The M&A guide to

south east Asia and India

2
This legal and investment guide does not purport to be comprehensive or constitute any legal advice. It is only a guide. The information
and the laws referred to are correct as at July 2009, but they may change quickly. If you would like any advice or further information
on anything contained in this guide, please contact Clifford Chance or any of the regional law firms who contributed to this guide - full
contact details can be found on the inside back cover.

© Clifford Chance 2009

www.cliffordchance.com
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 Contents

Foreword 3

India 4

Indonesia 26

Malaysia 42

Philippines 62

Singapore 84

Thailand 100

Vietnam 120

1
2
Foreword
At the time of writing and publication of this, the first Clifford
Chance M&A guide focusing on south east Asia and India, the
aftershocks of the global financial crisis continue to be felt.
The past 18 months have seen bank and corporate failures and
near-failures, falling equity markets, and ever-increasing levels of
government money being used to prevent systemic failure in the
financial markets.
South east Asia - leading a recovery?
Globally, the economic turmoil has caused global M&A activity
to decline by some 50 per cent. However, whilst the decoupling
argument has been largely disproven, there remains a prevailing
view that the recession will be shorter and shallower in Asia than
in the West.
Singapore, for example, was one of the first south east Asian
countries into recession, yet the signs of recovery are already
noticeable. Set against the bleaker landscapes of Europe, this
Asian recovery is strengthening the emerging markets focus within
the business and financial communities, with the region as the
centre of attention.
In addition, the indications are that private equity firms, hedge
funds and other financial investors that had been focussing on
portfolio management are now starting to emerge from that
process with cash to deploy, assisted by an easing in the tight
credit conditions that had previously stifled their ability to leverage
transactions. As a result, the suggested demise of these classes
of investors as major players in the region’s M&A market seems
unwarranted.
Lingering difficulties
However, hurdles remain. Until vendor and purchaser expectations
on the valuation of assets become more closely aligned, many
players with the resources to execute M&A transactions will sit on
the sidelines.
In addition, the relative complexity of navigating the regulatory
aspects of foreign direct investment in south east Asia and India
is fuelling the conservatism that has emerged amongst investors
after the financial crisis. The appetite for risk has abated, resulting
in increased scrutiny of proposed transactions at investment
committee and board level, which in turn has led to the rejection
of many transactions that would have been executed easily in
recent times.
A number of jurisdictions in south east Asia have begun to ease
regulatory hurdles for foreign direct investment. For example,
new mining laws in Indonesia allow direct foreign ownership of
certain categories of mining concession. Malaysia has passed
a law relaxing the requirements for a specified proportion of the
equity of companies in certain sectors to be held by Malaysian
nationals – the requirement to allocate 30 per cent of the equity
to Bumiputera has long acted as a deterring factor to foreign
investors.
* AZB & Partners is an Indian partnership firm with offices in Mumbai, Delhi, Bangalore, Pune, Chennai and Hyderabad
Into the future with the benefit of experience
The legal systems of south east Asian countries are developing
rapidly and amendments and supplements to existing laws
are frequent. This dynamic legal environment, together with
inconsistent interpretation and application, can create difficulties
for foreign investors.
Given these difficulties, the Clifford Chance Singapore office,
in conjunction with AZB & Partners* (India), Castillo Laman Tan
Pantaleon & San Jose (Philippines), Chooi & Company (Malaysia),
the Clifford Chance Bangkok office (Thailand), Mochtar Karuwin
Komar (Indonesia) and VILAF (Vietnam), has produced this guide
for foreign investors investing in south east Asia and India.
In January 2009, Clifford Chance and AZB & Partners entered
into a “best friends” agreement, which is a reciprocal arrangement
allowing both firms to offer clients the best possible service.
This sets a new benchmark for the delivery of legal services
or transactions involving Indian businesses or to international
businesses investing in India.
Clifford Chance regularly advises clients on M&A transactions
in each of the jurisdictions covered in this publication (as well
as other jurisdictions in Indochina and the sub-continent). In
addition to our full service office in Bangkok, we have lawyers on
secondment with Mochtar Karuwin Komar in Jakarta, and VILAF
in Ho Chi Minh City.
Our extensive experience in this region means that we are
uniquely positioned to advise our clients on national and pan-
Asian transactions, blending international standards with the
benefits of local knowledge. Our team also has broad sector
experience, with particular strength in financial institutions,
telecoms, natural resources and private equity.
We would like to thank each of the leading law firms across the
region for their contributions to this guide and are grateful, in
particular, to Wayne Palmer and Satbir Walia for the huge amount
of time and effort that they have dedicated to compiling this guide.
Philip Rapp
Partner, M&A/Private Equity
Clifford Chance, Singapore
Tel: +65 6410 2252
philip.rapp@cliffordchance.com
Lee Taylor
Partner, M&A/Private Equity
Clifford Chance, Singapore
Tel: +65 6410 2290
lee.taylor@cliffordchance.com
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4

1. What are the forms of business entity In India?
Common forms of entity
n Private company limited by shares
n P
ublic company limited by shares, which could either be an
unlisted public company or a public company listed on a
recognised stock exchange in India (listed company).
Less common forms of entity
n Company limited by guarantee
n Unlimited company
n Partnership firms
n Limited liability partnership1
n Proprietary firms
n Association of persons
2. How is a company managed?
The basic management structure
What form does the management structure take?
The (Indian) Companies Act, 1956 (Companies Act) provides that
the board of directors (board) of every public company and private
limited company must comprise at least three directors and two
directors, respectively.
All the powers of management of the affairs of a company are
vested in the board, with the exception of certain powers that
can only be exercised with the shareholders’ consent or with the
approval of the Government of India (GoI), the Company Law
Board, the Regional Director, the Registrar of Companies (RoC) or
a court of law.
All the decisions of the board are normally taken by a majority of
the directors on the board, in accordance with the provisions of
the Articles of Association of the Company (AoA).
How are directors appointed to and removed from office?
The manner of appointment, removal and retirement of directors
of a company is governed by the AoA, the Companies Act and,
in the case of a listed company, also by the agreement executed
by the listed company with the stock exchange on which it is
listed (commonly known as a listing agreement). In addition,
depending upon the sector in which the company is engaged,
1
The Limited Liability Partnership Act, 2008, was notified earlier this year on 9 January 2009. As a result, the limited liability partnership is not yet common.
India
certain regulatory approvals may be required for appointment and
removal of directors.
Appointment of directors: The board may, if permitted by its
AoA, appoint additional directors at a board meeting. However,
such additional directors can hold office only until the next annual
general meeting of the shareholders.
In the case of a listed company, the listing agreement requires
that the board should have an optimum combination of executive
and non-executive directors with not less than 50 per cent of the
board comprising non-executive directors. Further, depending on
whether the chairman of the board is a non-executive director and
whether the non-executive chairman is a promoter or a related
person, the number of independent directors on the board of the
listed company will vary in accordance with the listing agreement.
Retirement of directors: In the case of a public company, one
third of the directors on the board can be non-rotational directors.
Of the remaining directors, one third of the directors retire from
their office compulsorily at each annual general meeting, but are
eligible for reappointment.
A private company has the flexibility to provide in its AoA the
manner of appointment, retirement and vacation of the office for
all its directors and there is no requirement for any director to retire
by rotation.
Removal of directors: Any company may, by an ordinary
resolution, remove a director before the expiry of his term, subject
to compliance with the procedures set out in the Companies
Act, unless the directors have been appointed according to the
principle of proportional representation.
What powers does the board have?
The board has wide powers and is entitled to exercise all powers
and do all such acts, either on its own or through its committees,
with the exception of such powers and acts that are reserved for
the shareholders according to either its AoA or by the provisions
of the Companies Act.
The board may also delegate its powers, with certain exceptions,
to a particular director or to a committee.
Are there any residency requirements for directors?
In the case of a private company, there is no requirement that
directors must be resident in India. In the case of a public
5
company, the Companies Act prescribes that a managing director
or a whole time director or a manager must be a resident in India.
Where such a person is a non-resident, the appointment would be
subject to GoI approval.
Board meetings can be held in India or outside provided the
quorum is present at that place. Participation in board meetings
by teleconferencing or videoconferencing is possible, as long as
the prescribed quorum is present in one place. For the purpose of
calculating the quorum at a meeting of the board, attendance by
teleconferencing or videoconferencing is not taken into account.
Is there any requirement for directors to hold shares?
There is no statutory requirement for the directors to hold shares.
What duties do directors owe?
Overview
The duties and responsibilities for directors of an Indian company
arise under both statutory and common law. Under the principles
of common law, directors, as agents and trustees of a company,
owe a duty of care, loyalty and trust to the company and are
required to act in a bona fide manner and in its best interests.
Additionally, the Companies Act lays down the duties and
responsibilities for directors of Indian companies. These can be
broadly classified as:
n fiduciary duties to the company;
n duties arising in their capacity as an agent of the company; and
n o
ther duties under the Companies Act to the company, its
employees, shareholders and creditors.
Duty to the company
As fiduciaries, the directors are expected to subordinate their
personal interests to those of the company and must act in a
bona fide manner towards its best interests.
Directors are under a duty to disclose their interest in any contract
to the board. The term “interest” includes an indirect interest
and extends to cases where the relatives of the director have an
interest in the contract.
Directors are required to obtain the consent of the GoI in certain
cases where the directors are interested.
The directors cannot, except with the consent of the shareholders
by a special resolution, hold an office or place of profit (whether
directly or indirectly) in the company.
6
The listing agreement stipulates further duties that must be
observed by the directors. For example, directors have to make
various disclosures of their shareholdings in other companies to
the company, as well as offices held in other firms and bodies
corporate.
Directors, as agents of the company, should display the utmost
standards of care, skill and diligence while exercising powers and
functions on behalf of the company.
Duty to the shareholders
Ordinarily, directors are not the agents or trustees of the
shareholders and therefore they do not owe any fiduciary duties
to the shareholders. A director’s duty to a shareholder does not
evolve from a legal relationship such as in the case of a company
and is dependent on establishing an independent special factual
relationship between a shareholder and a director. However, a
director is expected not to mislead the shareholders.
The shareholders of an Indian company, whether public or private,
may, by way of a derivative action, bring a claim against the
directors in the name of the company for breach of their duties to
the company and breach of trust or misfeasance (in the event of
fraud by directors).
Similarly, an aggrieved shareholder may bring a claim against the
directors by way of a representative action either in his own name
or on behalf of other aggrieved shareholders on the grounds of
mismanagement or oppression.
The Companies Act provides that shareholders, that are not less
than 100 in number or not less than one-tenth of the total number
of its members, whichever is less, or any member or members
holding not less than one-tenth of the issued share capital of the
company, can institute such action. However, such derivative/
representative actions by shareholders are not common in India.
Duty to creditors
The directors have a statutory duty not to conduct the business
of the company in a manner so as to defraud the creditors of the
company.
Duty to employees
The directors must ensure that the interests of the employees are
safeguarded and all the statutory contributions and other benefits
available to an employee under the various labour laws in India are
made available to the employees.
What types of liability can directors incur?
Directors of Indian companies may incur both civil and criminal
liability. Apart from the Companies Act, there is other Indian
legislation (such as labour and environmental laws) that holds
the directors in charge of and responsible for the conduct of the
business of the company liable for violations by the company of
any provisions of such legislation.
However, the directors may absolve themselves from such liability
if they are able to prove that they were not involved in, or did not
participate in, the violation of the relevant legislation.
The Companies Act deems certain officers to be “officers in
default”, including the managing director and the whole-time
director of the company. However, if the company does not have
a managing director or a whole-time director, then any director
specified by the board would be liable as an “officer in default”.
If no such director is specified by the board, then all the directors
of the company would be liable for the contravention. In such
a situation, they can be held responsible for non-compliance,
default, failure or violation of any of the company’s statutory
obligations and can be disqualified from acting as a director or
being involved in the management of a company.
Directors may be liable in tort for negligently causing loss to a
person with whom the company has entered into a contract if the
circumstances impose a personal duty on the directors to act with
proper skill or care towards that person.
Directors may be liable for misfeasance if the business of a
company is carried on with the intent, or for the purpose of,
defrauding its creditors.
A person may be disqualified from acting as a director or
being involved in the management of a company in certain
circumstances, for example, if:
n h
e is found to be of unsound mind by a court of competent
jurisdiction;
n h
e is an undischarged insolvent or has applied to be
adjudicated as an insolvent and his application is pending;
n h
e does not attend three consecutive meetings of the board
or any meetings of the board for a continuous period of
three months, whichever is longer, without obtaining leave of
absence from the board;
n h
e fails to pay any call with respect to shares of the company
held by him alone or jointly with others within six months of the
last date of payment;
n h
e is convicted of any offence involving moral turpitude and
sentenced to imprisonment for not less than six months; or
n a
n order disqualifying him from appointment has been passed
by the court.
What are the auditing requirements for companies?
Without exception, all incorporated companies in India must
comply with the statutory requirement of having their accounts
audited. The auditor should be a member of the Institute of
Chartered Accountants of India.
3. What are the most common types of M&A transaction?
Private companies
Share acquisitions
Share acquisition transactions involving private companies enjoy
a more relaxed regime while public companies are exposed to a
more stringent regulatory regime.
Subject to compliance with the foreign direct investment (FDI)
policies (briefly described in section 5), a non-resident entity can
acquire securities of an Indian company, by way of sale, from a
resident entity under the “Automatic Route” (as defined in section
5), provided that the price at which the transfer takes place is not
less than
n t
he ruling market price, where the shares are listed on a stock
exchange, or
n afair valuation of the shares by a chartered accountant as per
the guidelines issued by the Controller of Capital Issues, and
n i
n the case of unlisted shares, as certified by a chartered
accountant.
However, if the company whose shares are to be transferred
operates in the financial services sector, or in cases where the
Takeover Code is applicable, the approval of the Reserve Bank of
India (RBI) is required.
In the case of the Regulated Sectors (as defined in section 5), the
acquisition would need to comply with the sectoral guidelines,
if any, and the approval of the applicable regulators, if required
under such guidelines, would have to be sought.
Transfer of securities from a non-resident entity to a non-resident
Indian and vice versa is not permissible under the Automatic
Route and the prior approval of the RBI (in addition to the approval
of the relevant regulator, if applicable) is required.
In the case of transfer of securities from non-resident to resident
and vice versa, Regulation 20 (again, defined in section 5)
prescribes certain mandatory filings with the RBI through the
authorised dealer in the prescribed format, such as the Form
FCTRS. These filings, along with the filings required by the
Registrar of Companies under the Companies Act, must be made
within the stipulated time.
7
Business/asset acquisitions
A buyer can either acquire the entire business or undertaking of a
company (i.e. the assets and liabilities of the company) for a lump
sum amount without assigning any values to individual assets and
liabilities (a slump sale) or can choose to cherry pick the assets
and liabilities of a company, leaving certain assets and liabilities
behind in the transferor entity (an asset transfer).
Transfer of immovable assets from a resident Indian entity to a
non-resident entity is not permitted under the exchange control
regulations in India. However, a foreign buyer may set up a wholly
owned local Indian transferee company in India to acquire the
immovable assets.
Acquisition of movable assets/properties may be effected through
actual or constructive delivery, provided that the relevant transfer
requirements are complied with.
Acquisition of intangible property must take place pursuant to
a written document and the transfer must be recorded with the
relevant registration authority.
While structuring the acquisition of the business or assets of a
company, due attention must be paid to transaction costs in the
form of stamp duty, capital gains tax, sales tax, etc.
A transaction that is considered to be a slump sale would be
taxed only if the consideration for the transfer of the business
exceeds the “net worth”. Such profits are taxable as capital gains
and not as business income. Apart from income tax, a slump sale
may also be beneficial from the perspective of value added tax
(VAT), which applies to the sale of goods. An asset transfer (i.e.
sale of assets/goods as opposed to the sale of an undertaking as
in the case of a slump sale) is subject to VAT.
Amalgamations
The Companies Act sets out the procedure and requirements for
the amalgamation of companies. Apart from an amalgamation
of Indian companies, the Companies Act also envisages an
amalgamation between an Indian company and an “unregistered
company”, which may include a foreign company or a branch
of a foreign company. Mergers between branches of foreign
companies in India with Indian companies have been sanctioned
in the past under the terms of the Companies Act.
Mergers must be sanctioned by the High Courts of the respective
states in which the amalgamating companies are registered.
Generally, amalgamation of two companies takes approximately
six months.
8
The Income Tax Act, 1961 (the Tax Act), provides certain benefits,
including a waiver of capital gains tax, if an amalgamation satisfies
the preconditions set out in the Tax Act.
Joint ventures
Subject to compliance with the FDI Policy, a non-resident entity
may set up a joint venture company in India with a resident entity.
In sectors under the FDI Policy with foreign equity ceilings, a joint
venture with an Indian entity often becomes necessary to satisfy
the conditions of balanced shareholding over and above the
foreign investment ceiling.
In other sectors, from a new entrant’s perspective, factors such
as the local partner’s pre-established marketing and distribution
chain, human resource availability, etc, play an important role in
deciding to opt for a joint venture.
Demerger
A business transfer can also be effected by a demerger, pursuant
to a scheme of arrangement under the Companies Act (which
involves shareholder/creditor consent and court sanction) by one
company (the demerged company) of one or more undertakings
to another company (the resulting company) such that:
n all the property and liabilities of the undertakings in question are
transferred to the resulting company at the values appearing in
the books of accounts of the demerged company;
n the resulting company issues shares in itself to the
shareholders of the demerged company in consideration for
the above transfer;
n shareholders holding not less than three-quarters in value of
the shares in the demerged company become shareholders of
the resulting company; and
n the transfer of the undertakings is on a “going concern” basis.
Public companies
Takeovers (see section 6 for a more detailed summary of
takeovers involving listed companies)
SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 (the Takeover Code) applies to any “substantial
acquisition” of shares or control of either a listed company, or
of an unlisted public company or a private limited company that
owns or controls a listed company.
A listed company must comply with Section 372A of the
Companies Act and the requirements of the Takeover Code. The
provisions for share acquisitions described in section 3 also apply
to public companies.
Schemes of arrangement
As in the case of a private company, any corporate restructuring
of a public company is also governed by the provisions of the
Companies Act, which include inter alia the reorganisation of
the share capital of the company by consolidation of shares
of different classes, by division of shares into different classes,
reduction of the share capital of the company, and the issuance of
new shares or new classes of shares.
Corporate restructuring could either be achieved as a part of
internal restructuring methods which include the issuance of
new shares, buy backs of shares and reduction of share capital
(collectively, internal methods) or by the involvement of a third
party, by which either:
n a new company is formed to carry on the same business;
n there is the sale of an undertaking to another company;
n a demerger (disposal of an undertaking to another company);
n an amalgamation or merger of one or more companies; or
n t
 he rehabilitation of a sick industrial undertaking (collectively,
external methods).
When undertaking a reorganisation of the share capital of the
company by the consolidation of shares of different classes or
by the division of shares into shares of different classes, the
Companies Act requires that the company, a creditor of the
company, a member of the company, or the liquidator of the
company, as the case may be, present an application under
Section 391 of the Companies Act on the scheme of arrangement
or compromise to the High Court, which is required to conduct
the process of the restructuring as provided under Sections 391
and 394 of the Companies Act. These provisions are applicable
for listed and unlisted public companies and private companies.
When undertaking any of the external methods of corporate
restructuring, the board of a public company or a subsidiary of
a public company could sell the whole or substantially the whole
of an undertaking of the company only with the consent of the
members in a general meeting.
Further, as prescribed in the listing agreement of the relevant
stock exchange, a listed company is required to file any scheme/
petition proposed to be filed before any court or tribunal under
the Companies Act for the purposes of carrying out any corporate
restructuring, with the relevant stock exchange for approval at
least a month before it is presented to the court or tribunal.
In demergers, such approval typically stipulates a condition
whereby the shares of the resulting company are required to be
listed on the relevant stock exchange. The provisions in relation to
business/asset acquisitions as described in section 3 also apply
to public companies.
Amalgamations
The various provisions for amalgamations described in section
3 also apply to listed and unlisted public companies. Further, as
prescribed in the listing agreement, a listed company is required to
file any scheme/petition proposed to be filed before any court or
tribunal for the purposes of such merger and amalgamation with
the relevant stock exchange for approval at least a month before it
is presented to the court or tribunal.
Joint ventures
The various provisions for joint ventures described in section
3 apply to public companies subject to the specific corporate
governance and other conditions under the Companies Act
relating to public companies.
Public-to-private acquisitions (P2Ps)
There is no specific regulation governing a public-to-private
acquisition in India. However, such acquisitions may be made
by acquiring the publicly held shares of a listed company and
subsequently delisting the company. This route would be
regulated by the Delisting Guidelines and the Takeover Code, as
noted in sections 5 and 6, respectively.
Do the parties have an obligation to negotiate in good faith
to one another in M&A transactions?
There is no legal obligation on the parties to a proposed
transaction to negotiate in good faith. As such, it is possible for
a party to terminate the negotiations or to negotiate with another
prospective buyer at any time prior to signing of the agreement.
As a matter of comfort, parties generally execute a preliminary
non-binding letter of intent, a term sheet or a memorandum of
understanding that outlines the terms of the transaction, and
which may provide for a break fee and lock out clauses.
4. What percentage shareholding is required to achieve
effective control of a company?
Under the Companies Act, shareholder resolutions are
categorised into ordinary resolutions and special resolutions.
Actions that may be undertaken by way of ordinary resolution are
those actions that can be passed by a simple majority (50 per
cent or more) of the members of the company present and voting
in person or by proxy. For example, such actions could include
amending the AoA, altering the share capital of the company,
appointing or removing the statutory auditors of the company, or
removing a director before the expiry of his period of office.
9
Special resolutions on the other hand, are required to be passed
by at least three-quarters of the members of the company
present and voting either in person or by proxy. For example,
special resolutions would be required to alter the provisions of
the memorandum of association, to change the objects of the
company or change the place of the registered office from one
state to another.
Any shareholder holding more than 50 per cent of the share
capital of the company will be able to exercise effective control of
the company, as typically he would have the right to
n a
ppoint the majority of directors on the board and therefore
control the board;
n p
ass all the ordinary resolutions without having the need to
seek consent from any other shareholder; and
n block a special resolution item.
5. Regulation, consents and foreign investment restrictions
General framework of foreign direct investment policy
The Foreign Exchange Management Act, 1999 (FEMA) is the
central legislation with which any foreign investor is required to
comply for its entry, operations and exit strategy in India, including
the regulations of FEMA and more specifically Regulation 20, the
“Foreign Exchange Management (Transfer or Issue of Security by
a Person Resident Outside India) Regulations, 2000” (Regulation
20), which regulates the transfer or issue of securities by or to
persons resident outside India.
Under Regulation 20, an Indian company may - subject to the
prescribed FDI, sectoral regulations and licensing requirements
applicable to various sectors and activities (if any) - issue equity
shares, compulsorily convertible preference shares or compulsorily
convertible debentures (securities) to persons resident outside
India under the “Automatic Route” i.e. without the prior approval
of the Foreign Investment Promotion Board (FIPB).
However, foreign investment is not permitted under the Automatic
Route in certain sectors and specific approval of the FIPB (the
Approval Route) is required. (See later in section 5 for a list of
sectors where the Approval Route is required).
In certain specified circumstances, the Automatic Route for FDI is
not available. The key circumstances are:
n w
here the activities of the Indian company require an industrial
licence under the provisions of the Industries (Development
& Regulation) Act, 1951 (subject to exceptions) (the Licensed
Industries). These sectors are listed later in section 5.
n w
here more than 24 per cent foreign equity is proposed to
be inducted for manufacture of items reserved for the small
10
scale sector, unless the company undertakes significant export
obligations. However, certain exemptions are made for foreign
investments in the small scale sector if the concerned unit is
an export oriented unit, or a unit in a free trade zone, an export
processing zone, a software technology park or an electronic
hardware technology park (the small scale sector).
n w
here the non-resident investor has an existing (as of 12
January 2005) joint venture or technology transfer or a trade
mark agreement in the “same field” in which the Indian
company now issuing the shares, or of which shares are being
acquired, is engaged (existing ventures). In such a case, the
foreign investor would have to obtain the prior permission of
the FIPB to make FDI in the Indian company. However, the
onus to provide the requisite justification and proof to the
satisfaction of the FIPB that the new proposal would not in
any way jeopardise the interests of the existing partner would
lie equally on the non-resident investor and the Indian partner.
Normally, a no-objection certificate from the Indian partner is
required to obtain approval. This embargo under the Automatic
Route is not applicable:
• 
to the acquisition of shares of an Indian company engaged
in the information technology sector;
• 
to investments by certain international financial
institutions such as the International Finance Corporation,
Commonwealth Development Corporation, etc;
• 
to the establishment of wholly-owned subsidiaries in the
mining sector (subject to the foreign investor having no
existing joint venture for the same area and/or the particular
mineral);
• 
to investments made by venture capital funds registered
with the Securities and Exchange Board of India (SEBI);
• 
where the investment by the Indian or foreign party in an
existing venture is less than 3 per cent and
• 
where the existing venture is defunct or sick.
In addition to complying with the sectoral regulations, there
are licensing requirements for certain industries (the Regulated
Sectors). These sectors are listed later in this section.
FDI is prohibited in certain sectors and in certain activities (the
Prohibited Sectors). These sectors are listed on page 11.
The government has recently issued Press Notes 2, 3 and 4
(2009 Series), which seek to modify and clarify the position for
calculating indirect foreign investment in Indian companies and the
transfer of ownership or control from residents to non-residents
in Indian companies. This may have an impact on whether or not
the approval of the FIPB is required in certain types of companies
and may also impact the quantum of foreign investment in certain
sectors.
Are there any regulated industries?
FDI is prohibited in these Prohibited Sectors:
n retail trading (other than single brand retail);
n atomic energy;
n the lottery business;
n gambling and betting;
n real estate business;
n agriculture (excluding floriculture, horticulture, development
of seeds, animal husbandry, piscicuture and cultivation of
vegetables, mushrooms etc. under controlled conditions and
services related to agro and allied sectors) and plantations
(other than tea plantations);
n nidhi company;
n construction of farm houses; and
n trading in transferable development rights.
Further, FDI is not permitted under the Automatic Route, and the
specific approval of the FIPB is required, in the following cases:
i. sectors falling under the Approval Route i.e. (a) petroleum
refining (except for private sector oil refining), natural gas/LNG
pipelines; (b) investing companies in the infrastructure and
services sector; (c) defence and strategic industries; (d) atomic
minerals; (e) print media; (f) broadcasting; (g) postal services;
(h) courier services; (i) establishment and operation of satellites;
(j) development of integrated townships; (k) tea sector; (l) asset
reconstruction companies; and (m) single brand retail;
ii. if FDI is in excess of 24 per cent in a company engaged in the
small scale sector;
iii. licensed Industries i.e. (a) distillation and brewing of alcoholic
drinks; (b) cigars and cigarettes; (c) electronic aerospace and
defence equipment; (d) industrial explosives; (e) hazardous
chemicals; and (f) if the proposed location of the industrial
undertaking attracts locational restrictions;
iv. proposals falling outside the notified sectoral policy and/or
caps (Please refer to Schedule 1); and
v. if the foreign investor has an existing venture (as explained on
page 10).
Sectoral guidelines must be complied with inter alia in the
following cases (which may also require a specific approval
from the relevant regulator): (i) private banking; (ii) insurance;
(iii) telecoms; (iv) petroleum; (v) airports; (vi) mining; and (vii)
broadcasting (Regulated Sectors). Please refer to Schedule 1,
which sets out the details of these sectoral guidelines.
Are there any restrictions on the foreign ownership of
shares in an Indian company?
Outside the Prohibited Sectors, FDI of up to 100 per cent is
permitted in most sectors without any requirement for prior
approval under the Automatic Route. However, in certain sectors,
FDI is subject to sectoral caps and can only be undertaken within
these ceilings either through the Automatic Route, or with the prior
approval of the FIPB, depending on the applicable guidelines.
Sectoral caps are usually in the range of 26 per cent, 49 per cent,
51 per cent and 74 per cent. Schedule 1 sets out such sectors
and the applicable foreign investment limits.
Some sectors also carry minimum capitalisation norms, linked
to the percentage of foreign ownership. For instance, in the
real estate sector, if the investee company is a wholly owned
subsidiary of the foreign entity, it must be capitalised for a
minimum amount of USD10 million. If it sets up as a joint venture
company with an Indian partner, it must be capitalised for a
minimum amount of USD5 million by the foreign partner within
six months of commencement of business. In fund-based non-
banking financial services, 100 per cent FDI is allowed, subject to
a minimum capitalisation of USD50 million.
Are there any foreign exchange and investment controls?
Subject to compliance with the FEMA, an Indian company is
permitted to remit funds outside India and an offshore entity
is permitted to remit funds into India through normal banking
channels.
Is there any merger control?
Merger control is handled under the Companies Act and the
Competition Act, 2002 (Competition Act).
Companies Act: Sections 108 A to 108 I of the Companies
Act deal with GoI approval and notification requirements from
a competition perspective and provide that, without the prior
consent of the GoI, a person may not acquire any equity shares in
a public limited company if the total nominal value of the shares so
acquired exceeds, or would together with the total nominal value
of the shares already held exceed, 25 per cent of the equity share
capital of such a company. No GoI approval is required in the case
of a private limited company that is not a subsidiary of a public
limited company.
11
If the GoI is of the view that, as a result of the transfer, a change
in the composition of the board of the company is likely to take
place and such a change would be prejudicial to the interests of
the company or to the public interest, the GoI may prohibit the
transfer of the shares (and in certain exceptional cases, require the
shares to be transferred to the GoI).
Section 108 G of the Companies Act states that Sections 108 A
to 108 F of the Companies Act would apply only if the acquirer
would, as a result of the acquisition, become the owner of a
“dominant undertaking”. The term “dominant undertaking” is
defined in Section 2(d) of the Monopolies and Restrictive Trade
Practices Act, 1969 (MRTP Act) to include an undertaking which,
by itself or as a group produces, supplies, distributes or otherwise
controls not less than one-quarter of the goods produced,
supplied or distributed, or controls not less than one-quarter of
any services rendered in India or any substantial part thereof.
The MRTP Act has been repealed with effect from 1 September
2009; however, the term “dominant undertaking” as defined in the
MRTP Act, should continue to apply to selective provisions of the
Companies Act unless the Companies Act is amended otherwise.
Competition Act: The Competition Act is not entirely notified. In
particular, the sections relating to “combinations” (i.e. the merger
control sections) have not yet been notified. Section 6 of the
Competition Act provides for the regulation of “combinations” and
prohibits anyone from entering into a combination that causes, or
is likely to cause, an appreciable adverse effect on competition
within the relevant market in India.
Section 5 of the Competition Act provides the assets/turnover
thresholds applicable to acquisitions, mergers and amalgamations
used to determine whether a transaction would be regarded as
a “combination” for the purposes of the Competition Act. The
thresholds for the combined assets/turnover of the combining
party are:
Individual thresholds: the combined assets of the enterprises
are valued at more than INR10 billion or the combined turnover is
more than INR30 billion. In case either or both of the enterprises
have assets/turnover outside India, then the combined assets
of the enterprises must be valued at more than USD500 million,
including at least INR15 billion in India.
Group thresholds: the combined assets of the enterprises
valued at more than INR40 billion or a joint turnover of more
than INR120 billion, if the party being acquired or remaining after
the merger or created as a result of amalgamation belongs to a
group. Where such a party has assets/turnover outside India, the
combined assets of the group must be valued at more than USD2
billion, including at least INR15 billion in India.
12
The Competition Commission of India is the competent authority
for evaluating the effect of combinations on competition in
markets in India.
What are the employee issues?
Are works councils/consultation common?
Under the provisions of the Industrial Disputes Act, 1947 (IDA), the
GoI may direct by order the formation of work councils in certain
industries. However, in practice, such work councils have not
been constituted so far. Under the IDA, such work councils may
only make recommendations and an “approval” is not required
from work councils for an acquisition.
Are any actions required prior to or upon an acquisition for
employees?
There are no specific actions required prior to or upon an
acquisition. However, under Section 25FF of the IDA, a transfer
of the ownership or management of an undertaking from
the employer to a new employer would result in a deemed
retrenchment of every workman who has been in continuous
service for not less than one year, unless the following conditions
are fulfilled (the Section 25FF Conditions):
n t
he service of the workman is not interrupted by such a
transfer;
n t
he workman’s terms and conditions of service are no less
favourable to the workman post transfer, in comparison with
the terms and conditions prevailing prior to the transfer; and
n t
he transferee is, under the terms of such transfer or otherwise,
legally liable to compensate the workman in the event of his
(future) retrenchment, on the basis that the workman’s service
has been continuous and uninterrupted by the transfer i.e.,
seniority benefits for the past period of employment of the
workman are preserved post transfer.
Are there any notification obligations for employees prior to or
upon an acquisition?
If any of the Section 25FF Conditions noted above are not fulfilled,
every workman in employment immediately before the transfer of
the undertaking will be entitled to notice and compensation under
the provisions of Section 25F of the IDA as set out below:
n o
ne month’s prior notice in writing is to be given to the
workman or one month’s salary in lieu of such prior notice;
n p
ayment of retrenchment compensation which will be
equivalent to 15 days’ average pay for every completed year of
continuous service or any part thereof in excess of six months;
and
n i
f there is any change in the conditions of service to the
detriment of a “workman” following an acquisition, notice of 21
days must be given to all workmen whose conditions of service
are being altered.
Timing
There is no time limit specified under Indian laws.
With which stock exchange requirements must listed
companies comply?
What rules generally govern listed companies?
In addition to the Indian Companies Act and other sector specific
legislation, listed companies are governed by the provisions of:
n t
he Listing Agreement, which includes various rules, regulations
and by-laws of the exchanges including mandatory and non-
mandatory compliances to be met with by a listed company
with the stock exchanges on a periodic basis and further
mandates a level of corporate governance to be followed by
such listed companies;
n t
he Takeover Code; and
n t
he SEBI (Prohibition of Insider Trading) Regulations, 1992
(Insider Trading Regulations).
How does a company delist its share capital?
The SEBI (Delisting of Equity Shares) Regulations, 2009 (Delisting
Guidelines) govern the manner in which securities of a listed
company may be delisted from the stock exchanges.
A company whose securities have been listed for a minimum period
of three years on any stock exchange may delist its securities
from the stock exchanges by providing a delisting offer – an exit
opportunity to the public shareholders (i.e. shareholders other than
the promoters and parties acting in concert with the promoters). This
exit opportunity involves a price discovery process known as the
“book building process” (discussed in detail below).
A delisting offer can be launched by any promoter or acquirer
that wants to delist the company’s securities. This process is
undertaken by a registered merchant banker (i.e. investment
banker) on behalf of the promoters. The appointment of a
merchant banker is a mandatory requirement under the Delisting
Guidelines.
The delisting offer, however, must be supported by a resolution
passed by the board. Further, a special resolution must be
approved by three-quarters of the shareholders of the listed
company. However, the special resolution should be acted upon if,
and only if, the votes cast by the public shareholders in favour of
the proposal amount, are at least twice the number of votes cast
by public shareholders against it. The concerned promoters or
acquirer can also vote on the delisting offer.
The listed company must obtain an in-principle approval from the
stock exchange to delist its securities once shareholder approval
has been obtained.
The promoter or acquirer must issue a public announcement
of the delisting offer. At this stage, the acquirer/promoter must
deposit 100 per cent of the consideration (determined based on
the floor price as discussed below) into an escrow account with a
bank in India.
A delisting offer must follow a price discovery mechanism. For
this purpose, the Delisting Guidelines prescribe a “floor price”,
which forms the minimum price for the price discovery process as
follows:
n where the equity shares are frequently traded in all the
recognised stock exchanges where they are listed, the average
of the weekly high and low of the closing prices of the equity
shares of the company during the 26 weeks or two weeks
preceding the date on which the recognised stock exchanges
were notified of the board meeting in which the delisting
proposal was considered, whichever is higher;
n f
or infrequently traded shares, the floor price will be determined
by taking into account the following factors:
i. the highest price paid for the equity shares of the class
sought to be delisted, including by way of allotment in a
public or rights issue or preferential allotment, during the 26-
week period prior to the date on which the recognised stock
exchanges were notified of the board meeting in which the
delisting proposal was considered and after that date, up to
the date of the public announcement; and
ii. other parameters including return on net worth, book value
of the shares of the company, earnings per share, and the
price earning multiple vis-à-vis the industry average; and
n w
here the equity shares are frequently traded in some stock
exchanges and infrequently traded in other stock exchanges,
the highest prices arrived at in accordance with the first two
bullet points above.
The final delisting price at which the public shareholding is to
be acquired would be a price determined based on the “book
building process”. Under the book building process, the final offer
price would be determined as the price at which the maximum
number of shares has been offered by the public shareholders (the
discovered price).
13
Once the discovered price is determined, the promoter or acquirer
has the discretion to accept or reject it. If accepted, the promoter
or acquirer is required to purchase all the shares tendered by all
the shareholders at or below the discovered price.
For the delisting offer to be successful, the shareholding of the
promoter, along with the persons acting in concert, taken together with
the shares accepted at the final price, must reach the higher of:
n 90 per cent of the total issued shares of that class, excluding
the shares that are held by a custodian and against which
depository receipts have been issued overseas; or
n the aggregate percentage of pre-offer promoter shareholdings,
along with persons acting in concert with him and 50 per cent
of the offer size.
If the delisting offer is successful (i.e. the discovered price is
accepted by the promoter or acquirer and the number of shares
acquired results in the public shareholding falling below the
applicable level), the promoter or acquirer and the company must
make an application to the stock exchanges to delist the shares.
Following the delisting, the promoter or acquirer must allow
a further one-year period for any of the remaining public
shareholders to tender their shares to the promoter or acquirer at
the above mentioned discovered price.
Generally, the entire delisting process takes approximately three to
four months to complete.
Is financial assistance prohibited?
What is the nature of the prohibition?
The Companies Act prohibits a public company, or a private company
that is a subsidiary of a public company, from directly or indirectly,
granting any loan, guarantee or security or any form of financial
assistance to any person for the purposes of, or in connection with, the
purchase of shares in the company or its holding company.
In light of this, a public company is not permitted to provide a
loan or guarantee or offer its assets as security for any loan being
raised by an acquirer for the purpose of, or in connection with, a
purchase or subscription made or to be made by such person for
any shares in such public company or in its holding company.
A public company cannot, without the prior approval of the GoI,
give any guarantee or security to its directors in connection with a
loan made by any person to them or in respect of a loan given to
any person by its director.
Private companies are not subject to similar financial assistance
prohibitions, unless the private company is a subsidiary of a public
company.
14
What are the sanctions?
The Companies Act provides for stipulated penalty amounts to be
paid for the contravention of the provisions governing the financial
assistance rules. Such transactions may be construed to be void
and unenforceable.
Are there any exceptions to the prohibition and is there any
procedure that can be followed to make financial assistance
possible (i.e. a “whitewash procedure”)?
There are no exceptions to the prohibitions against financial
assistance.
6. Public takeover
What are the forms of a public offer?
A public offer under the Takeover Code can be structured either
as a mandatory public offer or a voluntary public offer.
A mandatory public offer under the Takeover Code would be
triggered in the event of a direct or indirect acquisition of shares
and/or voting rights and/or control, beyond certain prescribed
thresholds, in a listed company (the target company). The
acquirer would be required to make a public offer to acquire a
further 20 per cent of the shares or voting rights of the target
company.
In the case of a voluntary public offer, the public offer must be
for a minimum of 20 per cent of the voting capital of the target
company. However, in the event that the acquirer holds between
55 per cent and 75 per cent of the shares or voting rights in a
target company, and wants to consolidate his holding in the target
company, he may do so by making a public announcement as
long as he does not breach the minimum public shareholding
requirement.
What is the regulatory framework for a public offer?
The Takeover Code
The regulatory framework for a public offer in India is governed
by the provisions of the Takeover Code. The Takeover Code
deals primarily with acquisitions, the consolidation of holdings,
conditional offers, a change in control, competitive offers, and
investor protection. The Takeover Code inter alia provides for
disclosures of shareholdings and control in a listed company, the
substantial acquisition of shares or voting rights in, and acquisition
of control over, a listed company, requirements in respect of a
public offer, and the procedure for calculation of the offer price of
the shares sought to be acquired under the Takeover Code.
Application of the rules
The Takeover Code is triggered in the event of a direct or indirect
acquisition of shares and/or voting rights and/or control, beyond certain
prescribed thresholds, in a target company. The acquirer is required
to make a public offer to acquire a further 20 per cent of the shares or
voting rights of the target company. The thresholds for the acquisition
of shares and/or voting rights are enumerated below:
n a
n acquirer who, along with persons acting in concert, acquires
15 per cent or more of the shares or voting rights in the target
company, would be required to make a public announcement
to acquire a further 20 per cent of the shares or voting rights of
the target company;
n a
n acquirer who, along with persons acting in concert, holds
15 per cent or more, but less than 55 per cent, of the shares or
voting rights in the target company, is required to make a public
announcement to acquire more than 5 per cent of the shares
or voting rights in the target company in any financial year; and
n a
n acquirer who, along with persons acting in concert, holds
55 per cent or more but less than 75 per cent of the shares or
voting rights in a target company, is required to make a public
announcement to acquire any additional shares or voting rights
of the target company2 . However the Takeover Code permits
such an acquirer, along with persons acting in concert with
him, to acquire up to 5 per cent of the shares or voting rights in
the target company provided that certain conditions are met.
Regardless of whether there has been any acquisition of shares
or voting rights in a target company, an acquirer cannot directly
or indirectly acquire control over a target company, unless the
acquirer makes a public announcement in accordance with the
Takeover Code. Further, such acquisitions would include a direct
or indirect acquisition of control of a target company by virtue
of the acquisition of companies, whether listed or unlisted, and
whether in India or abroad.
What are the main offer terms?
Minimum price requirements
The Takeover Code mandates that the offer price, with respect to
a public offer, should be the highest of the following:
n t
he negotiated price decided upon as per the provisions of the
agreement entered into for the acquisition of shares or voting
rights or agreeing to acquire the shares or voting rights;
n t
he price paid by the acquirer or persons acting in concert with
him for acquisitions, including by way of allotment in a public or
rights or preferential issue during the 26-week period prior to
2
The Listing Agreement prescribes a minimum public shareholding of 25 per cent or 10 per cent of the issued capital of a listed company and therefore, for the purposes
of this paragraph, in the event that the target company has an applicable minimum public shareholding of 10 per cent, the acquisition threshold of 75 per cent of the
shares or voting rights of the target company would be read as 90 per cent of the shares or voting rights of such a target company.
the date of the public announcement, whichever is higher; and
n t
he average of the weekly high and low of the closing prices
of the shares of the target company as quoted on the
stock exchange where the shares of the company are most
frequently traded during the 26-week period prior to the public
announcement or the average of the daily high and low of the
prices of the shares as quoted on the stock exchange where
the shares of the company are most frequently traded during
the two weeks preceding the date of the public announcement,
whichever is higher.
Where the shares of the target company are infrequently traded,
the acquirer and the merchant banker must determine the offer
price.
Cash/non-cash terms
The offer price specified above can be paid by any of the following
means:
n i
n cash;
n by issue, exchange and/or transfer of shares (other than
preference shares) of the acquirer company, if the person
seeking to acquire the shares is a listed body corporate;
n by issue, exchange and/or transfer of secured instruments of
the acquirer company with a minimum “A” grade rating from a
credit rating agency registered with SEBI; or
n acombination of all three options.
In the event that a payment has been made in cash by the
acquirer for acquisition of shares under any agreement or
pursuant to any acquisition in the open market or in any other
manner during the 12 months immediately preceding the date
of the public announcement, the letter of offer must provide
an option to the shareholders of the target company to accept
payment either in cash or by exchange of shares or other secured
instruments referred to above.
Conditions
No acquirer can add any conditions once the public offer is
made, except where the acquirer has made the offer conditional
as to the level of acceptance. Once the offer is launched, it is an
unconditional offer under the Takeover Code, unless withdrawn in
the following manner:
n t
he statutory approval(s) required has/have been refused;
n t
he sole acquirer, being a natural person, has died; or
n s
uch circumstances as in the opinion of the SEBI merit
withdrawal.
15
Funding the acquisition
Subject to applicable foreign exchange regulations, the Takeover
Code does not specify any requirements for the arrangement of funds
for an acquisition. However, the acquirer must satisfy the merchant
banker that firm arrangements for funds and money for payment
through verifiable means to fulfil the obligations under the public offer
are in place. Further, the public announcement is required to contain a
disclosure to the effect that firm arrangements for financial resources
required to implement the offer are already in place, including details
regarding the sources of the funds, whether domestic or foreign or
otherwise. Further, the Takeover Code specifies that the acquirer must,
as security, set up an escrow account.
What is the timing of a public offer and what is the
procedure to be followed?
Simplified offer timetable
The timetable below assumes that there are no competitive bids
for the acquisition of the shares of the target company.
In the table below, “D” is the date of the public announcement
of an offer to acquire shares. All timelines are discussed with
reference to this date.

Date/Time period Events

Before D Acquirer to appoint a “Category I” merchant banker registered with SEBI. The merchant banker should not
be an associate or a group company of the acquirer or the target company.

Trigger date Date of execution of a memorandum of understanding, share purchase agreement or other document for
the acquisition of shares or voting rights in excess of prescribed thresholds or of the making of a decision
to acquire shares or control.

On or before D On or before the date of the public announcement, the acquirer has to place in an escrow account, a
specified percentage of the consideration payable under the public offer, as security for performance of
the acquirer’s obligations in respect of the offer.

D The merchant banker has to make a public announcement within four working days of the trigger date.

D+14 The draft letter of offer proposed to be sent to the target company’s shareholders has to be filed with SEBI
by this date.

D+30 This date would be the specified date for the purpose of determining the names of the shareholders to
whom individual letters of offer should be sent by the acquirer.

D+35 or later The target company must furnish to the acquirer within seven days of request by the acquirer or within
seven days from the specified date, whichever is later, a list of shareholders as of the specified date.

D+35 or later The letter of offer may be dispatched to shareholders if 21 days have elapsed after submission of the draft
with SEBI and SEBI has not reverted with its comments. If SEBI reverts with its comments, any changes
suggested should be reflected in the final letter of offer sent to the shareholders of the target company.

D+45 or later By this date, the letter of offer has to reach all shareholders of the target company as on the specified
date.

D+55 or later This is the date on which the public offer has to open.

D+75 Date of closure of the public offer. The public offer has to remain open for a period of 20 days.

D+82 Acquirer to open a special account with a “banker to an issue” registered with SEBI, and deposit therein,
the amount of consideration as would, together with the amounts lying in the escrow account, make up
the sum payable to the shareholders who tender their shares. The amounts in the escrow account are to
be transferred to this account.

D+90 The acquirer must complete all procedures relating to the public offer including the payment of
consideration. If the acquirer is unable to make payments to the shareholders within 15 days from the date
of closure of the offer, SEBI may grant an extension if satisfied that the delay was not due to the acquirer’s
default3. In case of delay beyond 15 days, SEBI may prescribe the interest payable to shareholders.

D+91 Merchant banker to issue a certificate to the acquirer of the completion by the acquirer of all its obligations
towards the public offer4.

D+120 The merchant banker has to send a final report on the public offer to SEBI by this date.

16
Announcements Acceptance period

A public announcement of an offer (excluding the case of an indirect
acquisition or change in control) is required to be made by the
acquirer within four working days of entering into an agreement for
acquisition of shares or voting rights or deciding to acquire shares or
voting rights exceeding the specified thresholds5.
With respect to an acquisition of control over a company, the
public announcement is required to be made not later than four
working days after any such change or changes are decided to be
made.
In the case of an indirect acquisition or change in control, a public
announcement must be made by the acquirer within three months
of the consummation of such an acquisition or change in control
or restructuring of the parent or the company holding shares of, or
control over, the target company in India.
The public offer to acquire shares should remain open for a period
of 20 days. However, the shareholders must have the option to
withdraw any acceptances tendered up to three working days
prior to the date of closure of the public offer.
Satisfying offer conditions
Other offer conditions that must be satisfied are detailed under the
section on main offer terms on page 15.
Offer unconditional – payment
The acquirer must pay the relevant consideration to the
shareholders by D+90 (as set out in the table on page 16).
Competing bids

The public announcement should be made in all editions of one
English national daily newspaper with wide circulation, one Hindi
national daily newspaper with wide circulation, and a regional
language daily newspaper with wide circulation at the place where
the registered office of the target company is situated and at
the place of the stock exchange where the shares of the target
company are most frequently traded.
A copy of the public announcement must be submitted to SEBI
through the merchant banker to all the stock exchanges on which
the shares of the company are listed, and to the target company
at its registered office to be placed before the board of the target
company.
The public offer will be deemed to have been made on the
date on which the public announcement has appeared in the
newspapers detailed above.
The acquirer is also required to make a post offer public
announcement following the closure of the public offer.
The original bidder has the option to make an announcement
revising the public offer within 14 days of the public
announcement of a competitive bid. If the original bidder does
not make such an announcement, the date of closing of the public
offer will stand extended to the date of closure of the public offer
under the last subsisting competitive bid. Any competitive offer by
a competitor should be for such number of shares which, when
taken together with shares held by him along with persons acting
in concert with him, should be at least equal to the holding of the
first bidder, including the number of shares for which the public
offer by the first bidder has been made.
Further, both the original bidder and the competitor bidder must
have the option to make upward revisions to their public offers, in
respect of the price and the number of shares to be acquired, at
any time up to seven working days prior to the date of closure of
the public offer. However, the acquirer should not have the option
to change any other terms and conditions of their public offer,
except the mode of payment following an upward revision in the
public offer.

