Myanmar Companies Law

Transcription

1 Myanmar Companies Law M&A Deals in Myanmar: What you Need to Know About the new Companies Law 10 th April 2018

2 Agenda 1 Common Structures Under old Law 2 Share Sale Agreements 3 Joint Venture 4 Merger Control Issues 5 Q & A

3 1 Common structures under old Law

4 Investment structures (1914 Act) The most common structures used under the Companies Act 1914 (1914 Act) for purposes of implementing investments in Myanmar were: 1) Parallel services company 2) Clean-skin joint venture 3) Asset/business sale Shares sales which resulted in a foreign entity acquiring shares in a local entity were (until recently) prohibited. 4

5 Investment structures (1914 Act) Parallel Services Company Model The parallel services company model required that two unrelated companies operate side by side. Offshore Investor Services Company Customer Myanmar Trading Company Ownership Services Goods Payment The services company (depending upon the area of investment could conduct various service activities including: marketing; promotion; maintenance; installation; and managing the delivery of the goods to the customer. The Myanmar Trading Company merely imported the goods and recorded the sales on its books. The company then paid a services fee to the investor of something like 95-97% of the profit of each sale. 5

6 Investment structures (1914 Act) Clean-Skin Joint Venture Company A foreign investor partners with a Myanmar investor to form a clean-skin joint-venture company. The joint venture company holds the relevant permits and licenses. Offshore Investor Myanmar Investor Joint Venture Customer Ownership Goods Payment Dividends Depending on the business activities, the foreign investor may be limited to owning not more than 80% of the joint venture company. Often, Myanmar investors do not contribute capital. This leaves the offshore investor exposed to the financial risks. 6

7 Investment structures (1914 Act) Asset/business sale A Myanmar investor sells its business to a foreign investor through an asset/business sale. The offshore investor pays the Myanmar investor for the business, and/or issues shares in the new joint venture company. Offshore Investor Joint Venture Myanmar Investor Local Company Customer Assets Ownership Goods Payment Dividends After the asset/business sale is concluded, the local company is liquidated. This structured was used because foreign investors were not permitted to purchase shares the of a Myanmar company. This structure has the added benefit of limiting the liability incurred by the foreign investor. 7

8 2 Share Sale Agreements

9 Share Sale Under the MCL Under the Myanmar Companies Law 2017 (MCL) it is clear that foreign entities can purchase the shares of Myanmar companies. Offshore Investor 35% Myanmar Investor Myanmar Company Customer Shares Ownership Goods Payment Dividends If the total foreign ownership of the company is 35% or less, the company will be classified as a Myanmar company. If the total foreign shareholding is 35.1% or more, the company will be reclassified as a foreign entity. 9

10 Share Sale Under the MCL The advantages of a share sale over an asset sale: If the Myanmar Company holds licences or permits then there is no need to seek approval for the transfer of these to the investor (although note that there are some requirements for changes in control to be approved by the Myanmar Government) Some Myanmar licences are not transferable and therefore new applications would need to be made Avoids provisions in contracts about transfer and assignment (although not change in control) The disadvantage is that the investor will become liable for any noncompliances with law including taxation, corruption and anti-competition laws 10

11 Share Sale Under the MCL Share transfers are governed by Division 12 of MCL. This is expected to be a quicker and easier process. Basic requirements include: 1) Agreement to become a shareholder (s. 90(b)) 2) Delivery of the old share certificates (s. 83(b)) 3) Duly stamped share transfer form to the company (s. 83(b)) 4) Entry of the name of the new shareholder into the registers (s. 83(a)) 5) Notice/registration of the share transfer with the Directorate of Investment and Company Administration (DICA) within 21 days (s. 86) 6) Issuance of new share certificates to the new shareholder within 28 days (s. 89(b)) 11

12 Share Sale Under the MCL Other implications of the new MCL: Due diligence on corporate issues Under the current Act searches of the DICA records can only be done with a POA from the target Whilst it is not entirely clear, it seems likely that the electronic records of DICA may be searchable upon payment of a fee The new director s duties will apply to the consideration of any M&A in terms of being in the best interest of shareholders (particularly if there are tag along rights) for example the duty to act with care and diligence in section

