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M&A law in Asia Pacific
Financial institutions
Energy
Infrastructure, mining and commodities
Transport
Technology and inno...
Attorney advertising
A Norton Rose Fulbright guide
M&A law in Asia Pacific
This guide will be of interest to multinationals looking to
invest in the Asia Pacific region, Asian corporations looking
...
Acknowledgements
We gratefully acknowledge the assistance of the law firms who have contributed to the chapters
on India, ...
Overview	 06
Jurisdictions
Australia	 10
China	 20
Hong Kong	 36
India	44
Indonesia	 58
Japan	 72
Malaysia	 84
Philippines...
many of which could be unknown to the buyer at the time
of purchase.
In some situations, it is not possible to structure t...
mandatory merger review mechanism in 2010. Malaysia
introduced a general competition law regime for the first time
in June...
Whilst the Asia Pacific market for W&I insurance products
remains relatively small when compared with the equivalent
Europ...
Australia
monetary threshold (currently A$244 million). Different
thresholds apply to certain investments by US investors
•	 acquisi...
transactions involving the transfer of A$10,000 or more or
groups of persons that the financial institution mistrusts.
Pos...
Public M&A issues
Regulatory considerations regarding an acquisition
of shares in a listed company
An acquisition of share...
Proportional offers (ie, offers to each holder of bid class
securities for a proportion of their shares) are permitted
und...
On-market takeover bids
On-market takeover bids are infrequently used as a takeover
method.
An on-market takeover bid is c...
Compulsory acquisition of shares (squeeze out)
The Corporations Act contains a procedure for an offeror who
has acquired 9...
is currently proposed to be abolished in New South Wales
from 1 July 2013 (such abolition having been deferred from
1 July...
security interests over personal property such as the ASIC
register of charges. However, in relation to charges, historica...
Examples of business activities subject to foreign ownership restrictions
Financial institutions
Banking Foreign investmen...
China
applicable to both listed and private companies) that remain
in certain key industry sectors.
Availability of exemptions f...
dividends to its offshore shareholder(s). These conditions
include paying up its registered capital in accordance with
the...
a CJV allows the parties to agree on a preferential profit
distribution scheme which is not in proportion to their
respect...
ratio, or the time limit for making capital contributions to a
foreign-invested partnership. However, local governments
of...
representatives of the joint venture parties. Unlike many
other jurisdictions, in the case of both EJVs and CJVs there
are...
introduce new types of shares but, to date, the State Council
has not issued any new rules in this regard.
Public M&A issu...
In addition to the Administration of the Takeover of Listed
Companies Procedures (effective from 1 September 2006 and
revi...
of the acquisition is to rescue the company and the acquirer
undertakes not to transfer its shares within three years.
Tim...
issue formal guidance on this point, in practice parties have
notified, and MOFCOM has reviewed, acquisitions of joint
con...
National security review regime
Article 31 of the AML provides that a national security review
will be conducted (in addit...
M&A law in the Asia-Pacific
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M&A law in the Asia-Pacific

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M&A law in the Asia-Pacific

  1. 1. M&A law in Asia Pacific Financial institutions Energy Infrastructure, mining and commodities Transport Technology and innovation Life sciences and healthcare
  2. 2. Attorney advertising
  3. 3. A Norton Rose Fulbright guide M&A law in Asia Pacific
  4. 4. This guide will be of interest to multinationals looking to invest in the Asia Pacific region, Asian corporations looking beyond their borders to invest in the region and financial advisers advising on such transactions. The information contained here is as accurate and up-to-date as possible as at 15 June 2012 when the original edition was published. The guide is simply a summary of the key issues relevant to an M&A transaction in the region and is not a substitute for legal advice. If you would like to discuss any of the issues raised here, please get in touch with us. Preface We are pleased to present this revised edition of M&A law in Asia Pacific, which gives an overview of the key issues involved in the conduct of mergers and acquisitions in a number of jurisdictions in the region and offers guidance on regulatory constraints governing such transactions. The guide offers a comprehensive coverage of the major Asia Pacific jurisdictions. M&A activity levels in the Asia Pacific region have remained varied in the first half of 2012 largely due to volatility in the global markets and the fact that operating conditions for businesses remain tough. Despite a challenging environment in the face of political, economic and regulatory uncertainty and concerns about a continued lack of resolution to the Eurozone crisis, M&A activity is continuing and is expected to increase once confidence returns.