3
Where the approvals are not obtained due to the acquirer’s default, the escrow amount would be forfeited and the acquirer would also be liable for penalties prescribed.
The refusal of statutory approvals is a ground for withdrawal of the public offer. Upon such a withdrawal, the sums lying in the escrow account would be returned to the
acquirer.
4
Transfer of the shares in terms of any underlying agreement can only be consummated pursuant to this date.
5
The language of the Takeover Code and various decisions taken by SEBI and the Securities Appellate Tribunal indicate that the execution of an agreement or the making
of a decision to acquire shares or voting rights could trigger public offer requirements. Such agreements may be oral or written. However, the intention/decision to acquire
shares or voting rights has to be evident from the document in question. With respect to a “decision to acquire”, the public offer requirements would be triggered if any
document executed between the parties evidences a decision by a party to acquire shares or voting rights. This would presuppose some kind of consensus between
parties for the sale and purchase of the shares or voting rights in question.

17
Failed bids and further offers
The Takeover Code provides that no public offer, once made, can
be withdrawn except under the following circumstances:
n the statutory approval(s) required has/have been refused;
n the sole acquirer, being a natural person, has died; and
n such circumstances as in the opinion of SEBI merit withdrawal.
In the event of withdrawal of the public offer under any of the
circumstances specified above, the acquirer or the merchant
banker should:
n make a public announcement in the same newspapers
in which the public announcement of the public offer was
published, indicating reasons for withdrawal of the public offer;
and
n simultaneously with the issue of such a public announcement,
inform SEBI and all the stock exchanges on which the shares
of the target company are listed, and the target company at its
registered office.
Upon the withdrawal of a public offer as specified above, the
acquirer should not make any public offer for the acquisition of
shares of the target company for a period of six months from the
date of the public announcement of the withdrawal of the public
offer.
Furthermore, in the event of non-fulfilment of the prescribed
obligations under the Takeover Code, an acquirer should not
make any public offer for the acquisition of shares of any listed
company for a period of 12 months from the date of closure of the
public offer.
What documentation is involved in the process?
Press announcement
The details of the public announcement under the Takeover Code
are explained under Announcements on page 17.
Offer document
The Takeover Code provides for the filing of a draft letter of offer
by the acquirer through the merchant banker, with SEBI within 14
days from the date of the public announcement. The draft letter of
offer should contain disclosures specified by SEBI and should be
despatched to the shareholders not earlier than 21 days from its
submission with SEBI.
18
Target documentation
There are no specific provisions under the Takeover Code that
provide for the submission of documentation by the target
company for a public offer. However, certain disclosures with
respect to the target company are required to be made in the
public announcement and the letter of offer.
Responsibility statements
Where the acquirer is a company, the public announcement,
brochure, circular, letter of offer, or any other advertisement or
publicity material issued to the shareholders in connection with the
public offer must state that the directors accept responsibility for
the information contained in such documents.
The acquirer should ensure that firm financial arrangements have
been made for fulfilling the obligations under the public offer and
suitable disclosures in this regard must be made in the public
announcement of offer.
A due diligence certificate should be submitted by the merchant
banker to SEBI, along with the draft letter of offer.
Within 45 days from the date of closure of the public offer, the
merchant banker must send a final report to SEBI.
What are the practices relating to break fees and lock-out?
The Takeover Code does not envisage the concept of break fees
in relation to a public offer.
Further, with respect to lock-out, in the event of withdrawal of a
public offer, the acquirer should not make any public offer for the
acquisition of shares of the target company for a period of six
months from the date of the public announcement for withdrawal
of the public offer.
Furthermore, on non-fulfilment of the prescribed obligations under
the Takeover Code, an acquirer should not make any public offer
for the acquisition of shares of any listed company for a period of
12 months from the date of closure of the public offer.
What are the rules on information gathering/provision?
The Takeover Code does not prescribe any rules in relation to the
gathering of information from a public offer perspective, except for
the obligation of the directors of the target company to assist with
and provide the information sought by the acquirer.
A bidder should ensure that any due diligence on a potential target
company does not fall foul of the Insider Trading Regulations.
From a practical perspective, there are a number of measures
that a bidder should take to ensure that the due diligence exercise
does not amount to insider trading or violate the provisions of the
Insider Trading Regulations. One such measure is to obtain a clear
undertaking from the potential target company that the information
that has been made available for the due diligence exercise would
not amount to unpublished price sensitive information.
What is the position regarding insider trading?
The Insider Trading Regulations provide that “no insider should on
his own behalf or on behalf of any other person, deal in securities
of a company listed on any stock exchange when in possession
of any unpublished price sensitive information. Further, no insider
should communicate, counsel or procure, directly or indirectly, any
unpublished price sensitive information to any person who, while
in possession of such unpublished price sensitive information,
should not deal in securities.”
The penalties for insider trading are:
n imprisonment for a term that may extend to ten years;
n i
mposition of a penalty amounting to the higher of INR250
million, or three times the amount of profits made from insider
trading; or
n both.
Further, SEBI may also:
n direct the insider not to deal in securities in any particular
manner;
n prohibit the insider from disposing of any securities in violation
of the regulations;
n restrain the insider from communicating or counselling any
person dealing with securities and direct the person who
acquired securities in violation of the regulations to return them
or
n direct the person who acquired these securities in violation of
the regulations to transfer an amount equal to the cost price
or market price of the securities, whichever is higher, to the
investor protection fund of a recognised stock exchange.
What are the public disclosure requirements in a takeover
scenario?
Bidder
Generally a bidder must disclose detailed information about his
interest in the target company (e.g. the object and purpose of the
acquisition of the shares and future plans, if any, of the acquirer
for the target company, including disclosing whether the acquirer
proposes to dispose of or encumber any assets of the target
company in the succeeding two years, except in the ordinary
course of business of the target company).
Target
There are no public disclosure requirements for the target
company. However, the target company is required to assist and
provide for the following information to the acquirer:
n t
he paid up share capital of the target company, the number of
fully paid up and partly paid up shares; and
n s
uch other information as is essential for the shareholders to
make an informed decision on the public offer.
Does a memorandum of understanding (MoU) need to be
disclosed?
The Takeover Code and various decisions taken by SEBI and
the Securities Appellate Tribunal indicate that the execution of
an agreement or the making of a decision to acquire shares or
voting rights could trigger public offer requirements, irrespective
of whether such agreements are oral or written. However,
the intention/decision to acquire shares or voting rights must
be evident from the document in question. With respect to
a “decision to acquire”, the public offer requirements would
be triggered if any document executed between the parties
evidences a decision by a party to acquire shares or voting
rights. This would presuppose some kind of consensus between
parties for the sale and purchase of the shares or voting rights in
question.
A MoU, where the intention/decision to acquire shares or
voting rights is evident, operates as a trigger date for a public
announcement and the Takeover Code prescribes disclosures
of various aspects of such documentation in the public
announcement.
What are the limitations to stakebuilding?
The Takeover Code provides for the following limitations to
stakebuilding while a public offer is pending:
n n
o acquisition should be made by the acquirer during the last
seven working days prior to the closure of the public offer; and
n w
here an offer is made conditional upon a minimum level of
acceptance, the acquirer or any person acting in concert with
him should not acquire, during the offer period, any shares in
the target company except by way of fresh issue of shares of
the target company in accordance with the provisions of the
Takeover Code.
Is there a requirement to make a mandatory offer?
As a general rule, a public offer has to be made for a minimum of
20 per cent of the voting capital of the target company, where an
acquirer who, along with person acting in concert, has acquired
19
15 per cent or more of the shares or voting rights of the target
company.
The only exception to this rule is when an acquirer who (together
with persons acting in concert with him), holds 55 per cent or
more, but less than 75 per cent, of the shares or voting rights
in a target company, wants to consolidate his holding without
the target company breaching the minimum public shareholding
requirement. Such an acquirer may make an open offer to the
shareholders of the target company to acquire their shares and
the size of such public offer should be the lesser of the following:
n 20 per cent of the voting capital of the target company; or
n s
uch other lesser percentage of the voting capital of the target
company as would, assuming full subscription to the public
offer, enable the acquirer, together with the persons acting in
concert with him, to increase his holding to the maximum level
possible which is consistent with the target company meeting
the minimum public shareholding requirements laid down in the
Listing Agreement.
What defences are available to a target company during the
stages of an offer?
The Takeover Code does not provide for any specific defences
that a target company can avail of in the case of a hostile
takeover. However, from a practical perspective, as the Takeover
Code assumes a level of co-operation with the target company
with respect to provision of information etc., the target company
has the ability to delay the public offer process by refusing to
provide any necessary information.
What obligations are the directors of the bidder and target
under?
Bidder
Where the acquirer is a company, the public announcement,
brochure, circular, letter of offer or any other advertisement or
publicity material issued to the shareholders in connection with the
public offer must state that the directors accept responsibility for
the information contained in such documents.
Target company
The board of the target company has consideration obligations
under the Takeover Code. The board of the target company is
required to facilitate the acquirer in the verification of securities
tendered for acceptances.
20
What is the procedure for a squeeze-out of the minority?
There are no specific provisions for squeezing out the minority
under the Indian legal system, including under the Takeover Code.
However, there are various methods which can be implemented to
“squeeze out” or “buy out” minority or residual shareholders of an
Indian company pursuant to the conclusion of a voluntary delisting
process under the Companies Act. This is a challenging exercise
and there are limited precedents of this nature in India.
Section 395 of the Companies Act provides for the compulsory
acquisition of the shares of a shareholder in a company by
another company, pursuant to a scheme or contract approved
in accordance with the section. When a company incorporated
in India (transferee company) offers to purchase shares in a
company (transferor company) and such a public offer is accepted
by the shareholders on the basis that 90 per cent in value and
75 per cent in number of the shares are to be purchased within
four months of the offer, such an acceptance would amount to
approval of a contract to purchase shares under Section 395 of
the Companies Act. Within two months, if the transferee company
gives a notice to any dissenting shareholders, it will be entitled
to acquire the shares of such dissenting shareholders. Such
an acquisition may be subject to the court’s order if any of the
dissenting shareholders through an application to the court object
to the acquisition.
7. Overview of a private company acquisition
Timing
Since there are a number of factors that would come into play in
various types of private company acquisitions, timing varies from
transaction to transaction. However, if the target private company
operates in a regulated sector, the time taken in obtaining the requisite
approvals from the FIPB or the RBI or relevant authority, as the case
may be, will also have to be factored in to the timing process.
Steps
The following steps are involved in most transactions:
n typically in any acquisition transaction, the first step would be
to execute a non-disclosure agreement;
n the next step would be to appoint the intermediaries, such as
lawyers and accountants, etc. Depending upon the nature of
the transaction, investment bankers may also be appointed;
n negotiations commence soon after and the parties execute
a heads of agreement or a term sheet or memorandum of
understanding;
n once the term sheet has been executed by all involved parties,
a due diligence process begins, including legal, financial and
technical diligence;
n sometimes, simultaneously with the start of the due diligence
process, the parties proceed towards drafting the transaction
documents such as the share purchase agreement or the
share subscription agreement depending upon the type
of acquisition, shareholders agreement and other ancillary
documents if required. These transaction documents contain
certain conditions that the investee company and/or the
promoters of the investee company are required to fulfil before
completion of the transaction (the conditions precedent);
n once the parties have reached an agreement on all the terms
of the transaction documents, they proceed to execute the
transaction documents;
n on signing the transaction documents, the investee company
and/or the promoters proceed towards satisfying the
conditions precedent; and
n after all the conditions precedent are fulfilled to the satisfaction
of the investor and all regulatory approvals have been received
for the transaction, the parties proceed towards closing and
carry out all the closing actions stipulated in the transaction
documents. Once these are fulfilled, closing of the transaction
is achieved.
8. What tax issues should be considered?
Tax gains
Capital gains are calculated as sale consideration less the cost
of acquisition and expenses relating to transfer. The rate of tax
depends on whether the capital gains are considered to be
long or short term. Long-term capital gains are gains arising
from the sale of securities that have been held for more than 12
months. Short-term capital gains are gains arising from the sale of
securities that have been held for up to 12 months or less.
Transfer taxes
Stamp duty is payable at various rates on legal documents,
including bills of exchange, promissory notes and insurance
policies. Usually, the buyer is liable to pay stamp duty. Stamp duty
is payable as follows:
Contracts for the transfer of shares: Stamp duty at 0.25 per
cent of the value of the shares is charged on transfer of shares
of an Indian company. However, no stamp duty is payable on
transfer of shares held in a dematerialised form (that is, shares that
are not evidenced by a share certificate but held electronically in a
depository).
Conveyances for the transfer of immovable property: Stamp
duty payable on transfer of immovable property may vary from
state to state. Generally, the rate of stamp duty may vary from 5
per cent to 8 per cent of the consideration paid for the transfer.
Amalgamations: Some states in India have included an
amalgamation which has taken place through an order of the
jurisdictional State High Court, as a conveyance subject to stamp
duty in the stamp laws of the relevant state.
In some states, an exemption from payment of stamp duty
may be available on instruments evidencing transfer of property
between companies limited by shares in certain cases.
This stamp duty is subject to a cap of INR100 million (about
USD2.5 million).
Thin capitalisation/interest deductions
There is no thin capitalisation regime in India. Interest paid in
respect of capital borrowed for the purpose of the business of the
taxpayer is tax deductible expenditure provided tax withholding
requirements have been complied with.
In the case of capital borrowed for the acquisition of an asset for the
extension of an existing business, interest pertaining to any period
beginning from the date on which the capital was borrowed till the
date on which the asset was first put to use will not be tax deductible.
In appropriate cases, such interest may be capitalised as part of the
asset. However, interest attributable to the period after the asset is put
to use is allowable as tax deductible expenditure.
Withholding tax
The rate of withholding tax on interest is 21.12 per cent in
respect of cross border interest payments if the borrowing is in
convertible currency and 42.23 per cent in cases where money is
not borrowed or the debt is not incurred in convertible currency.
However, the effective rate in terms of various tax treaties into
which India has entered ranges from 10 per cent to 20 per cent.
Tax withholding may not be applicable if the recipient of interest is
the principal/central bank of the country concerned in terms of the
extensive network of double tax treaties that India has signed.
Withholding tax at the rate of 10.56 per cent is applicable on
payments of royalties and fees for technical services. The rate
may be marginally reduced to 10 per cent in terms of some of the
tax treaties between India and the country of tax residence of the
non-resident.
Dividends are subject to a tax in the nature of dividends
distribution tax at 16.995 per cent in the hands of the distributing
Indian company. No tax withholding is required on such dividend
payments.
It is also possible to obtain a withholding tax order from the tax
officer to determine the appropriate amount of tax withholding
applicable in a particular case.
21
Schedule 1: Summary of foreign investment limits

Sector FDI limit Whether FIPB Sectoral regulations

approval is required applicable

Satellites: establishment 74% FIPB Subject to sectoral guidelines

and operation issued by the Department of
Space.

Single brand product 51% FIPB Subject to guidelines for

retailing FDI in trading issued by the
Department of Industrial
Policy & Promotion vide.
Press Note 3 (2006 Series).

ISP with gateways, 74% Automatic Route up to 49% Subject to licensing and
radio-paging, end-to- security requirements
end bandwidth FIPB beyond 49% notified by the Department of
Telecommunications.

Basic and cellular, 74% (Including FDI, FII, Automatic Route up to 49%. Subject to guidelines notified
unified access non-resident Indian, in the Press Note 3 (2007).
services, national/ Foreign Currency FIPB beyond 49%.
international long Convertible Bonds
distance, V-sat, public (FCCBs), American
mobile radio trunked Depository Receipts
services (PMRTS), (ADRs), Global
global mobile personal Depository Receipts
communications (GDRs), convertible
services (GMPCS), preference shares,
and other value added and proportionate
telecom services foreign equity in Indian
promoters/investing
company)

Publishing of 26% FIPB Subject to guidelines notified

newspapers and by the Ministry of Information
periodicals dealing with & Broadcasting.
news and current affairs

Refining 49% in the case of FIPB (in the case of public Subject to sectoral policy
public sector units sector units) and no divestment or dilution
of domestic equity in the
100% in the case of Automatic Route (in the case existing public sector units.
private companies of private companies)

Insurance 26% Automatic Route Subject to licensing by the

Insurance Regulatory &
Development Authority.

22
Sector FDI limit Whether FIPB Sectoral regulations
approval is required applicable

Credit information 49% (FDI+ foreign FIPB Foreign investment in CICs

companies (CICs) institutional investors is subject to the Credit
(FIIs)) Information Companies
(Regulation) Act, 2005.
Investment by FII investment will be subject
registered FIIs will be to the conditions that:
limited to 24% only in
the CICs listed at the (a) no single entity should
stock exchanges within directly or indirectly hold more
the overall limit of 49% than 10% equity;
foreign investment
(b) any acquisition in excess
of 1% will have to be
reported to RBI as a reporting
requirement; and

(c) FIIs investing in

CICs should not seek
a representation on the
board based upon their
shareholding.

Commodity exchanges 49% (FDI+ FIIs) FIPB FII purchases should be

Investment by restricted to the secondary
registered FIIs under PIS market only.
will be limited to 23%
and investment under No foreign investor/entity,
the FDI Scheme limited including persons acting in
to 26% concert, will hold more than
5% of the equity in these
companies.

Banking: private sector 74% Automatic Route Subject to guidelines

(FDI+ FIIs) for setting up branches/
subsidiaries of foreign banks
issued by the RBI.

FM radio FDI + FII investment up FIPB Subject to guidelines notified

to 20% by the Ministry of Information
& Broadcasting.

Cable network 49% (FDI+ FIIs) FIPB Subject to the Cable

Television Network Rules
(1994) Notified by the
Ministry of Information &
Broadcasting. www.mib.nic.in

23
 Sector FDI limit Whether FIPB Sectoral regulations
approval is required applicable

Direct-to-home 49% (FDI+ FIIs). FIPB Subject to guidelines issued

by the Ministry of Information
Within this limit, the FDI & Broadcasting.
component is not to
exceed 20%

Setting up hardware 49% (FDI+ FIIs) FIPB Subject to the up-linking

facilities such as up- policy notified by the
linking, HUB, etc Ministry of Information &
Broadcasting.

Up-linking a news 26% FDI+ FIIs FIPB Subject to guidelines issued

and current affairs TV by the Ministry of Information
channel & Broadcasting.

Up-linking a non-news 100% FIPB Subject to guidelines issued

and current affairs TV by the Ministry of Information
channel & Broadcasting.

Asset reconstruction 49% (only FDI) FIPB Where any individual

companies investment exceeds
10% of the equity,
provisions of Section 3(3)
(f) of the Securitisation and
Reconstruction of Financial
Assets and Enforcement of
Security Interest Act, 2002
should be complied with.

Ground handling 74%-FDI Automatic Subject to sectoral

services 100 %- for non-resident regulations and security
individuals’ investment clearance.

Scheduled air transport 49%-FDI; Automatic Subject to no direct or

services/domestic 100 %- for non-resident indirect participation by
scheduled passenger individuals’ investment foreign airlines and sectoral
airline regulations.

Non-scheduled air 74%-FDI Automatic Subject to no direct or

transport service/ 100 %- for non-resident indirect participation by
non-scheduled airlines, individuals’ investment foreign airlines in non-
chartered airlines, and scheduled and chartered
cargo airlines airlines. Foreign airlines are
allowed to participate in
the equity of companies
operating cargo airlines.
Also subject to sectoral
regulations.

24
25
 re s
W-
LO
26

1. What are the forms of business entity in Indonesia?
Common forms of entity
A limited liability company (in Indonesian, perseroan terbatas or
abbreviated as “PT company”), either as:
n “
closed” PT companies, which are private companies, and
n “
open” or “public” PT companies, which are companies that
have conducted a public offer of shares or whose size of
capital and number of shareholders meet the stated thresholds
under the Indonesian capital market law. Open PTs are
subject to tighter corporate governance rules and to greater
public disclosure obligations. Open PTs are referred to as PT
“Terbuka” in Indonesian and have the “Tbk” suffix attached to
their name.
Less common forms of entity
n Charitable foundation
n Cooperatives
n Partnerships
n Sole proprietorships
2. How is a company managed?
The basic management structure
What form does the management structure of a PT company
take?
A PT company comprises (i) the general meeting of shareholders,
(ii) the board of commissioners, and (iii) the board of directors.
The general meeting of shareholders has all the authority not
given to the board of directors and the board of commissioners.
Common examples of decision referred to the shareholders under
the Law on Limited Liability Companies, Law No. 40 of 2007
(the Company Law) include the decision (i) to amend the articles
of association, (ii) to increase or reduce capital, (iii) to merge or
consolidate with, or take over, another company, (iv) to dissolve and
liquidate, (v) to approve the annual report and financial statements,
(vi) to elect the members of the board of directors and board of
commissioners, (vii) to file for bankruptcy, (viii) encumber or dispose
of material assets and (ix) to approve an annual work plan.
The board of commissioners has a supervisory function, and
the articles of association may confer authority on the board of
commissioners to approve certain categories of transactions.
The board of directors has the authority to exercise the day-
to-day management of the company and to represent the
company in court. The board of directors cannot delegate broad
management authority to any other party, but may grant powers
Indonesia
of attorney for specific purposes. There may be provisions in the
articles of association requiring prior approval from the board of
commissioners or the general meeting of shareholders for the
board of directors to take certain actions. Common examples of
transactions where there is a restriction on the board of directors’
authority include borrowings and the provision of guarantees for
the liability of another person.
How are commissioners and directors appointed to, and removed
from, office?
Members of the board of commissioners and the board of
directors are appointed and removed from office by the
resolutions of shareholders at a general meeting.
The board of commissioners may suspend a member of the board
of directors temporarily, but the decision whether to remove the
director remains with the general meeting of shareholders.
The articles of association may provide specific rules for
nomination by a particular shareholder. For example, the articles
of association of a PT company may provide a veto right to
a particular shareholder upon an appointment or removal of
members of the board of directors, or may provide specific rights
to a shareholder to nominate a person to sit as president director
or vice president director.
Are there any residency requirements for directors and
commissioners?
All members of the board of directors of a PT company must
reside in Indonesia.
Is there any requirement for directors to hold shares?
There is no requirement that directors should also be shareholders
of the company, but they are permitted to do so.
What duties do directors owe?
Overview
The duties and responsibilities of a director are as set out in the
Company Law.
As a fiduciary (a term not used in the Company Law, as Indonesia
follows the civil law tradition), a director must always act in the
best interests of the PT company. Accordingly, a director is not
permitted to place himself in a situation where his interests conflict
with his duty to the company or the stakeholders.
27
Duty to the company
Directors are required to act and to exercise their powers in
good faith in the best interests of the PT company. The duty
of the directors to the company is distinct from the duty to the
shareholders.
The board of directors is fully responsible for the management of
the PT company.
The board of directors is responsible for any loss suffered by the
PT company caused by its wrongful or negligent acts.
Directors must not put themselves in a position where their
personal interests conflict with those of the PT company.
Duty to creditors
The board of directors may be held criminally responsible in
certain cases where the company is adjudicated bankrupt and its
conduct may have contributed to this condition.
Article 126 of the Company Law provides that the PT company
must take into consideration the interest of the creditors when
conducting a merger, consolidation, acquisition or separation.
Any proposed reduction in issued capital, merger, consolidation,
takeover, separation and dissolution of a company must be
previously notified to the creditors and such actions usually
include a form of public notice.
Duty to employees
Article 126 of the Company Law provides that a PT company
(including its board of directors) must take into consideration
the interests of the employees when conducting a merger,
consolidation, acquisition or separation.
What types of liability can directors incur?
Directors may incur:
n c
ivil liability for wrongful or negligent performance of their
duties; and/or
n c
riminal sanctions for violations of specific requirements
concerning the organisation and operation of the company.
A person may be disqualified from acting as a director or
being involved in the management of a company in certain
circumstances, for example, where, within the immediately
preceding five years:
n h
e is an undischarged bankrupt;
n h
e had been a director of a company which went into insolvent
liquidation either while he was a director or within five years
28
of his ceasing to be such, and the court is satisfied that his
conduct as a director of the company makes him unfit to be a
director of a company or to participate in the management of a
company (whether directly or indirectly); or
n h
e is convicted of certain offences including fraud and
dishonesty detrimental to the state’s finance and/or financial
sector corporations;
In certain circumstances, a director may also be personally
liable to the creditors of a company that has gone into insolvent
liquidation, for example, where:
n h
e had knowingly contracted a debt when he had no
reasonable or probable expectation that the company would
be able to pay that debt; or
n he
 is found guilty of fraudulent trading.
To minimise the risk of directors’ liability certain actions taken or
omissions made by directors can be ratified retrospectively or
approved in advance by the general meeting of shareholders.
What are the auditing requirements for companies?
The Company Law requires public companies, companies
engaged in raising funds from the public (such as banks),
companies issuing debt securities, and companies with assets of
at least IDR50 billion, to audit their accounts.
All companies, whether public or private, must adopt the same
basic accounting principle i.e. the Indonesian Generally Accepted
Accounting Principles (Pedoman Standar Akuntansi Keuangan)
established by the Indonesian Accountant Association. Public
companies are also subject to capital market regulations on
accounting.
3. What are the most common types of M&A transaction?
Private companies
Share acquisitions
A buyer can purchase shares in a company. These may be the
shares of the target company or of a company that is one of the
target’s controlling shareholders.
An alternative way of acquiring control of a private company in
Indonesia is to subscribe for newly issued voting shares.
Business/asset acquisitions
A buyer can also purchase the business and/or assets of a
company.
Each asset has to be transferred subject to the particular legal
requirements. For some types of assets, this will mean simply
signing the transfer agreement and handing over the asset (i.e.
physical delivery) or signing the assignment agreement for the
intangible assets (e.g. receivables), whereas others will require
transfer documents and registration in the Land Title Registry (e.g.
real property).
Merger
Two or more companies may, in accordance with the Company
Law (Article 122), voluntarily (i.e. without a liquidation process)
merge and continue as one company. The surviving company
(which shall be either one of the merging companies) will succeed
to all the property, rights and privileges, as well as assume the
liabilities and obligations of each of the merging companies.
The board of directors of each of the merging companies
must prepare a merger proposal and, upon approval from
their respective board of commissioners, a merger plan will be
jointly prepared by the merging companies and must be further
approved by the general meeting of shareholders of each of the
merging companies.
Consolidation
Two or more companies may, in accordance with the Company
Law (Article 122), voluntarily (i.e. without a liquidation process)
consolidate into a newly formed company. The surviving company
(which shall be the newly formed company) will succeed to all the
property, rights and privileges, as well as assume the liabilities and
obligations, of each of the consolidating companies.
The board of directors of each of the consolidating companies
must prepare a consolidation proposal and, upon approval from
their respective board of commissioners, a consolidation plan will
be jointly prepared by the consolidating companies and must be
further approved by the general meeting of shareholders of each
of the consolidating companies.
Joint venture
Two or more parties may form a joint venture to pursue a common
commercial goal. Joint ventures are governed by the general
principles of contract.
Public companies
Takeovers (see section 6 for a more detailed summary of public
takeovers)
A takeover involves the direct or indirect acquisition of: (i) more
than 50 per cent of the total issued and paid up shares in a public
company; or (ii) the ability to, directly or indirectly, by any means,
control the management or policy, of the public company.
A takeover is governed by the Capital Market Law and its
implementing regulations, including Bapepam-LK Regulation No.
IX.H.1 on Take Over of Public Companies.
A takeover may be conducted by:
n avoluntary tender offer to all shareholders of the target
company; or
n t
he direct acquisition by a controlling shareholder of shares
amounting to more than 50 per cent of the total issued and
paid up shares in the target company.
The latter requires a mandatory tender offer for all remaining
shares, subject to exceptions.
A mandatory re-sale of the acquired shares is required in the event
that the voluntary tender offer or the mandatory takeover tender
offer results in the acquirer owning more than 80 per cent of the
total issued and paid up shares in the company.
Merger
Public companies may merge in the manner as described under
“Private companies” above, provided that they comply with capital
market regulations.
Consolidation
Public companies may also consolidate in the manner described
under “Private companies” above, provided that they comply with
capital market regulations.
Joint ventures
Public companies may enter into joint venture arrangements,
subject to certain requirements under capital market regulations.
Public-to-private acquisitions (P2Ps)
Public-to-private acquisitions involve the general principles of
contract and can take many forms.
In Indonesia, these acquisitions would normally involve the buyers
acquiring the publicly held shares in a company and subsequently
delisting and privatising the target company (go-private).
There are no regulations relating to go-private transactions but,
upon written request, Bapepam-LK will issue a letter setting out
the requirements to be fulfilled by the company for the process.
29
Do parties have an obligation to negotiate in good faith to
one another in M&A transactions?
The general contract laws of Indonesia require the parties to enter
into an agreement in good faith. During the negotiations and at
any time prior to signing a binding contract, it may not be possible
for a party to pull out of negotiations completely or to negotiate
with another prospective buyer without good reason.
The uncertainties of the pre-contractual (or post-contractual but
pre-closing) period may be eliminated or reduced through express
lock up clauses (giving exclusivity to one party for a certain
period), break fees (if the deal does not go forward) or express
language intended to deny the application of good faith principles
to the negotiations (e.g. permissibility to negotiate with other
competing buyers).
However, break fees are not common and may raise other issues
under the Company Law and, if involving a public company, the
Capital Market Law.
4. What percentage shareholding is required to achieve
effective control of a company?
A shareholding representing more than 50 per cent of the total
issued shares will enable the shareholder to pass an ordinary
shareholders’ resolution at a general meeting of shareholders.
An approval of the general meeting of shareholders under the
Company Law to an amendment to the company’s articles of
association requires an affirmative vote of a minimum of two-thirds
of the votes cast.
For a public company, Bapepam-LK Regulation X.J.1 on the
Main Provisions in an Articles of Association of Public Companies
(Bapepam Regulation IX.J.1) requires the approval of more than
two-thirds of shareholders with valid voting rights present in the
meeting.
The Company Law (and for public companies, Bapepam
Regulation X.J.1) provides that, unless the articles of association
provide for a higher requirement, affirmative votes from
shareholders representing at least three-quarters of the total votes
cast are required to pass resolutions of the general meeting of
shareholders to approve the following:
n a merger, consolidation, acquisition and separation;
n the filing of a bankruptcy application;
n the extension of the term of the company;
n dissolution and liquidation; and
n t
o encumber and to dispose of a majority part of the net assets
of the company.
30
5. Regulation, consents and foreign investment restrictions
Are there any regulated industries?
Banks, the financial sector and the mining sector are highly
regulated.
The 2007 Investment Law reaffirms that the Capital Investment
Coordinating Board (BKPM) is the agency with authority to
formulate policies and standards and to operate the investments
licensing scheme. However, the licensing authority for certain
types of investment is the Central Government, which covers:
n investments in non-renewable natural resources;
n investments in high priority industries; and
n f
oreign direct investments and investor utilisation of capital
from a foreign country pursuant to government-to-government
agreements.
Where a particular business sector is not prohibited from foreign
investment, generally an application must be made in advance
of completion to the relevant authority to seek approval of the
investment amount, location and duty exemption.
There may also be additional, ongoing notification requirements in
respect of the operation of the business and any changes to the
corporate structure.
Are there any restrictions on the foreign ownership of
shares in an Indonesian company?
The government issues a Negative List periodically, which lists the
relevant sectors (other than banks and companies in the financial
sector) that are restricted or prohibited from foreign investment.
Please see Schedule 1 for foreign ownership restrictions on some
of the sectors set out in the Negative List.
Foreign ownership of shares in a closed PT (i.e. private) company
is only possible where the closed PT company is a foreign
investment company (known as a PMA company) licensed by the
BKPM.
Other restrictions on the ownership of shares in Indonesian
companies apply:
n where Indonesian control is regarded as being in the national
interest (in industries such as publishing, broadcasting,
telecommunications and public utilities);
n t
he maximum percentage of voting shares which a foreigner
can acquire in a bank incorporated in Indonesia is 99 per cent.
If acquiring at least 25 per cent of the total issued shares or
less, but obtaining control over the bank, approval from Bank
Indonesia (the Indonesian central bank) is required;
n approval from the Ministry of Finance of the Republic of
Indonesia is required before acquiring voting shares in finance
companies (multi-finance, insurance, factoring and leasing
companies);
n the acquisition of voting shares in a securities company
requires approval from Bapepam–LK; and
n f
oreign individuals and corporations are prohibited from owning
certain types of title to land.
Are there any foreign exchange and investment controls?
At present, there are no foreign exchange controls and the Rupiah
currency is freely convertible. Under the Indonesian Law No.24
of 1999 on Foreign Exchange Traffic and Exchange System (the
Law on Foreign Exchange) every resident is free to own and
utilise foreign currencies. Bank Indonesia is, however, given the
following authority by the Law on Foreign Exchange:
n t
o require information on foreign currency transactions
by residents. The Law on Foreign Exchange places a
corresponding obligation on residents to disclose information,
either directly to Bank Indonesia or through other parties (e.g.
banks), as may be regulated by Bank Indonesia;
n t
o regulate foreign exchange transactions by the banking
industry; and
n t
o propose to the government the currency exchange system,
for determination by the government.
A reporting system administered by Bank Indonesia on “foreign
currency remittances” is conducted by non-financial institutions.
The obligation is applicable to companies with total assets of at
least IDR100 billion, or total annual gross revenues of at least
IDR100 billion. The scope of the reports is:
n transactions (which are not made through onshore banks or
non-bank financial institutions but through overseas current
accounts (OCAs), inter-company/office accounts (ICAs) and
means other than OCAs or ICAs affecting offshore financial
assets and/or offshore financial liabilities) and
n any increase or decrease of foreign assets and liabilities.
The physical removal from Indonesia of Rupiah notes and coins
in amounts of IDR100 million and above requires prior approval
from Bank Indonesia. Since early 2001, cross-border Rupiah
remittances have been prohibited.
Since late 2008, banks are required to obtain from each of their
customers or a foreign party who intends to purchase foreign
currencies, a duly stamped statement guaranteeing that their
overall purchase of foreign currency against Rupiah from one or
more banks in Indonesia does not exceed USD100,000 in the
month for each customer or foreign party.
The term “foreign party” applies to foreign citizens, foreign
legal entities, Indonesian citizens having permanent residency
in other countries and not domiciled in Indonesia, the offshore
branches of any Indonesian bank, or the offshore branches of
any Indonesian company. For a purchase above USD100,000 or
equivalent, a certified copy of the underlying transaction agreement
evidencing the need for the foreign currency must be submitted to
the bank, together with a statement that the foreign currency being
purchased from the Indonesian banking system does not exceed
the amount shown by the agreement for the underlying transaction.
The official elucidation of the regulation affirmatively provides
that the measure does not constitute the instituting of a foreign
exchange control.
Is there any merger control?
The Indonesian Law on Prohibition of Monopolistic Practices And
Unfair Competition, Law No.5 of 1999 (the Anti-Monopoly Law)
prohibits common ownership of two or more companies engaged
in the same market activities if the market for the goods or
services is highly concentrated (i.e. two or three companies have
an aggregate market share of 75 per cent or more).
A notification procedure for mergers and acquisitions above a
certain level (to be set by the regulation) must be submitted to the
Business Competition Commission.
Article 28 of the Anti-Monopoly Law contains a prohibition on
mergers and consolidations or the acquisition of the shares of
other companies that will cause monopolistic practices and/or
unsound business competition.
The Business Competition Commission issued a regulation that
allows the submission of a voluntary pre-merger notification. With
respect to control, the Pre-Notification Regulation provides that
subject to the thresholds of value of assets, value of sales or
market share, a pre-notification can be made if:
n t
here is an acquisition of shares with voting rights of at least 25
per cent of total issued shares;
n t
here is an acquisition of shares with voting rights of less than
25 per cent of total issued shares, but resulting in an effective
change of control; or
n t
here is an acquisition of assets or another transaction that
results in an effective change of control.
As the Pre-Notification Regulation is fairly new, it is yet to be
tested and currently it is not clear how the test of control will be
implemented, nor what protections, if any, will be available if the
transactions are notified and are not challenged.
31
What are the employee issues?
Are works councils/consultation common?
Only certain Indonesian companies have work councils or
employee representation in place of an employee/trade union.
Are any actions required prior to or upon an acquisition for
employees?
Pursuant to the Company Law and applicable regulations,
mergers, consolidations and acquisitions of listed and unlisted
companies must take into account the interests of employees and
the intended treatment of employees in the companies concerned
must be disclosed in the required transaction documentation.
Additionally, the general statutory and regulatory provisions of
Indonesian employment law will apply. These will usually require
notice to be given to the employees at some point.
Dismissal of employees following an acquisition will be legal if prior
approval from the Industrial Relation Court is obtained.
Terminated employees are entitled to statutory severance pay,
and this right will be triggered in certain cases upon a change of
control or, if the merger or acquisition is achieved by a transfer of
assets, even if the employees are offered continued employment
with the acquirer.
In these circumstances, the employer can offer two options to the
employees, namely:
n t
o take up employment with the new employer on similar terms
and conditions of employment with the past service period
of the employee continuing with the new employer who will
have the contractual responsibility for employees’ accrued
severance rights in the future, or
n t
o terminate employment with the employer and receive
severance pay and start work with the new employer without
an accrued past service period.
If there is a trade union in the company, negotiation to reach either
of the options above can be carried out through a trade union
representing the employees. The employees or trade union’s
agreement will support the issuance of the Industrial Relation
Court’s approval.
Are there any notification obligations for employees prior to or
upon an acquisition?
In practice, the seller of a business must notify the affected
employees and their trade unions of:
32
n t
he fact that the transfer is taking place, the approximate date
on which it will take place and the reasons for it; and
n t
he implications of the transfer and the measures that the
seller envisages he will, in connection with the transfer, take in
relation to the affected employees or, if he envisages that no
measures will be so taken, this must be notified.
Timing
In the event of the acquisition of shares or assets, the employer
will remain the same and the employees will maintain their
employment with the company.
In the case where transfers of employment are required, it should
be effective simultaneously with completion of the sale of the
business.
With which stock exchange requirements must listed
companies comply?
What rules generally govern listed companies?
PT companies whose shares are listed on a stock exchange must
comply with the regulations of the stock exchange where the
shares are listed (Stock Exchange Regulations). Currently there
is only one stock exchange operating in Indonesia, the Indonesia
Stock Exchange (the IDX).
The Stock Exchange Regulations consist of, among others,
the Listing Regulations, Trading Regulations and Disclosure
Regulations.
How does a company delist its share capital?
A listed company must be listed for at least five years in order to
file a delisting plan to the IDX. A delisting plan sets out the reason
for delisting, the time line and the mechanics of delisting.
The procedure includes:
n filing the delisting plan to the IDX;
n p
ublishing information to the shareholders to delist prior to the
general meeting of shareholders and the submission of the
same information to the IDX;
n approval from the general meeting of shareholders to delist;
n p
ublishing the result of the meeting and providing information
on the procedure for selling shares to a designated buyer; and
n fi
ling a delisting application to the stock exchange for its
approval.
Delisting is not officially discouraged, but has proven difficult in
many cases, due to the need to buy out minority shareholders at
above market prices.
Is financial assistance prohibited?
What is the nature of the prohibition?
The prohibition against financial assistance stems from the basic
rule of the Company Law that tangible value must be received by
a company for issue of its shares and the value must be retained
by the company. There may not be a return of capital or the
taking of value except in the case of company liquidation or a
reduction in company capital.
Banks licensed in Indonesia are also prohibited from providing a
loan to a party for the purchase of shares.
What are the sanctions?
An act of financial assistance by a company is invalid and may
give rise to the personal liability of the company’s management.
Where banks provide a loan for the purchase of its shares, the
sanction is a decrease of the compliance rate of the bank as
imposed by Bank Indonesia.
Are there any exceptions to the prohibition, and is there any
procedure that can be followed to make financial assistance
possible (i.e. a “whitewash procedure”)?
There are no such exceptions in Indonesia.
6. Public takeovers
What are the forms of a public offer?
A takeover of a public company in Indonesia can be structured as:
n a
voluntary public offer to acquire all or a majority of the issued
(and to be issued) share capital of the target from existing
shareholders;
n a
direct acquisition of shares from a controlling shareholder
which will require a mandatory tender offer; or
n a merger.
Takeovers can be either recommended by the target’s board of
directors, or initiated by the controlling shareholder.
What is the regulatory framework for a public offer?
The Capital Market Law and its implementing regulations
The principal source of regulation is the Capital Market Law,
Law No.8 of 1995 (the Capital Market Law), as implemented
by regulations issued by Bapepam-LK., including Bapepam-LK
Regulation No. IX.H.1 on Take Over of Public Companies.
Bapepam-LK is authorised to review and declare effective a
tender offer statement filed by an acquirer.
There are sanctions for breaches of the Capital Market Law and
its implementing regulations. Sanctions may include fines, orders
and the cancellation of the acquisition transaction.
There are a number of other laws regulating certain aspects of
takeovers, including the general requirements of the Company
Law and the Government regulation No.27 of 1998, the Anti-
Monopoly Law, and the Labour Law.
In addition, the regulations issued by the stock exchange may be
relevant if the shares of the bidder (or the target) are listed on the
IDX.
Application of the Capital Market Law and its implementing
regulations
The Capital Market Law applies to:
n a
takeover of a publicly listed company or an unlisted public
company, being a company with 300 or more shareholders and
with paid up capital of IDR3 billion; and
n a
merger or consolidation involving a public company or an
unlisted public company.
The Capital Market Law does not apply to takeovers or mergers
of private companies, but it applies to takeovers and mergers of
foreign incorporated companies listed on the IDX. To date there
are however, no foreign incorporated companies listed on the IDX.
What are the main offer terms?
Minimum price requirements
Generally, the tender offer price must be the greater of:
n t
he price being offered in a tender offer by another party within
180 days prior to the announcement of the tender offer plan
and
n t
he highest market price during the period of 90 days
immediately prior to the announcement of the tender offer plan.
Specifically, in a mandatory tender offer triggered by a takeover
directly from the controlling shareholder, the pricing must be as
follows:
n i
f the mandatory takeover is in respect of shares of a public
company that are unlisted and not traded on any stock
exchange, the offer price must be at least the higher of: (i) the
share price paid for shares in the takeover; or (ii) the fair price
determined by an independent appraiser;
33
n i
f the takeover is in respect of shares of a public company that
are listed and traded on exchanges but have not been traded
or have been temporarily suspended for 90 days or more
prior to the announcement of a tender offer or negotiation of a
proposed takeover, as the case may be, the offer price must be
at least the higher of (i) the average of the highest daily traded
share price within the last 12 months prior to the last trading
day or the day that it was temporarily suspended or (ii) the
share price paid for shares in the takeover;
n i
f the takeover is in respect of shares of a public company that
are listed and traded on exchanges, the offer price must be at
least the higher of (i) the highest traded share price within the
last 90 days prior to the date of the announcement of tender
offer or the negotiation of the proposed takeover, as the case
maybe, or (ii) the share price paid for the shares in the take
over;
n i
f the takeover is in respect of indirect shares of a public
company that are not listed and not traded on exchanges,
the offer price must be at least the equivalent of the fair price
determined by an independent appraiser;
n i
f the takeover is in respect of indirect shares of a public
company that are listed and traded on exchanges but have
not been traded or have been temporarily suspended for 90
days or more prior to the announcement of a tender offer or
negotiation of a proposed takeover, as the case may be, the
offer price must be at least equivalent to the average of the
highest daily traded share price within the last 12 months prior
to the last trading day or the day it was temporarily suspended;
and
n i
f the takeover is in respect of indirect shares of a public
company that are listed and traded on an exchange, the
offer price must be at least equivalent to the average of the
highest daily traded share price within the last 90 days prior to
the announcement of a tender offer or the negotiation of the
proposed takeover, as the case may be.
Cash/non cash terms
There is no limitation in terms of the form of consideration for an
offer. It may be in cash, securities (with cash alternative), or a
mixture of both.
Conditions
The regulation does not specify any permitted conditions to a
tender offer. Therefore, any condition to the tender offer must be
approved by Bapepam–LK.
I
n the event that such a condition is attached, the condition shall
apply equally to all shareholders, except to holders of shares with
different rights or benefits attached. There is no minimum level of
acceptances requirement.
34
If the tender offer results in the acquirer owning more than 80
per cent of the paid-up capital of the company, it is required to
resell the shares to the public so that the shares owned by the
public amount to at least 20 per cent of the paid up capital of the
company owned by at least 300 shareholders within two years
after the completion of the tender offer process.
If the takeover results in the acquirer owning more than 80 per
cent of the paid up capital of the public company, it is required to
re-sell to the public shares at least equivalent to the percentage of
shares obtained from the tender offer and owned by at least 300
shareholders within two years.
An exception to the re-sale requirement applies where the
company conducts a corporate action such as a stock split or
a new issuance without conducting a rights issue, which would
result in either 20 per cent of the company being owned by the
public or being owned by at least 300 shareholders.
Funding the acquisition
In a cash offer, or where the offer involves an element of cash, the
bidder must publish shareholders’ information in a newspaper
including a confirmation by an accountant, bank or financial
adviser that the relevant bidder has sufficient financial resources to
satisfy full acceptance of the offer.
What is the timing of a public offer and what is the
procedure to be followed?
Announcements
In the case of a mandatory tender offer, an announcement by
the acquirer regarding the start of negotiations is voluntary. An
announcement tends to lock the price of the shares.
An announcement must be made to the public and the tender
offer plan publication must be filed with Bapepam-LK.
An announcement of the tender offer statement must be made
after it becomes effective.
Acceptance period
The offer must be open initially for at least 30 days from the
announcement of the tender offer statement. No extension is
allowed in the case of a mandatory tender offer. In a voluntary
tender offer, the bidder may extend the acceptance period by up
to 90 days.
Offer timetable: Mandatory tender offer timeline
* indicative timing

Date/Time period Events

D The purchaser and seller commence negotiations.

D+2 The purchaser publishes a commencement of negotiation announcement (price lock up date) (voluntary)
The purchaser liaises/appoints supporting institutions:
(i) a custodian bank/securities company to issue a statement letter that the purchaser has the ability to
finance the offer (a financial support statement), to act as custodian of the purchaser and to administer
the acceptance of the offer (scripless shares) and (ii) a share registrar (usually the target company) to
administer the acceptance of the offer (scrip shares).

The appointed custodian bank/securities company issues the financial support statement. The purchaser
completes the takeover (direct acquisition with the selling shareholder) and within two business days, the
purchaser liaises with Bapepam-LK on the draft tender offer plan announcement and draft tender offer
statement.

D+[21]* The purchaser submits the draft tender offer plan announcement to Bapepam-LK and the target company.

The appointed custodian bank/securities company notifies the Indonesian Central Securities Custodian
(KSEI) of the plan.

D+[23]* The purchaser publishes the tender offer plan announcement.

D+[28]* The purchaser submits a draft tender offer statement to Bapepam-LK, IDX, KSEI, the target company and
other tender offeror (if any).

The purchaser consults with Bapepam-LK on the draft tender offer statement.

D+[43]* Bapepam-LK declares the tender offer statement effective.

D+[45]* The purchaser publishes the tender offer statement and the tender offer begins.

D+[75]* The tender offer closes.

KSEI receives purchase funds in its account from the appointed custodian bank/securities company.

D+[76]* Share transfer settlement period commences.

D+[91]* Last settlement date.

D+[101]* The purchaser submits (i) a report to Bapepam-LK on the results of the tender offer and (ii) a report to
Bapepam-LK and IDX on acquiring more than 5 per cent of shares in the target company.

Satisfying offer conditions A competing bidder may announce a written statement either to
support, or to oppose, the offer of a previous bidder.
A bidder may withdraw from the tender offer if one of the specific
conditions attached is not fulfilled. Failed bids and further offers

Offer unconditional payment There are no specific rules on the possibility of making a further
offer in the event of a failed bid.
Payment of shares in a tender offer must be made to the
accepting shareholders by the twelfth calendar day from the What documentation is involved in the process?
closing of the tender offer period.
The commencement of negotiation announcement
Competing bids
This should state the:
There are no specific rules relating to competing bids. A bidder
cannot cancel the tender offer after the announcement of the n identity of the acquirer;
tender offer plan, unless approved by Bapepam-LK. n number of shares to be acquired;
n identity of the proposed seller;
n purpose of acquisition;

35
n method of negotiation; and What are the rules on information gathering/provision?
n matters being negotiated.
Information is to be provided equally to all shareholders and
The tender offer plan announcement competing bidders.

This should state the: A bidder may sometimes undertake some due diligence on the
target before extending an offer. If it is proposed that price-
n identity of the offeror; sensitive information is to be provided by the target to the bidder,
n terms of the offer; this could potentially create an insider trading offence if the bidder
n shares in the target company currently held by the acquirer; acquires the target shares from the target shareholders. Therefore
and such information must also be disclosed to the public as part of
n the financial support statement. the tender offer material.

The tender offer statement What is the position regarding insider trading?

