered with the Brazilian Central Bank.
In some jurisdictions reviewed by the National Reporters, such as Brazil, Estonia,
Peru and Poland, restrictions on acquisition of real property are to be expected.
For instance, in Brazil and Peru, the acquisition of land, mines, forests or water,
fuel or energy sources in the frontier area may be performed only by a native or
naturalized person, directly or indirectly, individually or through a legal entity. In
Poland the acquisition of real property by a foreigner, directly or indirectly, of
more than 50% of the shares or voting rights of a company owning real property
located in Poland requires a permit of the Minister of Interior and Administration.
Finally, the Chinese Report shows a strict regime of foreign investment rules. In
China the Catalogue for the Guidance of Foreign Investment Industries divides
the foreign investments into three categories, namely encouraged, restricted and
prohibited investment industries and those which are not listed in the Catalogue.
Industry sectors not listed in the Catalogue are permitted investment industries.
The Catalogue is supplemented by the Provisions on Merger and Acquisition of
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Domestic Enterprises by Foreign Investors that regulate the merger and
acquisition of Chinese enterprises by foreign investors. The Chinese foreign
investment rules provides for industries in which wholly foreign-owned
operations are prohibited, industries in which controlling shareholding or relative
controlling shareholding by a Chinese party is required, and industries in which
operations by foreign investors are prohibited.
5.4
Are there any restrictions on foreigners becoming directors or officers of a
local company? Do individuals becoming directors or officers of a local
company need to a have a place of residence in your jurisdiction?
In most of the jurisdictions reviewed by the National Reporters it is evident that
there are no restrictions on foreigners becoming directors or officers of a local
company. In particular, individuals becoming directors or officers of a local
company are not required to be citizens or residents of the country in question.
Nevertheless there are some exceptionally sensitive sectors which require
citizenship of the country in question. For instance, a responsible officer in a
Turkish private hospital or a Turkish security company needs to have a Turkish
citizenship. In Spain, some sensitive sectors require a majority of Spanish
directors. This is the case for regulations regarding air transport which include
limitations regarding nationality of directors or shareholders. As an example, three
quarters of the share capital of air transport companies must be owned by Spanish
nationals and three quarters of directors also need to be Spanish nationals. Similar
applies in China. Basically, there are no restrictions on foreigners becoming a
managing director or officer of a local company. However, in certain sensitive
industrie sectors the chairman and the deputy chairman of the board of directors
needs to be a Chinese citizen.
Other jurisdictions, such as Belgium, require directors of companies which are
subject to regulatory rules, such as credit institutions, to prove that they have the
required specific professional skills, diplomas and/or experience. Not every
foreign diploma, in particuliar from outside the EU, will be automatically
approved. From the Polish National Report it is clear that directors of Polish
banks, investment funds and insurance companies need to be fluent in Polish,
which can be one kind of primary difficulty for a foreigner.
Furthermore, in some jurisdictions, such as Estonia, France, Norway and Sweden
there are no restrictions for foreigners who reside inside the EU/EEA or
Switzerland. The Estonian National Report states there is an obligation for the
management board to appoint a contact person in Estonia if at least half of the
management board members of the company are residing outside of the European
Economic Area member states or Switzerland.
Finally it should be noted that the citizenship or residence of directors or officers
of a local company in the country in question might be advisable for tax purposes.
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On the other hand there are some jurisdictions, such as Brazil, Canada or Japan,
which require directors and/or officers of local companies to have a place of
residence in the country in question. For instance, Brazilian and Japanese National
Reports state that directors of limited liability companies and executive officers of
corporations must be individuals resident and domiciled in Brazil or Japan
respectively. It follows from the Canadian National Report that some of the
statutes, particularly the federal statute, include a Canadian residency requirement
of directors for 25%, except where there a fewer than four directors, in which case
at least one must be a resident Canadian. There are exceptions in the federal
statute to this general rule for corporations in certain sectors. Indeed, there are no
residency requirements for officers.