  5. 5. Acknowledgements We gratefully acknowledge the assistance of the law firms who have contributed to the chapters on India, Japan, Malaysia, Philippines, South Korea, Taiwan and Vietnam.
  6. 6. Overview 06 Jurisdictions Australia 10 China 20 Hong Kong 36 India 44 Indonesia 58 Japan 72 Malaysia 84 Philippines 96 Singapore 106 South Korea 114 Taiwan 124 Thailand 136 Vietnam 146 Checklist and contacts Checklist of some key M&A issues 156 Contacts 158 Contributing law firms 160 Contents
  7. 7. many of which could be unknown to the buyer at the time of purchase. In some situations, it is not possible to structure the acquisition as a share sale (for example, where the seller only wishes to sell part of a business which is carried out by one of its group companies). In such circumstances, a buyer may wish for taxation or other reasons to consider a hive down as a possible alternative to a pure business and assets purchase. Under this structure, the buyer is able to select the assets it wishes to acquire, which are then transferred to a new company incorporated by the seller. The buyer then purchases this company. Tax issues will often be a key determining factor in the choice of transaction structure. It is important that the tax implications of different transaction structures are properly evaluated in advance of settling on a particular structure. As a general rule, the transfer of shares tends to be more tax efficient for a seller than a transfer of business and assets. A seller may, however, prefer to structure a disposal as a business and assets sale rather than a share sale if the target business has incurred significant tax losses and such losses can, under the relevant tax regime, continue to be used to offset taxable profits of the seller’s group in future years. Whilst stamp duty/transfer tax may be chargeable on both a share sale and a business and assets sale, the rates of such tax tend to be lower on a share sale than on a business and assets sale. In addition, in many jurisdictions, sales/value- added tax may be chargeable on a purchase of assets, although it may be possible to obtain an exemption from this tax, if, amongst other things, the entire business is purchased as a going concern. Buyers should also be aware of potential tax implications of “offshore” structures (where the target company or asset is acquired by way of an acquisition of shares or other interests in a company incorporated outside the jurisdiction in which the target company or asset is located so as to avoid or mitigate tax, regulatory or other issues). In some jurisdictions, such a transaction may give rise to “onshore” tax liabilities. For example, the Indian Government has recently amended the Income Tax Act, 1961 (with retrospective effect from 1 April 1962) which seeks to levy tax on the transfer of any share or interest in a company or entity incorporated or registered outside India if such share or interest derives, directly or indirectly, its value substantially from assets located in India. Overview Below is a general overview of factors that should be taken into consideration before embarking on an M&A transaction. The particular issues that arise in the various jurisdictions in the Asia Pacific region covered in this guide are dealt with in the chapters that follow. Structuring a merger or acquisition? These terms are often used interchangeably but in fact they refer to different legal processes. Generally, a merger occurs either where two companies combine to create an entirely new merged entity whose shares are held by the shareholders of the two merging companies or where the business and assets of a company are transferred to the acquiring entity by operation of law, with the transferring entity ceasing to exist following such transfer. “Merger” is also sometimes used to describe the situation where the acquiring company issues shares as consideration for the acquisition of the target company, resulting in the target company’s shareholders becoming shareholders in the acquiring company. An acquisition, which is far more common in practice, is where one company acquires the shares or business of another. The key structuring issue is likely to be whether the transaction should consist of the acquisition of the target company’s shares or whether the target company should instead sell some or all of its business or assets. Many considerations will dictate the ultimate structure. Often, the relative strengths of the negotiating positions of the parties will be relevant because each party may prefer a different structure. Often, the target company’s shareholders will prefer the transaction to proceed by way of a sale of shares because this enables them to have a clean break from the business being disposed of from a liability perspective. The process of acquiring the underlying assets of a company will often result in a more complex transaction, as each individual class of asset will need to be transferred to the purchaser separately, requiring, for example, individual conveyances of real estate being acquired and individual assignments of intellectual property rights. This added complexity is likely to have implications both as far as the timing and costs of the transaction are concerned. From a buyer’s perspective, a purchase of assets may be attractive as it allows the buyer to “cherry pick’’ the assets that it wishes to acquire without necessarily assuming all the liabilities of the target company, 8  Norton Rose Fulbright M&A law in Asia Pacific