This should state the:
n identity of the target company;
n shares to be acquired;
n l
owest and highest price of the shares in each quarter for the
last two years;
n identity of the offeror;
n brief description of any material relations or contracts for the
last three years between the offeror and the target company
and/or its affiliates;
n terms of the offer;
n statement by the offeror of its ability to finance the offer and a
financial support statement;
n purpose of the offer;
n future plans of the offeror for the target company; and
n other information required to ensure the statement is not
misleading (i.e. non public material information obtained
from the due diligence, including price sensitive information,
if any, for the purpose of complying with the Insider Trading
Regulation).
Responsibility statements
The offer document, target document and all announcements
made by the bidder and the target must contain a responsibility
statement made by the directors of the bidder or target (as the
case may be) assuming responsibility for the information in the
document or announcement.
What are the practices relating to break fees and lock-out?
There is no prohibition on break fees and lock-out for private
companies. A “lock up” clause may not be applicable to prevent
the required compliance with the tender offer rules for acquisitions
of public companies.
A “break fee” arrangement is not common in Indonesia and it may
be in conflict with the fiduciary duties of the board of directors.
Insider trading in securities listed or traded in Indonesia is a
criminal offence, which may also carry civil liabilities.
In general, any person who has information concerning a
company that is not generally available and which a reasonable
person would expect to have a material effect on the price of
shares or the decision of the investor to buy or sell shares, would
be guilty of insider trading if he or she:
n deals in the securities;
n procures others to deal in the securities; and
n c
ommunicates the information to a third party where the third
party is likely to deal in the securities.
The penalties for insider trading are:
n a
n administrative sanction as determined by Bapepam-LK
which may be in the form of a warning letter, cancellation or
revocation of licence, fine, or an order to unravel the trade; or
n a
criminal sanction of imprisonment for up to 10 years and a
fine of up to IDR15 million.
In addition to these penalties, a person who has engaged in
insider trading may also be liable to compensate any person
trading contemporaneously with him for the unlawful profit gained
or loss avoided.
What are the public disclosure requirements in a takeover
scenario?
Bidder
In general, a person who has acquired an interest of 5 per cent
or more of the shares of a public company must report this to
Bapepam-LK and to the IDX. Any subsequent changes in the
percentage level must also be disclosed.

36
Target
Dealings in target shares by directors, commissioners and
shareholders owning 5 per cent of the target must be publicly
disclosed.
Does a memorandum of understanding (MoU) need to be
disclosed?
Disclosure of an MoU is voluntary, provided the information
required by a commencement of negotiation announcement is
disclosed (see page 35).
What are the limitations to stakebuilding?
A direct or indirect acquisition of shares carrying more than 50
per cent or more of the voting rights of a company will trigger a
mandatory offer.
Is there a requirement to make a mandatory offer?
An acquisition of (i) more than 50 per cent of the paid up capital
of a public company or (ii) any shares in a public company, which
would result in the acquirer having the ability to determine in any
manner whatsoever, the management and/or policy of the public
company, requires a mandatory offer to be made to acquire the
remaining shares of the company, except those held by:
n the selling shareholder;
n o
ther shareholders that have already been offered the shares
on the same terms and conditions by the acquirer;
n another acquirer;
n a
major shareholder (a shareholder holding at least 20 per cent
of the public company); or
n another controlling shareholder.
The offer must be made pursuant to a tender offer procedure
pursuant to the prevailing regulation. This requirement applies
to a direct or indirect acquisition of the public company by the
acquirer.
In the event that the mandatory tender offer results in the acquirer
owning more than 80 per cent of the paid up capital of the public
company, it is required to resell the shares to the public so that the
shares owned by the public amount to at least 20 per cent of the
paid up capital of the public company and owned by at least 300
shareholders within two years after the completion of the tender
offer process.
Further, if the takeover results in the acquirer owning more than
80 per cent of the paid up capital of the public company, then it
is required to re-sell to the public the shares at least equivalent
to the percentage of shares obtained from the mandatory tender
offer and owned by at least 300 shareholders within two years.
An exception to the re-sale requirement applies where the public
company conducts a corporate action which would result in either
20 per cents being owned by the public or owned by at least 300
shareholders.
Prior to the takeover, the acquirer that is conducting a negotiation
of the takeover acquisition of a company may disclose the
information to the public company, Bapepam-LK, the Stock
Exchange and the public. If the acquirer makes such a disclosure,
any material development on the negotiation process must also
be disclosed within two working days of each development.
There are exceptions to the mandatory tender offer requirement.
An acquirer proposing to undertake a takeover of a public
company may be exempted from conducting a mandatory offer
if, amongst other things, the acquisition is due to any of the
following:
i. marriage or inheritance;
ii. the purchase or acquisition of up to 10 per cent of the shares
in the public company within a 12-month period;
iii. the implementation of a duty and authority of a state or
governmental body/agency pursuant to law;
iv. the direct purchase of shares owned and/or controlled by a
state or governmental body/agency as an implementation of
item (iii) above;
v. any final and binding court order or decision;
vi. a business merger, separation, consolidation or liquidation of a
shareholder;
vii. the grant of shares without consideration in any form;
viii. a
 security interest for certain debts provided for in credit
agreements as well as security interest for debts within the
framework of a restructuring of the public company stipulated
by a state or governmental body/agency pursuant to law;
ix. the acquisition of shares pursuant to a rights issue or issuance
of shares without pre-emptive rights;
x. the acquisition of shares due to the implementation of policy of
the state/governmental body/agency;
xi. the conduct of a tender offer which may violate laws and
regulations; or
xii. the conduct of a voluntary tender offer.
37
An acquirer relying on the above exceptions is still required n i
f the bidder is an Indonesian PT company, to obtain approval
to disclose to the public company, Bapepam-LK, the Stock from the shareholders at a general meeting of shareholders.
Exchange and the public within two working days after the
acquisition, the following information: Target

n the identity of the acquirer;
n the number of shares acquired and the percentage
shareholding held by the acquirer before and after the
acquisition; and
n valid
 supporting evidence of the exception relied upon.
The board of directors of the target must announce a statement
informing of any misleading or incorrect statements made by the
bidder.
What is the procedure for a squeeze out of the minority?

In addition, the following information is required to be disclosed by There is no squeeze-out rule or procedure, and it is not possible
an acquirer relying on exceptions (iv) and (viii) above: to compel minority shareholders to sell their shares.

n a
ffiliation relationship (if any);
n the reason for the acquisition; and
n the plan that the acquirer has for the company.
Except for exceptions (i) (ii) v and (vi) this information must be
announced to the public in one newspaper in the Indonesian
language with national circulation.
A tender offer is also not required if the takeover of the public
company is made indirectly through another public company,
provided that the public company contributes less than 50 per
cent of the other public’s revenue at the time of the takeover
based on the consolidated financial statement of the other public
company.
What defences are available to a target company during the
stages of an offer?
If the tender offer results in the target company becoming
unqualified for listing on the IDX, the bidder must acquire all
remaining shares of the target company except for shares held by
majority shareholders. A company will be delisted from the stock
exchange if the company is:
n experiencing a condition or event which has a significant
negative impact on the business or the public status of the
company and the company is unable to demonstrate a
sufficient indication of recovery; or
n the trading of the shares in the regular or cash market is
temporarily suspended and is only possible on the negotiated
market for at least 24 months.
7. Overview of a private company acquisition
Timing

A target company may make a written statement to support or
object to the tender offer. Such a statement may be a defence
or an objection to the information announced in the tender offer
statement.
However, the target company is not permitted to enter into a
transaction solely with the aim of hindering a change of control of
the target company as a result of the tender offer as of the date of
announcement of the tender offer plan until the end of the tender
offer period.
What obligations are the directors of the bidder and target
under?
The timing of a private acquisition depends on the cooperation
between the parties, the progress of negotiations and other
matters specific to the transaction.
Steps
Set out in the table on page 39 is an overview of the steps that
can be involved in a private company acquisition in Indonesia
based on the Company Law and the implementing regulation,
namely, Government Regulation No.27 of 1998 dated 24 February
1998 (GR 27).

Bidder

The board of directors’ obligations are set out in the Company

Law and Capital Market Law and their respective implementing
regulations, and include:

n to keep the tender offer plan confidential within 15 days prior to
the announcement of the tender offer plan;
n to ensure that the information published is materially correct
and accurate;
n not to buy or sell shares in the target company within 15 days
prior to the announcement of the tender offer plan until the end
of the tender offer period; and

38
Overview of the steps in a private company acquisition

Actions Time

Acquiror conveys the intention for acquisition to acquiree’s N/A

board of directors

Preparation of proposal for acquisition plan; approved by N/A

acquiror’s and acquiree’s board of commissioners

Preparation of acquisition plan N/A

Announcement of summary of acquisition plan in one 30 days prior to Extraordinary General Meeting of
newspaper and written announcement to acquiree’s Shareholders (“EGMS”) notice
employees

Announcement of the acquisition plan, by way of registered 30 days prior to EGMS notice
letter, to the acquiree’s creditors

Deadline for submission of acquiree’s creditors’ objection to 14 days after announcement of acquisition plan
the acquisition plan
7 days prior to EGMS notice

EGMS notice 14 days prior to EGMS

EGMS approves the acquisition plan (with a quorum of at N/A

least ¾ of shareholders and approved by at least ¾ of the
attendees)

Second EGMS (with a quorum of at least 2/3 of shareholders 10 – 21 days after the first EGMS notice: 7 days prior to the
and approved by at least ¾ of the attendees) meeting

Third EGMS (quorum decided by head of local district court) 10 – 21 days after the second EGMS notice: 7 days prior to
the meeting

Signing of deed of acquisition N/A

Submission to Ministry of Law and Human Rights of the N/A

Republic of Indonesia (MoLHR) of copy of the deed of
acquisition resulting in the articles of association (AoA)
amendment (for acquisition through company)

Submission to MoLHR of copy of the deed of acquisition

resulting in the change of shareholding (for acquisition of
shares)

Register the AoA amendment to Company Registry As at MoLHR approval of the AoA amendment for
maintained by MoLHR amendments that require MoLHR approval

As at acknowledgment receipt by MoLHR for amendment

that doesn’t require MoLHR approval

As at acknowledgment receipt of change in Acquiree’s data

that doesn’t result in amendment of its AoA

Announcement in Supplement to the State Gazette of the 14 days as of the MoLHR approval or acknowledgment
Republic of Indonesia of the AoA amendment receipt of the AoA amendment

Announcement in one newspaper of the acquisition results 30 days as of date of effectiveness of the acquisition

39
8. What tax issues should be considered? rate or exemption under a bilateral tax treaty. Interest is defined
broadly to cover any consideration paid or payable for the use of
Capital gains money. It would also cover guarantee fees.

The general income (capital gain) tax rate ranges from 5 per cent
to 30 per cent for individual domestic taxpayers and 28 per cent
for corporate domestic taxpayers.
A transfer of shares in an Indonesian company (other than a public
company) by a foreign party is subject to a final capital gains tax of
5 per cent of the sale price.
A sale of publicly listed shares is subject to a final 0.1 per cent
tax on the total value of the share price if the shares are crossed
through the exchange. The general income tax rate applies to
capital gains from the over-the-counter sale of publicly listed
shares.
Under current regulations, for the payor withholding obligor
(Indonesian company/borrower) to apply a treaty rate, a Domicile
Certificate (tax residency certificate) of the foreign recipient must
be presented to the Indonesian tax office.
Value added tax of 10 per cent may be charged in respect of
certain services performed in Indonesia, or performed outside
Indonesia but where the benefit of such services is enjoyed
in Indonesia. The determination of whether the benefit of the
services is enjoyed in Indonesia or the services are performed
in Indonesia is determined by the tax authorities based on a
consideration of the factual circumstances.

Transfer taxes

There is no transfer tax applicable in Indonesia, except with the

transfer of land title, where the transferee will bear 5 per cent of
the transfer price. The transferor will bear the 5 per cent income
tax. There may be a 10 per cent value added tax on the sale of
assets which will depend on the specifics of the asset transaction.
Stamp duty of IDR6,000 (USD0.75) is payable on each document
signed.

Thin capitalisation/interest deductions

A company may in general claim a deduction from interest paid

under a loan for the purposes of calculating taxable profits.

Withholding tax

In Indonesia, withholding tax applies to certain transactions such

as loans or certain services. In general, repayments of principal
are not subject to withholding tax. However, payments of interest
and any fee that is in the nature of an interest to an offshore
lender, as well as fees for services performed either in or outside
Indonesia, are subject to withholding tax at the rate of 20 per
cent of the gross amount subject to such lesser rates as may be
applicable under a bilateral tax agreement.

Dividend payments are also subject to withholding tax if the

shareholding is less than 25 per cent of the total issued shares in
the invested company. When the shareholding is 25 per cent or
more of the total issued shares in an invested company and the
shareholder is a domestic taxpayer, the dividend paid to such a
shareholder is not subject to withholding tax.

For an interest recipient who is domiciled offshore, an exception is

available where a recipient qualifies for the benefits of a reduced

40
Schedule 1: Summary of the Negative List in Indonesia
This table sets out only a summary of some of the industries listed in the Negative List in Indonesia.

Industry Permissible foreign equity

Offshore (outside the eastern Indonesian 95%

region) and onshore oil and gas drilling service

Power plant and power transmission 95%

Pharmaceuticals 75%

Venture capital 85%

Insurance (e.g. loss insurance, life insurance, 80%

reassurance and insurance and reassurance broker)

Telecommunications (fixed line organisation) 49%

Telecommunications (closed fixed line organisation 65%

and mobile network organisation)

Multimedia services 49% - 95% (depending on the type of services)

Foreign exchange bank, non-foreign 99%

exchange bank and shariah bank

41
 re s
W -
L O

42

1. What are the forms of business entity in Malaysia?
Common forms of entity
„„ Private company limited by shares
„„ Public company limited by shares (listed/unlisted)
„„ Partnership
Less common forms of entity
„„ Companies limited by guarantee
„„ Unlimited companies
„„ Limited partnership
„„ Unincorporated associations
2. How is a company managed?
The basic management structure
What form does the management structure take?
Under the Malaysian Companies Act, 1965 (Companies Act), the
business and affairs of the company must be managed by, or be
under the direction of, the board of directors. The non-executive
directors have voting rights on board decisions and are, as with
executive directors, responsible for all decisions taken and powers
exercised by the board.
The articles of association of the company set the threshold for
decisions of the board (e.g. whether unanimous vote or majority
vote is required).
How are directors appointed to and removed from office?
In general, the appointment and removal of directors is governed
by the articles of association.  However, for a public company or
its subsidiary, the appointment of a director over the age of 70
years, and for a public company, the removal of its directors, is
governed by the Malaysian Companies Act, 1965 (Companies
Act). Malaysian case law has indicated that the provisions of
the Companies Act regarding removal of directors also apply
to private companies and therefore, as a matter of prudence,
directors of a private company are also removed in accordance
with the provisions of the Companies Act.
What powers does the board have?
The board has all the powers of managing, directing and
supervising the management of the business and affairs of
the company subject to such limitations in the Companies Act
(including powers that are specifically reserved to shareholders)
and the memorandum and articles of association.
Malaysia
A degree of flexibility can be given to the management under
the articles of association, including the ability to change the
management, alter procedures and delegate responsibility to
committees. Alternatively, the shareholders can, via the articles
of association, restrict the powers of management, retaining
control over the day-to-day running of the company.
Are there any residency requirements for directors?
A company is required to have at least two directors who must
have their principal or only place of residence in Malaysia. These
two directors may be Malaysian citizens or otherwise. A company
must also have at least one company secretary who must have
his principal or only place of residence in Malaysia.
Is there any requirement for directors to hold shares?
There is no legal requirement for shareholding qualification with
respect to directors but the articles of association can provide for
such a requirement if the shareholders so decide.
What duties do directors owe?
Overview
The duties and responsibilities of a director arise under common
law and the Companies Act.
As a fiduciary, a director must always exercise his powers for a
proper purpose and act in good faith in the best interests of the
company. Accordingly, certain duties are placed upon a director,
and a director is not permitted to place himself in a situation where
his interests conflict with his duty.
Duty to the company
Directors owe their primary duty to the company (as distinct from
the shareholders) and generally, only the company has a cause of
action against the directors for breach of their duties.
Generally, directors are required to act and exercise their powers
for a proper purpose and in good faith in the best interests of the
company as a whole, and not for their personal interest. A director
who is appointed by a shareholder or debenture holder must act
in the best interest of the company and in the event of any conflict
between his duty to the company and his duty to his nominator,
he must not subordinate his duty to act in the best interest of the
company to his duty to his nominator.
A director is required to exercise reasonable care, skill and
diligence with the knowledge, skill and experience that
may reasonably be expected of a director having the same
43
responsibilities while taking into account any additional knowledge
skill and experience that the director has.
A director must not put himself in a position where his personal
interests conflict with those of the company. Where a director is
directly or indirectly interested in a contract, he may be counted
towards the quorum but is required to abstain from voting or
participating in the discussion in a board meeting.
A director or an officer of a company must not make improper use
of any information acquired by virtue of his position (as a director
or an agent) to gain (directly or indirectly) an advantage for himself
or for any other person, or to cause detriment to the company.
Duty to the shareholders
The minority shareholders in a company may be entitled to bring
an action in their own name (on behalf of the company) against
the directors for breach of their duties. To sustain such a claim,
the shareholders must show that the company’s affairs have
been conducted in a manner which either constitutes a “fraud on
the minority” or are unfairly prejudicial to their interests or the act
complained of is ultra vires.
The shareholders of an unlisted company may also apply to the
court under section 181A of the Companies Act for leave to bring
an action in the company’s name, where such leave will be granted
if the court is satisfied that the complainant is acting in good faith
and it appears prima facie that the action should be brought.
Duty to creditors
If a company is close to insolvency, the interests of the creditors
must be taken into account. If the directors act in a manner with
an intent to defraud the creditors of the company or for any
fraudulent purposes when the company is insolvent, they may be
held guilty of misfeasance.
What types of liability can directors incur?
Directors may incur:
„„ civil liability for negligent performance of their duties; and/or
„„ criminal sanctions for violations of specific requirements
concerning the organisation and operation of the company.
A person may be disqualified from acting as a director or
being involved in the management of a company in certain
circumstances, for example, where:
„„ he is an undischarged bankrupt;
„„ he had been convicted whether within or outside Malaysia of
any offence:
44
• in connection with the promotion, formation or management
of a corporation;
• involving punishable fraud or dishonesty;
• under section 132 (for breach of the statutory duty of
directors under the Companies Act) or under section 303
(for breach of the duty to keep proper accounts of the
company); or
• of an offence under the securities law or the Companies Act,
within a period of five years after his conviction or if he is
sentenced to imprisonment, after his release from prison;
„„ he is or has been a director of an insolvent company which
has gone into liquidation and was a director of such other
company which went into liquidation within five years of the
date on which the first company went into liquidation.
In certain circumstances, a director may also be personally liable
to creditors of a company that has gone into insolvent liquidation,
for example, where:
„„ he had knowingly contracted a debt when he had no
reasonable or probable expectation that the company would
be able to pay that debt; or
„„ he is guilty of fraudulent trading.
Section 140 of the Companies Act nullifies any provisions (whether
contained in the company’s articles of association or otherwise)
which exempt a company’s directors and officers from, or which
indemnify them against, any liability which by law would attach to
them in respect of any negligence, default, breach of duty or trust
of which they may be guilty in relation to the company. However, if a
judgment is granted in favour of such a director or officer or if he is
acquitted, and the court grants him relief under the Companies Act,
then the company may indemnify him against any liability incurred
by him in defending the proceedings (whether civil or criminal).
There are a number of ways in which directors can minimise the
risk of liability:
„„ certain actions taken or omissions made by directors can be
ratified retrospectively (where permitted under Malaysian law) or
approved in advance by the shareholders;
„„ the directors can maintain directors and officers’ liability
insurance policies; and
„„ the company can maintain a company reimbursement policy
to indemnify the company where the company has itself
indemnified the directors and officers in the event the directors
and officers are found not guilty or a judgment or relief is
granted in their favour by the court.
What are the auditing requirements for companies?
There is a statutory requirement of audit applicable to all
companies in Malaysia.
3. What are the most common types of M&A transaction?
Private companies
Share acquisitions
A company can issue various types of shares with different rights
attached. The most common are ordinary shares with full voting
rights and preference shares (which do not entitle the holder to
the right to vote at a general meeting or to any right to participate
beyond a specified amount in any distribution whether by way of
dividend or on redemption in a winding up or otherwise).
A buyer can purchase ordinary shares in a Malaysian private
company. By acquiring the ordinary shares in a company, the
buyer acquires all voting rights attached to such shares.
An alternative way of acquiring control of a private company in
Malaysia is to subscribe for newly issued voting shares which,
after taking into account already existing shares, make up over
50 per cent of the entire issued voting share capital of a company
(with the existing shareholders being diluted).
Business/asset acquisitions
A buyer can also purchase the business and assets of a company.
Each asset has to be transferred subject to the particular
formalities required. For some classes of assets, this will mean
simply handing over the asset (i.e. physical delivery), although
others will require transfer documents (e.g. real property, contracts
and intellectual property).
Schemes of reconstruction or amalgamations
Two or more local companies may voluntarily (i.e. without a
court order) or in connection with a scheme of reconstruction
or amalgamation with a court order in accordance with the
Companies Act, amalgamate and continue as one company,
which may be one of the amalgamating companies or a new
company. The amalgamated company will succeed to all the
property, rights and privileges as well as assume the liabilities and
obligations of each of the amalgamating companies. 
In the case of amalgamation without a court order, the
shareholders of the amalgamating companies must approve the
amalgamation in accordance with the requirements of its articles
of association.
In the case of amalgamation with a court order, a majority in
number representing at least 75 per cent in value of the members
or class of members of the amalgamating companies and/or a
majority in number representing at least 75 per cent in value of
the creditors or class of creditors of the amalgamating companies
must approve the amalgamation, and the court order is binding
on all shareholders and/or creditors. Under the Companies Act,
the court order can provide for the transfer to the acquirer of the
whole or any part of the assets and business or liabilities of the
target, the continuation by or against the acquirer of any legal
proceedings pending by or against the target or the dissolution of
the target, and any incidental matters.
Schemes of arrangement
A scheme of arrangement is a legislative procedure under the
Companies Act allowing a company to be acquired.
The use of a scheme of arrangement to acquire a wholly owned
subsidiary requires the active co-operation of the directors of the
target and a court order.
The scheme can be effected either:
by way of a share-for-share exchange: all shares in the target
held by its existing shareholders (other than the acquirer) are
cancelled and in exchange new shares in the acquirer are issued
to those shareholders. The reserve created in the target by the
cancellation of the shares is capitalised and applied in paying up
further shares in the target which are issued to the acquirer in lieu
of those cancelled. This is usually used to effect the acquisition of
minority held shares in a subsidiary or for a share for share offer; or
by way of an acquisition of all or part of the assets and
business of the target: the assets and business of the target are
acquired by the acquirer in consideration for the issue of shares in
the acquirer to the target. The target then distributes the shares
in specie to its shareholders. If the target has no remaining assets
or liabilities, it is wound up.
A majority in number representing at least 75 per cent in value
of the members or class of members of the amalgamating
companies and/or a majority in number representing at least
75 per cent in value of the creditors or class of creditors of the
amalgamating companies must approve the scheme, and the
court order is binding on all shareholders and/or creditors.
The scheme can be carried out as part of the scheme of
reconstruction or amalgamation.
45
Joint ventures
Two or more parties may form a joint venture to pursue a common
commercial goal. Joint ventures are governed by the general
principles of contract and company law, and can take many
different forms.
Takeovers
Prior to 16 July 2009, private companies incorporated in Malaysia
had to observe the letter and spirit of the Malaysian Code
on Takeovers and Mergers (the Code) where they had either
shareholders’ funds or a paid-up capital of RM10 million or more
based on the latest audited accounts (on a consolidated basis, if
applicable), and where the purchase consideration for the voting
shares over a period of 12 months was RM20 million or more (see
under Public companies below and section 6 for a more detailed
summary of takeovers). With effect from 16 July 2009, such
private companies no longer fall within the purview of the Code.
Public companies
Takeovers (see section 6 for a more detailed summary of public
takeovers)
A takeover occurs upon a full offer for 100 per cent of the target’s
shares. With the prior consent of the Malaysian Securities
Commission (SC), a partial offer for (i) less than 33 per cent (this
threshold will be reduced to 30 per cent by the end of 2009 once
the Capital Markets and Services Act, 2007 comes into force); or
(ii) more than 50 per cent of the total voting rights can be made,
without having to make a mandatory offer if the partial takeover
offer succeeds.
The conduct of takeovers is governed by the Code, which is
administered by the SC. The Code applies to, inter alia, listed or
unlisted public companies incorporated in Malaysia.  A new code
on takeovers and mergers, likely to come into force at the end of
2009, will include foreign incorporated companies whose shares
are listed on Bursa Malaysia Securities Berhad (Bursa Malaysia).
Currently, an undertaking is obtained from the promoters of foreign
incorporated companies that they will comply with the Code.
An offer for the shares of a public company may either be
recommended by the target’s board of directors, or hostile. A full
offer cannot succeed unless the bidder has received acceptances
which will result in the bidder (together with persons acting in
concert with it) holding more than 50 per cent of the voting rights in
the target. In the case of partial offers for more than 33 per cent, the
partial offer must be approved by the offeree shareholders holding
more than 50 per cent of the voting shares of the offeree not held
by the offeror and persons acting in concert with the offeror.
46
A potential bidder may be required to make a mandatory offer for
all the target’s shares if:
„„ taken together with shares held or acquired by persons acting
in concert with it, the potential bidder acquires more than 33
per cent of the voting shares of the target; or
„„ together with persons acting in concert with it, it already holds
more than 33 per cent but less than 50 per cent of the voting
shares of the target, and it (or persons acting in concert with
it) acquires or intends to acquire voting rights in the target by
more than 2 per cent in any six-month period.
The board of the target (and in some cases, the bidder as well)
must obtain independent advice in respect of any takeover offer.
Schemes of arrangement
The scheme of arrangement described on page 45 also applies to
public companies. The use of scheme of arrangement is identical
with a successful share-for-share takeover bid by the acquirer for
all outstanding capital of the target, completed by compulsory
acquisition where the former shareholders of the target become
the shareholders of the acquirer together with the existing
shareholders of the acquirer and the target becomes a wholly
owned subsidiary of the acquirer.
Schemes of reconstruction and amalgamations
The amalgamation regime described on page 45 also applies to
public companies with the important additional factor that the Code
applies to an amalgamation involving two or more public companies.
Joint ventures
Public companies are free to enter into joint venture arrangements
as described earlier on this page.
Public-to-private acquisitions (P2Ps)
P2Ps are regulated by the Code, various statutes and the Listing
Requirements of Bursa Malaysia (the Listing Requirements).
In Malaysia, these acquisitions involve the buyers acquiring
publicly held shares in a company by way of a takeover offer
under the Code or by way of a scheme of arrangement or scheme
of reconstruction under the Companies Act, and subsequently
de-listing such a company.
The transaction will often involve the parent company of the listed
company (and sometimes a newly incorporated company) as the
bidding vehicle to make an offer to acquire the target’s shares not
held by the parent company.
The offer will normally be recommended by the independent
directors on the board and will not be hostile. The target will
sometimes have other significant shareholders prepared to give an
irrevocable undertaking to accept the offer prior to announcement.
In P2Ps, as the directors or management of the target will often be
the directors or management of the offeror, the board of the offeree
must appoint an independent adviser to advise the board of the
offeree and its shareholders as soon as possible after it becomes
aware of the possibility that a takeover offer may be made.
Do the parties have an obligation to negotiate in good faith
to one another in M&A transactions?
The laws of Malaysia do not impose any obligation on parties
to a proposed transaction to negotiate in good faith. As such,
it is possible for a party to pull out of negotiations completely or
to negotiate with another prospective buyer without any good
reasons and at any time prior to signing of the sale and purchase
agreement. To mitigate the risks associated with this, the parties
will often enter into an exclusivity agreement which incorporates
lock-out clauses and/or break fees. The break fees operate as
the upper limit that may be claimed as damages and generally, the
non-defaulting party is still required to prove its damages and loss.
4. What percentage shareholding is required to achieve
effective control of a company?
A shareholder who holds 75 per cent or more of the voting shares
in a company can pass all shareholders’ resolutions at a general
meeting except, inter alia, the following:
„„ the shareholder itself is not able to constitute a quorum for
the meeting. Generally under the laws of Malaysia, a meeting
requires at least two persons present and a single shareholder
who holds 75 per cent of the voting shares present at the
meeting may not be able to form a quorum if he is the only
member at the meeting; and
„„ in the case of an approval for a scheme of arrangement
or scheme of reconstruction or amalgamation under the
Companies Act where approvals of classes of shareholders are
required, the requirement to pass a shareholders’ resolution of
any class of shareholders in respect of the scheme is a majority
of shareholders who collectively hold 75 per cent or more of
the voting shares in a company.
Shareholders’ resolutions include both an ordinary resolution (a
resolution that has been passed, if on a show of hands, by more
than 50 per cent of members or their proxies present and voting at
a meeting or, if on a poll, by members or their proxies present and
voting at a meeting holding more than 50 per cent of the voting
shares) and a special resolution (a resolution that has been passed,
if on a show of hands, by a majority of not less than 75 per cent
of members or their proxies present and voting at a meeting or,
if on a poll, by members or their proxies present and voting at a
meeting holding 75 per cent or more of the voting shares). Under
the Companies Act, a shareholders’ resolution is required to
amend the articles of association, issue and allot shares, approve
the acquisition or disposal of an undertaking or property of a
substantial value, appoint and remove an auditor and, subject to
the court’s approval, to reduce the capital of the company.
5. Regulation, consents and foreign investment restrictions
Are there any regulated industries?
Investments and acquisitions relating to targets that operate in
certain industry sectors require approval or a licence from the
relevant ministry.
The most common sectors that are subject to these
approval requirements or restrictions are financial services,
telecommunications, aviation, direct selling, capital market
services activities (i.e. dealing in securities, trading in futures
contracts, fund management, advising on corporate finance,
investment advice, and financial planning) and insurance. These
regulated industries are also subject to foreign shareholding limits.
There may be additional, ongoing notification requirements
in respect of the operation of the business and approval
requirements for any changes to the shareholding.
Are there any restrictions on the foreign ownership of
shares in a Malaysian company
Prior to 30 June 2009, most acquisitions of interest in Malaysian
companies by foreigners in the non-industrial sector required
the prior approval of the Foreign Investment Committee (FIC)
pursuant to the Guidelines on the Acquisition of Interests,
Mergers and Takeovers by Local and Foreign Interests (FIC
Guidelines). It was the general policy of the FIC to impose equity
conditions on the Malaysian company concerned, the standard
condition being a requirement that foreign investment be limited
to 70 per cent of voting equity, with the remaining 30 per cent
being held by Malay and other Malaysian natives (collectively
Bumiputera).
With effect from 30 June 2009, the FIC Guidelines have been
repealed. Since 30 June 2009, transactions involving purchase
of shares in a company incorporated in Malaysia no longer fall
within the purview of the FIC and will only be regulated by the
respective sector regulators (for example, the Central Bank and
the Minister of Finance for the banking and insurance industry,
the Ministry of Domestic Trade, Cooperative and Consumerism
for direct selling and hypermarkets, the Securities Commission
for the capital market services industry, and the Ministry of
International Trade and Industry for the manufacturing industry).
47
Strategic industries such as telecommunications, aviation, ports,
water and energy will continue to be subject to the 30 per cent
Bumiputera requirement.
However, acquisition of shares in a company which (i) holds total
real properties valued at more than RM20 million (approximately
USD5.7 million), and (ii) has real properties constituting more than
50 per cent of its total assets, will still require FIC approval and
be subject to an equity condition of 30 per cent Bumiputera, if
such an acquisition results in a change in control of the company
owned by Bumiputera interest and/or government agency. This
is pursuant to new Guidelines on the Acquisition of Properties by
Local and Foreign Interests. Bumiputera is defined as:
„„ a Bumiputera individual which shall mean:
• for Peninsular Malaysia, a Malay individual or aborigine
as defined in Article 160(2) of the Federal Constitution of
Malaysia;
• for Sarawak, an individual as defined in Article 161A(6)(a) of
the Federal Constitution of Malaysia; or
• for Sabah, an individual as defined in Article 161A(6)(b) of
the Federal Constitution of Malaysia; or
„„ a Malaysian incorporated company or institution whereby
Bumiputera hold more than 50 per cent of the voting rights in
such company or institution.
As stated above, equity conditions in the various regulated sectors
in Malaysia are generally determined by the respective ministries in
Malaysia and are subject to changes and review by the respective
ministries.
Schedule 1 on page 61 sets out a general guide to the foreign
ownership restrictions in different industries in Malaysia.
Are there any foreign exchange controls?
There are foreign exchange controls in Malaysia:
„„ investment in foreign currency assets by residents of
Malaysia is permitted, save where the resident has domestic
credit facilities and it funds the investment either (i) through
conversion of Ringgit in which case its investment is limited
to RM50 million (approximately USD14.3 million) per calendar
year on a corporate group basis, or (ii) from foreign currency
credit facilities in which case its investment is limited to RM100
million (approximately USD28.6 million) per calendar year on a
corporate group basis;
„„ a resident is permitted to pay another resident in foreign
currency for settlement of goods and services only from its
export earnings;
„„ a financial guarantee issued by a resident to a non-resident
48
or a financial guarantee obtained by a resident from a non
resident is required to be registered with Bank Negara Malaysia
(the Central Bank of Malaysia) at least seven working days
prior to the issuance or obtaining of the financial guarantee
if the aggregate amount of the financial guarantee exceeds
RM50 million (approximately USD14.3 million) and that financial
guarantee is to secure a credit facility that has not been
registered or approved by Bank Negara Malaysia;
„„ a transaction between a resident and a non resident is
required to be reported to Bank Negara Malaysia if the
threshold exceeds RM200,000 (approximately USD57,100) per
transaction; and
„„ a resident requires the prior approval of Bank Negara Malaysia
to obtain credit facilities in foreign currency in excess of RM100
million (approximately USD28.6 million) in aggregate on a
corporate group basis from non residents (other than from
a non resident, non-bank parent company, other resident
companies within the same corporate group in Malaysia, and
licensed onshore banks).
A resident company is free to borrow:
„„ any amount in foreign currency from its non-resident, non-bank
parent company, other resident companies within the same
corporate group in Malaysia, and licensed onshore banks; and
„„ in Ringgit, including the issuance of Ringgit denominated
redeemable preference shares or loan stocks, of any amount
from its non-resident, non-bank parent company to finance
activities in the real sector in Malaysia (i.e. sectors that
contribute to the GDP growth of Malaysia and are non-
speculative).
A resident company may issue ordinary shares, non-redeemable
preference shares and private debt securities to a non resident.
Is there any merger control?
There is no national competition policy nor specific legislation
regulating competition in Malaysia except for competition
practices for the communications and multimedia industries under
the Communications and Multimedia Act 1998. However, the
Ministry of Domestic Trade and Consumer Affairs is formulating a
draft competition bill.
Currently, for some trading activities, there are statutes protecting
the consumer that have an indirect and consequential impact in
encouraging competition or restraining anti-competitive conduct
(e.g. the Code, referred to under Takeovers on page 46, the
Consumer Protection Act 1999, the Price Control Act 1946, the
Trade Description Act 1972, the Direct Sales Act 1993 and the
Moneylenders Act 1951).
What are the employee issues?
Are works councils/consultation common?
Malaysian companies do not have employee work councils,
although participation in trade unions is common in the lower
categories of employment in certain sectors. Unions may be
national or in-house unions.
Are any actions required prior to or upon an acquisition for
employees?
Employees in Malaysia enjoy certain protection in business or
asset purchases (as opposed to share acquisitions) under the
Employment Act, 1955 (the Employment Act). Such protections
include:
„„ the services of employees must be terminated in writing and
the minimum termination notice period must not be less than
that provided for in the Employment Act (unless longer notice
periods are contractually agreed); and
„„ payment of the minimum statutory termination benefits
(payable within seven days of termination) in accordance with
the rates prescribed in the regulations of the Employment Act
(unless higher rates have been contractually agreed). Such
statutory termination benefits need not be paid if the purchaser
offers the said employees continued employment on terms
and conditions no less favourable and recognises the said
employee’s years of service at the seller (and the employee
accepts such continued employment or unreasonably refuses
the same). It should be noted that “employee” under the
Employment Act is narrowly defined. For employees not falling
within the definition, the protection afforded to them will be
governed by the terms of their employment contracts.
Automatic transfer of employment contracts in business or asset
purchases (as opposed to share acquisitions) is not recognised in
Malaysia.
Consultation with employees or their trade unions is encouraged
even though it is not expressly required by any laws.
Are there any notification obligations for employees prior to or upon
an acquisition?
Save for the termination notices referred to above and below,
there is no mandatory obligation for any further notification to
employees, unless contractually agreed. Nevertheless, notification
and consultation with employees and unions is encouraged.
The seller is however required by the Employment Act to notify
the closest Labour Office of such termination of employment 30
days before the termination takes effect followed by two follow-up
notifications (within 14 days after termination takes effect and within 30
days after termination takes effect). Notification to the Labour Office is
done by submitting a standard form known as the “PK Form”.
Timing
Written termination notices by the seller must be issued to comply with
the minimum notice periods prescribed in the Employment Act. If the
notice period is short, the seller may indemnify the employee in lieu of
notice. If longer notice periods are prescribed by contract the longer
notice periods would have to be complied with.
For employees not falling within the definition of “employee” in
the Employment Act, the notice periods afforded to them will be
governed by the terms of their employment contracts.
Under the Employment Act, termination benefits must be paid by
the seller within seven days of termination unless such payment is
not applicable (see below).
Under the Employment Act, if offers of continued employment
are made by the purchaser, on terms and conditions no less
favourable and previous service is recognised (thus avoiding the
need for the seller to pay termination benefits), such offers must
be made within seven days of termination by the seller.
In practice, the termination by the seller and continued
employment by the purchaser is timed to take place
simultaneously and accordingly notices and arrangements are
prepared and made in advance.
With which stock exchange requirements must listed
companies comply?
What rules generally govern listed companies?
Companies whose shares are listed on the Bursa Malaysia must
comply with the Listing Requirements.
The objectives of the Listing Requirements include ensuring that:
„„ all listed issuers are of a certain minimum size, quality and
adequate operation;
„„ investors and the public are kept fully informed by the listed
companies of all facts and information that might affect their
interests and in particular, full, accurate and timely disclosure
is made of any information which may reasonably be expected
to have a material effect on the price, value or market activity in
the securities of the listed issuers;
„„ directors, officers and advisers of listed issuers maintain
the highest standards of integrity, accountability, corporate
governance and responsibility; and
49
„„ directors of listed issuers act in the interests of the company
as a whole, particularly where the public represents only a
minority of the shareholders or where the directors or major
shareholders have material interests in transactions entered
into by listed issuers.
The Listing Requirements require listed companies to disclose
material information known to the issuer concerning it or any of
its subsidiaries which are necessary for informed investing and to
ensure that everyone investing in its securities has equal access
to such information. Information is considered material if it is
reasonably expected to have a material effect on:
„„ the price, value or market activity of any of the listed issuer’s
securities; or
„„ on the decision of a holder of securities of the listed issuer or
an investor in determining his choice of action.
Some examples of events which should be announced include:
„„ joint ventures or mergers or memoranda of understanding;
„„ acquisition or loss of a contract, franchise or distributorship
rights;
„„ involvement in litigation or arbitration;
„„ acquisition or disposal where the percentage ratio (as set out in
the Listing Requirements) is equal to or exceeds 5 per cent, or
in the case of a related party transaction, where the percentage
ratio is equal to or exceeds 0.25 per cent, except where the
value is less than RM250,000, or the related party transaction
is a recurrent one of a revenue or trading nature which is
necessary for day-to-day operations (there are various rules
and exceptions on what constitutes related party transactions);
„„ a change in control or a change in management or change in
business direction;
„„ events of default under financing or sale agreements;
„„ unusual market activity in the listed issuer’s securities which
signifies that a leak of information may have occurred; or
„„ where the listed issuer learns that there are signs that insider
trading may be taking place.
Disclosure of material information may be made after the market
closes, and must be made to Bursa Malaysia, the press and
newswire services.
In exceptional circumstances, a listed issuer may temporarily
refrain from publicly disclosing material information provided that
complete confidentiality is maintained. Some examples include:
„„ when immediate disclosure would prejudice the ability of
the listed issuer to pursue its corporate objectives (e.g. if
the unfavourable result to the listed issuer outweighs the
undesirable consequences of the non disclosure); or
„„
50
„„ when the facts are in a state of flux or subject to rapid change
and a more appropriate moment for disclosure is imminent.
The Listing Requirements also require listed companies to obtain
shareholders’ approval in respect of transactions entered into
by the listed issuer or its subsidiaries, such as acquisitions and
disposals where the percentage ratio is equal to or exceeds 25
per cent or in the case of related party transactions, where the
percentage ratio is equal to or exceeds 5 per cent.
How does a company delist its share capital?
An application must be made to Bursa Malaysia to delist and the
applicant must fulfil the following criteria:
„„ shareholders’ approval of delisting must be obtained at a
general meeting;
„„ the resolution must be approved by a majority in number
representing at least 75 per cent in nominal value of the shares
held by the shareholders present and voting, on a poll, either in
person or by proxy at the meeting;
„„ the resolution must not have been voted against by 10 per cent
or more in nominal value of the shares held by the shareholders
present and voting, on a poll, either in person or by proxy at the
meeting;
„„ a reasonable exit alternative, normally in cash, should be
offered to (i) the shareholders and (ii) the holders of any other
classes of listed securities to be delisted; and
„„ an independent financial adviser has been appointed to advise
on the exit offer.
With which Securities Commission requirements must listed
companies comply?
In addition to obtaining shareholders’ approvals for transactions
where the percentage ratio is equal to or exceeds a certain
threshold limit, the listed issuer is also required to obtain the prior
approval of the SC where it proposes to acquire or dispose of
assets (whether or not by way of the issue of securities) which
result in a significant change in business direction or policy, i.e.:
„„ if the acquisition or disposal results in any one of the following
percentage ratios being equal to or exceeding 100 per cent; or
„„ if the acquisition or disposal results in a change in the core
business of the listed issuer within 12 months of the completion
of the transaction.
There are indications that, with effect from 3 August 2009, the SC’s
approval for a disposal which exceeds a certain threshold limit is no
longer required. To date, such a change has yet to be gazetted.
The calculation of the percentage ratio used by the SC is different
from that applied by Bursa Malaysia and inter alia involves a
calculation of any of the following:
„„ net asset value attributable to the shares in the target which are
the subject of the transaction compared with net asset value of
the listed issuer less net asset value of the shares in the target
which are the subject of the disposal;
„„ after-tax profits attributable to the shares in the target which are
the subject of the transaction compared with after-tax profits of
the listed issuer less after-tax profits attributable to the shares
in the target which are the subject of the transaction; or
„„ aggregate value of the consideration for the shares in the target
which are the subject of the transaction (including amounts to
be assumed by the buyer, such as seller’s liabilities) compared
with aggregate market value of all the ordinary shares of the
listed issuer.
Is financial assistance prohibited?
What is the nature of the prohibition?
A Malaysian-incorporated company (whether public or private)
is prohibited from giving financial assistance (either directly or
indirectly) by means of a loan, guarantee or the provision of
security or otherwise, for the purpose of or in connection with a
purchase of or subscription made or to be made by any person
for any shares in itself or its holding company.
The purpose of the financial assistance rules is to maintain capital
to protect the company’s creditors and minority shareholders
against the deployment of the company’s financial resources,
prevent the misuse of assets, and provide for the equal treatment
of all shareholders.
Such financial assistance may include gifts, loans, guarantees,
provision of security, waiving debt, entering into a joint venture
agreement with a third party without any benefit to itself so as to
induce the third party to finance a buyer of the company’s shares,
or giving financial assistance to a vendor of shares.
The following are arguably not caught by the financial assistance
prohibition:
„„ any security or guarantee given for any part of the debt that is
not used to acquire or refinance the acquisition of the shares in a
company or its holding company (e.g. a working capital facility);
„„ any security or guarantee given by Co. A (previously a target
company) for a loan to Co. B (acquiring company) to purchase
shares in Co. A where Co. A has pursuant to a scheme of
amalgamation or reconstruction of a group of companies
under section 176 or section 178 of the Companies Act now
become a sister company of Co. B. provided that the scheme
of amalgamation or reconstruction was carried out for the
commercial benefit or interest of the group;
„„ payment of dividends by the target company to its shareholder
(i.e. the acquiring company) which funds are then used by
the acquiring company to repay the loan used to finance the
purchase of shares in the target company, or distribution of
assets as dividends; or
„„ repayment of capital whether by way of cash or in specie
pursuant to section 64 of the Companies Act.
Any financial assistance given in relation to borrowings that are
used to refinance loans originally used for the acquisition of
shares in a company or its holding company may also be caught
notwithstanding that it may not be contemporaneous with the
purchase or subscription of shares in the company.
What are the sanctions?
The sanctions for breach of the financial assistance rules
are serious. The officers of the company may be fined up to
RM100,000 and/or imprisoned for up to five years. Directors may
also face civil claims for breach of their duties to the company.
The assistance itself (e.g. a loan or guarantee) will be voidable at
the option of the company.
Are there any exceptions to the prohibition and is there any
procedure which can be followed to make financial assistance
possible (i.e. a “whitewash procedure”)?
Depending on the circumstances of the transaction, there are
limited statutory exceptions from the prohibition, for public and
private companies, such as:
„„ where the lending of money is part of the ordinary business of
a company;
„„ the provision of a loan by the company pursuant to an employee
share option scheme for the purchase or subscription of shares in
the company or its holding company; or
„„ in respect of public listed companies only, they may purchase
their own shares provided:
• it is solvent as at the date of purchase and will not become
insolvent by incurring debts involved in the obligation to pay
for the shares;
• the purchase is made through Bursa Malaysia on which the
shares are quoted;
• the purchase is made in good faith and in the interest of the
company;
and the shares so purchased may be cancelled and/or retained
as treasury shares. Treasury shares may be distributed as
dividends to the shareholders or resold on the market of Bursa
Malaysia on which the shares are quoted.
51
6. Public takeovers
What are the forms of a public offer?
A takeover of a public company in Malaysia can be structured as:
„„ a public offer to acquire all the issued (and to be issued) share
capital (or units, as the case may be) of the target from existing
shareholders (or unit holders, as the case may be);
„„ a scheme of arrangement between the target, the
shareholders of the target (or unit holders, as the case may be)
and the bidder; or
„„ a scheme of amalgamation or reconstruction.
Other than an offer for all of the issued share capital of the target,
partial offers may be permitted with the prior consent of the SC.
In general, the SC is strict in approving partial offers (regardless
of the percentage involved) and will assess the grounds of an
application for partial offer on a case by case basis. Consent may
be given if a partial offer is made due to foreign equity restrictions.
Where the partial offers would result in the bidder and persons
acting in concert with it holding more than 33 per cent but less
than 100 per cent of the voting rights of the target, the takeover
offer is not successful unless:
„„ the bidder has received acceptances for not less than that
number of voting shares of the target as stated in the offer
document; and
„„ the bidder has received a vote of approval of the takeover offer
by offeree shareholders holding in aggregate more than 50 per
cent of the voting shares in the target. This may be exempted
if the takeover offer has been accepted by one offeree
shareholder holding more than 50 per cent of the voting shares.
Save with the consent of the SC, a bidder and any persons acting
in concert with it cannot acquire any voting shares:
„„ during the offer period other than by acceptances of the partial
offer; and
„„ that had been the subject of the partial offer during the period
of 12 months from the expiry of the offer period. Consent
may be given by the SC where the partial offer has resulted
in a holding of less than 33 per cent of the voting shares of
the company or in a rescue operation where such purchase is
necessary to gain control of a company.
Takeovers can be either recommended by the target’s board, or
hostile.
52
What is the regulatory framework for a public offer?
The Code
The principal source of regulation is the Code, which is a set of rules
designed to ensure an efficient, competitive and informed market and
to ensure that all shareholders of an offeree have equal opportunities
to participate in benefits accruing from the takeover offer.
The SC may be consulted by the parties via their advisers who
should communicate with the SC, during or before an offer.
The Code has the force of law, and any breach of the Code may
result in sanctions such as private or public censure or reprimand,
a penalty of up to RM1 million depending on the severity, the
withdrawal of the facilities of the stock exchange, suspension of
trading in the securities or the listing of the person in breach, or
requiring the person in breach to take such steps as the SC may
direct to remedy the breach or mitigate the effect of any breach,
including making restitution to any person aggrieved by such a
breach.
There are a number of other laws regulating certain aspects of
takeovers, including the general requirements of company law
and laws governing the conduct of securities trading (e.g. insider
trading prohibitions).
In addition, the Listing Requirements may be relevant if the shares
of the bidder (or the target) are listed on Bursa Malaysia.
Application of the Code
The Code is drafted with listed and non-listed public companies
in mind. The Code applies to all offerors, whether they are natural
persons (resident in Malaysia or not, and citizens of Malaysia or
not), corporations or bodies unincorporate (whether incorporated
or carrying on business in Malaysia or not), and extends to acts
done or omitted to be done in and outside Malaysia. 
What are the main offer terms?
Minimum price requirements
Where the bidder (or any of its persons acting in concert) is
subject to an obligation to make a mandatory offer under the
Code, the consideration offered by the bidder must not be less
than the highest price paid or agreed to be paid by the bidder
or any persons acting in concert with it in respect of the voting
shares of the target during the period starting six months prior to
the commencement of the offer period and the terms of the offer
must not be on less favourable terms with respect to value. If
voting shares have been acquired by the exercise of conversion
rights or warrants, the price will normally be established by
reference to the average high and low market prices of the voting
shares in question at the close of business on the day on which
the relevant notice was submitted to the target.
If, during the offer period, the bidder (or any persons acting in
concert with it) purchases shares above the offer price, the bidder
must increase its offer to not less than the highest price paid for
the shares acquired during the offer period.
Cash/non cash terms
In a voluntary offer, consideration for an offer may be in cash,
securities (e.g. loan notes, shares or other securities of the
bidder), or a mixture of both. However, where the consideration is:
„„ securities (including shares, debentures, notes, bonds) of a
public company in Malaysia;
„„ debentures of a private company in Malaysia; or
„„ securities (including shares, debentures, notes, bonds) of any
company incorporated outside of Malaysia;
the prior approval of the SC will be required for the bidder to
offer such securities in the takeover offer in addition to any other
approvals required by the bidder from the SC pursuant to the
takeover offer.
Cash consideration
Cash consideration is compulsory in mandatory offers (see
Mandatory offers on page 58). This means that if a bidder wishes
to offer securities as consideration, it must give the shareholders
of the target an option to receive cash in lieu of securities (the
“cash alternative”).
Where 10 per cent or more of the target’s shares have been
purchased for cash by the bidder (or any person acting in
concert with it) during the offer period or within six months
prior to its commencement, the offer must be in cash (or
accompanied by a cash alternative) at a price no lower than
the highest price paid for such shares during the offer period
or within six months prior to its commencement. A cash offer
or a cash alternative on the terms described in the foregoing
sentence may also be required even though less than 10 per
cent of the voting shares have been acquired by the bidder and
persons acting in concert with it in the previous six months, if the
circumstances are such that, in the view of the SC, a cash offer
or a cash alternative is necessary to ensure similar treatment of
shareholders of the same class.
Non-cash consideration
Generally, non-cash consideration will consist of the bidder’s ordinary
shares though other equity related securities may be offered.
Where unlisted securities are offered as consideration for the
acceptance of a takeover offer, the bidder shall disclose to the
offeree the value of the unlisted securities based on a reasonable
estimate by an independent valuer as may be approved by the
SC. Where listed securities are offered as consideration for the
acceptance of takeover offer:
„„ in the case of unissued securities, the value must be the price
as approved by the SC;
„„ in the case of issued securities, the value must be the
weighted average market price of the securities for the past
five market days preceding the date of the written notice of
the takeover offer to the board of directors of the target, Bursa
Malaysia and the SC; or
„„ where there is no trading of the securities for a continuous
period of five market days immediately preceding the date
of the written notice of the takeover offer to the Board of the
target, Bursa Malaysia and the SC, the value must be the
weighted average market price of the securities for the past
five market days preceding the close of trading on the market
day when the securities were last traded.
Conditions
Required condition: Every takeover offer must be conditional
upon a minimum level of acceptance. For both a mandatory offer
and a voluntary offer, the minimum level of acceptance is that
which would result in the bidder (and persons acting in concert
with it) holding more than 50 per cent of the voting rights.
Prohibited conditions: A mandatory offer must not be subject
to any condition other than the conditions as to the minimum level
of acceptance. A bidder in a voluntary offer will normally subject
the voluntary offer to a number of conditions which should not
be a defeating condition, the fulfilment of which depends on an
opinion, belief or state of mind of the bidder or an event that is
within the sole control or is a direct result of an action by the
bidder (or any person acting in concert with it).
Usual conditions: The common conditions attached to a
voluntary offer include:
„„ valid acceptances in respect of 90 per cent of shares being received
by the first closing date or in respect of more than 50 per cent of
shares being received by the first closing date. Any reduction of the
minimum level of acceptance from 90 per cent to more than 50 per
cent during the takeover requires the prior approval of the SC and
is generally not allowed (see Squeeze outs on page 59 as to the
importance of the 90 per cent threshold);
„„ passing of such resolutions as are necessary to implement the
offer at an extraordinary general meeting of the bidder;
„„ in the context of a securities exchange offer, admission of new
shares in the bidder to listing by the Bursa Malaysia;
53
„„ necessary approvals from the regulatory authorities have been
obtained;
„„ since the latest announced results to Bursa Malaysia, no
material adverse change has occurred in respect of the
business, financial or trading position or profits or prospects of
the target and/or its subsidiaries;
„„ no contingent liability has arisen which is likely to materially and
adversely affect the target and/or its subsidiaries. Any adverse
change of 5 per cent or more in the consolidated net tangible
assets of the target since the last announced results may be
considered material by the bidder for this purpose;
„„ no governmental or regulatory body or any other person
having proposed, threatened or effected any action,
proceedings, suit, investigation or enquiry, or enacted, made
or proposed any statute, regulation or order prior to the date
when the minimum level of acceptance is met, that would
make the voluntary offer void, unenforceable or illegal;
„„ no material adverse change in national or international,
social, monetary, financial, political or economic conditions or
exchange control that affect the business, financial or trading
position of the target group; and
„„ no dividends being declared by the target from the date of the
notice of takeover offer up to completion of the offer.
All conditions in a voluntary offer must be fulfilled within 21
days after the first closing date or after the minimum level of
acceptance is fulfilled, whichever is later, but in any event no
later than seven days after the 60 days from the date the offer
document is despatched, failing which the voluntary offer lapses.
Funding the acquisition
In a cash offer or where the offer involves an element of cash, the
bidder must include in its offer announcement a statement by the
financial adviser that the financial adviser is reasonably satisfied
that there are sufficient financial resources available to the bidder
such that the bidder would be able to carry out the offer in full by
way of cash.
What is the timing of a public offer and what is the
procedure to be followed?
Simplified offer timetable