13 3 Joint Venture

14 Joint Venture Under the MCL A foreign investor partners with a Myanmar investor to form a clean-skin joint-venture company. If the offshore investor owns 35% or less, the joint venture is classified as a Myanmar company. Offshore Investor Myanmar Investor Joint Venture Customer Ownership Goods Payment Dividends The joint venture company holds the permits and licenses. The foreign investor may be limited to owning 80%. Often, Myanmar investors do not contribute capital. This leaves the offshore investor wholly exposed to the financial risks. 14

15 The 35% Rule Under the MCL, Myanmar companies are defined as companies registered in Myanmar, with 35% or less foreign ownership. Notification If a foreign investor purchases, or otherwise becomes the owner of more than 35% of the shares of a Myanmar company, the Company must notify the DICA. Pre-approval is not required from a MCL perspective. Share classes There are no restrictions on share classes, or otherwise adjusting the rights of shareholders based on share classes. 15

16 The 35% rule Real estate It is thought that a Myanmar company with up to 35% foreign ownership can own real estate. However, in the final revision of the MCL, Article 464 was added, which states: The provisions of this Law relating to foreign companies shall not affect the operation of any provision of the Transfer of Immovable Property Restrictions Law This provision could be interpreted to restrict local companies with 35% or less foreign shareholding from owning real estate. 16

17 The 35% rule Group Structure Group structures may permit foreign investors to obtain greater control over a Myanmar company. Foreign Investor Myanmar Citizen 35% 65% Myanmar Co 35% MM Co 2 65% 35% 65% MM Co 3 17

18 New minority shareholder protections Under the MCL, minority shareholders may seek protection from the courts under the following provisions: Article 192 (Oppressive Conduct of Affairs) Article 196 (Derivate Actions) This will be important to understand when entering into a JV as either the majority or the minority shareholders 18

19 Minority shareholder protections Oppressive Conduct of Affairs The court may make an order if a company s act, or refusal to act, is either: 1) contrary to the interests of the members as a whole; or 2) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity. This protection applies to people who will become members of the company. Meaning that a transferee who has not completed the share transfer process, or the beneficiary of a will who has not completed the share transfer process, will be protected by these provisions. 19

20 Minority shareholder protections Derivate Actions A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, if the person is acting with leave granted under section 197 and is: 1) a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or 2) a director, former director, officer or former officer of the company. The proceedings must be brought in the company s name. The individual s rights are extinguished once a derivative action is commenced. 20

21 Minority shareholder protections Derivate Actions Leave must be granted under Section 197 if: 1) it is probable that the company will not bring the proceedings 2) the applicant is acting in good faith 3) it is in the best interests of the company that the applicant be granted leave 4) there is a serious question to be tried and 1) the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying or 1) it is appropriate to grant leave even though sub-paragraph (A) is not satisfied. 21

22 Minority shareholder protections Retroactive Application The MCL will not be applied retroactively to oppressive conduct, because there was no similar right under the 1914 Act. Section 473 (Preservation of accrued rights) Without limiting any other provisions of this Division, if prior to the commencement of this Law a person had acquired, accrued or incurred a right or liability under a provision of the previous law (other than pursuant to a court order) that substantially corresponds to a provision of this Law, that right or liability is deemed to continue under the substantially corresponding provision of this Law as if that provision applied to the conduct or circumstances that gave rise to the right or liability. If oppressive conduct continues beyond the date of application of the MCL, a minority shareholder may bring an action for oppressive conduct under the MCL. 22

23 4 Merger control issues

24 Merger Control Operation Mergers (s30): mergers, affiliations, amalgamations, acquisitions, joint ventures, any other mean prescribed by the Commission Prohibited where (s31): intended to lead to excessive domination of the market reduces competition in a market with few competitors resulting market share exceeds the thresholds prescribed by the Commission (as yet undetermined) (s32) 24

25 Merger Control Practicalities Significant practicalities are not yet outlined: none of the necessary forms, procedures or regulations for merger control have been released there is no guidance on how market share, sale volume, capital, control etc. will be determined for the purpose of merger assessment any merger filing fee timeframes for the assessment of a merger (and whether assessment will follow standard Phase I and Phase II processes) extraterritoriality what thresholds will be used to assess the jurisdiction of the Commission? Will a merger need to have an impact on a business within Myanmar? 25

26 5 Q & A 26

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