  8. 8. mandatory merger review mechanism in 2010. Malaysia introduced a general competition law regime for the first time in June 2010, which came into force in January 2012. At the same time, anti-trust and merger control enforcement continues unabated in the more developed Asian economies. Japan recently broadened the scope of its merger control rules to bring them more in alignment with international practice. Competition authorities in South Korea and Taiwan continue to subject numerous transactions to pre-merger clearance and the Competition Commission of Singapore conducts increasingly detailed reviews of mergers with an effect on the Singapore economy. As Asian companies continue to seek business opportunities beyond their home jurisdictions, many are considering the impact of merger control rules in and beyond Asia on their transactions. As the size and reach of the companies and businesses involved increases, a number of Asia-focused transactions are also subject to merger control clearance in Europe, the US and Australia. The other major trend which impacts on the region is the increase in sanctions for anti-competitive behaviour. In the last three years, anti-trust regulators in Asia imposed fines in excess of US$3.8 billion for cartel-like conduct. Many Asia- based companies and businesses face investigations by foreign regulators (mainly in Europe, the US and Australia) and civil litigation related to conduct in Asia which may have restricted competition overseas. In the M&A context, this has led to a greater emphasis on anti-trust due diligence and, in particular, identifying potential significant liabilities arising from violations of anti-trust regulations. Due diligence In most cases, a buyer will need to conduct due diligence on the company or assets it intends to acquire to identify what risks it may thereby assume and to gain a more complete knowledge of what the company or assets are worth. Whilst the potential risks will be higher when buying the shares of the target company (since the buyer will be taking on all liabilities of that company), a careful assessment of the risks is also required when purchasing the target company’s assets. For example, it would be prudent to investigate properties that are being acquired to confirm ownership, identify any third party rights or encumbrances and possibly also evaluate the risk of any environmental liabilities for a buyer of the land. In addition, considering compliance with anti- Foreign ownership restrictions Another key issue to consider before committing to a transaction is the extent to which foreign ownership restrictions may affect the transaction. Such regulations exist in many of the jurisdictions covered in this guide (although there has been a recent trend towards liberalisation) and could restrict the buyer from making the proposed investment or, alternatively, could require the transaction to be structured in a particular way to comply with applicable foreign ownership regulations. Public companies and listed companies Additional factors will need to be considered when acquiring an interest in a public company or a company listed on a stock exchange. The buyer will need to consider the impact of takeover regulations (which will often apply to all public companies whether listed or unlisted) and/or the regulations of the stock exchange on which the target company’s shares are listed. Particular care should to be taken to avoid inadvertently acquiring an interest in circumstances that require the buyer to make a mandatory general offer for all outstanding shares of the target company under terms and conditions prescribed by the relevant takeover code or regulations, which are usually considerably more onerous than would be the case for a voluntary general offer. Anti-trust and merger control regulations The increase in the importance of compliance with the requirements of global trade organisations such as the WTO as well as a desire by many Asian countries to avoid unfair dominance of various industry sectors by individual groups has resulted in a far greater focus by Asian Governments on combating anti-competitive behaviour. In turn, this has resulted in numerous Asian jurisdictions either introducing new anti-trust and merger control regulation or concentrating on a more rigorous approach to the enforcement of existing regulations. In recent years, four major jurisdictions in the region have introduced new anti-trust and merger control regimes or stepped up the enforcement of existing regimes. China introduced EU-style merger control rules in 2008 and used them to extract commitments from merging parties or to prohibit transactions that were affecting competition in markets in China. India has also enacted new merger control rules, which took effect on 1 June 2011. Indonesia introduced a Norton Rose Fulbright   9 Overview