Date/Time period Events

D-21 Earliest possible date for the press announcement and notification to the Board
of target, Bursa Malaysia and the SC

D-20 Board of target to inform Bursa Malaysia and make press announcement

D-14 Last date for board of target to post notification of the written notice to all offeree
shareholders

D-17 Bidder to submit offer document to the SC (Takeover Department) and Bursa
Malaysia for clearance. Application to be made to any other authorities whose
approval is required under the target’s licence (e.g. Minister of Finance for
financial institutions or insurance companies or Minister of International Trade
and Industry for licensed manufacturing companies)

Day 0 (D) Offer document despatched no later than 21 days after the press announcement

D+10 Last date for despatch of comments by target’s board and independent
advice circular by independent adviser (who shall be approved by the SC)
recommending acceptance or rejection of the takeover offer and risks involved

D+21 Earliest date for first closing date

First business day after first closing date Announcement to press, Bursa Malaysia and the SC of closing of offer,
(and all subsequent closing dates) acceptance levels, revision (if appropriate) and extension (if appropriate) of offer

D+46 Last day for despatch of notice on revision of offer. An offer, if revised, must be
(assuming first closing date is D+21) kept open for at least 14 days. Since the offer period must end on D+60 (save for
special circumstances), the last day for the despatch of notice on a revision of
offer is on D+46

D+60 Last date for fulfilment of minimum level of acceptance conditions

D+74 Last closing date. If an offer becomes unconditional on D+60, the closing date
will fall 14 days thereafter

54
Announcements
An announcement of a firm intention to make an offer is made by
the bidder after approaching the target board. In a hostile offer,
the announcement is usually made immediately after approaching
the target board to restrict the time for the target board to marshal
its defences. An immediate announcement is required where
an obligation to extend a mandatory offer is triggered. Where
there is unusual market activity which signifies a leak regarding a
possible offer or rumours or reports concerning the information
have appeared, Bursa Malaysia will require an immediate
announcement to avoid the risk of a false market developing.
Such announcements are essential even if the matter has yet to
be presented to the listed issuer’s board for consideration.
The announcement of a firm intention to make an offer crystallises
the obligation to make an offer (subject to any offer conditions).
A bidder will only be permitted by the SC to withdraw its offer in
highly exceptional circumstances.
Acceptance period
The offer must be initially open for at least 21 days from posting of
the offer document.
The bidder may on any closing date extend the offer by
announcing a revised closing date until the offer becomes
unconditional as to acceptances which must happen on or before
D+60. The takeover offer is generally extended by not less than
14 days from the date in which the takeover offer becomes and is
declared unconditional, but in any event the closing date shall not
be later than D+74.
On the first business day after the first closing date, any
subsequent closing dates and any date on which the offer is
revised, extended or declared unconditional as to acceptances,
announcements must be made concerning acceptance levels and
specifying the percentages of the relevant classes of share capital
represented by these figures.
If revised, the offer must be kept open for at least 14 days from
the date the revised offer is posted. For this reason, the offer may
not be revised after D+46.
Satisfying offer conditions
The last possible date for announcing that the offer is
unconditional as to minimum level of acceptances is D+60. Where
there is a competitive offer situation and an extension is required,
the SC’s approval will be required.
Except with the SC’s consent, in a voluntary offer, all conditions
(other than minimum level of acceptances) must be fulfilled
within 21 days of the first closing date, or of the date the offer
becomes or is declared unconditional as to minimum acceptances
(whichever is the later), provided it is not later than D+67, failing
which the voluntary offer shall lapse.
Offer unconditional - payment
The bidder must pay for the target’s shares as soon as
practicable, but in any event:
„„ within 21 days after the offer becomes or is declared
unconditional in all respects;
„„ within D+21 in the event the takeover offer has already become
or been declared wholly unconditional at the date of posting
the offer document; or
„„ within 14 days of the receipt of valid acceptances where such
acceptances were tendered after the offer has become or been
declared unconditional in all respects.
Competing bids
An original bidder will be allowed to depart from the offer timetable
and revise its offer if a competitive situation arises.
The Code requires that information, including particulars of
shareholders, given to one bidder or potential bidder must, on
request, be furnished equally and promptly to any other bona fide
bidder or potential bidder, who should specify the questions to
which it requires answers. 
Failed bids and further offers
When an offer has been withdrawn (which is permitted only with
the prior consent of the SC) or failed, the bidder and all persons
acting in concert with it cannot:
„„ make a further offer within 12 months without the consent of
the SC; or
„„ acquire any voting rights of the target if the bidder or persons
acting in concert with it would thereby become obliged to
make a mandatory offer; or
„„ acquire any voting rights of the target if the bidder holds voting
rights carrying over 48 per cent but not more than 50 per cent
of the voting rights.
A bidder who wishes to make an offer for the same target within
12 months from the date of the close of a previous partial offer
(whether successful or not) must also obtain prior consent from
the SC. The bidder (and all persons acting in concert with it)
must furnish the SC with details of any acquisition by them of any
shares in the target including an option to acquire any shares in
the target each month for a period of 12 months from the date
that the offer was withdrawn or failed.
55
What documentation is involved in the process?
Press announcement
An announcement of a firm intention to make an offer must
contain (amongst other things):
„„ the terms and conditions of the offer;
„„ details of existing holdings in the target held by the bidder and
any persons acting in concert with it;
„„ the total number of shares in respect of which the bidder or any
persons acting in concert with it has received an irrevocable
undertaking from the offeree shareholders to accept the
takeover offer;
„„ details of any existing or proposed agreement, arrangement
or understanding relating to voting shares between the
bidder or any persons acting in concert with it and the offeree
shareholders; and
„„ confirmation that the bidder has sufficient financial resources to
extend the offer.
Offer document
Where an offer is recommended, the board of the target will,
through its independent adviser (approved by the SC), issue an
independent advice circular to the offeree shareholders giving
the independent adviser’s and the board’s recommendation with
respect to the offer.
The offer document issued by the bidder through its adviser must
contain the minimum information prescribed under the Code
including without limitation:
„„ the terms of the offer and the conditions attached to it;
„„ the acceptance procedure;
„„ the rationale for the offer;
„„ the bidder’s intention regarding the continuation of the bidder’s
business;
„„ the bidder’s intentions regarding any major changes to be
introduced to the business, including any plans to liquidate the
target, sell its assets or re-deploy the fixed assets of the target
or make any major changes in the structure of the target;
„„ whether the bidder has any intention to resort to compulsory
acquisition powers; and
„„ whether or not any agreement, arrangement or understanding
exists between the bidder or any person acting in concert with
it and any of the offeree shareholders or past shareholders (i.e.
persons who were shareholders of target during the period
six months’ prior to the offer) having any connection with or
dependence upon the offer.
The offer document must contain a responsibility statement
that each director of the bidder accepts responsibility for the
56
information and that each of them has taken reasonable care to
ensure both the facts stated and opinions expressed are fair and
accurate and that no material facts have been omitted.
Target documentation
After receipt of notification of an offer, the target board must make
an announcement to its shareholders informing them of the offer.
The target board must advise the shareholders of the target
of its views by way of a circular which must contain the
board’s recommendation and the evaluation of the offer by an
independent adviser appointed by the board within 10 days after
the bidder has despatched the offer document.
What are the practices relating to break fees and lock-out?
A break fee arrangement, whereby a fee is paid by the target to
the bidder if a specified event occurs which prevents the offer
from succeeding is not practised in Malaysia and it is unlikely
that the SC will allow it because such an arrangement would be
contrary to minority interest protection.
It is not a common practice for the bidder and the target to enter
into a lock-out agreement whereby the target agrees not to enter
into, or solicit, negotiations with another potential bidder.
Care must be exercised in entering into a lock-out agreement as
the target board has a duty not to take any action which could
frustrate an imminent bona fide offer without the shareholders’
approval in a general meeting. A target also has to provide
information on an equal basis to all competing bidders.
What are the rules on information gathering/provision?
The Code requires information to be provided equally to all
shareholders and also competing bidders.
A bidder may sometimes undertake some due diligence on the
target before extending an offer. If price-sensitive information is
proposed to be provided by the target to the bidder, this may
potentially create an insider trading offence for the bidder to
acquire the target shares from the target shareholders.
Publicly available information about the target may be obtained
from the Companies Commission of Malaysia and Bursa Malaysia
announcements made by the target. The target should not make
price-sensitive information available to the bidder (i.e. information
which would tend to, on becoming generally available, influence
reasonable persons who invest in securities in deciding whether or
not to acquire or dispose of securities).
If non-publicly available information (which is not price sensitive)
is proposed to be given, it must be examined whether the target
(if listed) is required to disclose the information publicly under
the Continuing Disclosure Policy of the Listing Requirements of
Bursa Malaysia. The target should also consider that it might be
required (unless the SC rules state otherwise) to provide the same
information to a competing bona fide bidder or potential bidder
which is less welcome.
What is the position regarding insider trading?
Insider trading is a criminal offence that may also carry civil
liabilities.
In general, any person who has information concerning a
corporation that is not generally available and which a reasonable
person would expect to have a material effect on the price or
value of the corporation’s securities, would be guilty of insider
trading if he:
„„ deals in the securities;
„„ procures others to deal in the securities; and
„„ communicates the information to a third party where the third
party is likely to deal in the securities.
Insider trading applies to:
„„ acts and omissions in Malaysia in relation to securities of any
body corporate formed or carrying on business or listed in or
outside Malaysia; and
„„ acts and omissions occurring outside Malaysia in relation
to securities of any body corporate formed or carrying on
business or listed in Malaysia.
The consequences for insider trading are:
„„ a fine not exceeding RM1 million or imprisonment not
exceeding 10 years or both; and/or
„„ the SC may, if it is in the public interest to do so, by civil
action (i) recover an amount equal to three times the unlawful
profit gained or loss avoided, and (ii) claim a civil penalty not
exceeding RM1 million; and/or
„„ a person who suffers loss or damages may recover the amount
of loss or damages by instituting civil proceedings against
the other person, whether or not the other person has been
charged with an offence.
What are the public disclosure requirements in a takeover
scenario?
Bidder
In general, a person who has acquired an interest in 5 per cent
or more of a Malaysia incorporated company listed in Malaysia is
required to disclose his interest to the company and the SC.  Any
subsequent changes in the percentage level and cessation of his
substantial shareholding must also be disclosed.
During the offer period, the bidder or any persons acting in
concert with it shall not dispose of any voting shares of the target
unless the disposal is between the bidder and persons acting in
concert with it. The following persons, inter alia, must publicly
disclose to the press, Bursa Malaysia and the SC, by noon the
following market day, dealings by them in the shares of the target
and the bidder: (i) the bidder (including purchase of its own
shares), (ii) persons acting in concert with it, (iii) chief executives,
directors or senior officers of the bidder, (iv) its related companies
and associated companies, or (v) their discretionary investment
clients (discretionary investment clients include individuals and
funds for whom the bidder or any of their associates manage on
a discretionary basis). Where shares of the bidder are offered as
consideration for the target shares, dealings in shares of the target
or bidder by the shareholders of the bidder holding 5 per cent or
more must also be disclosed.
Target
During the offer period, the following persons, inter alia, must
publicly disclose to the press, Bursa Malaysia and the SC, by
noon the following market day, dealings by them in the shares
of the target and the bidder: (i) the target, (ii) shareholders of the
target holding 5 per cent or more, (iii) chief executives, directors
or senior officers of the target, (iv) its related companies and
associated companies or (v) their discretionary investment clients
(discretionary investment clients include individuals and funds
for whom the target or any of their associates manage on a
discretionary basis).
Does a memorandum of understanding (MoU) need to be
disclosed?
Whether a MoU should be disclosed will depend on the type of
acquisition, the parties involved and the terms of the MoU. Once
announced, the listed issuer must inform Bursa Malaysia of the
status on a quarterly basis or more regularly upon the occurrence
of a material change, whichever is earlier. In general, the Listing
Requirements stipulate that a listed company must disclose
information that is material (i.e. where it is reasonably expected
to have a material effect on the price, value or market activity
of securities of that company and the decision of an investor in
determining his choice of action).
In cases of doubt, the presumption must always be in favour of
disclosure. Some exceptional circumstances where disclosure
may be temporarily withheld include:
„„ when immediate disclosure would prejudice the ability of listed
issuer to pursue its corporate objectives (e.g. where it would
57
 prevent the listed issuer from carrying out its plan to acquire
assets due to the resulting increase in cost); or
„„ when the facts are in a state of flux and subject to rapid
change and a more appropriate moment for disclosure is
imminent when the situation has stabilised.
What are the limitations to stakebuilding?
Acquisition of shares carrying more than 33 per cent of the voting
rights of a company will usually trigger a mandatory offer.
In general, a person who acquires an interest in 5 per cent or
more of a Malaysia incorporated company listed in Malaysia is
required to disclose to the company and the SC his interest and
any subsequent change in the percentage level of his interest or
cessation of his substantial shareholding.
Is there a requirement to make a mandatory offer?
There is a requirement under the Code to make a mandatory offer
for the target’s shares if the shareholding of a person exceeds
certain thresholds. The SC may grant dispensations in limited
circumstances.
A mandatory offer must be made when:
„„ a person acquires (together with shares held or acquired by
persons acting in concert with him) shares which carry more
than 33 per cent of the voting shares of a company; or
„„ any person who (together with persons acting in concert with
him) holds more than 33 per cent but less than 50 per cent of
the voting shares, or any person acting in concert with him,
acquires additional shares which increase his percentage of the
voting shares by more than 2 per cent in any six-month period.
In general, the acquisition of convertible securities does not give
rise to a mandatory obligation but the exercise of any conversion
or subscription rights or options is an acquisition of voting shares.
There are comprehensive rules relating to whose shareholdings
must be aggregated and who will be treated as a person acting in
concert with the bidder.
The mandatory offer must offer a cash consideration or a cash
alternative at not less than the highest price paid by the bidder
or any person acting in concert with him for shares of that class
in the previous six months. It must be conditional only upon
acceptances of more than 50 per cent of the target shares.
The SC may waive the requirement to make a mandatory offer in
the following circumstances:
i. where a person incurs such an obligation by reason of the
issue of new securities to him as consideration for a sale or
disposal of assets or interest by that person;
58
ii. where a person incurs such an obligation by reason of the
person subscribing for new voting shares for (a) cash (e.g.
rights issue) or (b) pursuant to an exercise of any conversion
or subscription rights or options;
iii. where a person incurs such an obligation by reason of the
person acquiring new securities in fulfilment of obligations
under an underwriting agreement;
iv. where a person incurs such an obligation by reason of the
person exercising the conversion or subscription rights in
his convertible securities in order to maintain his previous
level of voting shares of the target which has been diluted
as a result of the exercise of conversion by other holders;
v. where a person incurs such an obligation by reason of an
acquisition of voting shares of a company and the remaining
holders of voting shares of a company have given written
undertakings not to accept an offer (this generally applies to
a private or public non listed company); and
vi. where a person incurs such an obligation in respect of
transactions involving the acquisition of additional voting
shares by members of a group acting in concert, provided
that in (i) (ii) and (iii) (a) the independent shareholders of the
target pass a resolution in a general meeting by way of
a poll to waive their rights to receive a general offer from
the bidder and persons acting in concert with him, (b) the
person to whom shares have been issued and persons
acting in concert with him has not purchased voting
shares in the six months prior to the posting of the circular
relating to the proposal and subsequent to negotiations,
discussion, understanding or agreement with the directors
of the company relating to the proposed issue of the new
securities, whichever is the shorter period, and (c) the
person to whom shares have been issued and persons
acting in concert with him have not acquired any voting
shares of the target during the period between the posting
of the circular or application to the SC for an exemption
and the granting of an exemption by the SC. Statutory rules
apply if such a resolution referred to in (a) above (“white-
wash resolution”) is sought from the target’s independent
shareholders.
What defences are available to a target company during the
stages of an offer?
A target may attempt to ward off a hostile offer by undertaking
defences.
Defences available before a takeover offer is made (e.g. poison
pills) are rarely used by companies incorporated in Malaysia as
there are concerns of conflicts with the target board’s fiduciary
duty. In general, whether by design or otherwise, some Malaysian
companies may have a capital structure which may make it
more difficult or time consuming and expensive to obtain voting
control of the target, especially where there are convertible
securities, warrants or other subscription rights and employees
share options. A controlling shareholder may thwart an offer by
converting its securities to voting shares thus expanding the equity
and making it difficult for the bidder to know the precise number
of shares involved.
During the offer period, the target’s board is not allowed to take
any action which might deny shareholders an opportunity to
decide on the merits of an offer that has been received or a bona
fide offer which is reasonably believed to be imminent without
shareholders’ approval at a general meeting.
After an offer has been received in a hostile takeover, the defence
is usually confined to seeking a “white knight”, or stating in the
target documentation that the target’s board does not believe that
acceptance of the offer is in the best interests of the target or its
shareholders.
Apart from the duty not to frustrate an offer, the target’s board
must generally act in the best interests of the target’s shareholders
as a whole.
What obligations are the directors of the bidder and target
under?
Bidder
The Code imposes considerable obligations on the directors of
the bidder. In addition, the directors of the bidder must consider
the insider trading legislation if they are contemplating dealing in
the shares of the target and in the bidder.
The advisers to the bidder should prepare a comprehensive
memorandum of the directors’ obligations as soon as the bidder
starts to consider the possibility of making an offer.
Target
The Code imposes considerable obligations on the directors of the
target.  In addition they must comply with their obligations under the
Listing Requirements as well as their fiduciary duties to the target.
The directors of the target must not take any action which might
constitute oppression of the minority shareholders of the target.
The minority shareholders may seek statutory redress against
oppression.
The advisers to the target should prepare a comprehensive
memorandum of the directors’ obligations immediately following
any offer approach.
What is the procedure for a squeeze-out of the minority?
Where a takeover offer is made for a company incorporated in
Malaysia and acceptances are received in respect of 90 per cent
or more of the shares to which the offer relates (other than shares
already held at the date of the takeover offer by the bidder, its
nominee, including persons acting in concert with it, or a related
corporation) within four months of the making of the offer, the
bidder may compulsorily acquire the shares of the non-accepting
shareholders. Once the Capital Markets and Services Act, 2007,
comes into force (probably by the end of 2009), the threshold
will be 90 per cent or more of the shares of the target (including
shares already held at the date of the takeover offer by the bidder
or persons acting in concert with it).
Shares acquired by the bidder, its related corporation or a
nominee of the bidder or its related corporation prior to making
the offer cannot be taken into account in calculating whether the
90 per cent threshold has been reached, although shares subject
to an irrevocable undertaking to accept the offer can usually be
taken into account.
Notices must be served on the non-accepting shareholders within
two months of reaching the 90 per cent threshold, and the non-
accepting shareholders have a right to apply to the court for an
order that the bidder shall not be entitled to acquire the shares or
specifying terms of acquisition different from those of the offer.
If the bidder has, together with shares held by the bidder, its
nominee (including any person acting in concert with it) or related
corporation, acquired not less than 90 per cent of all of the shares
in the company, a minority shareholder also has a right to be
bought out by the bidder.
7. Overview of a private company acquisition
Timing
The timing of a private acquisition depends on the cooperation
between the parties, and the progress of negotiations and other
matters specific to the transaction.
Steps
In general, the acquisition can be an auction process or a privately
negotiated deal in Malaysia.
An example of an overview of the steps involved in an
auction process involving an acquisition of a private company
incorporated in Malaysia is as follows:
„„ seller issues an information memorandum (IM), which describes
the business and affairs of the target, and must be deposited
with the SC within seven days after it is first issued;
59
„„ bidders sign a confidentiality agreement when receiving the IM;
„„ bidders carry out due diligence on the target;
„„ bidders are given a draft sale and purchase agreement, any
other ancillary agreements and disclosure letter;
„„ bidders submit their bid and their mark up of the draft sale and
purchase agreement;
„„ seller chooses the highest bidder and parties may negotiate
further on the draft sale and purchase agreement;
„„ parties sign the sale and purchase agreement;
„„ satisfaction of conditions precedent;
„„ completion; and
„„ post completion matters.
8. What tax issues should be considered?
Capital gains
There is no capital gains tax in Malaysia.
Transfer taxes
Transfer tax (i.e. stamp duty) is payable on certain written
agreements and transfer documents for the sale of shares. Stamp
duty is also payable on the conveyance or transfer of immovable
property.
The rate of stamp duty for the transfer of shares of a company
incorporated in Malaysia is 0.3 per cent on the highest of the
following:
„„ consideration paid per share;
„„ the net tangible asset value per share (normally determined by
reference to the latest available audited financial statements of
the company);
„„ the par value per share; or
„„ the price earnings ratio (which is based on profit after tax per
share) at a multiple depending on the industry.
The rate of stamp duty for the transfer of immovable property is
1 per cent on the first RM100,000, 2 per cent on any amount
between RM100,001 and RM500,000, and 3 per cent on any
amount exceeding RM500,000.
Stamp duty must be paid if title needs to be proved or the
agreements or documents are to be produced in evidence
before a court, tribunal, board, commission or similar body in, or
registered in, Malaysia.
Thin capitalisation/interest deductions
A company may in general claim a deduction from interest paid
under a loan used for the purposes of producing income when
calculating its taxable profits.
60
If an interest payment is re-characterised as a distribution then the
borrower will not be entitled to a deduction in calculating its profits
for corporate tax purposes.
If the consideration given by the company for the use of the
principal represents more than a reasonable commercial
return, the excess may not be available for tax deduction when
calculating the profits for corporate tax purposes.
The tax authority is empowered to disallow the portion of the
interest charges that relates to the amount of financial assistance,
which is excessive by reference to the fixed capital. Until a tax
ruling is issued, it is unclear what constitutes “financial assistance”
and “fixed capital” and how the arm’s length ratio is to be
determined. However, the tax authority has indicated that the debt
to equity ratio should not be more than 3:1 and that any interest
attributable to the debt over and above the 3:1 ratio will not be
deductible as an expense.
Withholding tax
If a person makes a payment of Malaysian source interest to a
person not resident in Malaysia, that person may be obliged to
deduct income tax at the prevailing rate of 15 per cent. 
Withholding tax at the rate of 10 per cent is applicable on
payments of royalties and rents for any moveable property which
is deemed to be derived in Malaysia to a person not resident in
Malaysia. Such income shall be deemed to be derived in Malaysia
if the payer is a resident or the payment is charged as an outgoing
or expense in the account of the business carried on in Malaysia.
Withholding tax rates may be reduced by applicable tax treaties
between Malaysia and the country of residence of the non-
resident person.
There are a number of exemptions where there is no requirement
to withhold tax; for example, interest paid by a Malaysian licensed
bank and interest paid out of certain qualifying debt securities.
There is no withholding tax on dividend payments.
Schedule 1: General guide to the foreign ownership restrictions in Malaysia

Type of business General maximum permissible foreign shareholding

Activities which involve national interest, e.g. 30%

water and energy supply, broadcasting, defence
and security

Airlines 30%

Commercial banks (local domestic banks) 30% (100% will be considered for two new commercial banks in 2009
and three new commercial banks in 2011 to be established by world class
banks)

Investment banks 70%

Insurance 70% (a higher foreign limit will be considered on a case-by-case basis)

Money broking 100% (acquisition of current seven money broking firms, no new entrants)

Dealing in securities 70% (with minimum 30% Bumiputera equity)

Fund management 70% (with minimum 30% Bumiputera equity but 100% foreign
shareholding will be considered on a case-by-case basis for qualified
applicants)

Advising on corporate finance, financial planning 70% (with 30% local shareholding)

Supply of products and services to oil and 49% with at least 51% Bumiputera equity. (Priority is given to Bumiputera
gas companies and marketing activities and individuals/100% Bumiputera-owned companies to operate petrol
distribution of petroleum goods stations/skid tank/floating barge owned and built by oil companies)

Upstream oil and gas industry All foreign energy investment is conducted through production sharing
contracts between foreign operators and Petroliam Nasional Berhad
(Petronas)

Company that is set up to acquire non- 49%

performing loans from financial institutions in
Malaysia

Owns Malaysian vessels registered under the 49% (with at least 30% Bumiputera equity and the majority of the voting
Merchant Shipping Ordinance 1952 in Malaysia shares must be held by a Malaysian free from all encumbrances)

Freight forwarding agent 49% with at least 51% Bumiputera equity

Shipping agent 70% with at least 30% Bumiputera equity

Telecommunications First five years: 61%

Sixth year and thereafter: 49%

Retail and distributive trade e.g, hypermarkets, 70%

convenience stores, direct selling

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 re s
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1. What are the forms of business entity in the Philiipines?
Common forms of entity
„„ Stock corporation
„„ Partnership
„„ Sole proprietorship
Less common forms of entity
„„ Unincorporated joint venture
„„ Unincorporated associations
Common domestic entities set up by non-Philippine
nationals include:
„„ a subsidiary, which could be a domestic corporation or a
partnership. This is a legal entity that is separate and distinct
from its parent;
„„ a joint venture corporation or partnership with a Filipino partner.
This is commonly used with respect to nationalised industries
where a certain level of Filipino ownership is required by law;
„„ a branch office, which is an extension of, and therefore not a
separate and distinct juridical person from the foreign parent;
and
„„ a representative office, which is another extension of, and
therefore not a separate and distinct juridical person from
the foreign parent. Unlike a branch office, it does not derive
income from the Philippines.
2. How is a stock corporation managed?
The basic management structure
What form does the management structure take?
A stock corporation is managed by its board of directors. The
number of directors must be at least five but cannot exceed 15.
The directors elect the corporate officers, namely the president
(who must be a director), secretary (who must be a citizen and a
resident of the Philippines), treasurer, and other officers as may be
provided for in the by-laws of the corporation. The directors and
officers perform the duties imposed on them by law and the by-
laws of the corporation. The by-laws are rules of action adopted
by a corporation for its internal government and supplement the
articles of incorporation.
The articles of incorporation of a close corporation (where, among
other things, the entire outstanding capital stock must be held by
not more than 20 stockholders as reflected in the stock books of
the corporation) may provide that its stockholders shall manage its
business rather than the board.
Philippines
How are directors appointed to and removed from office?
Directors are elected from amongst the stockholders. At the election of
directors, cumulative voting is permitted and the candidates receiving
the highest number of votes are elected as directors. The directors hold
office for one year until their successors are elected and qualified as a
director (e.g. a director must hold one share in the company, as set out
below, a requirement that can be fulfilled after a director is elected to
hold the office).
Any director may be removed from office by a vote of the
stockholders representing at least two-thirds of the outstanding
capital stock generally entitled to vote.
What powers does the board have?
The board exercises all the powers of the corporation, conducts
all business and controls all property of the corporation. The
board sets the corporate business policies and is responsible for
the efficiency of the management. In the exercise of corporate
powers, the board is guided by the articles of incorporation and
the by-laws of the corporation, the Corporation Code of the
Philippines, Batas Pambansa Bilang 68 (the Corporation Code)
and other related laws. Stockholders have no right to interfere
with the board’s exercise of its powers and functions, except with
respect to extraordinary corporate actions where the law requires
concurrent stockholder approval (see section 4).
Are there any residency requirements for directors?
A majority of the directors must be residents of the Philippines.
Is there any requirement for directors to hold shares?
Every director of a corporation must own at least one share of
such corporation, which must be registered in the director’s name
in the stock books of the corporation.
What duties do directors owe?
Overview
The duties of directors are based on the Corporation Code and
related laws, regulatory issuances including the Revised Code of
Corporate Governance (Securities and Exchange Commission)
(SEC) Memorandum Circular No. 6, Series of 2009 (the Revised
Code of Corporate Governance), as well as the articles of
incorporation and the by-laws of the corporation.
Duty to the company
The directors act as a body in the formulation of all corporate
policies and the exercise of management powers. The law in
63
effect makes directors fiduciaries of the corporation, who must
serve the corporation with reasonable diligence, skill, good faith,
loyalty, obedience and integrity. A director must have reasonable
knowledge of applicable law and must direct corporate acts in a
manner that is in compliance with the law.
Directors of corporations that are subject to the Revised Code
of Corporate Governance (i.e. corporations that sell securities
to the public that are required to be registered with the SEC,
corporations that have assets in excess of PHP50 million
and at least 200 stockholders who each own at least 100
shares of equity securities, corporations with listed securities,
or corporations which are grantees of permits/licences and
secondary franchises from the SEC) have the express duties
of transparency, accountability, leadership, fairness, prudence
and integrity. A director is expressly required to devote time to
corporate matters, and exercise independent judgment and
leadership in directing corporate affairs.
A director may enter into a contract with the corporation provided
that the conditions set out in the Corporation Code are met,
including that the contract must be fair and reasonable and that
the relevant director’s presence and vote was not critical to meet
quorum and approval requirements. Fair and reasonable contracts
between two or more corporations with interlocking directors are
likewise allowed, subject to the requirements of the Corporation
Code. The relevant director must fully disclose his adverse interest.
Duty to the stockholders
The Revised Code of Corporate Governance provides that the
board shall be committed to respect the following rights of the
stockholders: voting right, pre-emptive right, power of inspection,
right to information, right to dividends, and appraisal rights.
Stockholders may bring an action against the directors for
their wrongful or fraudulent acts. Stockholders may also bring
derivative actions (i.e. on behalf of the corporation) in order to
protect or vindicate corporate rights.
Duty to creditors
The directors’ obligation to the creditors flows from the trust fund
doctrine (the Trust Fund Doctrine). Under the Trust Fund Doctrine,
the capital stock of a corporation, as well as its other property and
assets, are generally considered a trust fund for the payment of
corporate debts, and the creditors of the corporation have a prior
right to payment over any of the stockholders. Pursuant to the
Trust Fund Doctrine:
„„ except by a decrease in its capital stock as authorised under the
Corporation Code, a corporation may not distribute any of its assets
or property to its stockholders except upon lawful dissolution of the
corporation and after payment of corporate debts;
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„„ the SEC will not approve a decrease in the authorised capital
stock which will prejudice the rights of the creditors;
„„ redeemable shares will not be redeemed unless, after such
redemption, the corporation has sufficient assets to cover
debts and liabilities inclusive of capital stock; and
„„ a corporation may not acquire its own outstanding shares
of stock (upon acquisition, such shares of stock become
“treasury shares”) unless such shares of stock are fully paid,
the acquisition is for a legitimate corporate purpose, and the
corporation has unrestricted retained earnings to cover the
cost of the shares of stock to be acquired.
When a corporation becomes insolvent, its directors will be
deemed trustees of all the creditors and the board must manage
corporate properties and assets with strict regard to the interests
of the creditors.
Directors have the duty to ensure that the corporation does not
issue watered stocks (i.e. shares issued for less than the par or
issued value, or for non-cash consideration valued in excess of its
fair value).
Duty to employees
The board, in the exercise of the corporation’s functions as
employer, is free to regulate all aspects of employment, subject
to limits set by special laws particularly the Labor Code of the
Philippines, Presidential Decree No. 442, as amended (the Labor
Code).
Employees have the right to participate in policy and decision-
making processes to the extent they affect their legal rights and
benefits, such as working conditions. For all other business
decisions, management prerogative is recognised.
What types of liability can directors incur?
A director who wilfully or knowingly votes for or assents to
patently unlawful acts of the corporation, or who is guilty of gross
negligence or bad faith in directing corporate affairs, or acquires
any personal or pecuniary interest in conflict with his duty as
director, may incur civil liability for all damages suffered by the
corporation, its stockholders and other persons.
A director may be held accountable to the corporation for secret
personal profits earned as a result of taking an interest adverse
to the corporation on a confidential corporate matter entrusted
to him and for profit earned on a business opportunity which
belonged to the corporation.
A director may be held personally liable (jointly and severally with
the relevant stockholder) to the corporation or its creditors for the
issuance of watered stock where he consents or fails to object in
writing to such issuance of watered stock.
Unless specified otherwise, any breaches by a director of
the Corporation Code shall be punishable by a fine and/or
imprisonment. A person found guilty of any violation of the
Corporation Code (or any offence punishable by imprisonment
for a period exceeding six years) committed within five years prior
to the date of his election shall be disqualified as a director of a
corporation.
Furthermore, Philippine penal laws generally contain a provision
that when a corporation commits an offence, the fine and/
or imprisonment shall be imposed on the directors or officers
responsible for the violation.
What are the auditing requirements for companies?
All corporations are required to submit annual financial statements
to the SEC. The financial statements of the following must be
audited by a certified public accountant registered with the Board
of Accountancy:
„„ stock corporations with paid-up capital of PHP50,000 or more;
„„ non-stock corporations with annual gross receipts of
PHP100,000 or more, or total assets of PHP50,000 or more;
„„ branch offices with assigned capital of PHP50,000 or more;
„„ branch offices of non-stock foreign corporations with total
assets of PHP500,000 or more; and
„„ representative offices with total assets of PHP500,000 or more.
If corporations do not meet these thresholds, the financial
statements must be certified by the treasurer of the corporation.
The external auditors and auditing firms of listed companies,
public companies, brokers and dealers of securities, pre-need
companies, and other holders of secondary licences from the SEC
should be accredited by the SEC.
Corporations subject to the provisions of the Securities Regulation
Code, Republic Act No. 8799 (the SRC) (i.e. corporations with
registered or listed securities, corporations which are grantees
of permits/licences and secondary franchises from the SEC, and
public companies) are required to periodically present financial
statements to accompany the registration statements, annual
reports, quarterly reports and management reports attached to
the information statements, in SEC-prescribed forms. Financial
statements submitted in compliance with the SRC requirements
must be audited by SEC-accredited auditors, except for interim
financial statements.
The National Internal Revenue Code of 1997, as amended
(the Tax Code) requires corporations, companies, partnerships
or persons with gross quarterly sales, earnings, receipts or
output exceeding PHP150,000 to have their books of account
audited and examined yearly by an independent certified public
accountant.
3. What are the most common types of M&A transaction?
Private stock corporations
Share acquisitions
A stock corporation can issue various classes or series of
shares of stock with different rights, privileges and restrictions as
authorised by the articles of incorporation, provided that there is
a class or series of shares which has complete voting rights. The
most common classification of shares is into common shares and
preferred shares, the latter normally being non-voting. However,
the Corporation Code accords the following voting rights to non-
voting shares:
„„ amendment of the articles of incorporation (including that of
extending or shortening the corporate term);
„„ adoption and amendment of the by-laws;
„„ sale, lease, exchange, mortgage, pledge or other disposition of
all or substantially all of the corporate property;
„„ incurring, creating or increasing bonded indebtedness;
„„ increase or decrease of capital stock;
„„ merger or consolidation of the corporation;
„„ investment of corporate funds in another corporation or
business in accordance with the Corporation Code; and
„„ dissolution of the corporation.
A buyer can purchase shares of stock from the stockholders of a
target Philippine stock corporation. A buyer may also subscribe to
newly issued shares of stock in, or purchase treasury shares of, a
target corporation. When an acquisition is made in this manner, the
buyer acquires the target corporation with all its assets and liabilities.
Prior SEC approval must be obtained for non-cash consideration
for subscription to newly issued shares of stock.
During a share acquisition, a buyer should be aware of corporate
or contractual share transfer or share issuance restrictions.
Unless otherwise stated in the articles of incorporation of the
relevant corporation, all stockholders have a pre-emptive right
to proportionally subscribe to shares of stock issued or treasury
shares sold by the corporation. Stockholders may also have a
right of first refusal granted under the articles of incorporation or
under contract with respect to the sale of all shares of stock.
Unless an exemption may be claimed under the SRC (either that
the security or the transaction is exempt from the registration
requirement), no shares of stock may be issued, sold or
distributed within the Philippines unless such shares of stock
are first registered with the SEC under the SRC. Among others,
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an isolated transaction (i.e. the sale or issuance of shares of
stock that is not made in the course of repeated and successive
transactions of a like character) and a private placement are
exempt transactions.
Business/asset acquisitions
A buyer may acquire the business, assets and, where applicable,
liabilities of a corporation. The transfer of different types of assets
and liabilities may require different documentation and legal
treatment. When assets such as land, motor vehicles and shares
of stock are transferred, the transaction must be registered or
recorded with the proper registry.
Where a sale covers all or substantially all of a corporation’s
assets (i.e. as a result of the sale, the corporation would be
rendered incapable of continuing the business or accomplishing
the purpose for which it was created), it must be approved by
a majority of the board and two-thirds of the total outstanding
capital stock (including voting and non-voting) of the selling
corporation. Dissenting stockholders may exercise their appraisal
right (i.e. the right to withdraw from the corporation by demanding
payment of the fair value of their shares and transferring such
shares to the corporation).
When a sale or disposition is not in the ordinary course of
business and constitutes all or substantially all of the business
or trade or assets of a corporation, it is a sale in bulk within the
contemplation of the Bulk Sales Law, Act No. 3952 as amended
(the Bulk Sales Law). The seller must comply with the provisions
of the Bulk Sales Law by preparing an inventory of its assets
and a list of its creditors, notifying its creditors of the price, terms
and conditions of the sale, and applying, on pro rata basis, the
proceeds of the sale to the payment of its creditors. A sale in bulk
carried out without complying with the provisions of the Bulk Sales
Law is void.
Private land may be held only by Filipino citizens or corporations
or associations of which at least 60 per cent of the capital is
owned by Filipino citizens.
A buyer must also note any corporate or contractual asset/
business-sale restrictions (e.g. any restrictions in the by-laws or
loan agreements).
Mergers/consolidations
Two or more corporations may merge into a single corporation
which must be one of the constituent corporations or may
consolidate into a new single corporation. The surviving or
consolidated corporation will succeed to all the property, rights
and privileges as well as assume the liabilities and obligations of
each of the constituent corporations.
66
The merger or consolidation must be approved by at least a
majority of the board and two-thirds of the total outstanding
capital stock (including voting and non-voting) of each of the
constituent corporations. Dissenting stockholders may exercise
their appraisal right.
A merger or consolidation becomes effective upon approval by
the SEC.
Any contractual restrictions on, or consent requirements for,
mergers or consolidations must also be observed.
Joint ventures
Two or more parties may form a joint venture to pursue a specific
project or undertaking.
A non-Philippine national would benefit from forming a joint
venture with Filipinos in relation to undertakings or businesses
where the law prescribes a certain minimum of Filipino equity.
Where foreign investors hold a minority stake, they may obtain
minority protection rights, which are generally incorporated into
shareholders’ agreements and in the joint venture entity’s charter
documents.
Joint ventures can take several forms (e.g. a stock corporation or
a partnership).
Public companies
A public company may be publicly listed or otherwise. Under the
SRC, a “public company” means any corporation with a class of
equity securities listed on an exchange or with assets in excess
of PHP50 million and 200 or more stockholders, at least 200 of
which hold at least 100 shares of a class of its equity securities.
Share acquisitions
See the discussion under Share acquisitions for private stock
corporations above. In addition, any acquisition of more than 5
per cent of any class of outstanding shares of a public company
must be disclosed to the SEC and the Philippine Stock Exchange
(PSE) in case of listed shares. The acquisition of at least 10 per
cent of any class of outstanding shares of a public company is
also subject to the filing of a beneficial ownership report with the
SEC and the PSE in case of listed companies.
When the share acquisition amounts to at least 35 per cent of a
public company’s outstanding shares, or less than 35 per cent
but would result in ownership of more than 51 per cent of the
outstanding stock, such acquisition shall be subject to the Tender
Offer Rule (as described under Tender offers on page 97).
Business/asset acquisitions
See the discussion under Business/Asset acquisitions for private
stock corporations on page 66. The acquisition or disposition of a
business or asset having a material impact on a public company’s
situation is required to be disclosed to the SEC and the PSE in the
case of a listed company.
Tender offers
A tender offer is a publicly announced intention by a person acting
alone or in concert with other persons to acquire equity securities
of a public company. Tender offers are governed primarily by SRC
Rule 19 (the Tender Offer Rule) of the Amended Implementing
Rules and Regulations of the SRC (the Amended SRC Rules),
which is administered by the SEC. Tender offers are also subject
to the applicable provisions of the PSE listing and disclosure rules.
The following transactions are subject to a mandatory tender
offer: (i) the acquisition, whether in a single transaction or multiple
transactions within a period of 12 months, of at least 35 per cent
of the outstanding shares of a public company; (ii) the acquisition
of less than 35 per cent of the shares which would result in overall
ownership of more than 51 per cent of the outstanding shares;
and (iii) the purchase of new shares from the unissued capital
resulting in at least 50 per cent ownership of the outstanding
shares. (See section 6 for a detailed discussion of tender offers.)
The mandatory tender offer rules apply to direct and indirect
acquisitions. The acquisition of shares in a parent of a listed
company resulting in a change in control or management of the
listed company will trigger the mandatory tender offer rule.
Consolidations/mergers
The discussion on Consolidations/Mergers under private stock
corporations on page 66 also applies to public companies,
subject to compliance with the requirements of the SRC, the
Amended SRC Rules and the PSE rules. A consolidation or
merger must be disclosed to the SEC and the PSE.
Joint ventures
The discussion under Joint ventures under private stock
corporations on page 66 also applies to public companies,
subject to compliance with the disclosure requirements of the
SEC and the PSE.
Public-to-private acquisitions (P2Ps)
Transactions similar to those referred to as “P2Ps” are primarily
regulated by the SRC, the Amended SRC Rules, and the PSE rules.
These transactions involve the acquisition of publicly held shares
in a listed company and the subsequent delisting of the company.
The PSE rules on voluntary delisting (discussed below) require that
a tender offer be made to all stockholders of record and that the
terms of the tender offer must be supported by a fairness opinion
or valuation report, prepared by a financial institution independent
of the offeror and the target listed company.
Do the parties have an obligation to negotiate in good faith
with one another in M&A transactions?
Overview
There is no specific obligation under Philippine law for parties
to negotiate in good faith. An offer may generally be withdrawn
at any time before it is absolutely and unqualifiedly accepted.
It is becoming increasingly common for parties to enter into
a preliminary agreement (often called a “memorandum of
understanding” or a “memorandum of agreement”) setting forth
certain actionable rights of the negotiating parties such as rights
of exclusivity, confidentiality or break fees. Under the Civil Code
of the Philippines, Republic Act No. 386 as amended (the Civil
Code), the parties to a sale may enter in to an option contract.
In an option contract, the seller, for a consideration distinct and
separate from the purchase price, grants the buyer an exclusive
option to purchase an object for a certain price within the option
period.
Under general principles of civil law in Philippines, a person is
enjoined to exercise his rights in good faith, and is liable for injury
resulting from an act which is contrary to morals, good customs
or public policy. These general principles of law may be the basis
of a cause of action for bad faith during negotiations.
The general rule is still caveat emptor or buyer beware, and
therefore due diligence remains a critical part of M&A transactions.
Public companies
The SRC provides civil and criminal penalties for the following
fraudulent, deceptive and manipulative acts or practices
committed in connection with a tender offer: (i) employing any
device, scheme or artifice to defraud any person; (ii) making any
untrue statement of a material fact or omitting to state a material
fact; and (iii) engaging in any act which operates or would operate
as a fraud or deceit upon any person.
The SEC has also ruled consistently that one of the requirements
for a valid tender offer by the issuer of shares is that the
transaction is designed and carried out in good faith.
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4. What percentage shareholding is required to achieve
effective control of a company?
Ownership of a majority of the outstanding voting capital stock
of a corporation gives a person control of such a corporation.
However, effective control is achieved by ownership of at least
two-thirds of the voting and the total (voting and non-voting)
outstanding capital stock. The following extraordinary corporate
actions require the approval or ratification of stockholders
holding two-thirds of the voting or total (voting and non-voting)
outstanding capital stock, as applicable:
„„ amendment of the articles of incorporation (including extension
or shortening of corporate term) (total outstanding capital
stock, voting and non-voting);
„„ increase or decrease of the capital stock (total outstanding
capital stock, voting and non-voting);
„„ incurring, creating or increasing bonded indebtedness (total
outstanding capital stock, voting and non-voting);
„„ sale, lease, exchange, mortgage, pledge or other disposition
of all or substantially all of the corporate property (total
outstanding capital stock, voting and non-voting);
„„ investment of corporate funds in another corporation or
business or for any purpose other than the primary purpose
(total outstanding capital stock, voting and non-voting);
„„ merger or consolidation of the corporation (total outstanding
capital stock, voting and non-voting);
„„ dissolution of the corporation (total outstanding capital stock,
voting and non-voting);
„„ delegating to the board the power to amend, repeal or adopt
new by-laws (only capital stock generally entitled to vote);
„„ declaration of stock dividends (only capital stock generally
entitled to vote);
„„ approval of a management contract between corporations
with interlocking stockholders and directors (only capital stock
generally entitled to vote); and
„„ removal of directors (only capital stock generally entitled to
vote).
5. Regulation, consents and foreign investment restrictions
Are there any regulated industries?
Most M&A transactions do not require special statutory or
regulatory consent or approval. However, industries such as
banking and telecommunications are subject to special regulation.
Bank mergers and consolidations must be approved by the
Bangko Sentral ng Pilipinas (BSP). An acquisition whereby the
buyer acquires more than 40 per cent of the subscribed capital
stock of a telecommunications company must be approved
by the National Telecommunications Commission (NTC). In
asset acquisitions and mergers, the NTC must approve the
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sale, alienation, mortgage, encumbrance or lease of property,
franchises, certificates, privileges, or rights, or the merger or
consolidation of property, franchises, privileges or rights of a
telecommunications company.
Are there any restrictions on the foreign ownership of
shares in a Philippine company?
Schedule 1 lists the general areas of economic activity set out
in the Foreign Investments Negative List (the List) where the law
limits or prohibits foreign capital.
Notably, foreign capital is prohibited in entities engaged in mass
media (except recording), while foreign ownership is limited in
retail trade, advertising, ownership of private lands, and operation
and management of public utilities, amongst others.
The Anti-Dummy Law, Commonwealth Act No. 108, as amended,
imposes criminal and civil penalties on those who violate
nationalisation laws. Non-Filipinos are prohibited from participating
in the management, operation, administration or control of an
entity engaged in a nationalised or partially nationalised activity,
except that non-Filipinos may serve as technical personnel upon
specific authorisation of the Philippine Department of Justice
(DOJ). Non-Filipinos may serve as members of the board or
governing body of the entity engaged in a partially nationalised
activity, in a number that is proportionate to the actual and
allowable non-Filipino equity.
Regardless of the List, various laws have been passed over the
last two decades that indicate an effort to encourage foreign
investment in the Philippines. The Foreign Investments Act,
Republic Act No. 7042, as amended, was enacted in 1991, with
the stated policy that foreign investments shall be promoted and
encouraged, to the extent allowed by the Philippine Constitution
and relevant laws. Laws were enacted to liberalise foreign
investment in the banking and retail trade industries. Under the
Investors’ Lease Act, Republic Act No. 7652, a foreign investor
is able to lease private land for up to 75 years (a 50-year initial
term, renewable once for a period not exceeding 25 years). A
comprehensive build-operate-transfer law was enacted to allow
and encourage private sector participation in infrastructure
projects traditionally undertaken by the government.
Fiscal and non-fiscal incentives are granted under different laws
for specific investment activities which are deemed to contribute
to the country’s development and export capacity including the
Board of Investment and Philippine Economic Zone Authority
enterprises.
Are there any foreign exchange and investment controls?
There are currently no foreign exchange controls. As a rule, foreign
currency may be legally sold and purchased outside the banking
system.
Banks may sell foreign currency to service payments for any
foreign currency denominated transaction, except that BSP
registration and/or approval must be obtained with respect to
foreign currency loans and direct foreign equity investments.
Direct foreign investments must be registered with the BSP to
allow access to the Philippine banking system for foreign currency
requirements, for capital repatriation and dividend remittance.
Generally, the funds must be inwardly remitted and converted into
Pesos.
For outbound investments by Philippine residents, prior BSP
approval must be obtained for investments exceeding USD12
million in any single year. Where the outbound investment of a
Philippine resident is funded by foreign currency purchased from
Philippine banks, dividends, earnings or divestment proceeds of
such outbound investment must be inwardly remitted and sold to
the Philippine banks for Pesos.
The foregoing is subject to BSP’s authority, with the approval of
the President of the Philippines, to restrict the availability of foreign
currency during an exchange crisis, in the event an exchange
crisis is imminent, or in times of national emergency.
Is there any merger control or anti-competition law?
The Philippine Constitution provides that it is the policy of the
state to regulate or prohibit monopolies when the public interest
so requires, and that no combinations in restraint of trade or
unfair competition shall be allowed. At present, the only detailed
legislation on the matter is the Revised Penal Code, Act No.
3815, as amended (the Revised Penal Code) which penalises
monopolies and combinations in restraint of trade. The acts
punishable are:
„„ entering into any contract or agreement or taking part in any
conspiracy or combination in the form of a trust or otherwise, in
restraint of trade or commerce or to prevent by artificial means
free competition in the market;
„„ monopolising any merchandise or object of trade or commerce
in order to alter the object’s price or spreading false rumours or
any other act that restrains free competition in the market; and
„„ any manufacturer, producer, processor or importer of any
merchandise or object combining, conspiring or agreeing in any
manner with any person whether or not similarly engaged as
manufacturer, producer, processor or importer, for the purpose
of making transactions prejudicial to lawful commerce, or of
increasing the market price in any part of the Philippines, of any
such merchandise or object.
The Civil Code allows recovery of damages arising from unfair
competition in agricultural, commercial and industrial enterprises.
The Price Act, Republic Act No. 7581 penalises cartels as a
means of price manipulation. There are laws on unfair competition
pertaining to the protection of intellectual property.
There is a bill pending in Congress on anti-trust and monopoly
activities. The bill seeks to penalise the formation of cartels, the
act of monopolisation and the abuse of monopoly power or a
dominant position.
Under the terms of the bill, an entity having at least a 50 per
cent share of the relevant market shall be deemed a monopoly
or having a dominant position. It will be an abuse of monopoly
power or a dominant position if an entity, capitalising on such a
dominant position, undertakes abusive acts such as price fixing,
bid rigging, limitation and control of markets, market allocation,
arrangements to share markets and sources of supply, price
discrimination, exclusivity arrangements, tie-in arrangements, and
boycott.
The DOJ is primarily tasked to investigate and prosecute acts
punished under the proposed law. The bill imposes penalties that
are higher than those imposed under the Revised Penal Code as
discussed above.
What are the employee issues?
Are works councils/consultation common?
The right of workers to self-organisation is guaranteed under
the Philippine law. Employees may form labour organisations
or unions for the purpose of collective bargaining. Workers’
associations may also be formed for the mutual aid and protection
of its members or for any legitimate purpose other than collective
bargaining. The Labor Code also allows (but does not require) the
creation of labour-management councils or labour-management
committees in both unionised and non-unionised establishments,
to allow employees to air concerns and grievances to their
employer.
Are any actions required prior to or upon an acquisition for
employees?
The actions that are required in relation to employees depend on
the type of transfer.
In assets-only transfers and business enterprise transfers, there
is no law requiring a bona fide buyer to absorb the employees of
the seller. The most that the buyer must do is to give preference to
the separated employees of the seller (i.e. employees who meet
the qualifications for employment of the buyer) in the continued
69
operation of the business. The buyer may choose not to hire
the employees and in such a case, the seller must terminate the
employees’ contracts and pay separation benefits.
In a sale of shares of stock or equity transfers, there is no effect on
the employees.
For mergers and consolidations, the general rule is that the
surviving or consolidated corporation assumes the obligations
of each of the constituent corporations. The employees of the
merged or consolidated corporations are deemed absorbed
by the surviving or new corporation as there is a succession of
corporate rights and obligations.
Are there any notification obligations for employees prior to or
upon an acquisition?
There is generally no requirement to notify employees of an
intended acquisition, merger or consolidation, unless required by
a collective bargaining agreement. Notices to the employees are
required only when termination of employment results from the
transfer.
Timing
Dismissals resulting from acquisitions, mergers and consolidations
require at least 30 days written notice to the workers whose
employment is to be terminated and to the Department of Labor
and Employment.
With which stock exchange requirements must listed
companies comply?
What rules generally govern listed companies?
The following laws, rules and regulations generally govern listed
companies:
SRC and the Amended SRC Rules: The basic principle of
the SRC is to protect the investing public with respect to the
registration of securities, securities trading markets and securities
market professionals.
Revised Code of Corporate Governance: Listed companies
are required to adopt a manual on corporate governance in
accordance with the Revised Code of Corporate Governance. The
manual is intended to supplement a corporation’s by-laws with
regard to corporate governance matters. The manual requires
a company to: (i) have at least two independent directors, (ii)
constitute its audit, nominations and compensation committees,
and (iii) appoint a compliance officer. A manual also typically
provides for the qualifications and disqualifications of its directors
and officers. A listed company’s manual must be submitted to the
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SEC and must be available for inspection by any stockholder of
the company during reasonable hours on business days.
PSE Listing Rules: The Listing Rules set out certain criteria
for the listing of an applicant’s securities. In the case of M&A
transactions involving the issue of additional shares from the
unissued capital stock, the PSE Listing Rules require the
stockholders to approve a transaction resulting in an issue of at
least 10 per cent of the resulting outstanding capital stock. In
case the new share issue will be subscribed to by a related party
of the issuer, the listing of the new shares shall not be allowed
unless a rights or public offer among the minority stockholders is
first undertaken, or such rights offer is waived or the transaction is
otherwise exempt from the rights offer requirement.
PSE Disclosure Rules: The Disclosure Rules seek to ensure
full, fair, timely and accurate disclosure for all listed companies.
A fair and orderly market demands that all listed companies
make available to the public information necessary to enable
the stockholders and the public to appraise the position of the
listed company; and to take reasonable steps to ensure that
everyone that invests in its securities enjoys equal access to
such information. A change in control, mergers, consolidations,
acquisitions, the purchase and sale of significant assets, and the
public or private sale or issue of additional securities are among
the matters mandating prompt disclosure to the SEC and the
PSE.
How does a company delist its share capital?
The delisting of securities listed on the PSE may either be: (i)
involuntary, or (ii) voluntary.
A security may be suspended from being traded or involuntarily
delisted, at any time, after due notice, on any of the following
grounds:
„„ failure to comply with the Listing Agreement or the Listing and
Disclosure Rules of the PSE;
„„ a false market exists in any securities and such can be
attributed, directly or indirectly, solely to the issuer;
„„ the trading volume of the listed security falls below the
published trading volume requirement of the PSE;
„„ the listed company becomes incapable of continuing the
business or accomplishing the purpose for which it was
incorporated by reason of the abandonment, destruction,
condemnation, seizure or expropriation of its operating assets;
„„ liquidation or dissolution of the listed company;
„„ the stockholders’ equity becomes negative;
„„ the company’s SRC registration or exemption from registration
is revoked, cancelled or is no longer effective for any reason;
„„ the entire outstanding amount of the listed class or series
of securities is to be retired through payment at maturity,
 redemption, reclassification or otherwise;
„„ repeated failure to make timely, adequate, and accurate
disclosures or failure to submit any reporting requirement in
accordance with the Disclosure Rules of the PSE, or wilful false
statements in the financial statements;
„„ the listed company buys any of its issued and outstanding
shares into treasury in violation of the relevant rules of the
Corporation Code;
„„ the listed company has failed to be in actual commercial
operations within two years from date of listing; and
„„ the listed company or its management engages in operations
which, under the law, are contrary to public interest, and the
continuing listing is likely to give rise to an unacceptable risk of
damage to the reputation of the PSE.
A company that has been involuntarily delisted is disqualified from
relisting within a period of five years from the time it was delisted
and its directors and executive officers are disqualified from
becoming directors or officers of any company applying for listing.
A company may request or apply for delisting with the PSE
(i.e. voluntary delisting). Delisting will be allowed subject to the
payment of a delisting fee, provided there is compliance with the
following:
„„ the delisting must be approved by a majority of the company’s
incumbent directors;
„„ all security holders must be notified, in a form satisfactory
to the PSE, of the proposed delisting prior to the filing of the
petition;
„„ a petition for delisting must be filed with the PSE together with
proposed tender offer terms and conditions at least 60 days in
advance of the date when delisting becomes effective;
„„ a tender offer to all stockholders of record must be made and
supported by a fairness opinion or valuation report;
„„ the person(s) proposing the delisting must show to the PSE
that following the acquisition of the tendered shares, said
person(s) have obtained a total of at least 95 per cent of the
issued and outstanding shares of the company;
„„ if the person(s) proposing the delisting are the beneficial
owners of 95 per cent of the issued and outstanding shares of
the company at the time the petition for delisting is filed, such
person(s) must still make a tender offer to all other stockholders
of record; and
„„ the listed company applying for delisting must not have any
unpaid fees or penalties.
Is financial assistance prohibited?
What is the nature of the prohibition?
Where financial assistance is extended by a corporation to a
person for the latter to use to pay for its subscription to newly
issued shares of stock of the lending-corporation, the financial
assistance is likely to be invalidated as contrary to the Trust Fund
Doctrine. Moreover, the Corporation Code expressly prohibits the
issuance of shares of stock in exchange for promissory notes.
The Trust Fund Doctrine could also be invoked to invalidate
financial assistance extended to a person to enable the latter
to acquire from a stockholder, shares of stock of the lending-
corporation or its parent, especially where such shares of stock
have unpaid subscriptions.
The validity of financial assistance extended by a corporation to
enable the borrower to acquire, from a stockholder, fully-paid
shares of stock of the lending-corporation or its parent must be
tested on whether it is within the express or implied powers of
the corporation (i.e. whether the primary and secondary purposes
of the corporation authorise such an act) since a corporate act
that is not within the express, implied or incidental powers of the
corporation is ultra vires. Generally such acts are not provided for
as primary and secondary purposes of a corporation.
Even if listed in the articles of incorporation among the purposes
of the corporation, an act, if only authorised as a secondary
purpose, must be authorised by the majority of the board and at
least two-thirds of the total outstanding capital stock (including
voting and non-voting) of the corporation.
Nevertheless, a Trust Fund Doctrine challenge may be made
regarding financial assistance extended to enable the borrower to
acquire, from a selling stockholder, fully-paid shares of stock of
the lending-corporation or its parent. If not bona fide, the financial
assistance may be viewed as a scheme to enable the selling
stockholder to receive a return of his capital (as corporate funds
are used for the payment of the purchase price) before settlement
of obligations to, and thus to the prejudice of, the corporation’s
creditors.
What are the sanctions?
An act undertaken in violation of the Trust Fund Doctrine is invalid
for being in fraud of the corporation’s creditors.
A breach of the Corporation Code prohibition against issuing
shares of stock in exchange for promissory notes is punishable by
fine and/or imprisonment.
When a corporate act is ultra vires, the effects differ depending
on whether the act is illegal per se. An act is illegal per se when
it is prohibited by law, and the act may or may not be criminal in
nature. An ultra vires act that is illegal per se is void and may not
be ratified or validated. When an ultra vires act is not illegal per
se: (i) it may not be enforced if it is yet to be performed; (ii) if fully
performed on both sides, neither party may set aside the act or
71
recover what has been given; or (iii) when performed on one side
and the other received benefits, recovery is generally permitted.
6. Tender offers
What are the forms of tender offer?
A tender offer is a publicly announced intention by a person acting
alone or in concert with other persons to acquire equity securities
of a public company. No tender offer may be made unless:
„„ the tender offer is open to all security holders of the class of
securities subject to the tender offer; and
„„ the consideration paid to any security holder pursuant to the
tender offer is the highest consideration paid to any other
security holder during such tender offer.
A tender offer under the tender offer rule generally refers to a
tender offer by a person other than the issuer who intends to
acquire its shares. however, certain provisions of the tender offer
rule relate to an “issuer tender offer”, also known as a “buy back”,
which is a publicly announced intention (i) by an issuer to acquire
any of its own equity securities, or (ii) by an affiliate of such issuer
to acquire such securities.
Acquisitions that are below the threshold amounts of mandatory
tender offers are not subject to the tender offer requirements
under the tender offer rule but are required to comply with
beneficial ownership disclosure requirements in cases of
acquisitions of more than 5 per cent and at least 10 per cent of
a class of outstanding shares. (See page 76 for further details of
mandatory tender offers).
What is the regulatory framework for a tender offer?
SRC, Amended SRC Rules and PSE Rules
The principal source of regulation is the Tender Offer Rule in the
Amended SRC Rules. The Tender Offer Rule seeks to protect the
interests of the stockholders by regulating tender offers that seek
to take over the issuer.
Compliance with the Tender Offer rule is mandatory and any
breach is subject to civil, criminal and administrative penalties.
The PSE Disclosure Rules apply if the target or the acquirer is a
listed company.
Application of the SRC, Amended IRR of the SRC and PSE Rules
and Regulations
The Tender Offer Rule applies to all tender offers where the target
is a public company, regardless of the nationality or status of the
buyer, and extends to all acts done or omitted to be done in the
72
Philippines or abroad. Unless otherwise agreed by the parties,
the Tender Offer Rule would not apply to share acquisitions or
mergers involving non-public companies.
The PSE Disclosure Rules apply to listed companies, including
those organised overseas but with shares listed on the PSE.
What are the main offer terms?
Minimum price requirements
In a mandatory tender offer, a bidder is required to offer the
highest price paid by him for such shares during the past six
months. Where the offer involves payment by transfer or allotment
of securities, such securities must be valued on an equitable
basis.
In the event the bidder increases the consideration offered
after the tender offer has commenced, the bidder must pay the
increased consideration to all security holders whose tendered
securities are accepted for payment by the bidder, whether or not
the securities were tendered prior to the variation of the tender
offer’s terms.
No tender offer may be made unless the consideration paid to
any security holder pursuant to the tender offer is the highest
consideration paid to any other security holder during such a
tender offer.
If the tender offer is for less than the total outstanding securities
of a class but a greater number of securities is tendered, the
bidder must take up and pay for the securities on a pro rata basis,
disregarding fractions, according to the number of securities
tendered by each security holder during the period such an offer
remained open.
Cash/non-cash terms
Consideration for an offer may be in cash, securities (e.g. loan
notes, shares or other securities of the bidder), or a mixture of
both.
Cash consideration
In a mandatory tender offer, a bidder must offer (in cash,
securities or a mixture of both) the highest price paid by him for
such shares during the past six months.
Non-cash consideration
Where the offer involves payment by transfer or allotment of
securities, such securities must be valued on an equitable basis.
Conditions
A tender offer may generally be withdrawn before the expiration
of the tender offer period. However, in the case of a mandatory
tender offer required consequent to a proposed acquisition of
less than 35 per cent of the equity shares in a public company,
but resulting in overall ownership of more than 51 per cent of
the total outstanding equity securities of the public company, the
bidder must accept any and all securities tendered. This could be
construed to mean that the bidder may not withdraw its tender
offer under such circumstances.
Funding the acquisition
A bidder must obtain confirmation from its financial adviser,
or other appropriate third party, that the bidder has sufficient
resources to satisfy full acceptance of the offer. A bidder making
a tender offer must not make any announcement regarding
his intention to purchase securities until it has the resources to
implement the offer in full.
What is the timing of a tender offer and what is the
procedure to be followed?
Simplified offer timetable (see below)
A tender offer must remain open for at least 20 business days
from its commencement, provided that an offer must generally be
completed within 60 days from the date a public announcement
is made to acquire the securities. D+19 is the end of the minimum
20-business-day period for a tender offer.
Announcements
Any person making a tender offer must make an announcement
of his intention in a newspaper of general circulation, prior to the
commencement of the offer (such an announcement must not
be made until the bidder has the resources to implement the
offer in full).