Lastly, the Swiss National Report makes clear that Swiss stock corporations and
Swiss limited liability companies must be represented by at least one person
domiciled in Switzerland and registered in the commercial register, whereby it
should be noted that the acquisition of (residental) real estate in Switzerland by
persons domiciled outside of Switzerland is not possible. Therefore it might be
necessary that an investor, newly entering into Switzerland, will need to mandate
a Swiss resident (lawyer, fiduciary) to (temporarily) serve as a member of the
board of directors or the management or as an executive officer.
5.5
Are there any other peculiarities in relation to formalities and restrictions in
your jurisdictions which a foreign investor needs to be aware? Please also
state the reasons for such peculiarities.
In some jurisdictions reviewed by the National Reporters there are some
peculiarities in relation to formalities and restrictions of which a foreign investor
needs to be aware.
It follows from the Austrian, German and Estonian National Reports that many
corporate documents, such as the articles of association and amendments thereof,
commercial and land register filings, specimen signature sheets, and so forth, have
to be either notarized or drawn up in the form of a notarial deed. Furthermore,
Belgian law requires that a company’s formal documents are drawn up in the
official language of the Belgian region where the company has its seat of
activities, which might be Dutch, French and/or German. English is not
recognized as an official language for contact with the administration involved in
these procedures.
When planning to do business in Norway, a foreign investor needs to be aware of
the generally high degree of governmental requirements for compliance in
Norway, including requirements to have permits to carrying out almost any kind
of business regardles of ownership structure and area of business.
The Brazilian National Report draws attention to the peculiarity that if foreigners
are to be appointed for the duty as a director of a limited liability company or as
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an executive officer of a joint stock company in Brazil, they must previously
obtain a permanent visa. For the obtainment of a permanent visa, Brazilian law
requires an investment in the Brazilian company equal or superior to R$
600,000.00 (approximately US$ 300,000.00) or equal or superior to R$
150,000.00 (approximately US$ 75,000.00) along with the creation of at least ten
new jobs during the two years subsequent to the incorporation of the company or
the arrival of such a foreign director. Alternatively, the foreign individual who
will act as the director may personally and directly invest R$ 150,000.00
(approximately US$ 75,000.00) in the Braazilian company.
In relation to the acquisition of real property, there are some peculiarities amongst
some of the jurisdictions reviewed by the National Reporters, such as Egypt,
Switzerland and Turkey. For instance, in Egypt, pursuant to a relatively new
regulation (the Decree-Law issued on January 19, 2012), projects estabilished in
the Sinai Peninsula must take the form of a joint stock company, in which at least
55% of the share capital is held by Egyptians. Further, foreign and local
companies are prohibited from owning real estate (including land and buildings)
in the Sinai Peninsula. It is only possible to aquire a right of use over such real
estate, which may be granted up to 30 years, and may only be renewed up to a
maximum of 50 years after obtaining the required authorisations.
Indeed, in Switzerland, the provisions governing the acquisition of Swiss noncommercial real estate by a person not being resident in Switzerland or a company
not having its registered office in Switzerland is the most important restriction, of
which a foreign investor needs to be aware of when planning to do business in
Switzerland.
Finally, in Turkey, a legal entity’s acquisition of real property is limited by the
purpose and scope of its activity. If the real estate is located in restricted zones—
that is to say, national security zones and strategic zones—the provincial
directorate must give prior approval for foreign investors’ acquisition rights to be
enforced. In practice, the foreign investors should make a prior request to the
provincial directorate to be informed as to whether the concerned real property is
located in any of the mentioned zones. In contrast, for leasing real properties,
there is no such established approval procedure. Nevertheless, during the use of
real property, the provisions of laws concerning restricted zones, national security
zones and strategic zones should be abided with. Concerning coastal land, in
accordance with the relevant provisions of the Coastal Law, coasts are under the
ownership of the Turkish state and shall be made available to the common use of
people on an equal basis. In this respect, it is not possible to estabilish private
ownership over coastal land.
30 June 2013
Dr. Martin Imhof
General Report M&A Commission
Dr. Michael Lind, LL.M.
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