  9. 9. Whilst the Asia Pacific market for W&I insurance products remains relatively small when compared with the equivalent European market, there has been significant growth in percentage terms in the number of policies being written in the region, partly in response to a growing demand triggered by the global financial crisis. corruption laws has increasingly become a critical component of transactional due diligence. This is clearly a prevalent risk in emerging markets in the region and elsewhere. Without adequate corruption due diligence, buyers and their officers run the risk of post-acquisition financial and criminal liabilities for the target company’s violations. A buyer is also likely to need to undertake a level of transaction or regulatory due diligence to evaluate legal risks or constraints that may arise under the laws and/or regulations of the countries of the target company and the buyer. The summaries of the regulatory position in the jurisdictions covered in this guide are designed to identify the more obvious regulatory risks as well as to provide a comparative survey of the treatment of such issues in the region. However, definitive legal advice should be obtained when assessing a particular transaction. When undertaking a due diligence exercise in Asia, the buyer and its advisers will need to consider the extent to which reliable and up to date information about the target company and its business is available from public sources such as registries. This may vary considerably across jurisdictions in the region. For this reason, the disclosure process (even of information that is publicly available) may be neither as quick nor as complete as the buyer and its advisers might expect. Similarly, in relation to financial due diligence, the buyer will need to consider the accounting standards employed in the preparation of publicly available accounts and whether (and the extent to which) such standards vary from International Financial Reporting Standards. Warranty and indemnity insurance Warranty and indemnity (W&I) insurance is increasingly being used as a risk mitigation tool in negotiated M&A transactions in the Asia Pacific region, particularly in the more developed and sophisticated jurisdictions such as Australia, Hong Kong and Singapore. As its name suggests, W&I insurance provides cover for losses arising from a breach of warranty (or in certain cases under an indemnity) in connection with a merger or acquisition and is essentially the use of insurance capital to facilitate an M&A transaction by transferring the transaction risk from the seller or the buyer to the insurer. 10  Norton Rose Fulbright M&A law in Asia Pacific
  10. 10. Australia
  11. 11. monetary threshold (currently A$244 million). Different thresholds apply to certain investments by US investors • acquisitions of interests in Australian real estate that involve: —— residential real estate, vacant non-residential land or interests in Australian urban land corporations or trust estates, each irrespective of value —— developed commercial real estate, with values in excess of specified monetary thresholds (currently A$53 million) – unless the real estate is heritage listed, in which case a monetary threshold of A$5 million applies. An exception for developed commercial real estate applies to US investors, where a different monetary threshold (currently A$1,062 million) applies —— other proposals where doubt exists as to whether they are notifiable. The following types of foreign investment proposals are subject to the Australian Government’s foreign investment policy and also require notification to the Australian Government for prior approval: • direct investments by foreign governments and their related entities and proposals by them to establish new businesses in Australia or acquire interests in Australian urban land irrespective of size • portfolio investments in the media sector of five per cent or more and all non-portfolio investments irrespective of the value of the investment. National interest implications for proposed investments by foreign governments and their agencies are determined on a case-by-case basis. The Australian Government typically considers the following five national interest considerations when assessing all foreign investment proposals: • its impact on national security • its impact on competition • other Australian Government policies (including tax) • its impact on the economy and the community Australia Regulatory issues Foreign ownership restrictions The Australian Government recognises the contribution of, and generally welcomes, foreign investment. Investment proposals by foreign interests are regulated by the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA). The FATA is administered by the Treasurer of Australia who is assisted by the Foreign Investment Review Board (FIRB). Subject to some exceptions, monetary and percentage interest thresholds are applied to proposals, below which the FATA does not apply. Where prior notification for approval from the Australian Treasurer is required, the FIRB examines proposals for foreign investment in Australia and makes recommendations to the Australian Treasurer on whether those proposals are suitable for approval under the Australian Government’s foreign investment policy. The Australian Treasurer can prevent proposals resulting in foreign investors acquiring control of an Australian business or interest in real estate which is determined as contrary to the national interest. In the majority of industry sectors, smaller proposals are exempt from the FATA or notification under FIRB policy and larger proposals are approved unless determined to be contrary to the national interest. The Australian Government’s decision as to what proposals from foreign investors are contrary to the national interest is taken with regard to widely held community concerns. There are specific restrictions on foreign investment in sensitive sectors, including real estate and media. The following types of foreign investment proposals are subject to the FATA and require notification to the Australian Government for prior approval: • investments of 15 per cent or more by a single foreigner (and its associates) or 40 per cent or more in aggregate by several foreigners (and their associates) in an Australian business or corporation which is valued above (or the proposal values it above) a specified monetary threshold (currently A$244 million). Different thresholds apply to certain investments by US investors • acquisitions of offshore companies with Australian subsidiaries or gross assets exceeding a specified 12  Norton Rose Fulbright M&A law in Asia Pacific