Date/Time period Events

[D+19] – 60 calendar days Earliest date for bidder to make a public announcement of its intention to acquire
shares of the target company and submit a copy of the notice to the SEC on the date of
publication

[D+19] – 60 calendar days Suggested date to dispatch copies of the tender offer materials to the stockholders.
Tender offer report on SEC Forms 19-1 and exhibits must be submitted to the SEC, the
PSE and the target company

D–2 business days Last day to file the tender offer report on SEC Forms 19-1 and exhibits with the SEC, the
PSE and the target company

Day 0 (D) Commencement of tender offer period

First day of publication in a

newspaper of general circulation

D+1 calendar day Second day of publication in a newspaper of general circulation

D+2 calendar days Third day of publication in a newspaper of general circulation

D+19 business days Last day of tender offer

D+29 business days Last day for payment of consideration or to return the tendered securities

D+10 calendar days after termination Bidder must report the results of the tender offer by filing copies of the final amendments
of tender offer to SEC Form 19-1

73
Acceptance period
The tender offer, unless withdrawn, remains open until the
expiration of:
„„ at least 20 business days from its commencement, provided
that an offer must generally be completed within 60 days from
the date the intention to acquire is publicly announced; or
„„ at least 10 business days from the date the notice of change in the
percentage of class of securities being sought or in the consideration
offered is first published, sent or given to security holders.
The bidder may extend the length of a tender offer upon prior
clearance from the SEC and after issuing, no later than the
scheduled original expiration date, a notice of such an extension
by press release or other public announcement.
The bidder must permit securities tendered to be withdrawn:
„„ at any time during the period that the tender offer remains
open; and
„„ if not yet accepted for payment, after the expiration of 60
business days from the commencement of the tender offer.
Satisfying offer conditions
The bidder must either pay the consideration offered, or return
the tendered securities, not later than 10 business days after the
termination or the withdrawal of the tender offer.
Competing bids
The Tender Offer Rules of the PSE do not address competing bids.
Failed bids and further offers
Except with the consent of the SEC, where an offer has been
announced but has not become unconditional in all respects and
has been withdrawn or lapsed, neither the bidder nor any person
who acted in concert with it in the course of the offer may, within
six months from the date on which such offer has been withdrawn
or lapsed, announce an offer for the target company nor acquire
any securities of the target company which would require such
person to make a mandatory tender offer under the SRC and the
Amended SRC Rules.
What documentation is involved in the process?
Press announcement and other disclosures
Any person making a tender offer must announce his intention in
a newspaper of general circulation, prior to the commencement
of the offer, a copy of which must be submitted to the SEC on the
date of publication.
74
A bidder or an issuer must disseminate the tender offer by
complying fully with either the Long Form Publication or the
Summary Publication requirement provided that such publication
must be made through two newspapers of general circulation
on the date of commencement of the tender offer and for two
consecutive dates thereafter. In the case of Summary Publication,
the published notice must include instructions on how security
holders may obtain promptly, at the bidder’s expense, any
additional information included in SEC Form 19-1 but not
otherwise included in the published notice. In the case of Long
Form Publication, amongst other things, the published report
must include the following information:
„„ the amount of class of securities being sought and the type
and amount of consideration being offered;
„„ the scheduled expiration date of the tender offer, whether the
tender offer may be extended and, if so, the procedures for
extension of the tender offer;
„„ the terms for acceptance or withdrawal of securities deposited
pursuant to the tender offer;
„„ the terms for pro rata acceptance of tendered securities and
the plan in case of oversubscription by security holders; and
„„ the confirmation by the bidder’s financial adviser or another
appropriate third party that resources available to the bidder
are sufficient to satisfy full acceptance of the offer.
A bidder must provide all stockholders of the target company with
a copy of the published report and SEC Form 19-1.
The bidder must promptly disclose any material change in the
information published, sent or given to security holders.
Tender offer materials include:
„„ the bidder’s formal offer, including all the material terms and
conditions of the tender offer and all amendments thereto;
„„ the related transmittal letter (whereby securities of the target
company which are sought in the tender offer may be
transmitted to the bidder or its depository) and all amendments
thereto; and
„„ press releases, advertisements, letters and other documents
published by the bidder or sent or given by the bidder to
security holders which, directly or indirectly, solicit, invite or
request tenders of the securities being sought in the tender
offer.
A bidder is also required to file with the SEC and hand deliver to
the target company SEC Form 19-1, including all exhibits, and
any amendments within the prescribed time period set out in the
Tender Offer Rules. Any material change in the information set
forth in SEC Form 19-1 must be reported as an amendment to
this form. The result of the tender offer must be reported as a final
amendment to SEC Form 19-1.
Target documentation
The target company, if a listed company, must comply with the
Disclosure Rules of the PSE. Any material information with a
significant impact in the target company’s operations (such as
those relating to its financial condition, prospects, development,
projects, contracts entered into in the ordinary course of the business
or otherwise, joint ventures, consolidation, tender offer, takeover,
reverse takeover, mergers and acquisitions, as well as information
concerning a significant change in ownership of the target company’s
securities or change in control) must be disclosed.
Responsibility statements
The Tender Offer Report on SEC Form 19-1 to be submitted
to the SEC, the PSE (in case of a listed target company)
and the target company, must be signed by the bidder or its
representative, and must include the following acknowledgment:
“After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this report is true,
complete and correct”.
What are the practices relating to break fees and lock-out?
The SRC or the Amended SRC Rules do not prohibit break fees
or lock-outs.
What are the rules on information gathering/provision?
A bidder may undertake due diligence on the target company
subject to the latter’s consent. The target company may give
price-sensitive information. However, the target company may
not communicate material non-public information relating to the
tender offer to any other person where such communication is
likely to result in a violation of the restriction on insider trading.
Aside from the Tender Offer Report on SEC Form 19-1, other
publicly available information may be secured from the SEC and
the PSE, as well as other government agencies.
What is the position regarding insider trading?
Insider trading in securities of a public company is considered
unlawful and exposes the offender to criminal and civil liability. The
SRC and the Amended SRC Rules do not limit the insider trading
restriction to securities of companies listed on the PSE.
An “insider” is defined as: (i) the issuer; (ii) a director or officer (or
person performing similar functions) of, or a person controlling
the issuer; (iii) a person whose relationship or former relationship
to the issuer gives or gave him access to material information
about the issuer or the securities that is not generally available to
the public; (iv) a government employee, or director, or officer of
an exchange, clearing agency and/or self-regulatory organisation
who has access to material information about an issuer or a
security that is not generally available to the public; or (v) a person
who learns such information by a communication from any of the
foregoing insiders.
Generally, it is unlawful for an insider to buy or sell a security while
in possession of material information with respect to the issuer or
the security that is not generally available to the public, subject to
certain exempting circumstances.
Where a tender offer has commenced or is about to commence,
it is unlawful for any person (other than the tender offeror) in
possession of material non-public information relating to such
a tender offer, to buy or sell the securities of the issuer that are
sought or will be sought by such tender offer if such a person
knows or has reason to believe that the information is non-public
and such information has been acquired directly or indirectly from
the tender offeror, those acting on its behalf, the issuer of the
securities sought or to be sought by such a tender offer, or any
insider of such issuer. It is also unlawful to communicate material
non-public information relating to the tender offer to any other
person where such communication is likely to result in a violation
of the restriction on insider trading.
A director or principal officer of a target company must not deal in
the issuer’s securities during the period within which material non-
public information is obtained and up to two full trading days after
the price sensitive information is disclosed.
The penalties for insider trading include:
„„ administrative sanctions imposed by the SEC (e.g. suspension
or revocation of its certificate, fine or disqualification from being
an officer or principal stock holder of an issuer);
„„ a conviction in the regular courts for insider trading which may
entail imprisonment and/or a fine;
„„ claims for damages arising from civil actions which may be
brought against the insider; and
„„ expulsion from membership of the PSE.
What are the public disclosure requirements in a takeover
scenario?
Bidder
The bidder, if a public company, is required to comply with the
disclosure requirements of the SEC (and the PSE if it is also a
listed company).
The bidder must publish, send or give to security holders in the
manner prescribed under Section 7(A) of the Tender Offer Rule, a
report containing the following information:
75
„„ the identity of the bidder including his/its present principal
occupation;
„„ the identity of the target company;
„„ the amount of class of securities being sought and the type
and amount of consideration being offered;
„„ the scheduled expiration date of the tender offer, whether the
tender offer may be extended and, if so, the procedures for
extending the tender offer;
„„ the terms for acceptance or withdrawal of securities deposited
pursuant to the tender offer;
„„ the terms for pro rata acceptance of tendered securities and
the plan in case of oversubscription by security holders;
„„ the confirmation by the bidder’s financial adviser or another
appropriate third party that resources available to the bidder
are sufficient to satisfy full acceptance of the offer; and
„„ the information included in SEC Form 19-1.
When an issuer or its subsidiary has merged or consolidated with
or otherwise acquires a direct or indirect interest in an unlisted
company, a person or group, and said interest is 10 per cent or
more of the total book value of the listed company, the trading of
the securities of the listed company must be suspended until the
terms and conditions of the transaction, and the details pertaining
to the business or project acquired are actually disclosed and, if
applicable, the latest audited financial statements of the unlisted
company, are submitted to the PSE.
In addition, any acquisition of more than 5 per cent of any class
of outstanding shares of a public company is required to be
disclosed to the SEC and the PSE in the case of listed shares.
The acquisition of at least 10 per cent of any class of outstanding
shares of a public company is also subject to the filing of a
beneficial ownership report with the SEC and the PSE in the case
of listed companies.
Target
The target company, if a public company, is required to comply
with the disclosure requirements of the SEC (and the PSE if it is a
listed company). Any material information with a significant impact
on the target listed company’s operations (such as those relating
to its financial condition, prospects, development, projects,
contracts entered into in the ordinary course of the business or
otherwise, mergers and acquisitions, dealings with employees,
suppliers, customers and others, as well as information
concerning a significant change in ownership of the target listed
company’s securities owned by insiders or representing control of
the company) must be disclosed.
In case of an issuer tender offer, the issuer must promptly disclose
any planned acquisitions of its shares or disposition of treasury
shares. In addition, the issuer must submit a disclosure regarding
the actual number of shares and the transaction price for each
76
acquisition or disposition of its own shares prior to the pre-open
period of the next trading day after the transaction was executed.
The planned acquisition or disposition must likewise be in
accordance with the rules and regulations of the SEC.
Does a memorandum of understanding (MoU) need to be
disclosed?
A MoU must be promptly disclosed if it meets any of the following
standards:
„„ where the information is necessary to enable the issuer and the
public to appraise their position or standing, such as, but not
limited to information relating to the issuer’s financial condition,
prospects, development projects, contracts entered into in
the ordinary course of business or otherwise, mergers and
acquisitions, dealings with employees, suppliers, customers,
and others, as well as information concerning a significant
change in ownership of the issuer’s securities owned by
insiders or those representing control of the issuer;
„„ where such information is necessary to avoid the creation of a
false market for its securities; or
„„ where such information may reasonably be expected to
materially affect market activity and the price of its securities.
The Tender Offer Report in SEC Form 19-1 requires the disclosure
of any contracts, arrangements, understandings or relationships
between the bidder and issuer, naming the person with whom
such contracts, arrangements, understandings or relationships
have been entered into.
What are the limitations to stakebuilding?
Certain acquisitions of shares require a mandatory tender offer
(please see paragraph below on mandatory tender offers).
Foreign equity restrictions also apply if the target company is
engaged in a nationalised activity (please see page 68).
Is there a requirement to make a mandatory offer?
A tender offer must be made to all holders of the same class of
equity securities in the following cases (a mandatory tender offer):
„„ when a person or group of persons acting in concert intends
to acquire 35 per cent or more of equity shares in a public
company in one or more transactions within a 12-month period;
„„ when a person or group of persons acting in concert intends
to acquire less than 35 per cent of the equity shares in a public
company, but the result of which is overall ownership of more
than 51 per cent of the total outstanding equity securities of a
public company; or
„„ when any purchase of shares from the unissued capital stock
results in ownership of at least 50 per cent of the outstanding
capital stock.
The mandatory tender offer requirement does not apply to the
following (notwithstanding their exemption, purchasers of shares
in the following transactions must comply with the disclosure and
other obligations under the Amended SRC Rules):
„„ any purchase of shares from the unissued capital stock
provided that the acquisition will not result in 50 per cent or
more ownership of shares by the purchaser;
„„ any purchase of shares from an increase in authorised capital
stock;
„„ purchase in connection with foreclosure proceedings involving
a duly constituted pledge or security arrangement where the
acquisition is made by the debtor or creditor;
„„ purchases in connection with privatisations undertaken by the
government of the Philippines;
„„ purchases in connection with corporate rehabilitation under
court supervision;
„„ purchases through an open market at the prevailing market
price; or
„„ merger or consolidation.
What defences are available to a target company during the
stages of an offer?
The target’s board must generally act, within the bounds of the
law, in the best interests of the target’s stockholders.
A target company may protect itself from a hostile takeover by
including a poison pill (a defence available before a takeover offer
is made) provision in its articles of incorporation and granting
its stockholders pre-emptive rights. Listed companies do not
usually have rights of first refusal provisions in their articles of
incorporation.
The acquisition of a public company must not breach any
nationality requirements stated in the Constitution and other laws.
A target company may pre-empt a hostile takeover by foreign
parties by engaging in activities which are limited by law to entities
which are wholly or partially owned by Filipinos (e.g. ownership of
private land).
What obligations are the directors of the bidder and target
under?
Bidder
The SRC and the Amended SRC Rules impose the obligation
upon the directors to consider the prohibitions on insider trading.
Target
In the case of a tender offer other than by an issuer, a target
company must not engage in any of the following transactions
during the course of a tender offer, or before the commencement
thereof if its board has reason to believe that an offer might
be imminent (except if such a transaction is in pursuance of a
contract entered into earlier, or with the approval of stockholders
in a general meeting or, where special circumstances exist, SEC
approval has been obtained):
„„ issue any authorised but unissued shares;
„„ issue or grant options in respect to any unissued shares;
„„ create or issue, or permit the creation or issuance of, any
securities carrying rights of conversion into, or subscription for,
shares;
„„ sell, dispose of or acquire, or agree to acquire, any asset, the
value of which amounts to 5 per cent or more of the total value
of assets prior to acquisition; or
„„ enter into contracts otherwise done in the ordinary course of
business.
A director or principal officer of a target company must not deal in
the issuer’s securities during the period within which material non-
public information is obtained and up to two full trading days after
the price sensitive information is disclosed.
What is the procedure for a squeeze-out of the minority?
Minority stockholders may not be compulsorily bought out.
7. Overview of a private corporation acquisition
Timing
The timing of a private acquisition depends on the cooperation
between the parties, and the progress of negotiations and other
matters specific to the transaction.
Steps
The tables on page 78 illustrate broadly the typical steps of an
asset/business/share transfer, the original issuance of shares
by a private corporation and a merger/consolidation. The order
of events may vary from transaction to transaction, and it is
possible that some activities are dispensed with or undertaken
simultaneously.
77
Asset/Business/Share transfer
Auction
Preliminary agreement
„„ Confidentiality
„„ Exclusivity
Due diligence
Draft/negotiate acquisition agreement
Corporate approvals
„„ Board
„„ Stockholder (as applicable)
Regulatory prior approval of acquisition (as applicable)
Execution of acquisition agreement
Compliance with conditions precedent
Closing of acquisition
„„ Execution of deed of transfer
„„ Payment of consideration
Post closing
„„ Payment of taxes/remittance of tax withheld
„„ Secure tax clearance/BIR authorisation to register/ record
transfer
„„ Register transfer with the Registry of Deeds, Land
Transportation Office (as applicable)
„„ Record transfer in the stock transfer book of the relevant/
target corporation
„„ Compliance with regulatory notice or other requirements,
for corporations with special regulatory licences.
8. What tax issues should be considered?
Capital gains
In business acquisitions, where the assets of the business
acquired do not include land and/or buildings and shares of stock,
the gain or profit from the sale of the assets is considered an
ordinary gain or ordinary income subject to the regular corporate
income tax of 30 per cent, rather than a capital gain. For income
tax purposes, gain derived from the sale or other disposition of
property refers to the excess of the amount realised from the sale
or other disposition over the adjusted cost basis of the property.
In a share acquisition, as a general rule, capital gains tax is due on
the sale of shares which are not listed in the local stock exchange
78
Original issuance of shares
Preliminary agreement (as applicable)
„„ Confidentiality
„„ Exclusivity
Due diligence
Corporate approval of issuer
„„ Board approval
„„ Waiver of pre-emptive right
SEC prior approval of non-cash consideration for shares of
stock (as applicable)
Regulatory prior approval of share issuance (as applicable)
Subscription agreement
„„ Payment of consideration
Filing with SEC of 10-1 and/or application for SEC
confirmation that issuance is exempt from registration
requirement (as applicable)
Payment of documentary stamp tax
Issuance of stock certificate
In tax-free property-for-share swaps: annotation of the
substituted basis on the proper evidence of title to the (i)
shares of stock issued, and/or (ii) the property transferred as
consideration for the issued shares of stock.
and of shares which are listed but traded outside of the local
stock exchange. The capital gains tax rate is 5 per cent for the
first PHP100,000 of the gain, and 10 per cent for gains in excess
of PHP100,000. Where, however, the share acquisition is carried
out through a tax-free exchange as provided under the Tax Code,
no capital gains tax is due on the transfer of shares.
A capital gains tax of 6 per cent is likewise due on transfers of land
and/or buildings, which is imposed on the higher of the actual selling
price and the fair market value of the property (generally, the zonal
value, for land). The Commissioner of Internal Revenue (CIR) has
the authority to divide the Philippines into different zones and areas,
and the zonal value is the fair market value of real properties located
in each zone or area in the Philippines, as determined by the CIR
after consultation with the private and public sectors. The 6 per cent
capital gains tax is required to be withheld by the income payor and
Mergers/Consolidations
Preliminary agreement
„„ Confidentiality
„„ Exclusivity
Due diligence
Draft/negotiate plan of merger
Corporate approval
„„ Board of directors of constituent corporations
„„ Stockholders of constituent corporations
BIR confirmation of tax-free merger
Filing of articles and plan of merger with the SEC
Regulatory prior approval of merger (as applicable)
SEC approval of merger
Post-merger:
„„ Payment of documentary stamp taxes on original issuance
of shares pursuant to the merger
„„ Harmonisation of employee benefits (as applicable)
„„ Registration of change of owner in the relevant evidence of
ownership (original certificate of title or transfer certificate
of title for land; stock certificate for shares of stock)
„„ In tax-free property-for-share swaps: annotation of the
substituted basis on the proper evidence of title to the (i)
shares of stock issued, and/or (ii) the property transferred
as consideration for the issued shares of stock
„„ Compliance with any post-merger notice or other
regulatory requirement, for corporations with special
regulatory licences
remitted to the Bureau of Internal Revenue (BIR).
No capital gains tax is due in case of a merger or consolidation
which complies with the non-recognition of gain or loss provisions
of the Tax Code.
Stock transaction tax
The sale of shares that are listed and traded through the local
stock exchange is subject to stock transaction tax at the effective
rate of 0.5 per cent of the gross selling price.
Tax on initial public offering
The sale of shares through an initial public offering (IPO) is subject
to IPO tax at the rates of either 4 per cent, 2 per cent, or 1 per
cent of the gross selling price, depending on the proportion of the
shares of stock sold to the total outstanding shares of stock after
the listing with the local stock exchange.
Documentary stamp tax
Documentary stamp tax (DST) is due on the original issuance of
shares at the effective rate of 0.5 per cent, the rate being imposed
on the aggregate par value of the shares for par value shares, and
on the amount of consideration for no par value shares. Transfers
of shares which are (i) not listed, and (ii) listed but not traded
through the local stock exchange, are subject to DST at the
effective rate of 0.375 per cent based on the aggregate par value
for par value shares, whereas transfers of no par value shares are
subject to DST at the rate of 25 per cent of the DST paid upon the
original issuance thereof. Transfers of shares which are listed and
traded through the local stock exchange are exempt from DST.
DST is likewise imposed, as a general rule, on transfers of
real property at the effective rate of 1.5 per cent based on the
higher of the actual selling price and zonal value of the property.
Where, however, the transfer is made by virtue of a merger, a
consolidation, or a tax-free exchange as provided under the Tax
Code, no DST is imposed on the transfer of real property.
In a merger or consolidation, only DST on original issuance of
shares is due.
Value-added tax
In case of asset acquisitions, the sale of assets that are primarily
held for sale to customers or held for lease in the ordinary course
of business, including real property used by the company in its
trade or business, is subject to 12 per cent value-added tax.
In a tax-free exchange involving the transfer of real property by a
company engaged in real estate business in exchange for shares
in a company not engaged in real estate business, the transfer of
real property is subject to 12 per cent value-added tax.
No value-added tax is due in the case of a merger or
consolidation.
Local transfer tax
The sale of corporate assets consisting of real property is subject
to local transfer tax at the rates prescribed by the local ordinance
of the locality where the property is situated, 0.5 per cent being
the maximum rate imposed on the higher of the actual selling
price and the zonal value of the property.
Thin capitalisation/interest deductions
Philippine law does not have thin capitalisation rules, but thin
79
capitalisation is expressly recognised in BIR regulations governing control of at least 75 per cent or more in nominal value of the
the audit of interrelated parties or situations involving loans outstanding issued shares or paid up capital of the transferee/
from shareholders. Without thin capitalisation rules prescribing assignee.
guidelines and presumptions as to what constitutes thin
capitalisation, the BIR determines the reasonable ratio of debt to Anti-avoidance
equity considering all factors surrounding the case.
To exempt gains arising from a merger or consolidation, the
The BIR has published a draft of its proposed transfer merger or consolidation must be undertaken for a bona fide
pricing regulations which includes general provisions on thin business purpose and not solely for escaping the burden of
capitalisation. These regulations have not been finalised yet. In taxation. To establish a business purpose, each and every step of
these regulations, the BIR provides a threshold 3:1 ratio. This the transaction must be considered and the whole transaction or
is the general rule, unless a different debt-to-equity ratio is series of transactions must be treated as a single unit.
prescribed by special laws or the special provisions of any existing
law. This 3:1 ratio does not apply to banks, financing companies
and non-bank financial intermediaries performing quasi-banking
functions. In the interim, the BIR, as a matter of policy, subscribes
to the OECD Transfer Pricing Guidelines.

A company may generally deduct interest expense incurred

in connection with the company’s business for tax purposes.
However, where the company has interest income which is
subject to final tax, its interest expense is not fully deductible as
the same must be reduced by 33 per cent of the interest income
subject to final tax.

Creditable withholding tax

Where the assets to be sold by a domestic corporation include

real property which is classified as an ordinary asset (i.e. real
property used in business as opposed to one held for investment
or speculation), the sale is subject to a creditable withholding tax
which the buyer must withhold from the selling price and remit
to the BIR on the seller’s behalf. The tax withheld is an advance
collection of the corporate income tax due from the seller. Thus,
the seller can claim a credit for the tax withheld against its
corporate income tax liability for the taxable year. The applicable
creditable withholding tax rate is usually 6 per cent and is based
on the highest of the selling price or consideration, the fair market
value appearing on the latest tax declaration, or the zonal value (in
case of land) published by the BIR.

Loss carryovers

As a general rule, net operating loss carryovers are allowed as a

deduction only to the taxpayer who sustained and accumulated
the operating losses. Thus, in an asset sale, any net operating
losses in the seller cannot be transferred or assigned to the buyer.
In case the transfer or assignment of the taxpayer’s net operating
losses arises from the said taxpayer’s merger or consolidation
with another person, the transferee or assignee is not entitled to
claim the same as deduction unless, as a result of the said merger
or consolidation, the shareholders of the transferor/assignor gain

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Schedule 1: Summary of the foreign investments negative list in the Philippines

Foreign ownership limited by mandate of the Constitution and specific laws

Industry Permissible foreign equity

Mass media, except recording No foreign equity

Practice of all professions No foreign equity (This is limited to Filipino citizens except as
(a) Engineering (aeronautical, agricultural, chemical, civil, prescribed by law.)
electrical, electronics and communication, geodetic,
mechanical, metallurgical, mining, naval architecture and
marine, and sanitary)
(b) Medicine and allied professions (medicine, medical
technology, dentistry, midwifery, nursing, nutrition and
dietetics, optometry, pharmacy, physical and occupational
therapy, radiologic and x-ray technology, and veterinary
medicine)
(c) Accountancy; architecture; criminology; chemistry; customs
brokerage; environmental planning; forestry; geology; interior
design; landscape architecture; law; librarianship; marine
deck officers; marine engine officers; master plumbing;
sugar technology; social work; teaching; agriculture;
fisheries

Retail trade enterprises with paid-up capital of less than
USD2.5 million
No foreign equity (Full foreign participation is allowed for retail
trade enterprises: (i) with paid-up capital of USD2.5 million or
more provided that investments for establishing a store is not
less than USD830,000; or (ii) specialising in high end or luxury
products, provided that the paid-up capital per store is not less
than USD250,000.)

Cooperatives No foreign equity

Private security agencies No foreign equity

Small-scale mining No foreign equity

Utilisation of marine resources in archipelagic waters, territorial No foreign equity

seas, and exclusive economic zone as well as small-scale
utilisation of natural resources in rivers, lakes, bays and lagoons

Ownership, operation and management of cockpits No foreign equity

Manufacture, repair, stockpiling and/or distribution of nuclear No foreign equity (Domestic investments are also prohibited.)
weapons

Manufacture, repair, stockpiling and/or distribution of biological, No foreign equity (Domestic investments are also prohibited.)
chemical and radiological weapons and anti-personnel mines
(Various treaties to which the Philippines is a signatory and
conventions supported by the Philippines)

Manufacture of firecrackers and other pyrotechnic devices No foreign equity

Private radio communications networks Up to 20%

Private recruitment, whether for local or overseas employment Up to 25%

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 Industry Permissible foreign equity

Contracts for the construction and repair of locally-funded Up to 25%

public works, except:
(i) infrastructure/development projects covered in RA 7718; and
(ii) projects which are foreign funded or assisted and required to
undergo international competitive bidding

Contracts for the construction of defence-related structures Up to 25%

Advertising Up to 30%

Exploration, development and utilisation of natural resources Up to 40% (Full foreign participation is allowed through financial
or technical assistance agreement with the President.)

Ownership of private land Up to 40%

Operation and management of public utilities Up to 40%

Ownership/establishment and administration of educational Up to 40%

institutions

Culture, production, milling, processing, trading excepting Up to 40% (Full foreign participation is allowed provided that
retailing, of rice and corn and acquiring, by barter, purchase or within the 30-year period from start of operation, the foreign
otherwise, rice and corn and the by-products thereof investor shall divest a minimum of 60 per cent of their equity to
Filipino citizens.)

Contracts for the supply of materials, goods and commodities Up to 40%

to government-owned or controlled corporation, company,
agency or municipal corporation

Project proponent and facility operator of a BOT project Up to 40%

requiring a public utilities franchise

Operation of deep sea commercial fishing vessels Up to 40%

Adjustment companies Up to 40%

Ownership of condominium units where the common areas in Up to 40%

the condominium project are co-owned by the owners of the
separate units or owned by a corporation

Financing companies regulated by the SEC Up to 60% (No foreign national may be allowed to own stock
in financing companies or investment houses unless the
country of which he is a national accords the same reciprocal
rights to Filipinos.)

Investment houses regulated by the SEC Up to 60% (No foreign national may be allowed to own stock
in financing companies or investment houses unless the
country of which he is a national accords the same reciprocal
rights to Filipinos.)

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Foreign ownership is limited for reasons of security, defence, risk to health and morals and protection of small and medium scale
enterprises

Industry Permissible foreign equity

Manufacture, repair, storage, and/or distribution of products Up to 40%

and/or ingredients requiring Philippine National Police (PNP) However, the manufacture or repair of these items may
clearance: be authorised by the Chief of the PNP to non-Philippine
nationals, provided that a substantial percentage of output,
(a) Firearms (handguns to shotguns), parts of firearms and as determined by the said agency, is exported. The extent of
ammunition therefore, instruments or implements used or foreign equity ownership allowed must be specified in the said
intended to be used in the manufacture of firearms authority/clearance
(b) Gunpowder
(c) Dynamite
(d) Blasting supplies
(e) Various ingredients used in making explosives
(f) Telescopic sights, sniper scopes and other similar devices.

Manufacture, repair, storage and/or distribution of products Up to 40%

requiring Department of National Defense (DND) clearance: However, the manufacture or repair of these items may be
authorised by the Secretary of the DND to non-Philippine
(a) Guns and ammunition for warfare nationals, provided that a substantial percentage of output,
(b) Military ordnance and parts thereof (e.g., torpedoes, depth as determined by the said agency, is exported. The extent of
charges, bombs, grenades, missiles) foreign equity ownership allowed must be specified in the said
(c) Gunnery, bombing and fire control systems and components authority/clearance
(d) Guided missiles/missile systems and components
(e) Tactical aircraft (fixed and rotary-winged), parts and
components thereof
(f) Space vehicles and component systems
(g) Combat vessels (air, land and naval) and auxiliaries
(h) Weapons repair and maintenance equipment
(i) Military communications equipment
(j) Night vision equipment
(k) Stimulated coherent radiation devices, components and
accessories
(l) Armament training devices
(m) Other as may be determined by the Secretary of the DND

Manufacture and distribution of dangerous drugs Up to 40%

Sauna and steam bathhouses, massage clinics and other Up to 40%

similar activities regulated by law because of risks posed to
public health and morals

All forms of gambling, e.g. race track operation Up to 40%

Domestic market enterprises with paid-in equity capital of less Up to 40%

than the equivalent of USD200,000

Domestic market enterprises which involve advanced Up to 40%

technology or employ at least 50 direct employees with paid-in
equity capital of less than the equivalent of USD100,000

83
84

1. What are the forms of business entity in Singapore?
Common forms of entity
„„ Private company limited by shares
„„ Public company limited by shares (listed/unlisted)
„„ Partnership
Less common forms of entity
„„ Companies limited by guarantee
„„ Unlimited companies
„„ Limited partnership
„„ Limited liability partnership
„„ Unincorporated associations
2. How is a company managed?
The basic management structure
What form does the management structure take?
Management of a company is usually carried out by the board,
which may also comprise non-executive directors whose role is to
participate at board meetings and oversee the executive directors’
actions. Non-executive directors have voting rights on board
decisions and are considered under Singapore law to be, as with
executive directors, responsible for all decisions taken and powers
exercised by the board.
Decisions of the board are normally taken by majority vote, unless
the articles of association provide otherwise.
How are directors appointed to and removed from office?
The manner of appointing or removing directors is governed by
the articles of association and in some cases, the Companies
Act (Cap. 50) (the Companies Act). For instance, directors
may be appointed by the board on the recommendation of the
non-executive directors or by the shareholders at a general
meeting.  Directors of a public company may only be removed in
accordance with the provisions of the Companies Act.
What powers does the board have?
The board has the authority to exercise all powers of the company
which are not specifically reserved for the shareholders.
Once a management structure has been chosen, a degree of
flexibility can be given to the management under the articles of
association, including the ability to change the management,
alter procedures and delegate responsibility. Alternatively, the
shareholders can, via the articles of association, greatly restrict
the powers of management, retaining control over the day-to-day
running of the company if required.
Singapore
Are there any residency requirements for directors?
A company is required to have at least one director who is ordinarily
resident in Singapore. It must also have a company secretary, who
cannot be a sole director and must be resident in Singapore.
Is there any requirement for directors to hold shares?
There is no requirement that directors should also be shareholders
of the company but they are permitted to do so.
What duties do directors owe?
Overview
The duties and responsibilities of a director arise under common
law and the Companies Act. Such duties and responsibilities
come about by virtue of the special position a director occupies in
the company. As a fiduciary, a director must always act in the best
interests of the company. Accordingly, certain duties are placed
upon a director, and a director is not permitted to place himself in
a situation where his interests conflict with his duty.
Duty to the company
Directors owe their primary duty to the company (as distinct from
the shareholders) and generally, the company alone has the right
to sue the directors for breach of their duties.
Directors are required to act and exercise their powers in good
faith in the best interests of the company as a whole, and not for
their personal interest.
Section 157(1) of the Companies Act requires a director to, at all
times, act honestly and use reasonable diligence in the discharge
of the duties of his office.
Directors must not put themselves in a position where their
personal interests conflict with those of the company.
Section 157(2) of the Companies Act states that an officer
or agent of a company shall not make improper use of any
information acquired by virtue of his position (as an officer or
agent) to gain (directly or indirectly) an advantage for himself or for
any other person, or to cause detriment to the company.
Directors have a duty to act with the degree of skill and care that
may reasonably be expected from someone in the position of
director, taking into account that particular director’s ability and
experience.
85
Duty to the shareholders
The minority shareholders in a company may be entitled to bring
an action in their own name (on behalf of the company) against
the directors for breach of their duties. To sustain such a claim,
the shareholders must show that the company’s affairs have been
conducted in a manner which either constitutes a “fraud on the
minority” or is unfairly prejudicial to their interests. In practice, this
is difficult to prove and such claims are rare.
The shareholders of an unlisted company may also apply to the
court under section 216A of the Companies Act for leave to bring
an action in the company’s name. Leave would be granted if the
court is satisfied that the complainant is acting in good faith and it
appears prima facie that the action should be brought.
Duty to creditors
If a company is close to insolvency, the interests of the creditors
must be taken into account. If the directors act in a manner that
prejudices the creditors of the company when the company is
insolvent, they may be held to be guilty of a misfeasance.
Duty to employees
The Companies Act allows directors to take into account the
interests of the company’s employees when performing their
functions.
What types of liability can directors incur?
Directors may incur:
„„ civil liability for negligent performance of their duties; and/or
„„ criminal sanctions for violations of specific requirements
concerning the organisation and operation of the company.
A person may be disqualified from acting as a director or
being involved in the management of a company in certain
circumstances, for example, where:
„„ he is an undischarged bankrupt;
„„ he had been a director of a company which went into insolvent
liquidation either while he was a director or within three years
of his ceasing to be such, and the court is satisfied that his
conduct as a director of the company makes him unfit to be
director of a company or to participate in the management of a
company (whether directly or indirectly);
„„ he had been a director of a company that was used for
purposes against national security or interest, and has been
disqualified by a court from acting as a director;
„„ he is convicted of certain offences including fraud and dishonesty in
connection with the formation or management of a corporation;
86
„„ he is convicted of persistently failing to comply with the
requirements of the Companies Act; or
„„ he is subject to a disqualification or disqualification order under
section 34, 35 or 36 of the Limited Liability Partnership Act.
In certain circumstances, a director may also be personally liable
to creditors of a company that has gone into insolvent liquidation,
for example, where:
„„ he had knowingly contracted a debt when he had no
reasonable or probable expectation that the company would
be able to pay that debt; or
„„ he is guilty of fraudulent trading.
There are a number of ways in which directors can minimise the
risk of liability:
„„ certain actions taken or omissions made by directors can
be ratified retrospectively or approved in advance by the
shareholders;
„„ the articles of association can provide for the company to
indemnify the director against any liability incurred by him in
defending any proceedings. However, such provision must not
purport to exempt or indemnify the director in respect of any
liability arising out of negligence, default, breach of duty, or
breach of trust for it would otherwise be rendered void; and
„„ the company can maintain insurance policies for its directors.
What are the auditing requirements for companies?
There is a statutory requirement of audit.
However, exempt private companies with an annual turnover of
SGD5,000,000 or less, and dormant companies do not need to
audit their accounts, although they must continue to maintain proper
accounting records and prepare true and fair financial statements
that comply with the Financial Reporting Standards prescribed by
the Council on Corporate Disclosure and Governance.
3. What are the most common types of M&A transaction?
Private companies
Share acquisitions
A company can issue various types of shares with different rights
attached. The most common are ordinary shares with full voting
rights and preference shares (which are normally non-voting).
A buyer can purchase shares in a Singapore private company. By
acquiring the shares in a company, the buyer acquires all voting
rights attached to such shares.
An alternative way of acquiring control of a private company in
Singapore is to subscribe for newly issued voting shares which,
after taking into account already existing shares, make up over
50 per cent of the entire issued voting share capital of a company
(with the existing shareholders being diluted).
Business/Asset acquisitions
A buyer can also purchase the business and assets of a company.
Each asset has to be transferred subject to the particular
formalities required. For some classes of assets, this will mean
simply handing over the asset (i.e. physical delivery), although
others will require transfer documents (e.g. real property).
Amalgamations
Two or more local companies may, in accordance with the
Companies Act, voluntarily (i.e. without a court order) amalgamate
and continue as one company, which may be one of the
amalgamating companies or a new company. The amalgamated
company will succeed to all the property, rights and privileges
as well as assume the liabilities and obligations of each of the
amalgamating companies. 
The shareholders of the amalgamating companies must approve
the amalgamation by special resolution at a general meeting (and
by any other person, if the proposal requires the approval of that
person). In addition, the directors of each amalgamating company
must make solvency statements in relation to the amalgamating
companies and the amalgamated company.
Joint ventures
Two or more parties may form a joint venture to pursue a common
commercial goal. Joint ventures are governed by the general
principles of contract and company law, and can take many
different forms.
Public companies
Takeovers (see section 6 for a more detailed summary of public
takeovers)
Full offers for 100 per cent of the target’s shares or partial offers
for (i) less than 30 per cent; or (ii) more than 50 per cent of the
total voting rights can be made.
The conduct of takeovers is governed by the Singapore Code on
Take-overs and Mergers (the Code), which is administered by the
Securities Industry Council (SIC). The Code is drafted with listed
public companies in mind, but unlisted public companies with 50
or more shareholders and net tangible assets of SGD5,000,000
or more must also observe the letter and spirit of the Code,
wherever this is possible and appropriate.  Apart from Singapore-
incorporated public companies, the Code applies as well to
foreign-incorporated companies with a primary listing of their
shares on the Singapore Exchange Securities Trading Limited (the
SGX-ST).  Listed public companies incorporated in Singapore but
which have their primary listing on a foreign exchange may apply
for a waiver of the application of the Code. In addition, the Code
also extends to business trusts with a primary listing of their units
in Singapore, or unlisted business trusts with more than 50 unit
holders and net tangible assets of SGD5,000,000 or more.
An offer for the shares of a public company may either be
recommended by the target’s board of directors (the board), or
hostile. A full offer cannot succeed unless the bidder has received
acceptances which will result in the bidder (together with parties
acting in concert with it) holding more than 50 per cent of the
voting rights in the target. In the case of partial offers for more
than 50 per cent, the partial offer must be approved by more than
50 per cent of the votes cast at a general meeting by way of a
poll on a separate resolution or on the form of acceptance for the
partial offer (in a separate box with the number of voting shares
indicated).
A potential bidder should give careful consideration to the number
of shares it is proposing to acquire in the market place, as it may
be required to make a mandatory offer for all the target’s shares if:
„„ taken together with shares held or acquired by its concert
parties, it acquires 30 per cent or more of the voting rights of
the target; or
„„ together with its concert parties, it already holds between 30
per cent and 50 per cent of the voting rights of the target, and
it (or its concert parties) increases its voting rights in the target
by more than 1 per cent in any six-month period.
It is required for the board of the target (and in some cases, the
bidder as well) to obtain independent legal and financial advice in
respect of any takeover offer.
Schemes of arrangement
A scheme of arrangement is a legislative procedure allowing a
company to be restructured.
The company proposes the scheme to its shareholders which,
if approved by a statutory majority, is binding on all shareholders
once sanctioned by the High Court.
It can be used as a way of structuring a takeover, usually between
friendly companies, but will be subject to the Code unless
certain conditions are met and, in such cases, exemptions from
complying with material obligations of the Code can be obtained
from the SIC.
87
Amalgamations
The amalgamation regime described on page 89 also applies to
local public companies with the important additional factor that
the Code applies to an amalgamation involving one or more public
companies.
Joint ventures
Public companies are also free to enter into joint venture
arrangements as described at on page 89.
Public-to-private acquisitions (P2Ps)
P2Ps are regulated by the Code, various statutes and the listing
rules (Listing Rules).
In Singapore, these acquisitions involve the buyers acquiring the
publicly held shares in a company, and subsequently de-listing the
company in question.
The transaction will often involve the parent company of the listed
company (and sometimes the incorporation of a new company) as
the bidding vehicle to make the offer to acquire the target’s shares
not held by the parent company. The reasons for privatisation
typically include the efficiencies arising from the integration of
resources of the group companies.
The offer will normally be recommended by the independent
directors on the board and will not be hostile. The target will
sometimes have other significant shareholders prepared to give an
irrevocable undertaking to accept the offer prior to announcement.
In very limited circumstances, it may also agree to underwrite
some of the transaction costs if the offer is unsuccessful.
The main point of distinction between P2Ps and standard
takeovers is that as the directors of the target will often be the
directors or employees of the parent company which is acquiring
the shares in the target held by shareholders other than itself and
its affiliates, an independent committee of directors (which is not
connected with the parent company) must be established.
Do the parties have an obligation to negotiate in good faith
to one another in M&A transactions?
The laws of Singapore do not impose any obligation on parties
to a proposed transaction to negotiate in good faith. As such,
it is possible for a party to pull out of negotiations completely or
to negotiate with another prospective buyer without any good
reasons and at any time prior to signing of the sale and purchase
agreement. To mitigate the risks associated with this, the parties
will often enter into heads of agreement which incorporate lock-
out clauses and/or break fees which are binding on the parties.
88
4. What percentage shareholding is required to achieve
effective control of a company?
A 75 per cent shareholder has effective control of a company.
This enables the shareholder to pass all shareholders’ resolutions
at a general meeting.
Shareholders’ resolutions include both an ordinary resolution (a
resolution that has been passed by more than 50 per cent of
members or their proxies) and a special resolution (a resolution
passed by a majority of not less than 75 per cent of members or
their proxies). Significantly, a shareholders’ resolution is required
to amend the articles of association, approve financial assistance
in connection with the acquisition of shares and, subject to the
court’s approval, to reduce the capital of the company.
5. Regulation, consents and foreign investment restrictions
Are there any regulated industries?
Investments and acquisitions relating to targets which operate
in certain industry sectors require approval or a licence from the
relevant government body.
The most common sectors that are subject to those
approval requirements or restrictions are financial services,
telecommunications (for facilities-based operators) and insurance.
These regulated industries are also subject to statutory foreign
shareholding limits.
If the transaction is not prohibited outright, an application normally
needs to be made in advance of completion to the relevant
authority seeking approval or, in some cases, a licence.
There may also be additional, ongoing notification requirements in
respect of the operation of the business and any changes to the
corporate structure.
Are there any restrictions on the foreign ownership of
shares in a Singapore company?
There are generally no restrictions on the foreign ownership
of shares of companies in Singapore (either listed or unlisted).
However, there are ownership restrictions in relation to the following:
„„ foreign individuals and corporations are prohibited from owning
certain types of residential property;
„„ where Singaporean control is regarded as being in the national
interest (in industries such as publishing, broadcasting,
telecommunications and public utilities) ownership restrictions
may be imposed in relation to such industries;
„„ the percentage of voting shares which any one person can
acquire in a bank incorporated in Singapore is restricted and
 must be approved by the Monetary Authority of Singapore
(MAS);
„„ MAS approval is required before an arrangement or agreement
is entered into which would lead to a person potentially
acquiring 5 per cent or more of the voting rights or obtaining a
“controlling” interest in an insurer;
„„ MAS approval is required before an arrangement or agreement
is entered into which would lead to a person potentially
acquiring 5 per cent or more of the voting rights or obtaining
“control” of a finance company; and
„„ the conditions of the licences of securities dealers and advisers
may require MAS approval where there are shareholding
changes that lead to changes of “control”.
Are there any foreign exchange and investment controls?
There are currently no foreign exchange controls in force in
Singapore.
Is there any merger control?
The Competition Act (Cap. 50B) (the Competition Act) contains
provisions relating to competition and the abuse of a dominant
position in the market, and established the Competition
Commission of Singapore (the Commission).
The Competition Act seeks to prohibit anti-competitive activities
that unduly prevent, restrict or distort competition.  However,
enforcement action will only be taken if there is an appreciable
adverse effect on competition in Singapore, or if there is no
net economic benefit. In assessing whether an action is anti-
competitive, consideration will also be given to whether it
promotes innovation, productivity or longer-term economic
efficiency.
Other than the matters or mergers specifically excluded under
the Competition Act, the Competition Act applies to commercial
and economic activities carried on by private sector entities in
all sectors, regardless of whether the “undertaking” is owned by
a foreign entity, a Singapore entity, the Singapore Government
or a statutory body, although the behaviour of the Singapore
Government, statutory bodies or any person acting on their behalf
is exempt.
The Competition Act contains the following prohibitions:
Section 34 prohibition: Agreements, decisions and practices
which prevent, restrict or distort competition in Singapore are
prohibited unless they are excluded under the Third Schedule
of the Competition Act, or fall within a category specified in a
block exemption order. An example of a prohibited agreement
is one which fixes purchase or selling prices, or any other trading
conditions.  
Section 47 prohibition: Undertakings with a dominant position
(whether in Singapore or elsewhere) are prohibited from abusing
such a position in ways that are anti-competitive and which work
against long term economic efficiency. The Third Schedule of the
Competition Act contains exclusions to the section 47 prohibition.
An “undertaking” means any person, being an individual, a body
corporate, an unincorporated body of persons or any other entity,
capable of carrying on commercial or economic activities relating
to goods or services.
Section 54 prohibition: Mergers that have resulted, or are
expected to result, in a substantial lessening of competition within
any market in Singapore for goods or services, and which have no
offsetting efficiencies, are prohibited unless the merger falls within
an exclusion in the Fourth Schedule of the Competition Act.
Certain industry sectors are currently excluded from the scope of
the Competition Act (set out in the Third and Fourth Schedules
of the Competition Act), but such exclusions are not intended
to be permanent, and will be reviewed from time to time to
determine their necessity.  The exemptions apply to goods and
services already regulated by other competition laws, such as the
electricity and gas and telecommunications industries, as well
as certain other specified activities such as the postal service,
public transport and clearing and exchange houses.  In addition,
regulated entities that are already required to seek approval for
mergers and acquisitions will not be subject to additional approval
by the Commission pursuant to section 54 of the Competition Act.
The Competition Act applies to a party, agreement, abuse of
dominant position or merger if such party, agreement, abuse of
dominant position or merger has infringed any of the prohibitions
above, notwithstanding that:
„„ the agreement has been entered into outside Singapore;
„„ any party to such agreement is outside Singapore;
„„ any undertaking abusing the dominant position is located
outside Singapore;
„„ the merger has taken place outside Singapore;
„„ any party to such merger is located outside Singapore; or
„„ any other matter, practice or action arising out of such
agreement, dominant position or merger is outside Singapore.
What are the employee issues?
Are works councils/consultation common?
Singapore companies do not have employee work councils,
although participation in trade unions is common in certain
sectors (e.g. manufacturing).
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Are any actions required prior to or upon an acquisition for
employees?
Employees in Singapore enjoy certain protections in business
or asset purchases (as opposed to share acquisitions) under
the Employment Act (Cap. 91) (the Employment Act). Such
protections include:
„„ the automatic transfer of employment contracts on their
existing terms to the buyer, together with all rights and duties
attached; and
„„ consultation rights with trade unions or other employee
representatives prior to the transfer.
It should be noted that “employees” under the Employment Act
is narrowly defined. For employees not falling within the definition,
the protection afforded to them will be governed by the terms of
their employment contracts.
Are there any notification obligations for employees prior to or upon
an acquisition?
The Employment Act imposes an obligation on the seller of a
business to notify the affected employees and their trade unions
of:
„„ the fact that the transfer is to take place, the approximate date
on which it is to take place and the reasons for it;
„„ the implications of the transfer and the measures that the
seller envisages he will, in connection with the transfer, take in
relation to the affected employees or, if he envisages that no
measures will be so taken, that fact; and
„„ the measures that the buyer envisages he will, in connection
with the transfer, take in relation to such of those employees
who will become his employees after the transfer or, if he
envisages that no measures will be so taken, that fact.
Timing
Transfer under the Employment Act takes place automatically
upon the transfer of the business.
In all other cases, transfers should be effected prior to or
simultaneously with the completion of the sale of the business
(although this is subject to contract).
With which stock exchange requirements must listed
companies comply?
What rules generally govern listed companies?
Companies whose shares are listed on the SGX-ST must comply with
the Listing Rules, which are set out in the Listing Manual of the SGX-ST.
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The purposes of the Listing Rules include ensuring that:
„„ the issue and trading of securities is conducted in a fair and
orderly manner, and that potential investors are given sufficient
information;
„„ investors are kept fully informed by the listed companies of all
factors that might affect the investors’ interests; and
„„ when there is information which may have a material effect
on the market activity and prices of listed securities, such
information is immediately disclosed by the listed companies.
The Listing Rules set out certain criteria which require listed
companies to disclose large transactions, such as acquisitions
and disposals. Based on these criteria, certain transactions would
also require shareholder notification and approval. Transactions
that are disclosable and require shareholder approval include
major acquisitions, takeovers and reverse takeovers.
Listed companies are required by the Listing Rules to announce and
publicly disseminate any information known to the issuer concerning it
or any of its subsidiaries or associated companies which:
„„ is necessary to avoid the establishment of a false market in the
listed company’s shares; or
„„ would be likely to have a material effect on the price or value of
securities of the listed company.
Examples of events which should be announced are:
„„ joint ventures or mergers;
„„ firm evidence of significant improvement/deterioration in near-
term earning prospects;
„„ change in effective control or a significant change in
management; and
„„ events of default under financing or sale agreements.
How does a company delist its share capital?
An application must be made to the SGX-ST to delist and should
fulfil the following criteria;
i. Shareholder approval of delisting must be obtained at a
general meeting;
ii. The resolution must be approved by a special resolution (a
majority of at least 75 per cent in nominal value of the shares
held by the shareholders present and voting, on a poll,
either in person or by proxy at the meeting) and the listed
company’s directors and controlling shareholder need not
abstain from voting on the resolution;
iii. The resolution must not have been voted against by 10
per cent or more in nominal value of the shares held by the
shareholders present and voting, on a poll, either in person
or by proxy at the meeting;
 iv. A reasonable exit alternative, normally in cash, should be
offered to (a) the shareholders and (b) the holders of any
other classes of listed securities to be delisted; and
v. An independent financial adviser has been appointed to
advise on the exit offer.
Where the company is delisting pursuant to a voluntary liquidation
or scheme of arrangement, paragraphs (i) - (iii) will not apply.
Is financial assistance prohibited?
What is the nature of the prohibition?
A Singapore-incorporated company (whether public or private)
is prohibited from giving financial assistance (either directly or
indirectly) for the purpose of the acquisition of shares in itself or its
holding company.
The purpose of the financial assistance rules is to maintain capital
to protect creditors, prevent the misuse of assets and provide for
the equal treatment of all shareholders.
Financial assistance can be given in many forms including gifts,
loans, guarantees, giving security, waiving debt or other obligations
or where, as a result of the assistance, net assets of the company
giving the assistance are reduced to a material extent.
Any security or guarantee given for any part of the debt that is
not used to acquire or refinance the acquisition of the shares in a
company or its holding company (e.g. a working capital facility) is
not caught by the financial assistance rules.
Any financial assistance given in relation to borrowings that are
used to refinance loans originally used for the acquisition of shares
in a company or its holding company may also be caught.
What are the sanctions?
The sanctions for breach of the financial assistance rules are
serious. The officers of the company may be fined and/or
imprisoned for up to three years. Directors may also face civil
claims for breach of their duties to the company.
The assistance itself (e.g. a loan or guarantee) will be voidable at
the option of the company.
Are there any exceptions to the prohibition and is there any
procedure which can be followed to make financial assistance
possible (i.e. a “whitewash procedure”)?
Depending on the circumstances of the transaction, there are
limited exceptions from the prohibition, for public and private
companies, such as a distribution of assets by way of dividend,
a discharge of liabilities in the ordinary course of business, or a
buyback of its shares in certain circumstances.
Singapore law provides a specific exemption for companies in
certain circumstances which, provided the legislative procedure
is followed, allows the shareholders of a company to approve the
financial assistance. This is known as the “whitewash procedure”.
There are detailed technical formalities (including a timescale) to
be complied with if the exemption is to be obtained, and specific
legal advice should be obtained.
In addition, financial assistance will be permitted if, inter alia, the
directors make a solvency statement in respect of the giving of
financial assistance and all members of the company approve the
financial assistance, or the financial assistance does not exceed
10 per cent of the aggregate of the total paid-up capital and
reserves of the company.
6. Public takeovers
What are the forms of a public offer?
A takeover of a public company in Singapore can be structured as:
„„ a public offer to acquire all the issued (and to be issued) share
capital (or units, as the case may be) of the target from existing
shareholders (or unit holders, as the case may be);
„„ a scheme of arrangement between the target, the shareholders
of the target (or unit holders, as the case may be) and the
bidder; or
„„ an amalgamation.
Other than an offer for all the issued share capital of the target,
partial offers may be permitted as well. Partial offers which would
not result in the bidder and persons acting in concert with it
holding 30 per cent or more of the voting rights of the target are
usually allowed by the SIC. The SIC will not consent to any partial
offer which would result in the bidder and parties acting in concert
with it holding not less than 30 per cent but not more than 50 per
cent of the voting rights of the target. However, the SIC may grant
consent to a partial offer which would result in the bidder and its
concert parties holding shares carrying more than 50 per cent
of the voting rights of the target subject to the fulfilment of the
conditions set out in the Code.
Takeovers can be either recommended by the target’s board, or
hostile (see Announcements on page 96).
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What is the regulatory framework for a public offer?
The Code
The principal source of regulation is the Code, which is a set of
rules designed to provide a flexible framework and to ensure fair
and equal treatment of all shareholders.
The SIC may be called upon to give guidance and direction to the
parties during or before an offer.
Although the Code does not have the force of law, any breach of
the Code may result in sanctions such as private or public censure
or reprimand, and the withdrawal of the facilities of the Singapore
securities markets. In practice, compliance with the Code is
considered mandatory.
There are a number of other laws regulating certain aspects of
takeovers, including the general requirements of company law
and laws governing the conduct of securities trading (e.g. insider
trading prohibitions).
In addition, the Listing Rules may be relevant if the shares of the
bidder (or the target) are listed on the SGX-ST.
Application of the Code
The Code is drafted with listed public companies in mind, but
unlisted public companies with 50 or more shareholders and
net tangible assets of SGD5,000,000 or more must also comply
(wherever possible) with the Code. The Code does not apply
to takeovers or mergers of other unlisted public companies or
private companies. The Code applies to all offerors, whether they
are natural persons (whether resident in Singapore or not, and
whether citizens of Singapore or not), corporations or bodies
unincorporate (whether incorporated or carrying on business in
Singapore or not), and extends to acts done or omitted to be
done in and outside Singapore.  offer period or within six months prior to its commencement, the
Apart from Singapore-incorporated public companies, the Code
also applies to foreign-incorporated companies with a primary
listing of their shares on the SGX-ST.  Listed public companies
incorporated in Singapore but which have their primary listing on a
foreign exchange may apply for a waiver of the application of the
code.
In addition, the Code now extends to business trusts with a
primary listing of their units in Singapore, or unlisted business
trusts with more than 50 unit holders and net tangible assets of
SGD5,000,000 or more.
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What are the main offer terms?
Minimum price requirements
Where the bidder (or any of its concert parties) purchases shares
in the target during the period starting three months prior to the
commencement of the offer period, the offer to holders of that
class of share cannot be on less favourable terms in terms of
value. The back-stop date is six months instead of three months if
the bidder (or any of its concert parties) is subject to a mandatory
requirement to make an offer under the Code.
If, after the announcement of a firm intention to make an offer by
the bidder but before the offer closes for acceptance, the bidder
(or any of its concert parties) purchases shares at above the
offer price, the bidder must increase its offer to not less than the
highest price paid for the shares acquired.
The SIC may agree to different terms in exceptional
circumstances.
Cash/non-cash terms
Consideration for an offer may be in cash, securities (e.g. loan
notes, shares or other securities of the bidder), or a mixture of
both.
Cash consideration
Cash consideration is compulsory in mandatory offers (see
mandatory offer requirements on page 99). This means that if a
bidder wishes to offer securities as consideration, it must give
the shareholders of the target an option to receive cash in lieu of
securities (the “cash alternative”).
Where 10 per cent or more of the target’s shares are purchased
for cash by the bidder (or any of its concert parties) during the
offer must be in cash (or accompanied by a cash alternative) at a
price no lower than the highest price paid for such shares during
the offer period or within six months prior to its commencement.
Non-cash consideration
Generally, non-cash consideration will consist of the bidder’s
ordinary shares, though other equity related securities may be
offered.
Where 10 per cent or more of the target’s shares are purchased
using securities as consideration by the bidder (or any of its
concert parties) during the offer period or within three months
prior to its commencement, the bidder must make available a
securities offer as well as a cash alternative.
Conditions
Required conditions: Every takeover offer must be conditional
upon a minimum level of acceptance. For both mandatory
offers and voluntary offers, the minimum level of acceptance
is that which would result in the bidder (and persons acting
in concert with it) holding more than 50 per cent of the voting
rights. Voluntary offers which are conditional on a higher level of
acceptance are subject to approval by the SIC. The bidder has to
satisfy the SIC that it is acting in good faith in imposing a high level
of acceptance.
Prohibited conditions: A mandatory offer must not be subject
to any condition other than the conditions as to the minimum
level of acceptance. A bidder in a voluntary offer will normally
subject the voluntary offer to a number of conditions which
should not generally require subjective judgements by the bidder.
In addition, the bidder should not invoke any condition (except
as to a minimum level of acceptance) causing the offer to lapse
unless the circumstances giving rise to the offer lapsing are of
material significance to the bidder in the context of the offer, and
information about the condition is not available from public records
or is not known to the bidder before the offer is announced.
Usual conditions: The common conditions attached to a
voluntary offer include:
„„ valid acceptances in respect of 90 per cent of shares being
received by the first closing date, although this will usually
provide that it can be reduced by the bidder so long as it is
more than 50 per cent (see Squeeze-outs on page 100 as to
the importance of the 90 per cent threshold);
„„ passing of such resolutions as are necessary to implement the
offer at an extraordinary general meeting of the bidder;
„„ in the context of a securities exchange offer, admission of new
shares in the bidder to listing by the SGX-ST; and
„„ necessary regulatory filings having been made and clearances
obtained.
Funding the acquisition
In a cash offer or where the offer involves an element of cash,
the bidder will need to include in its offer announcement an
unconditional confirmation by a financial adviser (or by another
appropriate third party) that the bidder has sufficient financial
resources to satisfy full acceptance of the offer.

Simplified offer timetable

Date/Time period Events

D-21 Earliest possible date for the press announcement.

Day 0 (D) Offer document dispatched (no earlier than 14 days but no later than 21 days after
the press announcement).

D+14 Last date for dispatch of response document by target.

D+28 Earliest date for first closing date.

First business day after first closing Announcement of acceptance levels and (if appropriate) extension of offer.
date (and all subsequent closing
dates)

D+46 Last day for despatch of notice on revision of offer.

(assuming first closing date is D+28) An offer, if revised, must be kept open for 14 days. Since the offer period must end
on D+60 (save for special circumstances), the last day for the despatch of notice on
a revision of offer is on D+46.

D+60 Last date for fulfilment of acceptance conditions.

D+74 Last closing date. If an offer becomes unconditional on D+60, the closing date will
fall 14 days thereafter.

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What is the timing of a public offer and what is the
procedure to be followed?
Please see simplifed offer timetable on the previous page.
Announcements
An announcement of a firm intention to make an offer is made by
the bidder after approaching the target board. In a hostile offer,
the announcement is usually made immediately after approaching
the target board to restrict the time for the target board to
marshal its defences. An immediate announcement is required
where an obligation to extend a mandatory offer is triggered.
Where there is evidence of a leak regarding a possible offer, the
SIC will require an immediate announcement to avoid the risk
of a false market developing. Such an announcement may be a
holding announcement stating no more than that an offer for the
target is under consideration. A holding announcement must be
followed up by further monthly announcements on the progress
of the talks until a firm intention to make an offer or a decision not
to proceed with an offer is announced.
The bidder will announce a firm intention to make an offer and if
required, a holding announcement is made by the target. In certain
circumstances, e.g. where there is an undue movement in the
share price of the target, the target or the substantial shareholders
of the target may be required to make an announcement.
The announcement of a firm intention to make an offer crystallises
the obligation to make an offer (subject to any offer conditions). A
bidder will only be permitted not to proceed in highly exceptional
circumstances.
Acceptance period
The offer must be initially open for at least 28 days from posting of
the offer document.
The bidder may on any closing date extend the offer by
announcing a revised closing date until the offer becomes
unconditional as to acceptances, which must happen on or
before D+60. Extensions are usually in increments of 14 days
until requisite acceptances are received at which point the offer is
generally extended until further notice.
On the first business day after the first closing date, any
subsequent closing dates and any date on which the offer is
revised, extended or declared unconditional as to acceptances,
announcements must be made concerning acceptance levels
and specifying the percentages of the relevant classes of share
capital represented by these figures.
94
If revised, the offer must be kept open for at least 14 days from
the date the revised offer is posted. For this reason, the offer may
not be revised after D+46.
Satisfying offer conditions
The last possible date for announcing that the offer is
unconditional as to acceptances is D+60. The SIC will normally
consent to an extension of this period in a competitive offer
situation.
Except with the SIC’s consent, all other conditions must be
fulfilled within 21 days of the first closing date, or of the date the
offer becomes or is declared unconditional as to acceptances
(whichever is the later).
Offer unconditional - payment
The bidder must pay for the target’s shares as soon as
practicable, but in any event within 10 days after (i) the offer
becomes or is declared unconditional in all respects; or (ii)
the receipt of valid acceptances where such acceptances
were tendered after the offer has become or been declared
unconditional in all respects.
Competing bids
An original bidder will be allowed to depart from the offer timetable
and revise its offer if a competitive situation arises.
The Code requires that information, including particulars of
shareholders, given to one bidder or potential bidder must, on
request, be furnished equally and promptly to any other bona
fide bidder or potential bidder, who should specify the questions
to which it requires answers.  This rule also covers bids for all (or
materially all) of the assets and/or business of the target.  The SIC
would normally regard a person to be seeking to acquire materially
all of the assets and/or business of a company if such assets and/or
businesses account for or contribute more than 30 per cent of the
offeree company’s sales, earnings, assets or market capitalisation.
Failed bids and further offers
When an offer has failed, the bidder cannot make a further offer
within 12 months without the consent of the SIC, or acquire
any voting rights of the target if the bidder or persons acting
in concert with it would thereby become obliged to make a
mandatory offer. A bidder who wishes to make an offer for the
same target within 12 months from the date of the close of a
previous partial offer (whether successful or not) must also obtain
the SIC’s prior consent.
What documentation is involved in the process?
Press announcement
An announcement of a firm intention to make an offer must
contain (amongst other things):
„„ any conditions to which the offer will be subject;
„„ the principal terms of the offer;
„„ details of existing holdings in the target held by the bidder and
any concert parties; and
„„ confirmation that the bidder has sufficient financial resources to
extend the offer.
Offer document
Where an offer is recommended, the offer document will include
the target board recommendations and will be a joint bidder/
target document.
The offer document sets out in detail the terms of the offer, the
conditions attached to it, the acceptance procedure, as well as
the bidder’s arguments in support of the offer and an explanation
of its plans for the target.
The offer document must contain a responsibility statement made
by the directors of the bidder assuming responsibility for the
information.
The offer document must contain the minimum information
prescribed under the Code.
Target documentation
After receipt of notification of an offer, the target board must make
an announcement to its shareholders informing them of the offer.
The target board must advise the shareholders of the target of its
views after having obtained competent independent advice within
14 days after the bidder has despatched the offer document.
If the offer is a recommended offer, the target’s directors’ views
will be set out in the offer document. Otherwise a separate
document will be issued by the target.
Responsibility statements
The offer document, target document and all announcements
made by the bidder and the target have to contain a responsibility
statement made by the directors of the bidder or target (as the
case may be) assuming responsibility for the information in the
document or announcement.
What are the practices relating to break fees and lock-out?
A break fee arrangement, whereby a fee is paid by the target to
the bidder if a specified event occurs which prevents the offer
from succeeding, is allowed. However, a break fee may not be
enforceable if it has been assessed as a penalty rather than a
genuine pre-estimate of loss.
The SIC’s approval should be sought if a break fee arrangement
is proposed as the SIC would be concerned that the target’s
shareholders’ interests might be adversely affected. In addition, the
bidder must ensure that the target has the capacity to enter into a
break fee arrangement and, amongst other things, the directors
and advisers of the target are acting in the best interest of the
company.
The Code stipulates a 1 per cent cap on break fees.  In addition,
the bidder and its financial adviser must provide certain
confirmations to the SIC.
It is not a common practice for the bidder and the target to enter
into a lock-out agreement whereby the target agrees not to enter
into, or solicit, negotiations with another potential bidder.
Care must be exercised in entering into a lock-out agreement as
the target board has a duty not to take any action which could
frustrate an imminent bona fide offer without the shareholders’
approval in general meeting. A target also has to provide
information on an equal basis to all competing bidders.
What are the rules on information gathering/provision?
The Code requires information to be provided equally to all
shareholders and also competing bidders.
A bidder may sometimes undertake some due diligence on the
target before extending an offer. If price-sensitive information is
proposed to be provided by the target to the bidder, this may
potentially create an insider trading offence for the bidder to
acquire the target shares from the target shareholders.
Publicly available information about the target may be obtained
from the Accounting and Corporate Regulatory Authority (ACRA)
or the SGXNET (a financial network maintained by the Singapore
Exchange Ltd) announcements made by the target. The target
should not make price-sensitive information available to the
bidder.
If non-publicly available information is proposed to be given,
it must be examined whether the target (if listed) is required to
disclose the information publicly under the Corporate Disclosure
Policy of the SGX-ST.  If the information is commercially sensitive
or a business secret, the bidder and the target would normally
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enter into a confidentiality agreement before disclosure is made.
The target should also consider that it might be required (unless the
SIC rules otherwise) to provide the same information to a competing
bona fide bidder or potential bidder which is less welcome.
What is the position regarding insider trading?
Insider trading in securities listed or traded in Singapore is a criminal
offence which may also carry civil liabilities. The offence, if committed
in Singapore, also extends to securities quoted outside Singapore.
In general, any person who has information concerning a
corporation that is not generally available and which a reasonable
person would expect to have a material effect on the price or
value of the corporation’s securities, would be guilty of insider
trading if he:
„„ deals in the securities;
„„ procures others to deal in the securities; and
„„ communicates the information to a third party where the third
party is likely to deal in the securities.
The penalties for insider trading are:
i. a fine not exceeding SGD250,000 or imprisonment not
exceeding seven years or both; or
ii. in lieu of (i), a civil penalty at the greater of three times the
unlawful profit gained or loss avoided, or up to SGD50,000
if the person is not a corporation, or SGD100,000 if the
person is a corporation; or
iii. in lieu of (i) and (ii), a civil penalty of a sum not less than
SGD50,000 and not more than SGD2,000,000, if the
person had not gained a profit or avoided a loss.
In addition to these penalties, a person who has engaged in
insider trading may also be liable to compensate any person
trading contemporaneously with him for the unlawful profit gained
or loss avoided.
What are the public disclosure requirements in a takeover
scenario?
Bidder
In general, a person who has acquired an interest in 5 per cent or
more of a Singapore incorporated company listed in Singapore is
required to disclose his interest to the company and the SGX-ST
and any subsequent changes in the percentage level must also be
disclosed.
1
The amended provisions of the SFA will come into force on a date to be gazetted.
96
The Securities and Futures Act (Chapter 289) (the SFA) has
been amended such that a substantial shareholder of a foreign
incorporated company with a primary listing on SGX-ST must
also disclose his interest to the company. Further the substantial
shareholder would only have the disclosure obligations to the
company and not to the SGX-ST.1
Once a takeover commences, the bidder is required to publicly
disclose to the SGX-ST and the SIC, by 12 noon the following
business day, dealings in the target shares for itself, its associates
or their discretionary investment clients (discretionary investment
clients include individuals and funds for whom the bidder or any
of their associates is accustomed to make investment decisions
without prior reference).
In a competitive bidding situation, a bidder is also required to
disclose dealings in a competitor’s shares.
Target
Dealings by directors, substantial shareholders and associates of
the target in the target shares must be publicly disclosed.
Once amendments to the SFA come into force, dealings by the
chief executive officer of the target in the target shares must also
be publicly disclosed and the target will be required to notify SGX-
ST of such change in shareholding notifications it receives from
substantial shareholders, directors and chief executive officers as
soon as practicable.
Where shares of the bidder are offered as consideration for the
target shares, dealings by the target in the bidder shares must be
publicly disclosed.
The target documentation would have to state, among other
things, changes of the target directors’ shareholdings in the target
for the last six months prior to the commencement of the offer.
Does a memorandum of understanding (MoU) need to be
disclosed?
The need for disclosure of an MoU will depend on the type of
acquisition, the parties involved and the terms of the MoU. In
general, the SGX Listing Manual stipulates that a listed company
must disclose information that:
„„ is necessary to avoid the establishment of a false market in its
securities; or
„„ is likely to have a material effect on the price or value of
securities of that company.
Where a reasonable person would not expect the information to be
disclosed, the information is confidential, or the information concerns
an incomplete proposal or negotiation, an exception may apply to the
disclosure requirement depending on the circumstances.
What are the limitations to stakebuilding?
Acquisition of shares carrying 30 per cent or more of the voting rights
of a company will usually trigger a mandatory offer (see below).
Is there a requirement to make a mandatory offer?
There is a requirement under the Code to make a mandatory offer
for the target’s shares if the shareholding of a person exceeds
certain thresholds. The SIC may grant dispensations in limited
circumstances.
A mandatory offer must be made when:
„„ a person acquires (together with shares held or acquired by
persons acting in concert with him) shares which carry 30 per
cent or more of the voting rights of a company; or
„„ any person who (together with concert parties) holds not less
than 30 per cent but not more than 50 per cent of the voting
rights, or any person acting in concert with him, acquires
additional shares which increase his percentage of the voting
rights by more than 1 per cent in any period of six months.
There are comprehensive rules relating to whose shareholdings
must be aggregated and who will be treated as a concert party.
The mandatory offer must offer a cash consideration or a cash
alternative at not less than the highest price paid by the bidder
or any person acting in concert with him for shares of that class
in the previous six months. It must be conditional only upon
acceptances of more than 50 per cent of the target shares.
The SIC may waive the requirement to make a mandatory offer in
the following circumstances (if the independent shareholders of
the target pass a resolution in a general meeting by way of a poll
to waive their rights to receive a general offer from the bidder and
his concert parties):
„„ if a company issues new securities as consideration for an
acquisition;
„„ if a company issues new securities for a cash injection;
„„ if a person acquires new securities in fulfilment of obligations
under an underwriting agreement; or
„„ on the distribution of shares of a downstream company to the
shareholders of the upstream company.
Statutory rules apply if such a resolution (a “whitewash resolution”)
is sought from the target’s independent shareholders.
What defences are available to a target company during the
stages of an offer?
A target may attempt to ward off a hostile offer by undertaking
defences.
Defences available before a takeover offer is made (poison pills)
are rarely used by companies incorporated in Singapore as there
are concerns of conflicts with the target board’s fiduciary duty.
During the offer period, the target’s board is not allowed to take
any action which might deny shareholders an opportunity to
decide on the merits of an offer that has been received or a bona
fide offer which is reasonably believed to be imminent.  In addition,
there is the general prohibition on a target’s board taking actions
without shareholders’ approval which might frustrate an offer.
After an offer has been received in a hostile takeover, the defence is
usually confined to seeking a “white knight”, or stating in the target
documentation that the target’s board does not believe that acceptance
of the offer is in the best interests of the target or its shareholders.
Apart from the duty not to frustrate an offer, the target’s board
must generally act in the best interests of the target’s shareholders
as a whole.
What obligations are the directors of the bidder and target
under?
Bidder
The Code imposes considerable obligations on the directors of the
bidder. In addition, the directors of the bidder will need to consider
the insider trading legislation if they are contemplating dealing in
the shares of the target and, in some circumstances, the bidder.
The advisers to the bidder should prepare a comprehensive
memorandum of the directors’ obligations as soon as the bidder
starts to consider the possibility of making an offer.
Target
The Code imposes considerable obligations on the directors of the
target.  In addition they must comply with their obligations under
the Listing Rules as well as their fiduciary duties to the target.
The directors of the target must not take any action which might
constitute oppression of the minority shareholders of the target. The
minority shareholders may seek statutory redress against oppression.
The advisers to the target should prepare a comprehensive
memorandum of the directors’ obligations immediately following
any offer approach.
97
What is the procedure for a squeeze-out of the minority?
Where a takeover offer is made for a Singapore company and
acceptances are received in respect of 90 per cent of the shares
to which the offer relates within four months of the making of the
offer, the bidder may compulsorily acquire the shares of the non-
accepting shareholders.
Shares acquired by the bidder, its related corporation or a
nominee of the bidder or its related corporation prior to making
the offer cannot be taken into account in calculating whether the
90 per cent threshold has been reached, although shares subject
to an irrevocable undertaking can usually be taken into account.
Notices must be served on the non-accepting shareholders within
two months of reaching the 90 per cent threshold, and the non-
accepting shareholders have a right to apply to the court for an
order that the bidder shall not be entitled to acquire the shares or
specifying terms of acquisition different from those of the offer.
If the bidder has acquired not less than 90 per cent of all of the
shares in the company, a minority shareholder also has a right to
be bought out by the bidder.
7. Overview of a private company acquisition
Timing
The timing of a private acquisition depends on the cooperation
between the parties, and the progress of negotiations and other
matters specific to the transaction.
Steps
Set out on the next page is an overview of the steps that can
be involved in a private company acquisition in Singapore
(private company transactions can vary enormously in how they
are structured and this illustration is by no means indicative of
every transaction, e.g. there may be simultaneous signing and
completion).
8. What tax issues should be considered?
Capital gains
There is no capital gains tax in Singapore.
Transfer taxes
Transfer tax (called stamp duty) is payable on certain written
agreements and transfer documents for the sale of shares. A
disposal of shares effected by the cancellation and issue of
new shares to the transferee shall be treated as a transfer of
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shares, and stamp duty is payable on any document that effects,
whether directly or indirectly and whether wholly or partially,
any arrangement for the disposal of shares. Stamp duty is also
payable on the conveyance or transfer of immovable property.
The rate of stamp duty for the transfer of shares of a company
incorporated in Singapore is 0.2 per cent of the higher of the
consideration paid per share or the net tangible asset value per
share (normally determined by reference to the latest available
audited financial statements of the company).
The rate of stamp duty for the transfer of immovable property
is 1 per cent for the first SGD180,000, 2 per cent for the next
SGD180,000, and 3 per cent thereafter.
Stamp duty must be paid if title needs to be proved or the
agreements or documents are to be produced in evidence before
a court in, or registered in, Singapore.
Thin capitalisation/interest deductions
A company may in general claim a deduction from interest paid
under a loan used for the purposes of producing income when
calculating its taxable profits.
If an interest payment is re-characterised as a distribution then the
borrower will not be entitled to a deduction in calculating its profits
for corporate tax purposes.
If the consideration given by the company for the use of the
principal represents more than a reasonable commercial
return, the excess may not be available for tax deduction when
calculating the profits for corporate tax purposes.
Withholding tax
If a person makes a payment of Singapore source interest to a
person not resident in Singapore, that person may be obliged
to deduct income tax at the prevailing rate of 15 per cent for
2006 and subsequent years.  Withholding tax at the rate of
15 per cent is also payable on commission, fee or any other
payment in connection with any loan or indebtedness or with any
arrangement, management, guarantee, or service relating to any
loan or indebtedness.
Withholding tax at the rate of 10 per cent is applicable on
payments of royalties and rents for any moveable property to a
person not resident in Singapore.
Withholding tax rates may be reduced by applicable tax treaties
between Singapore and the country of residence of the non-
resident person.
There are a number of exemptions where there is no requirement to
withhold tax, for example certain interest paid by or received by a
Singapore bank and interest paid out of qualifying debt securities.

It is also possible to obtain authorisation from the Inland Revenue

Authority to pay interest without withholding tax if the lender is
entitled to an exemption under a double taxation treaty. There is
no withholding tax on dividend payments.

BUYER SELLER
Information memorandum
(auction)
Heads of agreement

Exclusivity Confidentiality agreement

agreement (may be simultaneous to information
memorandum for auction)

Preliminary
enquiries Reply to enquiries
STAGE
ONE
Legal review
Draft disclosure letter
Draft acquisition
agreement
(seller for auction) Agree acquisition
agreement and
disclosure letter

STAGE Exchange acquisition agreement

TWO Seller delivers disclosure letter to buyer

Ensure compliance with conditions

STAGE
THREE
Repeat searches

STAGE
FOUR Completion

STAGE
FIVE Post-completion matters

99
 re s
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1. What are the forms of business entity in Thailand?
Common forms of entity
„„ Private limited company
„„ Public limited company (usual abbreviation is “PCL”, as the
words are in a different sequence in Thai)
„„ Limited partnerships
Less common forms of entity
„„ Ordinary partnerships.
„„ Foundations, which are usually for charitable objects. (There
are no special forms of joint ventures formally recognised in
Thailand).
„„ A joint venture may be merely a contractual arrangement, with
no requirement for the joint venture agreement to be registered
or published. However, unless the joint venture is of a
temporary nature, it is usual for joint ventures to be conducted
through a specially formed limited liability company.
„„ Sole proprietorships do not require commercial registration but
they may need to register for other statutory purposes and/or
obtain permits from relevant government agencies, depending
on the type of business to be conducted.
„„ Unlimited companies and companies limited by guarantee do
not exist as corporate forms under Thai law.
2. How is a company managed?
The basic management structure
What form does the management structure take?
Both a PCL and a private limited company have a single board
of directors, which is responsible for the management of the
company, although the board of directors may delegate specific
powers to one or more managers or to a committee of directors.
Only individuals may be directors.
A PCL must have a minimum of five directors but there is no
maximum number. A private limited company must have a
minimum of one director but there is no maximum number.
At least half of the directors of a PCL must be resident in
Thailand, although do not need to be Thai nationals. There are no
nationality or residency requirements for directors of private limited
companies, except in specially regulated business sectors, as
noted below.
A PCL is required to have a chairman of the board who has
certain statutory duties, such as convening board meetings and is
usually elected by simple majority vote from amongst the board’s
members. A PCL that has approval to offer shares to the public
or whose shares are listed on the Stock Exchange of Thailand
Thailand
(the SET) is also required to have a company secretary, who is
responsible for certain regulatory compliance matters.
No other statutory requirements exist that require a PCL to have
a president, managing director or any other officer, although
provision can be made for officers with these titles in a PCL’s
articles of association.
A listed company is subject to additional requirements concerning
the composition of its board and qualifications of its members.
In particular, a listed company is required to have an “audit
committee” comprising at least three independent directors under
the SET’s Listing Rules.
Two-tier management structures with a supervisory board are not
possible within the framework of Thai company law. The body to
which the board is ultimately responsible, and which establishes
any applicable limits on the authority or powers of the board, is
the general meeting of shareholders.
How are directors appointed to and removed from office?
A director may only be appointed for his full term by a general
meeting of the shareholders of a company. If there is a vacancy
in the board of directors, the remaining directors may, unless
prohibited by the company’s articles of association, fill the vacancy
for the unexpired term of the director that is replaced.
Only a general meeting of the shareholders may remove a director.
In the case of a PCL, the resolution requires the votes of not less
than three-quarters of the votes of shareholders present and
entitled to vote, representing in aggregate not less than half of the
number of shareholders present and entitled to vote. However, a
director automatically ceases to hold office if he becomes mentally
incompetent or adjudicated bankrupt.
Directors are normally elected for a three-year term but at least
one-third of the directors must retire annually. In the case of PCLs,
all the directors resign annually at the annual general meeting of
shareholders. A retiring director is eligible for re-election.
What powers does the board have?
The board of directors, as a whole, has the powers and duties
to manage the company but must do so in compliance with the
objects and articles of association of the company and resolutions
of shareholders’ meetings.
However, the company may appoint one or more directors in any
combination, to manage the company and to bind the company
by their signatures. The powers of the directors who may bind
the company are described in the company’s certificate (affidavit)
issued by the Ministry of Commerce (the MoC), upon which the
101
public may rely. Only documents signed in accordance with the
authorities registered with the MoC will bind the company.
To be validly executed by a company, documents must be signed
by one or more authorised directors in accordance with their
specific signing authorities recorded at the Companies Registry.
If required by a company’s articles, the company’s seal must also
be affixed. A power of attorney may be executed to authorise a
person to perform specific functions and this power of attorney
must also be executed in accordance with the signing authorities
recorded at the Companies Registry.
Are there any residency requirements for directors?
At least half of the directors of a PCL must be resident in Thailand,
although they do not need to be Thai nationals.
There are no residency requirements for directors of private limited
companies. As a matter of practical necessity, however, at least
one director able to sign for the company (as only directors can
be given unlimited signing authority) may need to be resident in
Thailand. Moreover, in September 2008, the MoC changed its
interpretation of the law regarding a private-company’s board
of directors. First, a director of a private limited company must
perform his duties in person and can no longer appoint another
person to act as his proxy to attend and vote at a meeting of the
board of directors. Secondly, a private limited company must hold
real meetings of the board with directors physically present. As a
result, the board of directors of a private limited company can no
longer adopt a resolution without holding a physical meeting, even
though the articles may purport to allow this.
The following specially regulated business activities have
additional requirements concerning the nationality of directors:
„„ for PCLs undertaking insurance (life and non-life), commercial
banking, securities, credit foncier and finance business
activities, at least three-quarters of the directors must be Thai
nationals; and
„„ for companies conducting certain restricted businesses under
the Foreign Business Act, at least two-fifths of the directors
must be Thai nationals.
Is there any requirement for directors to hold shares?
Directors’ duties are not specifically directly owned to
shareholders of the company, although in some circumstances
shareholders may have a direct claim against a director for indirect
loss suffered as a shareholder in the company.
102
What duties do directors owe?
Overview
The duties and responsibilities of a director arise under the objects
and articles of association of the company and resolutions of
shareholders’ meetings, as well as under relevant laws and
regulations. The core duty is to act in good faith and with care to
preserve the interests of the company.
Duty to the company
The Civil and Commercial Code (the CCC) imposes a duty on
the directors of a private company to conduct the company’s
business in the same manner as a careful businessman who
applies the standards of a professional person in that business. In
addition, a director:
„„ must not undertake commercial transactions of the same
nature as, and competing with, those of the company, either on
his own account or that of a third person, and
„„ may not be a partner with unlimited liability in another
commercial concern carrying on a business of the same nature
as, or competing with, that of the company.
The directors of PCLs are subject to more detailed and onerous
duties. The Public Limited Companies Act imposes a duty on the
directors to act in a loyal, honest and careful manner and in the
interests of the company.
In each case, directors are liable to the company for any loss
resulting from their failure to meet such standards and duties to
shareholders and creditors.
In addition, the Securities Act imposes a duty on each director of
a PCL, which has approval to offer shares for sale to the public
or whose shares are listed on the SET, to perform his duties with
responsibility, due care and loyalty in conducting the business of
the company.
In performing his duties with responsibility and due care, a director
must act in the same manner as an ordinary person undertaking
the same business would under similar circumstances. However,
there is a “safe harbour” in which a director will be deemed to
have performed his duties to the required standard, if the director
can prove that, the decision was made with an honest belief that
it was in the best interests of the company, in reliance on sufficient
information and without any conflict of interest.
To perform his duties with loyalty, a director must:
„„ act in good faith and in the best interests of the company;
„„ act with a proper purpose; and
„„ not act when there is any significant conflict of interest with the
interests of the company.
Every director and executive of a PCL must file with the company
and the Securities and Exchange Commission (the SEC) a report
on his interests (and those of his related persons) in relation to the
company and each subsidiary within 30 days of his appointment
and when any reportable interest is subsequently acquired or
disposed of.
Duty to the shareholders
Directors must manage the company under the direction of
general meetings of shareholders.
Claims against the directors for compensation for damage
caused by them to the company may be made by the company
or, if the company refuses to act, by any of the shareholders.
However, where the acts of a director have been approved by
a shareholders’ meeting, such director is no longer liable to the
shareholders who approved them or to the company for those
acts. Shareholders who did not approve such acts cannot claim
against a director later than six months after the date of the
shareholders’ meeting at which such acts were approved.
In the case of PCLs, if a director is in breach of such duties, the
company may sue the director. If the company fails to do so, any
shareholder(s) holding at least 5 per cent of the shares of the
company may make the claim, and also request that the court
removes such director from office.
Shareholders of a PCL together holding at least 5 per cent of the
shares of the company may file, on behalf of the company, a claim
to regain benefits illegally acquired by directors.
Shareholders of a PCL incurring loss from false statements or a
failure by directors to disclose significant facts may bring a civil
action on their own behalf to claim compensation from such
directors.
Duty to creditors
There are no director-specific duties owed to creditors. However,
when a company proposes to reduce its share capital, it must
notify all creditors known to the company of the proposed
reduction and require creditors to present any objection they
may have to such reduction within 30 days from the date of such
notice. If any objection is raised within this period of 30 days, the
company cannot proceed with the capital reduction unless it has
satisfied the claim or given security for it.
The company must similarly send all known creditors a notice
with particulars of any proposed amalgamation and require
the creditors to present any objection they may have within six
months after the date of notice. If any objection is raised, the
company cannot proceed with the amalgamation unless it has
satisfied the claim or given security for it.
A PCL must then notify all known creditors of the passing of a
resolution to reduce its share capital or for its amalgamation within
14 days from the date of the shareholders’ meeting at which it is
passed and must specify in the notice that any objection thereto
must be submitted within two months of receipt of the notice. If
any objection is raised, the company cannot reduce its capital or
proceed with the amalgamation, unless it has paid its debts or
given security for the debts.
Duty to employees
There is no statutory requirement for directors to take the interests
of employees into account when performing their functions
(additional to obligations of the company as an employer under
labour and health and safety legislation, for which the board is
responsible for ensuring the company’s compliance).
What types of liability can directors incur?
The directors may have unlimited personal liability if this is
specified in the company’s memorandum of association.
Where the formation and registration requirements for a private
limited company are not completed within three months following
the statutory meeting that constitutes the company, the directors
of that company are personally liable to pay back all monies paid
in by subscribers as capital of the company.
In the case of a PCL, either its promoters or its board of directors
(depending on which received the money) may be required to
pay back all monies paid up by subscribers if the company is not
registered within three months following the statutory meeting that
constitutes the company.
The directors may have liabilities to shareholders and the
company (whose claims may be enforced by a liquidator or the
official receiver for the benefit of creditors) for improper acts and
transactions authorised or permitted by them at a time when the
company is insolvent.
Any director of a PCL who fails to perform his duties with
responsibility, due care and loyalty, or does so with dishonest
intent, shall be liable to imprisonment for a term not exceeding five
years. In addition, they will be liable for a fine not exceeding two
times the damage incurred or the benefit obtained but not less
than THB1,000,000.
Investors adversely affected by false statements or the failure of a
PCL’s directors or executives to disclose material facts that should
103
have been disclosed may bring a civil action on their own behalf
to claim compensation from the directors or executives involved in
such wrongful acts.
What are the auditing requirements for companies?
The board of directors must prepare and have an annual financial
statement examined by an auditor prior to its submission for
approval at the annual meeting of shareholders.
3. What are the most common types of M&A transaction?
Private companies
Share acquisitions
The shares of a Thai company can be acquired through one or
more private transactions in order to obtain control. By acquiring
the shares and being registered as a shareholder, the buyer
acquires the voting rights in the target. The transfer of shares may
be subject to restrictions contained in the company’s articles of
association.
In respect of business activities, if an acquisition results in 50 per
cent or more of the share capital (by nominal value) of a company
being held by foreigners (which includes Thai companies in
which 50 per cent or more of the capital is held by foreigners),
the company may not carry on certain business activities listed in
the Foreign Business Act unless a licence is obtained. However,
exemptions may also be obtained by certain types of business (or
their owners) such as those:
„„ located on formally designated industrial estates operated by
the Industrial Estates Authority of Thailand (the IEAT);
„„ which qualify for the foreign investment promotional incentives
offered by the Board of Investment (the BoI); or
„„ where majority ownership is beneficially owned by US persons
throughout the ownership chain up to the ultimate owner.
The restrictions do not apply to most manufacturing and
processing activities but may arise if other restricted activities are
conducted by a business, even if only ancillary to unrestricted core
manufacturing or processing activities.
In respect of a company that owns land, if an acquisition results
in more than 49 per cent of the share capital (by nominal value)
being held by foreigners, the company will be required to sell
the land within a period of six to 12 months and thereafter be
prohibited from owning land. However, the first two exemptions
stated above may apply.
A private limited company is prohibited from issuing new shares to
persons other than its directors or shareholders.
104
Newly issued shares of a private limited company will always be
subject to pre-emption rights of the shareholders, although these
may be waived.
Business/asset acquisitions
The private acquisition of a business in Thailand is achieved by
purchasing either the shares of the company or the assets that
comprise the company’s business.
An asset acquisition takes the form of acquiring all (subject to
the restrictions on foreign ownership of land) or some of the
company’s individual assets and making provision for assigning
or transferring relevant contracts and intangible rights. Except for
exemption from tax in certain circumstances, Thai law does not
provide for the acquisition of an entire business (including liabilities
and contractual rights and obligations) as a going concern and
contracts and liabilities are not automatically transferred with
the assets of a business unless there are express contractual
provisions. Consequently:
„„ specific contractual provisions must be made to transfer the
benefit of a contract and when (as is common) a contract
contains restrictions on assignment, the consent of the
counter-party will be required;
„„ the transfer of liabilities will require the agreement of the
creditors or counter-parties or (if it is intended that the seller
should be released) a novation;
„„ employees do not automatically transfer with the assets of
the business and the consent of the individual employees
will be required. While the buyer may be obliged to honour
their employment contracts, no employees can be compelled
to work for the buyer and a new employment contract is
effectively required for each transferring employee; and
„„ numerous permits, licences and approvals may be required
to carry on a business, (particularly if it involves manufacturing
or processing (e.g. a factory licence, waste disposal, use of
hazardous materials, labelling of consumer products, etc)) and
consents, and in some cases new licences, may have to be
obtained.
While it is not a strict requirement that business assets need be
purchased by a Thai company (they could equally be owned by
a branch of a foreign corporation), the conditions imposed by the
BoI when granting investment incentives (which include exemption
from the restrictions in the Foreign Business Act and on land
ownership) may require the use of a Thai company.
The buyer will not inherit any tax liabilities of the seller but, as
a practical consideration, it is advisable to conduct limited due
diligence to ensure that the Thai tax authorities will not seek to
enforce tax claims by seizing assets formerly owned by a tax
defaulter.
The buyer of assets comprising a business will need to ensure
that he can obtain all the required licences, authorisations and
approvals necessary to conduct the business.
Amalgamations/mergers
A full amalgamation of one company with another is possible and
this will result in the creation of a new legal entity. The merging
entities do not continue in existence after the completion of the
amalgamation, but the newly created entity inherits all assets,
rights and liabilities of the merging entities. This type of full legal
merger is an alternative to a share-for-share acquisition of one
company by the other or of both by a newly established holding
company.
If one of the parties to the amalgamation is a private company, the
amalgamation requires prior approval by a “special” shareholders’
resolution passed at a shareholders’ meeting by 75 per cent of
those shareholders attending with a right to vote.
Each party to the amalgamation must notify all its known creditors
of the decision to merge and advertise their intention to merge in
the national press. A six-month period is allowed for creditors to
raise objections and the amalgamation will not be effective until the
claims of any objecting creditors are either secured or satisfied.
Special arrangements must be made for employees as Thai
labour law deems their employment to be terminated upon the
amalgamation (with a consequent entitlement to compensation)
unless they agree in writing to become employees of the merged
entity. The merged entity would assume all existing obligations
to employees, whose continuity of employment would be
maintained, in these circumstances.
Despite the principle of the uninterrupted succession of rights by
the new entity, many of the licences, authorisations and permits
required to do business will need to be amended or reissued.
Joint ventures
Joint ventures are not subject to any separate regulation or
legislation, except for tax legislation that provides for the taxation
of an unincorporated joint venture as if it were a separate legal
entity.
At the parties’ option, joint ventures may take the form of a PCL,
a private limited company, a partnership or may be merely a
contractual arrangement between the parties.
Public companies
Takeovers (see section 6 for a more detailed summary of public
takeovers)
Only PCLs may offer their shares to the public and be listed.
The need to ensure compliance with the foreign-ownership
restrictions of the Foreign Business Act necessitates listed
companies having separate quotas of their shares listed on the
Foreign Board and on the Main Board of the SET.
Typically the percentage available for purchase by foreigners will
be limited to 40 per cent or less (which is lower than the 49.9 per
cent limit imposed by the Act to allow a margin for error).
Except for the restrictions automatically imposed on shares
traded on the Foreign Board, listed shares are not permitted to be
subject to any restrictions on transfer.
Public bids, by means of tender offers, are regulated under
the Securities Act and the Takeover Rules issued in 1995 (and
substantially revised in 2003 and 2008) by the SEC. A tender offer
may be either hostile or recommended by the board of the target.
The Rules relating to notification of significant acquisitions
and requiring mandatory tender offers if certain threshold
shareholdings are reached apply only to PCLs listed on the SET.
Schemes of arrangement
The common law concept of a court-approved restrucuturing,
executed by agreement between a company and its shareholders
or creditors to make structural changes not otherwise allowed by
law, does not exist in Thai law. However, in some cases the same
result can be achieved by other methods, as Thai law allows:
„„ the legal amalgamation of companies;
„„ a reductions of share capital through the return of capital to
shareholders; and
„„ a bankrupt company to be restructured under a rehabiliation
plan that may involve the rescheduling of debts and/or a waiver
of debts in exchange for shares (and for the company to be
protected from creditors claims whilst being rehabilitated) under
provisions in the Thai Bankruptcy Act.
Amalgamations
„„ An amalgamation requires prior approval by a shareholders’
resolution passed at a shareholders’ meeting by 75 per cent
of those shareholders attending with a right to vote. An offer
must also be made by the majority shareholder(s) to acquire
the shares of dissenting shareholders of each party to the
105
 amalgamation at either (if listed) the last price traded on the
SET prior to the resolution or (if unlisted) a price determined
by an independent valuer. The majority shareholder(s) must
make the offer because the merged entity cannot acquire the
shares of dissenting shareholders on its own behalf. The offer
to dissenting shareholders must be open for acceptance for at
least 14 calendar days. Shareholders that do not accept within
this time receive shares in the new company resulting from the
amalgamation.
Joint ventures
PCLs are free to enter into joint venture arrangements as
described on page 107.
Public to private acquisitions (P2Ps)
The acquisition of insolvent PCLs by foreign multinationals has
occurred on a number of occasions but private acquisitions of
PCLs are generally not common. Dual listings or “migration” of
Thai listed companies seeking secondary or even primary listings
on foreign stock exchanges, notably the Singapore Exchange
(SGX-ST), have occurred but after the strong recovery of the Thai
capital markets during 2003 these are less common.
Do the parties have an obligation to negotiate in good faith
to one another in M&A transactions?
Thai law neither recognises any obligation to negotiate in good
faith nor any obligation not to discontinue negotiations without
good cause.
To mitigate the risks of the counterparty discontinuing negotiations
without good reason or concurrently negotiating with another
prospective buyer, the parties will often enter into heads of
agreement or an equivalent document outlining the agreement
reached in principle and incorporating a lock-out clause.
4. What percentage shareholding is required to achieve
effective control of a company?
Ownership of at least 75 per cent or more of the shares and
voting rights of a company will give a shareholder absolute
control of all the decisions to be made at shareholders meetings
(allowing special resolutions to be passed). Such a shareholder
will be able to, for example, amend the memorandum or articles
of association, increase or reduce the share-capital, pass a
resolution to liquidate the company, or to merge the company with
another company.
Ownership of 50 per cent or more of the shares and voting
rights of a company gives absolute control of the appointment of
directors and all other decisions (except those described above),
106
which require a resolution passed by a simple 50 per cent plus
majority of the votes of shareholders attending and having the
right to vote.
5. Regulation, consents and foreign investment restrictions
Are there any regulated industries?
Additional restrictions, requirements for prior approvals, and
reporting obligations apply to specially regulated businesses,
notably the media, telecommunications, banking, finance and
insurance sectors. For example, a merger between an insurance
company and a non-insurance company is prohibited.
Are there any restrictions on the foreign ownership of
shares in a Thai company?
Under the Foreign Business Act, prohibitions exist that prevent
foreign individuals and corporations and foreign majority-owned
Thai companies carrying on certain business activities, including
the media, transport, agriculture, mining, construction, wholesaling,
retailing and most types of service business. These restrictions
often have a significant impact on acquisitions in Thailand.
Under the Land Code, foreign individuals and corporations and
foreign majority-owned Thai companies are prohibited from
owning land in Thailand.
A summary of the foreign investment restrictions in Thailand is set
out in Schedule 1.
US individuals and corporations (provided they are majority,
beneficially-owned by US nationals) and Thai companies that
are majority US owned are exempt from most restrictions in the
Foreign Business Act (but not the Land Code’s prohibition on
ownership of land) under a bilateral Treaty of Amity and Economic
Relations between Thailand and the USA.
Exemptions may also be granted to several types of business
including those:
„„ located on formally designated industrial estates operated by
the IEAT; or
„„ which qualify for the foreign investment promotional incentives
offered by the BoI.
A Thai company (either PCL or private company) which is majority
owned by foreigners and which is carrying on a business normally
restricted to foreigners under a licence under the Foreign Business
Act (i.e. has been exempted from the Foreign Business Act) must
have a fully paid up registered share capital of not less than the
higher of:
„„ THB3 million for each restricted business that it carries on; and
„„ 25 per cent of the yearly average of the estimated expenses for
each business over a 3-year period.
Are there any foreign exchange and investment controls?
The Thai Exchange Control Act B.E. 2485 (1942) empowers
the Finance Minister to administer all exchange controls but
in practice the exercise of this power has predominately been
delegated to the Bank of Thailand (the BoT), which in turn
delegates certain functions to Thai commercial banks.
Inward remittances of foreign currencies are generally allowed,
although receipt must be reported to the BoT (failure to report an
inward remittance may result in later difficulties in remitting funds
abroad). In addition, the conversion of this money into Thai Baht
(THB) is required, subject to an exemption if the need to pay an
equivalent amount of the same currency within three months can
be demonstrated.
Outward remittances of foreign currencies to discharge any
contractual payment obligations arising from acquisitions are
permitted subject to reporting requirements. Other remittances
may require the BoT’s prior consent.
Is there any merger control?
The Fair Trade & Competition Act B.E. 2542 (1999) establishes
a regime under which prior approval from the Trade Competition
Commission (the TCC), the national competition authority, is
required for any integration of two or more businesses (i.e. the
buying of shares or assets resulting in the control of the business’
policy on business administration, supervision and management)
that would give the merged entity a “dominant position” in any
market for goods or services in Thailand.
This merger approval requirement is not yet in force (as of 12 June
2009) and will have effect only when thresholds for its application
have been established. Draft ministerial regulations have been
circulating since October 2000 but as yet no indication has been
given as to when they will be issued in final form.
Once in force, the merger approval regime will apply to almost all
sectors of commercial activity. Only state and municipal bodies,
agricultural co-operatives existing solely for the mutual benefit
of their members, and certain other designated entities will be
excluded.
If the requirement for merger approval applies:
„„ the TCC is statutorily required to respond to applications within a
maximum of 90 days, subject to one (only) extension of 15 days;
„„ so long as the TCC is satisfied that there exists ‘reasonable
commercial necessity’ (meaning it may be beneficial to the
promotion of business activity and will neither cause serious
damage to the economy nor materially adversely affect
consumer rights benefits), the TCC may approve a merger
even though it results in competition being reduced or a
monopoly or cartel being created; and
„„ to proceed with a merger or acquisition that requires merger
approval without first obtaining such approval is a criminal
offence.
The TCC also has broad discretion to order any business that
commits an unfair trade practice to suspend, cease or correct
such practice and if a business has market share exceeding 75
per cent, the TCC is empowered to order it to suspend or cease
certain activities or alter its market share, regardless of whether it
has committed unfair trade practices.
What are the employee issues?
Are works councils/consultation common?
There are no statutory requirements for consultation with unions
or work councils concerning acquisitions, disposals or mergers.
However, employees of an entity whose business is discontinued
on its sale have certain statutory rights as regards the buyer.
Prior consultation concerning acquisitions, disposals or mergers is
a common contractual requirement in collective agreements with
recognised trade unions
Are any actions required prior to or upon an acquisition for
employees?
In case of share acquisitions, no action is required to transfer
employees as they remain employed by the company after its
ownership is transferred to the buyer.
In case of asset acquisitions, the employees of a business do
not automatically transfer to the buyer and if the buyer wishes
to take on the employees, he must seek their consent (although
when an entire business is acquired and the seller discontinues all
business activities, the buyer has certain obligations to the former
employees of the business) (see Business/asset acquisitions on
page 106 for further detail).
Are there any notification obligations for employees prior to or
upon an acquisition?
The notification and information obligations of a buyer for both share
and asset deals are summarised in the tables on page 108. Note
however that, in addition, if the business is situated on an industrial
estate regulated by the IEAT or receives a BoI promotion, notification to
or the consent of these public authorities may be required.
107
i. Share deal

Action Employees Trade unions Employee representatives Public authorities*

(other than trade unions)

Inform No No (unless expressly agreed in any No No

collective agreement concluded
with a trade union, which would
be unusual but would be legally
binding if it was a term of the
collective agreement)

Consult No No (unless expressly agreed in any No No

collective agreement concluded
with a trade union, which would
be unusual but would be legally
binding if it was a term of the
collective agreement)

Obtain No No No No
consent from

Veto right by No No No No

ii. Asset deal

Action Employees Trade unions Employee representatives Public authorities*

(other than trade unions)

Inform No No (unless expressly agreed in any No No

collective agreement concluded
with a trade union, which would
be unusual but would be legally
binding if it was a term of the
collective agreement)

Consult No No (unless expressly agreed in any No No

collective agreement concluded
with a trade union, which would
be unusual but would be legally
binding if it was a term of the
collective agreement)

Obtain Yes No No No
consent from (Employees
will not
transfer on
an asset
sale unless
they enter
into new
employment
contracts
with the
purchaser,
and they are
under no
obligation to
do so)

Veto right by No No No No

* Public authorities for the purpose of this section are any governmental or quasi-governmental authorities responsible for supervising the labour market and employment
related issues.

108
Timing
In the case of an asset acquisition, the buyer should obtain
agreement from employees it wishes to take on prior to, or at least
simultaneously with, completion of the acquisition.
With which stock exchange requirements must listed
companies comply?
What rules generally govern listed companies?
Acquisitions of shares in listed companies are regulated by the
Securities Act, the Takeover Rules and other regulations issued by
the SEC and the Capital Market Supervisory Board (the CMSB),
as well as the rules and regulations of the SET. The rules and
regulations of the SET do not apply to unlisted PCLs.
Due to the re-organisation of the SEC following amendments to
the Securities Act in 2008, whilst the existing SEC board remains
the principal board responsible for policy making on supervision
and development of the overall market, the newly-formed CMSB
is now responsible for day-to-day regulation and the issuance
of rules and regulations governing operational issues. However,
all relevant SEC notifications issued by the SEC’s board before
the establishment of the CMSB remain in effect until the CMSB
issues new notifications to repeal such existing SEC notifications.
The CMSB has issued a limited number of its own regulations but
many aspects still rely on the SEC’s existing notifications.
The two regulated markets operating in Thailand are the SET
and the Market for Alternative Investment (the MAI). The MAI is
operated by the SET as a separate market for smaller “growth”
companies.
On-market trades are conducted in paper-less form, with the
transfer being electronically processed between brokers and the
Thailand Securities Depository Co Limited (the TSD), which is the
SET-owned share registry for listed securities.
How does a company delist its share capital?
Delisting a PCL requires the prior approval of 75 per cent or more
of the votes at a general meeting of shareholders and objections
from no more than 10 per cent of shareholders. The board must
also make arrangements for the controlling shareholder(s) to offer
to acquire the shares of dissenting minority shareholders after the
company has resolved to delist.
Under the SET’s rules, on delisting the company is required to
appoint an independent financial adviser to make recommendations
to the independent directors and the minority shareholders,
particularly concerning the mandatory offer required to be made
by the controlling shareholder(s). Additionally, a written explanation
of the reasons for delisting and the facts relevant to the mandatory
offer, together with the financial advisers and independent directors’
recommendations, must be sent to each shareholder prior to the
general shareholders meeting convened to consider the proposal.
Is financial assistance prohibited?
What is the nature of the prohibition?
There is no prohibition under Thai law on a company giving
financial assistance for the acquisition of its own shares or the
shares of its holding company, except that a company cannot
accept a pledge of its own shares.
A subsidiary may own shares in its parent company without
limit, subject to the requirements as to minimum numbers of
shareholders.
What are the sanctions?
This is not applicable.
Are there any exceptions to the prohibition and is there any
procedure which can be followed to make financial assistance
possible (i.e. a “whitewash procedure”)?
This is not applicable.
6. Public takeovers
What are the forms of a public offer?
A public offer for shares may be either mandatory or voluntary.
Thai law does not provide for any difference in procedure for
recommended and hostile offers.
Offers are required to take the form of a tender offer, under which
shareholders are invited to tender their shares for purchase by the
offeror.
What is the regulatory framework for a public offer?
The Takeover Rules
Takeover activity is governed by the provisions of the Public
Limited Companies Act B.E. 2535 (1992) and the Securities
and Exchange Act B.E. 2535 (1992), including the takeover
rules issued thereunder in 1995 (and substantially revised by the
SEC and CMSB in 2003 and 2008) (the Takeover Rules), which
borrowed extensively from the UK’s rules.
Regulations on the Takeover Rules are founded on the principle
of complete and accurate disclosure as well as the principle of
fair and equitable treatment of shareholders. The Takeover Rules
require that:
109
„„ any person acquiring shares in order to take over control of the
business must make a tender offer which provides a fair exit
for all shareholders; and
„„ in making a tender offer:
• all securities holders must be treated equally;
• all information must be correct and complete; and
• all securities holders must be given enough time to decide.
The terms and conditions of the takeover bid must be consistent
with the requirements of the Takeover Rules.
A partial tender offer is allowed only if there is a resolution of a
shareholders’ meeting endorsing such proposal. In the event that
a partial tender offer is made, the purchase of tendered shares
must be allocated on a pro rata basis.
The Takeover Panel plays a vital role in the implementation of the
Takeover Rules. The Panel is appointed by the SEC, drawn from
experts in the areas of finance and law. The Panel is vested with
the authority to consider certain requests in connection with the
Takeover Rules, such as a request for an exemption from making
a tender offer, or a request to make a bid at a price inconsistent
with the Takeover Rules, etc.
Application of the Takeover Rules
Not every PCL is subject to the Takeover Rules. The Takeover
Rules apply where the targeted business is:
„„ a listed company;
„„ a company whose securities are traded in an over-the-counter
centre; or
„„ a PCL having characteristics specified in a notification of the
CMSB (but none has yet been issued).
What are the main offer terms?
Minimum price requirements
A bidder must offer a single price for each class of shares and the
same price to all shareholders of that class.
The offered price, whether under a mandatory offer or a voluntary
offer, must not be lower than the highest price paid by the bidder
(or any of its related parties) over the preceding 90 days.
On a delisting offer, the offered price must additionally be not
lower than the net asset value of the target adjusted to market, or
the five-day weighted average price for the shares on SET prior
to announcement of the delisting proposal, or a fair price for the
shares as determined by an independent financial adviser.
110
Cash/non-cash terms
Under a voluntary offer, the offered price can be in any form (either
cash or non-cash).
Thai offers are usually for cash but may be for shares (or, in theory,
for other forms of consideration). Where alternatives are offered,
at least one must be cash unless special conditions applicable to
a share-for share exchange are complied with.
Cash consideration
The cash portion of a combined price under a mandatory offer
must not be lower than the highest cash price paid by the bidder
(or any of its related parties) over the preceding 90 days (or as
otherwise set out under Minimum price requirements above).
If no shares were acquired in the preceding 90 days, the minimum
price is the five-day weighted average price for the shares on the
SET prior to the offer being triggered or, if none, a fair price for the
shares as determined by an independent financial adviser.
Non-cash consideration
If the offered price is not cash, a financial adviser must appraise
the price.
Conditions
A voluntary offer may be made subject to those requirements
that the buyer deems appropriate such as a required number of
acceptances or regulatory consents (e.g. merger approvals, see
page 109). These conditions must be clearly set out in the offer
document. It should be noted that:
„„ 90 per cent or more of the voting shares must be held to delist
a company; and
„„ a successful offer for more than 25 per cent or 50 per cent
will trigger a mandatory offer for all outstanding shares once
the 25 per cent or 50 per cent thresholds of voting rights are
exceeded.
A mandatory offer may not be subject to any conditions except a
right to withdraw the offer if a material adverse event affects the
target or if the target takes action which significantly reduces the
value of its shares or it delists.
In the following situations, it must be a term of the tender offer
that all shares and (with some exceptions) outstanding warrants
and convertible debentures tendered will be purchased:
„„ on a delisting of the target (when the Public Companies Act
imposes an obligation on the target’s board to ensure an
offer is made to acquire the shares of dissenting minority
shareholders after the requisite 75 per cent + majority vote
(with no more than 10 per cent of shareholders objecting) has
resolved to delist the company); or
„„ a mandatory offer.
Simplified offer timetable
Funding the acquisition
The bidder’s sources and methods of funding the acquisition
must be set out in the offer document.
The bidder’s financial adviser is required to verify that the bidder
has the financial resources required to proceed with the offer
and in the case of a mandatory offer, that the price is at least
the minimum required price. A certificate to that effect must be
included in the offer document.

Date/Time period Events

D+1 The offeror’s shareholding reaches any of the 25 per cent, 50 per cent or 75 per
cent trigger points (in case of a mandatory tender offer), or the offeror announces its
intention to make a tender offer (in case of a voluntary tender offer).

D+2 For a mandatory offer triggered by a share acquisition, the offeror submits a report
of the total number of shares it holds in Form 246-2, together with a statement of
intention to make a tender offer in Form 247-3, to the SEC.

D+9 The offeror submits to the SEC an offer document in Form 247-4 prepared by a
financial adviser together with a tender offer acceptance form and pays the fees for
the submission of the offer document.

Upon submission of the offer document to the SEC, the offeror must take the
following actions:
„„ deliver the offer document together with a tender offer acceptance form to the
following persons immediately following the submission of the offer document to
the SEC: (i) all holders of each class and issue of securities, as shown in the latest
register of securities holders, for which an offer is being made; (ii) the target; and (iii)
the SET; and
„„ advertise the making of the tender offer in at least two daily Thai language
newspapers and one daily English language newspaper for at least three
consecutive business days following the date on which the offer document has
been submitted to the SEC.

D+10 The offer becomes effective.

D+12 The offeror must commence the purchase of securities tendered (which is required on
the third business day after the date of submission of the offer document to the SEC).

The offer period must be at least 25

consecutive business days but not more
than 45 consecutive business days.

D+37 (in case of the 25-day offer period) The offer period expires. The offeror completes the purchase of securities.

D+42 The offeror submits the result of the tender offer in Form 256-2 to the SEC, with a
copy to the SET.

111
What is the timing of a public offer and what is the
procedure to be followed?
Announcements
Once an intention to make an offer is announced, the intention
must be confirmed to the SEC within three business days and the
offer made within the next seven business days.
A bidder must have a financial institution authorised by the SEC
as its adviser, who must confirm the bidder is able to proceed with
the offer (see Funding the acquisition on page 111).
The financial adviser must prepare the offer, which must be
submitted to the SEC, posted to all shareholders and advertised
in the national press over the next three business days.
If a person fails to make an offer after announcing an unconditional
intention to do so, that person may not make an offer in relation to
the same company for a period of one year from the date of the
announcement.
If an announcement of an intention to make an offer is explicit that
the making of the offer is subject to certain conditions (e.g. due
diligence or further negotiations), then there is no obligation to
make an offer if those conditions are not satisfied.
Acceptance period
An offer must be open for acceptance for at least 25 business
days from the date it is filed with the SEC, which may be extended
to no more than 45 business days (except in the event of a
competing offer).
Satisfying offer conditions
If the offeror has announced an intention to make a tender offer
subject to certain pre-conditions, the offeror is not required to
submit a statement of intention to make a tender offer in Form
247-3 to the SEC until those pre-conditions have been satisfied.
In the case of non-satisfaction of the pre-conditions or upon the
expiration of one year from the announcement, the offeror must
submit a statement declining to make a tender offer in Form
247-5 to the SEC within three business days from the date of
non-satisfaction of such pre-conditions or the last day of such
one-year period, whichever comes earlier.
Offer unconditional - payment
Settlement and payment terms must be included in the offer
document and published. Whilst the SEC sets out a prescribed
form for these, there are no specific legal requirements they must
112
comply with. However, the SET’s trading rules effectively require
that the offeror must have placed funds with its broker by the
date securities are transferred and payment is then received by an
accepting shareholder either immediately or (If settlement is through the
SET’s automated trading system) three business days later.
If a tender offer takes a bidder’s shareholding over 50 per cent, the
bidder may only purchase further shares during the subsequent six
months at the same (not a higher) price.
If a bidder has purchased fewer than the total number of shares
tendered by shareholders, it may not within the subsequent 90 days
purchase a further number of shares that will cause it to acquire more
than one-fifth of the shares covered by its tender offer.
Competing bids
If there is a competing bidder, the original bidder has the
opportunity to improve its offer. The original bidder is a also
permitted to extend the period of its offer beyond the presently
mandatory 45 day cut-off so that it expires concurrently with the
competing bid.
There is however no requirement for equality of information for
competing bidders.
Failed bids and further offers
Generally, a new offer cannot be made within one year of any
previous offer, although dispensations may be granted by the SEC
and a mandatory offer would be required if acquisitions by the
offeror exceed one of the trigger thresholds.
What documentation is involved in the process?
Press announcement
Upon submission of the offer document to the SEC, the offeror
must advertise the making of the tender offer in at least two
daily Thai language newspapers and one daily English language
newspaper for at least three consecutive business days following
the date on which the offer document has been submitted to the
SEC.
Offer document
The offer must be made in a Form 247-4 prescribed by the SEC
and, among other things, must include:
„„ the purpose of the offer and the bidder’s proposals concerning
the future operation of the target’s businesses;
„„ any conditions attaching to the offer;
„„ information about the bidder, including its business, share
 capital and its 10 largest major shareholders (a “major”
shareholder anyone holding 10 per cent or more in the
company) and the same information for each major shareholder
of the bidder that is a company;
„„ the bidder’s existing shareholding in the target;
„„ the bidder’s source of funds;
„„ the name of the bidder’s financial adviser;
„„ proposals in relation to the target after closing of the offer,
including any intention to delist; and
„„ relationships (including prior transactions, loans etc.) between
the bidder and (a) the target, (b) the target’s major shareholders
(as defined above) and (c) the target’s directors.
If the consideration is all or partly shares in the bidder, a
prospectus may need to be prepared in accordance with the
requirements of the Securities Act.
Target documentation
When a target receives a tender offer, it must appoint an
independent financial adviser to prepare a recommendation (in
conjunction with the board’s recommendation) to shareholders
with respect to the offer (Form 250-2) and send it to shareholders
within 15 business days. If there is an amendment to the offer,
the target must prepare a new recommendation with respect to
the amended offer (Form 250-2 Gor) and send it to shareholders
within five business days.
Responsibility statements
The form containing the formal offer submitted to the SEC is
required to be signed by authorised director(s) of the bidder
who must certify that the information given is true and that no
information is omitted that might affect the decisions of investors
in relation to the offer.
The bidder’s financial adviser is required to review the terms
and conditions of the offer as well as the information given in
connection with the offer and certify that:
„„ it has verified the accuracy of the information given in the offer
and it is satisfied that the information given is true;
„„ it is “confident” that no information has been omitted that might
affect the decisions of investors in relation to the offer;
„„ the bidder has the financial resources required to proceed with
the offer;
„„ the offer price is not less than the required minimum price; and
„„ the bidder’s proposals for the future operation of the target’s
business are reasonably based.
What are the practices relating to break fees and lock-out?
There are no prohibitions on “lock-out” agreements, which prevent
the target from negotiating with other parties during an agreed
period and these agreements are increasingly common; however,
the directors must take care to comply with their duty to act in the
interests of the company.
Provisions for payment of break fees by a party in default are not
yet common and may meet resistance from the Thai authorities.
Enforcement of a pre-agreed payment by a party in default to
cover expenses incurred in breach of a lock-out agreement
would be subject to the Thai legal principle that the courts will not
enforce payment of a “penalty” that is excessive in relation to the
loss suffered.
What are the rules on information gathering/provision?
It is a basic principle of the Takeover Rules that all shareholders in
a target should enjoy equal access to information but there are no
provisions concerning equality of information between competing
bidders.
Public information concerning the target can be obtained from the
Commercial Registry and, for a listed company, from the SET.
In addition, the target’s board may be prepared to provide
confidential information to the bidder and any competing bidders
with a view to maximising the offer to shareholders. Doing so
would be in line with the directors’ general obligations under the
Public Limited Companies Act to act in the best interests of the
company. Moreover, such disclosures may be made despite
the restrictions in both the Securities Act and the SET’s Rules
regarding the disclosure of price sensitive or “insider” information.
However, the following factors would need to be carefully
considered when determining what information to disclose:
„„ whether the information and timing of its release is market
sensitive such that its disclosure might result in criminal
offences under Thailand’s insider trading laws (e.g. if the bidder
subsequently buys shares from directors or makes an offer in
reliance on this information);
„„ whether the information is commercially sensitive; and
„„ whether such information would normally be disclosed only
on a confidential basis to persons with whom the target is
negotiating and who have signed confidentiality undertakings.
What is the position regarding insider trading?
The Securities Act prohibits a person from either buying or selling,
or offering to buy or sell, directly or indirectly, listed securities
in such a way as to take advantage of other persons using
information material to the price or value of the securities which
113
has not yet been disclosed to the public (insider information)
and to which that person has access by virtue of his office or
“position” (insider trading). It similarly prohibits dealings on behalf
of others by a person possessing insider information and the
disclosure of insider information for any benefit to be received
from a third party who will deal in listed securities.
The Securities Act specifically states that, inter alia, directors and
shareholders with shareholdings exceeding 5 per cent (a 5 per
cent shareholder) of a PCL’s issued share capital have a “position”
that gives them access to insider information.
In relation to listed companies and their directors, the provisions of
the Securities Act are supplemented by guidelines on preventing
insider trading, namely, the SET’s Guidelines on Disclosure of
Information of Listed Companies. These guidelines, although they
do not have force of law, are likely to be regarded as authoritative
by the Thai courts for most purposes. They confirm that insider
trading may occur if an “insider” (e.g. a director) discloses insider
information to another party (e.g. a bidder) who relies on that
information when buying or selling shares. The offence arises if
the director has any beneficial interest, direct or indirect, in the
trading by the other party.
Apart from insider trading, it is an offence under the Securities Act
for (amongst others) a person interested in securities to disclose
market sensitive information unless that information has been
reported to the SET.
The sanctions for use of insider information in securities dealings
are:
„„ the office of the SEC may require an offender to pay over all
financial benefits received from the insider trading within six
months after acquiring the insider information; and
„„ insider trading is a criminal offence punishable by (i) a fine of
not less than THB500,000 and up to twice the amount of
monetary benefit received (or which was expected to have
been received) and/or (ii) imprisonment for up to two years.
What are the public disclosure requirements in a takeover
scenario?
Disclosure issues for bidder and target
Under the Securities Act, any acquisition or disposal of shares in
any PCL (whether listed or not) must be reported to the SEC by
the buyer if it results in:
„„ the buyer’s aggregate shareholding, including the shareholding
of his “related parties” and others persons acting in concert
with him, reaching any multiple of 5 per cent of the total
number of voting rights of the relevant PCL, and conversely,
its aggregate shareholding decreasing by any multiple of 5 per
114
cent of the total number of voting rights of the relevant PCL
(e.g. from 13 per cent to 9 per cent); and
„„ if the PCL has share warrants, derivative warrants or
convertible debentures, the buyer’s shareholding of any
particular class of warrant, derivative warrant or convertible
debenture reaching any multiple of 5 per cent of the total
number of voting rights of each type of warrant, derivative
warrant or debenture if the conversion occurs.
The report must be on the Form 246-2 prescribed by the SEC
and if the relevant PCL is listed on the SET or MAI, a copy of the
report must also be sent to the SET. Similarly, if the securities of
the relevant PCL are traded through an over-the-counter dealing
system, a copy of the report must be sent to the operator of that
system.
The Form 246-2 must be filed with the SEC (and the SET or other
dealing system if required) by no later than the business day
following the relevant acquisition or disposal. For this purpose
“business day” means a day on which the SET is open for trading.
Failure to submit a report in the required form by the due date
renders the buyer liable to a fine of up to THB500,000 and also a
further fine of THB10,000 per day
The securities holdings of “related parties” must be aggregated for
disclosure purposes.
The concept of “acting in concert” with other persons to
gain control over a listed company has been reintroduced by
amendments to the Securities Act that became effective in 2008.
This concept results in the aggregation of the shareholdings in the
relevant PCL held by a buyer and others persons acting in concert
with him. The CMSB issued a Notification, which became effective
on 1 August 2009, that specifies which features of relationships or
actions can be considered as acting in concert.
Does a memorandum of understanding (MoU) need to be
disclosed?
The need for disclosure of a MoU will depend on the type of
acquisition, the parties involved and the terms of the MoU. In
general, the SET regulations stipulate that a listed company must
disclose information that:
„„ is necessary to avoid the establishment of a false market in its
securities; or
„„ is likely to have a material effect on the price or value of
securities of that company.
Where a reasonable person would not expect the information to
be disclosed, the information is confidential, or the information
concerns an incomplete proposal or negotiation, an exception
may apply to the disclosure requirement depending on the
circumstances.
Limitations to stakebuilding

5 per cent Allows a shareholder to require the board of directors to include items in the agenda for a shareholders meeting.
Allows a shareholder to file, on behalf of the company, a claim to regain illegal benefits obtained by directors or
executives in relation to a PCL.

Triggers the requirement to report acquisitions to the SEC (and SET, if the target is listed).

25 per cent Constitutes (conclusively) a blocking minority in relation to special resolutions in a company whose shares all confer
the same voting rights.

Triggers an obligation to make a mandatory tender offer in relation to a PCL.

50 per cent Confers control for most purposes (but not the ability to pass special resolutions) of a company whose shares all
confer the same voting rights.

Triggers an obligation to make a mandatory tender offer in relation to a PCL.

75 per Confers full control (allowing special resolutions to be passed) in a company whose shares all confer the same
cent voting rights.

Triggers an obligation to make a mandatory tender offer in relation to a PCL.

What are the limitations to stakebuilding?
The limitations to stakebuilding are summarised in the table above.
Is there a requirement to make a mandatory offer?
A mandatory tender offer is triggered in relation to all outstanding
shares and (with exceptions) warrants, derivative warrants or
convertible bonds of a listed PCL by an acquisition that results in
the buyer, together with any parties related to the buyer or with
whom it is acting in concert:
„„ holding 25 per cent or more;
„„ holding 50 per cent or more; or
„„ holding 75 per cent or more;
the above thresholds are exceeded because of an acquisition of
shares due to:
„„ inheritance;
„„ rights offer; or
„„ stock dividend.
A mandatory offer may not be required if a voluntary tender offer
results in an acquisition of more than 25 per cent but less than 50
per cent of the voting rights in the target company.
For a shareholder who exceeds the 25 per cent threshold (but not
a higher one) through the acquisition of newly issued shares, the
requirement for a mandatory offer can be waived by a simple majority
vote at a shareholders meeting, subject to approval by the SEC.

of the total voting rights attached to the shares in the PCL. These
are three percentage levels that are most significant in terms of
control of a PCL (please see the table above).
A mandatory offer will also be triggered if there is an indirect
change of control in a listed company (i.e. there is a change in
control in a listed company’s shareholders) which results in any
of the above thresholds being reached by combining direct and
indirect shareholdings throughout the chain.
A mandatory offer will not be triggered if a listed company buys back
its own shares resulting in any shareholder reaching the trigger point,
unless such a shareholder subsequently acquires further shares.
A mandatory offer is not required to be made in situations where
The concept of “acting in concert” mentioned on page 116
applies to mandatory tender offers.
The SEC may grant an exemption waiving the mandatory offer
requirement but only in respect of an acquisition of newly issued
shares as part of a rights issue and only if:
„„ an independent financial adviser to the other shareholders has
been appointed by the target;
„„ the 50 per cent threshold has not been exceeded; and
„„ no further shares have been acquired since the date on which
the company resolved to issue the shares.

115
The SEC also has discretion to grant a waiver if:
„„ the crossing of a threshold does not result in a change of
control; or
„„ the acquisition is of newly issued shares in order to recapitalise
the company.
When a threshold is inadvertently exceeded, the mandatory offer
requirement may be avoided by disposing of the excess shares
within seven business days.
What defences are available to a target company during the
stages of an offer?
To date, the Thai authorities have not issued any rules proscribing
the use of “poison pills” (defences that are available before a
takeover offer is made). However, the obligation imposed on
the target’s directors (see under Target on this page) to provide
information and a recommendation to shareholders applies
separately in respect of each offer, and the directors are under a
general duty to act in the best interests of the company.
In the defence document, the target’s board will usually seek to
persuade the target’s shareholders to reject an offer on the basis
that the board does not believe that acceptance of the offer is in
the best interests of the target or its shareholders.
The use of “poison pills” is almost unknown in Thailand, as most
takeovers usually have the support of the target company’s board
of directors. PCLs, meanwhile, are prohibited from restricting the
transferability of their shares although they are allowed to impose
such restrictions as are necessary to ensure compliance with any
foreign ownership restrictions to which they may be subject. It
would, however, be possible for the board of directors of a target
company either to adopt the “pac-man” defence of making a
counter-offer for the bidder or to solicit a higher offer from a “white
knight”. Such measures would have to be consistent with the
board of directors’ general duty to act in the best interests of the
company.
What obligations are the directors of the bidder and target
under?
Bidder
The directors of the bidder owe a general duty to the company
and the company’s shareholders to act in their collective best
interest. Specifically, the Public Limited Companies Act and the
Securities Act require directors to act in a “loyal, honest, careful
manner and in the interests of the company”. The directors are
liable to the company for any loss resulting from their failure to
meet such standards.
116
In relation to a tender offer, the SEC’s rules require the directors of
the bidder to ensure that all information in the form containing the
formal offer is true and no information is omitted that might affect
the decisions of investors in relation to the offer.
Target
The board of the target must:
„„ notify all known shareholders of the receipt of the offer and its
terms;
„„ give its opinions on:
i. the status of the company’s business and a forecast of the
future results of its operations (disclosing the assumptions
on which the forecast is made);
ii. the accuracy of the information concerning the company’s
business given in the offer;
„„ disclose any relationship or agreements between any director
of the target and the bidder;
„„ recommend whether shareholders should accept or reject the
offer. If the board’s recommendation is not unanimous, the
recommendation of each director must be given separately;
„„ appoint an independent financial adviser to advise the
shareholders on the terms of the offer and whether to accept
or reject it. The adviser is required to give its recommendation
“with due care in accordance with professional standards,
taking account of the interests of the minority shareholders”.
What is the procedure for a squeeze-out of the minority?
There are no provisions for the compulsory acquisition of shares
of minority shareholders in Thailand. In practice, after successful
completion of a tender offer, there are usually a number of
shareholders who cannot be contacted or who have declined
to sell. So long as these persons remain shareholders, the basic
rights of these shareholders (including to receive notice of, and
to attend, speak and vote at shareholders’ meetings) must be
respected.
If a resolution to delist the target is passed following completion
of a general tender offer, this resolution triggers the making of a
mandatory offer to the dissenting minority shareholders.
7. Overview of a private company acquisition
Timing
The timing of a private acquisition depends on the co-operation
between the parties and the progress of negotiations and other
matters specific to the transaction.
Steps
Pre-acquisition stage
During the pre-acquisition stage of negotiations the parties usually
sign heads of agreement or an equivalent document that outlines
the basic terms of the proposed transaction. This document is
non-binding except for provisions concerning the confidentiality of
information disclosed to one another and any terms concerning
the exclusivity of negotiations. This paves the way for the potential
buyer to conduct a due diligence review.
The pre-acquisition stage typically takes one to two months to
complete.
Acquisition stage
At this stage the parties:
„„ negotiate the terms of the transaction documents;
„„ sign the transaction agreement(s) and/or other related
documents;
„„ fulfil any conditions precedent; and
„„ obtain regulatory approvals as required.
Depending on the complexity of the transaction and of the
business being acquired, this stage typically takes a further one or
two months but if regulatory approvals or consents are required
(e.g. approval from the BoI or IEAT or any ministry because of
special regulatory requirements for the business sector) the
timetable could be extended by a month or more.
Closing stage
An acquisition agreement will often contain conditions precedent
to be fulfilled before the acquisition can be completed. Upon
satisfaction of these conditions precedent, including obtaining any
requisite approvals, the parties would arrange for legal transfer
of the shares or assets and any necessary registrations of the
transfers with the relevant public registries, including the Land
Department, Machinery Registry of the Ministry of Industry (if
machinery has been mortgaged or released from mortgage) and
the Patent and Trade Mark Registries at the MoC.
Certain notifications may also be required; e.g. to the BoI if the
promotion status of the company is conditional on certain levels of
foreign ownership.
As Thai law does not distinguish between legal and beneficial
ownership, it is only at closing of an acquisition that a buyer
acquires any legal interest in the target.
No requirements exist concerning the prior approval of foreign
investments in Thailand or the inward remittance of investment
funds (whether as equity or debt). Nor is there any direct
requirement for the purchase price to be paid within Thailand.
However, not to do so may have adverse tax and foreign
exchange control consequences. Evidence of the notification
to the BoT of inward remittances is required to ensure that
consent for the repatriation of funds will be given. The notification
is normally handled by the Thai bank that receives an inward
remittance. This bank will issue the requisite evidence to the
recipient on the BoT’s behalf.
8. What tax issues should be considered?
Capital gains
Capital gains of a foreign entity on the sale of shares in a Thai
company that are derived from or in Thailand are subject to a
withholding tax of 15 per cent unless exempted by a double tax
agreement. Gains realised by individuals on the sale of shares of
companies listed on the SET or the MAI are exempt from tax.
Transfer taxes
Ad valorem stamp duty of 0.1 per cent is payable on the transfer
of shares.
Transfers of shares listed on the SET or the MAI or registered with
the TSD, regardless of whether the trades are done on-market,
are exempt from stamp duty.
On-market trades are conducted in paper-less form with the
transfer being electronically processed between the broker and
the TSD.
Thin capitalisation/interest deductions
Interest paid to a lender for the purpose of a company’s business
can be used as a deductible expense of the company for the
purpose of calculating the company’s taxable profit, subject to the
application of transfer pricing rules if the lender and company are
associated.
Thailand does not have special legislation regulating thin
capitalisation. However, a specified level of paid-in share capital
or the maintenance of a stipulated debt to equity ratio is often
imposed by the BoI as a condition of granting investment
incentives for companies whose activities are promoted by the BoI
and by the MoC when a Foreign Business Licence is granted.
117
Withholding tax

Payments of certain types of assessable income to a resident

individual or legal entity are subject to withholding tax at varying
rates. The rates range from 1 per cent to 15 per cent depending
upon the nature of the assessable income. For payments
regarding employment, certain services or capital gains to a
resident individual, the rates range from 5 per cent to 37 per cent.
Interest income is subject to a 15 per cent withholding tax if
payment is made by a financial institution to a resident individual.
Dividend income paid to a resident individual is subject to a 10 per
cent withholding tax.

Repatriation of assessable income from Thailand to a non-

resident foreign corporation is subject to withholding tax at a rate
of 10 per cent on dividends, 15 per cent on interest and 15 per
cent on commercial royalties. This, however, may be subject to
reductions under various bilateral tax treaties Thailand has with
other countries.

118
Schedule 1: Foreign ownership restrictions in Thailand
This table sets out a summary of some of the foreign ownership restrictions in Thailand on only some of the industries.
Business/Property
Businesses listed in the Annex
1 of the Foreign Business
Operations Act consisting of,
amongst other things, newspaper
publication, radio broadcasting
station or radio/television
business, forestry and timber
conversion from natural forests
and trading in land
Banking/finance business
Insurance business (life/casualty)
Marine transportation business
Air transportation business
Telecommunications business
Tour agency business
Employment agency business
(domestic employment)
Employment agency business
(employment abroad)
Land
Condominiums
Minority foreign ownership Majority foreign ownership
No permission required Not possible
Foreigners may own in aggregate up to 25% of Foreigners may own more than 49%
a Thai bank or financial institution, which may be of a Thai bank or financial institution
increased up to 49% by the Bank of Thailand only with approval from the Ministry of
Finance, following a recommendation
by the Bank of Thailand
Foreign ownership is limited to an aggregate of The Finance Minister, following a
25% and 75% of the directors must be Thai. The recommendation from the Insurance
Insurance Commission has power to permit up Commission, has discretion to permit
to 49% foreign ownership, and allow up to 50% greater foreign ownership and allow a
of the directors to be foreign majority of foreign directors
Foreign ownership up to 30% permitted Not possible
Foreign ownership up to 49% is permitted Not possible
For Type 2 and 3 telecommunications business For Type 1 telecommunications
licences under the Telecommunications Act, business licences under the
foreign ownership up to 49% is permitted Telecommunications Act, foreign
ownership up to 100%
Foreign ownership up to 49% is permitted Not possible
Foreign ownership up to 49% of the total shares Not possible
is permitted
Foreign ownership up to 25% of the total shares Not possible
and 25% of the total number of shareholders is
permitted
Foreigners generally cannot own land in -
Thailand unless under a treaty or there is special
permission allowing such ownership
Foreign ownership of up to an aggregate of 49% -
of the floor area in a condominium project is
permitted
119
 re s
W -
L O

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1. What are the forms of business entity in Vietnam?
Common forms of entity
„„ Limited liability companies (LLC)
„„ Joint stock companies (JSC)
„„ Incorporated partnerships
„„ Private enterprises (i.e. sole proprietorships)
Less common forms of entity
„„ Business cooperation (similar to an unincorporated joint
venture)
Choosing between an LLC and a JSC
An LLC or a JSC is likely to be the most appropriate structure for
foreign investors who want to set up a joint venture company or a
wholly foreign-owned company in Vietnam.
LLC: There are two types of LLC, a one-member LLC and a two
or more-member LLC. A one-member LLC is a company owned
by one organisation or individual. A two or more-member
LLC is a company owned by at least two, but no more than 50,
individuals and/or organisations. An LLC has “charter capital”
which is the amount of capital that the members contribute and is
stated in the charter of the LLC. The charter capital is not divided
into shares.
JSC: A JSC is a company in which charter capital is divided into
shares. A JSC must have a minimum of three shareholders, there
is no maximum number of shareholders.
Section 2 describes some of the differences between the structure
of an LLC and a JSC. When choosing a structure for their foreign
investment, investors should be aware that an LLC and a JSC
both have advantages and disadvantages.
For a JSC, one advantage is that a foreign shareholder is
permitted to sell shares to raise capital. The foreign shareholder
can also be issued preferential shares in order to achieve a
quorum in a meeting and to control voting.
The JSC’s structure may be preferable for a minority foreign
shareholder interested in testing the market before fully
establishing themselves in Vietnam. A minority shareholder can
easily increase its ownership in the JSC by purchasing shares
from other shareholders. A foreign shareholder can easily exit its
investment in the JSC by selling its shares to others. However
a founding shareholder is not permitted to transfer his shares to
non-founding, shareholders without the resolution of a general
shareholders meeting within three years of incorporation of a JSC.
Vietnam
The LLC’s structure is likely to be the preferred structure as long
as the LLC is wholly foreign-owned. The owner has complete
control of the LLC and is therefore not subject to rules governing
business relationships with partners, quorums and majority voting.
Even if not wholly foreign-owned, an LLC may be preferable for
foreign investors entering into joint ventures with Vietnamese
parties. In an LLC, the foreign member may choose his partners,
rather than in a JSC where the public has the right to purchase
shares. The foreign member of an LLC can also agree with the
local partner that in the event the local partner wants to sell its
capital in the LLC, the foreign partner has pre-emptive rights of
purchase.
Further, the Law on Enterprises provides for enterprises to
convert from one form to another. The law allows an LLC
to be transformed into a JSC and vice versa (subject to the
requirements for the converted enterprise). It is also possible for a
single-member LLC to transform to a two or more member LLC.
These transformations are subject to the various requirements
under the Law on Enterprises.
2. How is a company managed?
The basic management structure
What form does the management structure take?
For a one-member LLC, the owner has complete control. For
a two or more member LLC, the members run the company
via a members’ council, which is the highest decision making
body in an LLC. Each member of the LLC may participate in the
members’ council or appoint their authorised representative to
be a member of the members’ council. Each member, or their
authorised representative, possesses a number of votes pro rata
to his/her capital contribution.
A director or general director can be appointed by the company
and is responsible for the daily operation of the LLC. Directors or
general directors are personally responsible for their performance
to the member’s council. In practice, only one director or
general director is appointed. However deputy directors may be
appointed and, depending on the nature of their appointment,
may attract liability similar to that of a director.
The management structure of a JSC normally includes a
shareholders’ general meeting, a control board, a board of
management (board) and director or general director. The JSC
must have a control board when it has more than 11 individual
shareholders or one organisation shareholder holding more than
50 per cent of its total shares.
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How are directors appointed to and removed from office?
LLC (two or more-member LLC): Each member of the
LLC may participate in the members’ council or appoint their
authorised representative to be a member of the members’
council. A director or general director is appointed and dismissed
by a resolution of the members’ council.
JSC: Each shareholder is entitled to attend or be represented
at the shareholders’ general meeting. The board comprises
between three to 11 members (unless otherwise provided for in
the charter) elected by the shareholders at a shareholders’ general
meeting. A director or general director is appointed by the board
and is responsible for the daily operation of the JSC.
What powers does the board have?
In an LLC, the members’ council makes all of the decisions
relating to the company. A resolution of the members will be
passed at a meeting if it is approved by the members or their
authorised representatives representing at least 65 per cent of the
capital contribution of all attending members. There are higher
thresholds for certain resolutions. The scope of the resolutions
that the member’s council is able to pass is broad and contained
in the law and the company’s charter.
A JSC’s powers are divided between:
„„ a board, whose powers are governed by the charter of the
company. Although it is responsible for managing the company,
there may be certain matters that are set aside for vote at a
shareholders’ general meeting; and
„„ a director or general director who is responsible for the daily
operation of the JSC.
Are there any residency requirements for directors?
In an LLC, there is no requirement for the members of the
members’ council or the directors to be resident in Vietnam.
In practice, it is a requirement of the authorities that if a general
director is appointed they must be resident in Vietnam.
The Enterprise Law only requires the CEO to be resident
in Vietnam. Board members may be subject to residency
requirements imposed by the company’s charter.
Is there any requirement for directors to hold shares?
If a director is a member of an LLC, they are required to hold at
least 10 per cent of the charter capital of the company. There is
no such requirement for a director of a JSC.
122
What duties do directors owe?
Overview
Unlike other jurisdictions that tend to have company or
corporation legislation that embodies a defined set of rules relating
to corporate governance, the concept of corporate governance is
still a developing area of law in Vietnam.
Obligations and duties relating to corporate governance are
evident in laws such as the Law on Enterprises and the Civil
Code, which contain certain rights and obligations pertaining to
office bearers. However, Vietnam is a civil law jurisdiction and as
such there is no system of precedent available to assist in defining
areas of corporate governance not stated in the law.
Duty to the company
The directors and members of an LLC must:
„„ exercise their rights and obligations in a trustful, careful and
best manner;
„„ be loyal to the benefits (which may broadly be interpreted
to mean the well-being of the company) and owner of the
company;
„„ not mis-use confidential information; and
„„ provide information in a timely fashion with regard to related
persons or enterprises.
The board and directors of a JSC must:
„„ exercise the rights and obligations assigned to them in
accordance with the law, the charter, the decisions of the
shareholders, and the shareholders’ general meeting in an
honest, diligent and best manner to protect the interests of the
company and its shareholders;
„„ be loyal to the benefits and owner of the company;
„„ not mis-use confidential information; and
„„ provide information in a timely fashion with regard to related
persons or enterprises.
Duty to the shareholders
In an LLC company, directors are directly responsible for their actions
to the members’ council. Each member has the right under the
law to lodge a “complaint” or initiate a proceeding against a director
or general director who causes loss/damage to the company or
members. Depending upon the actions of the directors, there may
also be rights of recourse under legislation such as the Civil Code.
In a JSC, the board and each director must comply with the law,
the charter of the company and shareholder resolutions. Each
member of the board is liable to the company for any losses
resulting from such a breach.
Duty to creditors
A company enters a state of bankruptcy when it is incapable of
repaying its debts when due at a creditor’s request. The Law
on Bankruptcy places certain obligations on directors in order to
protect a creditor’s interests, such as the ability for creditors to file
a petition for bankruptcy.
A company (including its directors) is prohibited from disposing
of its assets for the three-month period prior to the filing of a
petition. The law is unclear in this respect and assumes a degree
of knowledge (constructive or actual) that a petition is to be filed.
It is broad enough to allow a court the power to invalidate all
transactions relating to assets (within the three-month threshold)
made prior to the petition being filed.
Duty to employees
There is no express duty owed by directors to employees. Under
Vietnamese labour law, a duty to the employees is owed only by
the company itself.
What types of liability can directors incur?
In an LLC where there are two or more members, each member is
personally liable to the company for:
„„ any violation of the law;
„„ any business or transactions that are not for the benefit of the
company which cause damage; and
„„ the payment of company debts if the company is in financial
trouble.
Where an LLC has a single member, the member is liable for
the debts and other liabilities of the company. Such liability is
restricted to the amount of its charter capital. The charter capital
of a company is the amount each party to an LLC commits to
or contributes to a company (this can be in the form of cash or
other contributions). Prior to any transfer of capital, the member
is “jointly” liable for all debts and “other property” liabilities of the
company.
In a JSC, members of the control board are individually and jointly
responsible for compensating the company for any loss caused
by:
„„ failing to comply with the law, the charter of the company,
resolutions of the general meeting of shareholders, or
professional ethics in the exercise of delegated rights and
duties;
„„ failing to exercise delegated rights and perform delegated
duties honestly, prudently and to the best of their ability in the
maximum lawful interest of the company and shareholders;
„„ failing to be loyal to the interests of the company and the
shareholders of the company;
„„ misusing information, secrets or business opportunities of the
company; and
„„ abusing his position and powers or the assets of the company
for his personal benefit or for the benefit of other organisations
or individuals.
If the board of a JSC passes a resolution that is contrary to law
or contrary to the provisions of the charter of the company, and
thereby causes damage to the company, the board members who
agreed to pass such a resolution are personally jointly liable for
the resolution and they must compensate the company for such
damages. Any board member who opposed the passing of such
resolution is exempt from liability.
The directors of a JSC are responsible for breach and any
damage caused to the company if they fail to manage the day-to-
day business operations of the company in strict accordance with
the law, the charter of the company, their employment contract
with the company and the resolutions of the board.
What are the auditing requirements for companies?
The Enterprise Law requires a company to conduct an audit in the
following circumstances:
„„ if an LLC reduces its charter capital, and that company has
more than 50 per cent foreign-owned capital, the financial
statements required to be submitted to the relevant authority
must be certified by an independent auditor; and
„„ in some cases, the law requires a JSC to be audited; therefore
the annual financial statements of the shareholding company
must be audited before they are submitted to the general
meeting of shareholders for consideration and approval.
Under the circulars for the implementation of auditing standards:
„„ annual financial reports of enterprises and organisations
with foreign-owned capital must be audited by an auditing
enterprise lawfully operating in Vietnam prior to submission to
the competent state body. The state encourages enterprises
and organisations with foreign-owned capital to audit their
financial reports for tax purposes.
„„ enterprises and organisations with foreign-owned capital must
submit their audited annual financial reports to the local tax
division, the body which issued their investment licence or
operating licence, the statistics department, the Ministry of
Finance, and the Vietnamese capital contributing parties (if any).
If the enterprise or organisation has a head office in an export
123
 processing zone, industrial zone or high-tech zone, it must, if
requested, submit its financial reports to the management board
of the export processing zone, industrial zone or high-tech zone.
The Decree on Independent Auditing makes the auditing of annual
financial statements compulsory for the following:
„„ enterprises with foreign-owned capital;
„„ organisations with credit, banking and development assistance
funds;
„„ finance and insurance organisations; and
„„ companies listed on the stock exchange.
3. What are the most common types of M&A transaction?
Private companies
Share acquisitions
An LLC with two or more members is able to issue shares. A
member of an LLC can transfer all or part of its capital contribution
in the company to another entity. However, existing members of
the LLC have a pre-emptive right.
If a single-member LLC company transfers part of its capital to
another member, it must convert to a two or more member LLC.
A JSC company can issue various types of shares with different rights
attached. The most common are ordinary shares with full voting
rights and preference shares (which can have voting rights attached).
A buyer can purchase shares in a JSC company and, generally, by
acquiring shares in such a company, the buyer acquires all voting
rights attached to such shares. However, a founding shareholder
cannot transfer its shares (other than to another founding
shareholder) within three years of their issue. Any proposed transfer
is subject to agreement at a general shareholders’ meeting.
For private companies, whether foreign-invested or domestic, a
takeover is achieved by obtaining all of the shares in the company
by agreement with all shareholders of the target.
Schedule 1 provides an overview of the different compulsory
notification, approval and reporting requirements for the
acquisition of private companies.
Business/asset acquisitions
A buyer can also purchase the business and assets of a company.
Each asset must be transferred subject to the particular required
formalities. For some classes of assets, this simply means
handing over the asset (i.e. physical delivery), whereas others
require transfer documents (e.g. real property).
124
Amalgamations
Two or more local companies of the same type may, in
accordance with the Law on Enterprises, consolidate or merge
to form a new company, by transferring all of their legal assets,
rights, liabilities and interests.
The process involves preparation of a consolidation contract.
Members, owners or shareholders of the companies being
consolidated must approve the consolidation contract and the
charter of the consolidated company. They must also elect or
appoint the chairman of the members’ council, chairman of
the company, the board and the director or general director
of the consolidated company and register the business of the
consolidated company. The business registration document must
include the consolidation contract. The consolidation contract
must also be sent to all creditors and notified to employees within
15 days from the date of its approval.
If the consolidated company holds a market share of between
30 per cent and 50 per cent of the relevant market, the legal
representative of the company must notify the competition
managing body before carrying out the consolidation. If the
resultant market share is 50 per cent or more of the relevant
market then the consolidation is prohibited.
Joint ventures
Unincorporated joint ventures are not common in Vietnam.
Demerger
An LLC or a JSC is able to demerge by either transferring part of
the assets of the existing company to establish one or more new
companies of the same type or by transferring a part of the rights
and obligations of the company without terminating the existence
of the company being separated.
The process requires the members’ council, the company owner
or a general meeting of shareholders of the company to pass
a resolution on the separation of the company. The resolution
on separation of the company must be sent to all creditors and
notified to employees within 15 days from the date of its passing.
After business registration, the company being separated and
the separate company(ies) are jointly liable for unpaid debts,
labour contracts and other property obligations of the company
being separated, unless otherwise agreed amongst the company
being separated, the newly-established companies, creditors,
customers and employees.
Public companies
Takeovers (see section 6 for a more detailed summary of public
takeovers)
A public company is defined to mean one of the following: (i) a
company which has already made a public offer of shares; (ii) a
company that has shares listed on a stock exchange; and (iii) a
company that has shares owned by at least 100 investors (but
excluding professional securities investors) and a paid-up charter
capital amount of VND10 billion or more.
Vietnam has no specific law relating to takeovers of public
companies. Invariably it is governed by a number of different
laws, including the Law on Enterprise and Law on Securities.
There are various government authorities that regulate takeovers.
For example the State Securities Commission (SSC) is responsible
for takeovers involving listed companies.
Schedule 1 provides an overview of various compulsory
notification, approval and reporting requriements for the
acquisition of public companies.
Schemes of arrangement
Under Vietnamese law, there is no concept of a scheme of
arrangement.
Amalgamations
See the section on Amalgamations of private companies on page
124.
Joint ventures
See the section on Joint ventures of private companies on page
124.
Public-to-private acquisitions (P2Ps)
P2Ps are regulated by both the Law on Securities, the listing rules
and the Law on Enterprises (and various subordinate legislation).
The process would involve either withdrawing a public bid of
shares or delisting the company (see section 5).
Do the parties have an obligation to negotiate in good faith
to one another in M&A transactions?
Whilst the Civil Code does recognise the concept of good faith (a
concept applicable to all transactions), it is unclear how that concept
is applied in practice. The Civil Code broadly states that all persons
(including legal entities) must act with “goodwill and honesty”.
There is no statutory concept of lock-out and break fees. Parties
may enter into heads of agreement containing such provisions,
but it is uncertain whether such provisions will be legally
enforceable.
4. What percentage shareholding is required to achieve
effective control of a company?
The law is not altogether clear on this point and varies according
to the industry sector. Under the Investment and Enterprise
Laws a 65-75 per cent shareholding will secure a resolution at
a shareholders’ general meeting. However as stated this will
depend upon the industry and those matters specifically stated in
a company’s charter.
Following Vietnam’s accession to the World Trade Organisation
(WTO), the charter of a JVC (between local and foreign partners)
can stipulate that a 51 per cent majority is required to pass
decisions. However, this is limited to companies that fall under
service sectors. A greater majority is required in restricted
sectors, such as the telecoms industry where the majority
ownership and thus control of the enterprise (i.e. control over
voting at the board level) is maintained by the state (pursuant to its
WTO commitments).
5. Regulation, consents and foreign investment restrictions
Are there any regulated industries?
Under the Investment Law, investors may invest in any sector
not prohibited by law. Areas prohibited by law include: (i) those
that are detrimental to national defence, security and the public
interest; (ii) the treating of toxic waste imported to Vietnam; and (iii)
projects detrimental to historical and cultural traditions.
Vietnam also has “conditional sectors” in which investment is
restricted. These include the tobacco industry, banking and
finance, public health, education, culture and information, mining
of natural resources, real estate, and entertainment.
Are there any restrictions on the foreign ownership of
shares in a Vietnamese company?
Schedule 2 summarises restrictions on foreign ownership of
shares in some of the main industries. As the restrictions are fairly
extensive under Vietnamese law, Schedule 1 only lists foreign
ownership restrictions on some of the major industries.
On 1 June 2009, the Prime Minister of Vietnam issued a decision
that restricts foreign investors from purchasing 49 per cent of the
total number of shares in a public shareholding company on either
stock exchange. It is not yet clear what impact this will have on
the M&A process in Vietnam.
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Are there any foreign exchange and investment controls?
The Ordinance on Foreign Exchange Controls (and related
subordinate legislation), controls all manner of foreign exchange
including:
„„ current/capital transactions;
„„ the opening of a “Capital Contribution Share Purchase Account
in Vietnamese Dong” which must be opened with a commercial
bank in Vietnam for the foreign investor to convert USD into
Vietnamese Dong (VND) for any acquisition and which must be
registered with the State Bank of Vietnam; and
„„ breaches relating to such laws.
Is there any merger control?
The Competition Law deals with two specific issues: unfair
competitive practices and practices in restraint of competition.
It applies to organisations and individuals conducting business,
including enterprises engaged in the production or supply of
products or services, enterprises conducting business in state
monopolised industries and sectors, and overseas enterprises
operating in Vietnam. However, it is difficult to determine which
overseas entities are subject to the Competition Law because
the Competition Law does not clarify what kinds of operations in
Vietnam are required.
In a merger scenario, the Competition Law provisions relating
to activities in restraint of competition are relevant. These are
defined as those which will reduce, deviate or restrain competition
in the market.
Enterprises are restrained from entering into agreements in
restraint of trade which restrict the entry or development of other
businesses.
Mergers that result in a “monopolistic or dominant market
position” are prohibited (a market share of 30 per cent or more is
deemed to be capable of significantly restricting competition).
When a merger, consolidation, acquisition or joint venture
results in a combined market share which does not lead to a
“monopolistic or dominant market position” of 30-50 per cent (an
economic concentration) the Vietnam Competition Administration
Department must be notified. If the result is a combined market
share of 50 per cent or more then it is prohibited.
An exception to both of these situations is where the economic
concentration results in a small or medium enterprise. The phrase
“small to medium enterprise” is not specifically defined in the
Competition Law; however under a decree issued regarding “small
to medium enterprises”, it comprises three kinds of enterprise:
super small, small and medium, which is determined according to
126
the amount of total capital resources (which is equal to the total
value of assets of such enterprise) or the annual average number
of employees.
The Competition Law is applicable to “foreign companies
operating in Vietnam”. In the absence of detailed guidance from
the Vietnamese authorities, it is not entirely clear if the Competition
Law is applicable to an offshore merger transaction.
Vietnamese competition regulatory authorities consist of the
Vietnam Competition Administration Department and the Vietnam
Competition Counsel.
What are the employee issues?
Are works councils/consultation common?
In case of a merger or transfer of ownership of a company,
including the right to use the assets of the company, the parties
to the transactions are not required to consult employees and the
company’s trade union before the merger or transfer.
However, if all existing employees are unable to be utilised, the
employer must prepare a plan for labour usage and the trade
union is required to participate in its preparation. The plan for
labour usage contains the following information:
„„ the number of employees who will continue to be employed;
„„ the number of employees who will be re-trained in order to
continue their employment;
„„ the number of employees who will retire; and
„„ the number of employees whose labour contracts will be
terminated.
The former employer and the continuing employer shall be
responsible for resolving the rights of employees, including
specifying responsibility for funding of training and for loss of
work allowances for employees whose labour contracts must be
terminated.
Are any actions required prior to or upon an acquisition for
employees?
If an acquisition does not result in a change of ownership of the
enterprise and termination of employees, no actions are required
prior to or upon such an acquisition in relation to employees.
Where there is a change in ownership, the succeeding owner/
employer is responsible for continuing the performance of the
labour contract of the employees. Although in practice the labour
contracts of employees with the old owner/employer continue
to be implemented, the succeeding owner/employer may re-
negotiate its terms and/or sign a new labour contract.
Where a new labour contract with the succeeding owner/
employer is signed, the labour contract with the old owner/
employer is terminated and a severance allowance equivalent
to half of one month’s salary for each year of employment plus
salary allowances (if any) is payable to an employee who has been
regularly employed by the company for at least 12 months.
A labour usage plan is required if all existing employees are unable
to be utilised after a merger or transfer of ownership of a company,
including the right to use the assets of the company. Employees that
have been employed by the company for 12 months or more and
whose contracts are terminated are entitled to an allowance for loss of
work equivalent to one month’s salary for each year of employment,
but not less than two months’ salary.
The provincial-level Department of Labour, Invalids and Social
Affairs must be notified when a labour usage plan is implemented.
For foreign employees with a work permit, there is no provision
under the law for amendment of the work permit. It is advisable
that the succeeding owner/employer apply for a new work permit
for the foreign employees.
Are there any notification obligations for employees prior to or upon
an acquisition?
If an acquisition does not result in both a change of ownership of
the enterprise and the termination of employees, no notification is
required to employees prior to or upon such an acquisition.
Where there is a change in ownership, if all existing employees are
unable to be utilised in case of a merger or a transfer of ownership
of the company, the labour laws are silent as to the notice period
required prior to the termination of the employee contracts.
In the case of a merger, the merger contract is required to
be notified to all employees within 15 days from the date of
its approval by the members, owners, or shareholders of the
companies.
With which stock exchange requirements must listed
companies comply?
What rules generally govern listed companies?
In Vietnam, there are two types of centralised securities market:
stock exchanges and securities trading centres. Ho Chi Minh
City market has been designated as a stock exchange and Hanoi
as a securities trading centre. However, the market in Hanoi is
also expected to be converted to a stock exchange later in 2009.
Different listing rules apply to each securities market.
There are different listing requirements for companies depending
on whether they wish to be listed on a securities trading centre
or a stock exchange. For instance, a company wishing to list
stocks on the stock exchange must have conducted a profitable
business operation for two consecutive years immediately
preceding the year of listing registration.
However, a company wishing to list stocks at a securities trading
centre need only have conducted a profitable business operation
for one year immediately preceding the year of listing registration.
How does a company delist its share capital?
When a company voluntarily delists its shares, it is required under
the Securities Law to submit a delisting dossier which includes:
„„ a written request for delisting; and
„„ an approval from the following (as the case may be):
• the shareholders’ general meeting approving the stock
delisting;
• the board of directors approving the bond delisting;
• the shareholders’ general meeting approving the convertible
bond delisting (for a JSC);
• the members’ council approving the bond delisting (for an
LLC with two or more members) or the company’s owner
(for a one-member LLC) or the representative of the capital
owner (for state enterprises);
• the investors’ congress approving the securities investment
fund certificate delisting; or
• the shareholders’ general meeting of the securities
investment company approving the stock delisting.
Where a company voluntarily delists from the Ho Chi Minh Stock
Exchange, the Listing Rules state that the enterprise:
„„ must obtain an approval from:
• the general meeting of shareholders with a minimum of 65 per
cent of the votes of all attending shareholders (or 75 per cent in
the case of written resolutions) to delist its shares;
• the board (in the case of a shareholding company);
• the members’ council (in the case of an LLC);
• the owner (in the case of a single member LLC);
• an authorised body (in the case of a state enterprise) in
respect of delisting bonds; or
• the general meeting of investors in respect of delisting fund
certificates;
„„ must discharge all obligations in accordance with current law
before requesting delisting; and
„„ must lodge an application file for delisting with the Listing and
Examination Department of the stock exchange.
The stock exchange must consider approving or refusing the
delisting of securities within 30 days from the date of receipt of a
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complete and valid file. In a case of refusal to approve, the stock
exchange must provide a document specifying its reasons.
Under the Listing Rules of the Hanoi Stock Exchange:
„„ the enterprise must obtain an approval from the general
meeting of shareholders with a minimum of 65 per cent of the
votes of all attending shareholders (or 75 per cent in the case
of obtaining written opinions from shareholders) to delist the
shares;
„„ the enterprise must obtain approval from the board (in the case
of a shareholding company) or from the members’ council (in
the case of an LLC);
„„ the enterprise must obtain approval from the owner (in the case
of a single member LLC);
„„ the enterprise must obtain approval from an authorised body
(in the case of a state enterprise) if delisting bonds;
„„ the enterprise must lodge an application file for delisting with
the Listing Management Division under the trading centre;
„„ the trading centre (within three working days) must disclose the
receipt of the file on its “disclosure media”; and
„„ the trading centre must consider approving or refusing to
approve the delisting of securities within 30 days from the
date of receipt of a complete and valid file. In a case of refusal
to approve, the stock exchange shall provide a document
specifying its reasons.
Is financial assistance prohibited?
There is no prohibition on financial assistance in Vietnam.
6. Public takeovers
What are the forms of a public bid?
Takeovers of public companies typically take the form of an
acquisition of share capital of the target company (the target).
However, there are several restrictions on foreign investors
conducting a takeover of a Vietnamese registered company. A
proposed acquirer may be prevented from making an acquisition
of all of the issued share capital, with a partial offer potentially not
giving the acquirer control or a majority share of the enterprise.
The term “public offer” under the Law on Securities is defined
as an offering of securities and primarily relates to initial and
additional public offerings of shares by a public company.
However, the phrase “public offer to purchase shares” is used in
a circular interpreting the law relating to “public bids” in the Law
on Securities. Although the law appears to be contradictory,
the term “public bid” in practice would refer to “a public offer to
purchase shares”.
128
There are limited circumstances where a “public bid” may be
triggered. The Law on Securities provides that a “public bid” is
triggered:
„„ when a bid is made to purchase voting shares of the target and
the proposed purchase would result in the acquirer owning at
least 25 per cent or more of the entire issued share capital of
the target; and
„„ when the bid compels shareholders to sell their stock.
There is no form of hostile takeover in Vietnam. Given the legal
framework, it is doubtful that an attempt to conduct a hostile
takeover would work.
What is the regulatory framework for a public bid?
The Law on Securities (No. 70/2006/QH11)
The Law on Securities is augmented by several decrees, circulars
and letters that assist with the interpretation of its provisions. In
addition, the various listing rules may be applicable to certain
acquisitions.
Application of the Law on Securities
The Law on Securities (and its subordinate legislation) provides
for public offerings of securities, securities listing, trading and
investment, and provision of securities and securities market
services. The Law on Securities (and its subordinate legislation)
applies to Vietnamese and foreign organisations and individuals
engaged in securities investment and operating in Vietnam’s
securities market.
When a treaty to which the Socialist Republic of Vietnam is a
contracting party contains provisions different from the Law
on Securities (and its subordinate legislation which comprises
decrees, circulars and listing rules), the provisions of that treaty
prevail.
What are the main bid terms?
Minimum price requirements
Vietnamese law does not require a minimum price.
Cash/non-cash terms
This is not addressed under Vietnamese law.
Cash consideration
This is not addressed under Vietnamese law.
Non-cash consideration Announcements

This is not addressed under Vietnamese law.
Conditions
Vietnamese law does not set out any mandatory conditions.
Funding the acquisition
This is not addressed under Vietnamese law.
What is the timing of a public bid and what is the procedure
to be followed?
In the case of a public bid, once SSC approval is obtained for the
bid, an announcement is made in the mass media. The law is not
clear as to the timing of such an announcement other than it must
be made in advance of the bid.
The announcement must be made in three consecutive issues of
a central newspaper and a local newspaper of the locality in which
the head office of the company whose shares are to be purchased
is located. Where the company whose shares are offered for
purchase is a listed company, the announcement must be made
on the media of the stock exchange or securities trading centre at
which the company is listed.

Simplified offer timetable

Whilst Vietnamese law does not specifically set out the detail of an
offer timetable, in cases that result in a “public bid” for securities
the following timetable is relevant:

Date/Time period Events

Day 0 (D) (Date prior to the date The bidder prepares registration documents for its public bid to purchase shares.
of the public bid) The bidder must appoint a securities company as its agent to make the offer.
The bidder deposits in escrow a sum equal to 100 per cent of the value of the shares
registered for the offer, calculated on the price offered.

D+1 The bidder sends the bid registration documents to the SSC for approval and at the
same time sends the registration documents to the target.

D+8 Last date for SSC to reply giving approval or disapproval (including reasons why).

Last date for target to notify the SSC and its shareholders of its opinion as to whether or
not to accept the offer for purchase.

D+9 Bid is announced in the mass media.

(assuming bid is announced next
day, however there is no legal
requirement for this)

D+39 The law states that the duration for conducting a public bid is between 30 and 60 days
after the announcement of the public bid. This includes any adjustment to the bid.

D+69 Last day for conducting the bid.

D+76 The bidder’s designated agent must transfer the proceeds to the shareholders selling
their shares.

D+79 Last date reporting the result of the bid to the SSC.

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Acceptance period
This is not directly addressed by Vietnamese law; however in the
case of a public bid, the bid must be concluded between 30 and
60 days after the announcement of the bid.
Satisfying offer conditions
This is not addressed by Vietnamese law.
Offer unconditional - payment
This is not addressed by Vietnamese law.
Competing bids
This is not addressed by Vietnamese law.
Failed bids and further offers
This is not addressed by Vietnamese law; however, in the event
of a bid being rejected by the SSC (or the target) there seems to
be no restriction on a bidder resubmitting the bid for approval as
long as the issues raised by the SSC (or the target) have been
addressed.
What documentation is involved in the process?
Press announcement
Any disclosure of information must concurrently be reported to the
SSC. Information can be disclosed in mass media, publications of
organisations, and the communication media of the relevant stock
exchange or trading centre. (Please see under Announcements on
page 131).
The contents of the information to be disclosed are subject to those
specifications issued by the Ministry of Finance from time to time.
Offer document
A public bid (or public offer to purchase shares) requires the
bidder to submit a bid registration documents to the SSC and the
target. These documents comprise the offer.
Bid registration documents must include:
„„ an application for registration of a public offer for purchase in
accordance with the law;
„„ name and address of the bid-making organisation or individual;
„„ type of stock subject to bid;
„„ the number of stocks subject to bid and currently held by such
organisation or individual;
130
„„ the projected number of stocks subject to the bid;
„„ the bid duration;
„„ the bid price;
„„ the bid conditions;
„„ audited financial statements of the last year for the legal
entities, or a bank’s confirmation of financial ability of
individuals;
„„ written agreement with members of the board of management
and major shareholders of the public company whose shares
are offered for purchase in the case where there is a prior
agreement between the two parties;
„„ name of the securities company as the agent delivering the
offer for purchase; and
„„ documents proving that the company satisfies all conditions for
redemption of shares stipulated in the law in the case where a
public company redeems its own shares by way of making a
public offer to purchase.
Target documentation
Other than the written opinion of the Board recommending to
shareholders whether they should accept or refuse the offer
for purchase, there are no specific documentary requirements
relating to the Target. See under Target on page 131 for details
regarding the requirements of the written opinion.
Responsibility statements
The Law on Securities places general obligations on enterprises
involved in “securities activities”, which include an obligation not
to disclose misleading information. The term “securities activities”
is not defined in the Law on Securities but, in practice, would
include public bids.
What are the practices relating to break fees and lock-out?
The concept of break fees is not common practice in Vietnam.
Lock-outs are generally a product of the contractual relationship
between the parties.
What are the rules on information gathering/provision?
This is not addressed under Vietnamese law.
What is the position regarding insider trading?
The Securities Law does not deal with insider trading in detail.
The law prohibits a person to use inside information to buy or
sell securities for themselves or for others. Such persons are
also prohibited from disclosing or supplying inside information
or advising others to buy or sell securities based on inside
information.
Under the Securities Law, certain classes of people are deemed
to have insider information. These include members of the board
of directors, the control board, the director or the general director,
the deputy directors or the deputy general directors of the public
company; members of the representative committee of the public
fund; and majority shareholders of the public company or the
public fund.
Inside information is defined as undisclosed information on a
public company or a public fund, which may, once disclosed,
greatly affect the price of securities of such public company or
public fund.
What are the public disclosure requirements in a takeover
scenario?
Bidder
The bidder must send a notice of public bid to the SSC for approval
and make an announcement (as described on page 131).
During the SSC approval process, the bidder is required to
include in its bid registration documents (as described under Offer
document on page 132) the number of shares currently held in
the target.
If the bidder is to become a majority shareholder it is also required
to report such ownership to the SSC and the relevant stock
exchange.
See Schedule 1 for other disclosures.
The bidder must report to the SSC within 10 days after
completion of the acquisition.
Target
Within seven days from the date of receipt of the documents for
registration of an offer for purchase, the public company whose
shares are offered for purchase must provide the SSC with, and
notify all shareholders of, its opinion on whether or not to accept
the offer for purchase.
The opinion must be in writing, signed by at least two-thirds of
the total number of the members of the board, and must evaluate
the offer and recommend to the shareholders whether they
should accept or refuse the offer. Where the offer is refused, the
company must specify its reasons.
Does a memorandum of understanding (MoU) need to be
disclosed?
There is no requirement under Vietnamese law for disclosure of
the MoU.
What are the limitations to stakebuilding?
Acquisition of 80 per cent or more of the entire share capital of
the target will usually trigger a mandatory offer (see Mandatory
offers below).
Majority shareholders are required to disclose further share
acquisitions.
Certain industry sectors limit foreign ownership; for example, in the
telecom industry (facilities based enterprises) foreign ownership is
limited to 49 per cent (see page 127 and Schedule 2).
After a successful public bid for purchase of shares, the offeror is
not allowed to sell the purchased shares within six months from
the expiration of the public bid.
Is there a requirement to make a mandatory offer?
If an acquirer acquires 80 per cent or more of the entire share
capital of the target, they are obliged within 30 days to acquire
the balance of the share capital (if requested by shareholders) at
the announced bid price.
What defences are available to a target company during the
stages of an offer?
This is not specifically addressed in Vietnamese law.
What obligations are the directors of the bidder and target under?
Bidder
Vietnamese law does not place specific obligations on directors in
these circumstances.
Target
Vietnamese law does not place specific obligations on directors in
these circumstances.
What is the procedure for a squeeze-out of the minority?
This is not a concept familiar to Vietnamese law.
7. Overview of a private company acquisition
Timing
It is not possible to give a clear understanding of the timing
for private acquisitions, as these are largely dependent upon
the nature of the transaction and the parties. This is further
complicated where approvals are needed from government
authorities, as there is no accurate way to predict these timings.
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Steps
The usual steps are as follows:
„„ due diligence;
„„ execution of agreements;
„„ completion of conditions precedent including all licensing,
approval and registration requirements under law; and
„„ completion.
8. What tax issues should be considered?
Capital gains
The transferor of a capital interest or securities is subject to capital
gains tax. Capital gains tax in Vietnam is a form of income tax
imposed on capital gains (or premium) realised by the transferor
from the transfer of its capital interests or securities in a company
located in Vietnam.
For the purposes of capital gains tax, capital gain from a transfer
of a capital interest or securities means the price of the transfer
less (i) the previous purchase price of the capital interest or
securities (or value of the capital interest at the time of capital
contribution) and (ii) any transfer transaction expenses. Securities
are shares, bonds and other types of securities issued by public
JSCs.
Transfer taxes
Transferor being a company
A corporate transferor of a capital interest or securities is liable
to pay a corporate income tax (CIT) of 25 per cent of the capital
gains realised on the transfer of the capital interest or securities,
regardless of whether the transferor is incorporated in Vietnam
or offshore. If the assets transferred are securities, however, the
offshore transferor is subject to CIT at 0.1 per cent of the gross
transfer price. The transferor is not subject to value added tax.
132
Transferor being an individual resident
A transferor that is an individual “resident” in Vietnam is liable
to pay a personal income tax (PIT) of 20 per cent of the gains
realised. If the assets transferred are securities and the transferor
cannot account for the net gains, the PIT is imposed at 0.1 per
cent of the gross transfer price.
In order for the tax rate of 20 per cent to apply, the individual tax
resident is required to register to pay the PIT on the net gains,
obtain a tax code number, and implement the accounting regime
of invoices and vouchers in accordance with Vietnamese tax
regulations.
A individual tax resident is defined as one who stays in Vietnam
for 183 days or longer within a calendar year or within a period
of 12 consecutive months from his/her arrival in Vietnam or has a
registered permanent residence in Vietnam or has a house rented
in Vietnam under a lease contract of a term of at least 90 days in
a tax year.
Transferor being an individual non-resident
A transferor who is an individual “non-resident” is liable to pay
a PIT of 0.1 per cent of the gross transfer price, irrespective of
whether there is any capital gain. This rate applies to both a
transfer of a capital interest and a transfer of securities.
Thin capitalisation/interest deductions
The thin capitalisation rule (with a charter capital minimum of
30 per cent of total investment capital) has been repealed. In
practice, if the charter capital is unreasonably small compared
with the proposed loan capital, the investment application may
be questioned by authorities, which may jeopardise such an
application.
Withholding tax
This does not apply to acquisitions in Vietnam.
Schedule 1: Compulsory notification, approval and reporting requirements
Private companies
The following compulsory notifications, reports and approvals are
required for the merger or acquisition of shares/equity interests in
private companies incorporated in Vietnam:
i. any acquisition of shares from a founding shareholder
in a JSC, or any acquisition of 5 per cent or more of
the total shares of a JSC must be reported to and,
with respect to the founding shareholder, recorded in
the business licence issued by the licensing authority
(which is the business registration office for purely
domestic companies or the Department of Planning and
Investment for foreign-invested companies);
ii. any acquisition of the equity interest (or “charter
capital” as the term used by the Law on Enterprises)
in an LLC must be reported to, and recorded in the
business licence issued by, the licensing authority
(which is the Business Registration Office for purely
domestic companies or the Department of Planning
and Investment for foreign-invested companies) and the
relevant specialised authorities, such as the State Bank
of Vietnam, the Ministry of Finance or the SSC. if the
acquisition occurs among banks, insurance companies
or securities and fund management companies,
respectively;
iii. any acquisition of shares in JSCs or equity interest in
LLCs by foreign investors must be carried out through
a “capital contribution share purchase account in
Vietnamese dong,” which needs to be opened in
a commercial bank in Vietnam and which must be
registered with the State Bank of Vietnam1; and
iv. any merger in Vietnam must be approved by, and
recorded in the business licence issued by the licensing
authority (which is the provincial Business Registration
Office for purely domestic companies or the Department
of Planning and Investment for foreign-invested
companies) and the relevant specialised authorities,
such as the State Bank of Vietnam, the Ministry of
Finance or the SSC. if the acquisition occurs among
banks, insurance companies or securities and fund
management companies, respectively.
1
Under Article 14.1 of Decree 160/2006/ND-CP dated 28 December 2008 of the Government implementing the Ordinance on Foreign Exchange Management.
2
Pursuant to Item III.2 of Circular 18/2007/TT-BTC dated 13 March 2007 issued by the Ministry of Finance.
3
Pursuant to section 1.3, Chapter III of Circular 33 of the MOF dated 29 April 2005 (“Circular 33”) and Decree 109 of the Government dated 26 June 2007 (“Decree 109”).
Public companies
The following compulsory notifications, reports and approvals are
required for mergers or acquisitions of shares/equity interest in
public companies incorporated in Vietnam:
i. any acquisition of shares in a public company under
private placements of shares, which results in a
shareholder becoming a “major shareholder” (i.e. who
directly or indirectly owns at least 5 per cent or more
of voting shares of the relevant public company) must,
under the Law on Securities, be reported to the SSC
and the relevant stock exchange where the shares of
the public company are listed;
ii. any acquisition of shares in a public company under a
private placement of shares, which results in a group of
“affiliated persons” holding 5 per cent or more of voting
shares in the relevant company, must also be reported
to the SSC and the relevant stock exchange where the
shares of the company is listed;
iii. any acquisition of shares from a major shareholder in
a public company, which amounts to more than 1 per
cent of shares in any single class of shares in circulation
of that public company, must be reported to the SSC
and the relevant stock exchange where the shares of
the public company are listed within seven days from
the date of such change;
iv. any intended acquisition of shares in a public company
which may result in the acquirer owning at least 25 per
cent or more of the entire shares of the public company
must be approved by the public company and the
approval (or even the disapproval) must be notified to
the SSC within seven days after it receives the proposed
acquisition2; and
v. in the case of an acquisition of shares owned by the
state in a public company, whether unlisted or listed, the
acquisition must be conducted through a price auction
of which the procedure and result must be registered
with the SSC3.
133
Schedule 2: Restrictions on the foreign ownership of shares in a Vietnamese company

The following chart sets out only some of the foreign ownership restrictions for some of the major industries.

Industry/sector Foreign ownership limits

Telecoms sector Facilities based (i.e. development of infrastructure plus services): the state must be the majority
shareholder (51%).

Non-facilities based telecom services:

• Facilities-based services: 49% (for basic services) and 50% (for value-added services).
• Non-facilities-based services: 51% (before 2010 and 65% after).

Service industry It depends on the type of services. For example, if the foreign investor is involved in rendering
primary logistic services then it is limited to 49% ownership.

Aviation industry Airlines are permitted (without limitation) to provide services in Vietnam through their ticketing offices
or agents in Vietnam.

For maintenance and repair of aircraft, joint ventures are permitted with the foreign limitation not
exceeding 51%. As from 2011, 100% foreign invested enterprises will be allowed.

Manufacturing At present, only joint ventures with foreign capital contributions not exceeding 50% are permitted.

From 1 January 2011, 100% foreign-invested enterprises will be permitted.

Marine and shipbuilding 49%, 50%, 51% or 100% depending on the type of services.

Oil and gas The investment must be in accordance with the master plan for oil and gas development; or
otherwise it must obtain in-principle approval from the Prime Minister.

Power For Projects where the investment capital is greater than VND1.5 billion, in-principle approval of the
Prime Minister must be obtained.

Mass media Foreign investors can cooperate with Vietnamese partners in the form of a business cooperation
contract or a joint venture in order to trade in the publishing industry.

Professions (e.g. lawyers, No foreign ownership limit.

doctors, accountants)

Mining Foreign ownership limit: 51%.

As from 2011: no limitation.

Fishing and agriculture Generally there must be a joint venture and the foreign ownership must not exceed 51% of that
joint venture.

134
Industry/sector Foreign ownership limits

Advertising 99% foreign ownership is allowed provided that the foreign investor is in a joint venture with a
domestic entity.

Defence This is a restricted sector and not open to foreign investment.

Education Secondary education: it is not clear under the law but it is likely that there is no limitation for foreign
ownership.

Higher education services, adult education and other education services including foreign language
training: 100% foreign-invested education entities are permitted.

Pharmaceutical Foreign investors are not allowed to distribute medicines.

manufacture and
distribution

Finance and investment The total equity held by foreign institutions and individuals in each of Vietnam’s joint stock
sector commercial banks may not exceed 30% of the bank’s chartered capital.

Foreign securities service suppliers are permitted to establish representative offices and joint
ventures with Vietnamese partners in which the foreign capital contribution may not exceed 49%.

However, as from 2012:

• 100% foreign-owned securities service suppliers will be allowed; and

• some branches of foreign securities companies will also be permitted to have 100% foreign-
invested capital.

135
136
Clifford Chance AZB & Partners Chooi & Company

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companies; securities)
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www.vilaf.com.vn

Clifford Chance has a “best friends” relationship with AZB & Partners

137
Clifford Chance is one of the world’s leading law firms, helping
clients achieve their goals by combining the highest global
standards with local expertise.

The firm has unrivalled scale and depth of legal resources across
the four key markets of the Americas, Asia, Europe and the Middle
East, and focuses on the core areas of commercial activity: capital
markets; corporate and M&A; finance and banking; real estate;
tax; pensions and employment; litigation and dispute resolution.
Clifford Chance has 29 offices in 20 countries with 3,800 legal
advisers and also operates a “best friends” arrangement with AZB
& Partners in India and with Lakatos, Köves & Partners in Hungary,
and a co-operation agreement with Al-Jadaan & Partners Law
Firm in Saudi Arabia.

The firm operates across Asia, with offices in Bangkok, Beijing,

Hong Kong, Shanghai, Singapore and Tokyo, and secondees
on the ground in Ho Chi Minh City and Jakarta. With over 350
lawyers in Asia alone, it is one of the largest international firms in
the region, enjoying a market leading reputation across a number
of practices.

© Clifford Chance Pte. Limited, September 2009.

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