  12. 12. transactions involving the transfer of A$10,000 or more or groups of persons that the financial institution mistrusts. Possible acquisition structures The Australian regulatory regime allows for various types of acquisition structures. The ultimate structure adopted for a transaction will be dictated by many considerations, including the nature of the target company or business, the regulations applicable to it and the tax implications. For companies that are not regulated by Australia’s takeover regime (ie, unlisted companies or companies with 50 members or fewer), acquisitions can proceed by way of private treaty (ie, privately negotiated sale documentation). Acquisitions of businesses or selected assets can also be made by private treaty. Acquisitions of controlling interests in Australian companies and trusts that are listed on an Australian securities exchange or Australian companies with more than 50 members can be achieved in a number of ways. This can include, for example, by way of an off-market takeover bid, an on-market takeover bid, a scheme of arrangement or by a shareholder approved acquisition – in each case subject to the takeover provisions of the Corporations Act 2001 (Cth) (Corporations Act). (Please refer to the section below entitled “Public M&A issues”.) Corporate governance Company management and decision making Australian companies are governed by their constitution and applicable laws. These applicable laws are principally the Corporations Act, which applies to both listed and unlisted companies, and the Australian Securities Exchange (ASX) Listing Rules which apply to listed companies only. Generally, a company makes decisions through its board of directors, although certain matters require shareholder approval under the company’s constitution, the Corporations Act or, in the case of a listed company, the ASX Listing Rules. Diversity, remuneration and trading policy requirements Listed companies are required to comply on an “if not, why not” basis with the ASX Corporate Governance Principles and Recommendations (the CG Principles) which embody the broad concepts which underpin effective corporate governance in Australia. The CG Principles are intended • the character of the investor. The national interest considerations set out above must be addressed in all FIRB applications. Acquisitions subject to the FATA require the submission of a statutory notice. The submission of the statutory notice triggers a time period (currently 30 days with an additional ten day notice period, which can be extended by a further 90 days) within which the Treasurer may act to prohibit the proposal or impose conditions, failing which the Treasurer loses the ability to do so. The table at the end of this section sets out examples of foreign ownership restrictions in certain key industry sectors, which are applicable to all companies and businesses (whether listed or otherwise). Availability of exemptions from foreign ownership restrictions There are no specific exemptions available from the foreign ownership restrictions described above, except in the case of acquisitions involving existing Australian corporations or businesses, or proposals to establish new businesses, which are valued below the relevant monetary thresholds. If prior notification is required, however, proposals are generally approved unless determined to be contrary to the national interest. However, the Australian Government advises that foreign persons should determine, including through seeking legal advice as appropriate, whether a requirement exists to notify a proposed acquisition under Australia’s foreign investment policy even if it is below the relevant monetary threshold (for example, foreign government investors or investments in a media business). The Foreign Investment Policy (released by the Australian Government in January 2011) provides guidance to foreign investors to assist in understanding the Australian Government’s approach to administering the FATA. The Foreign Investment Policy also identifies a number of investment proposals that need to be notified to the Australian Government even if the FATA does not appear to apply. Exchange control issues Few formal exchange control restrictions apply in Australia, but there are certain reporting requirements. For example, financial institutions are required to report to the Australian Transaction Reports and Analysis Centre (AUSTRAC) all Norton Rose Fulbright   13 Australia
  13. 13. Public M&A issues Regulatory considerations regarding an acquisition of shares in a listed company An acquisition of shares in a company listed on the ASX may either be made on or off market. In either case, a person acquiring such shares should have regard to: • the provisions relating to market misconduct (including insider dealing) contained in Part 7.10 of the Corporations Act • the disclosure requirements contained in Chapters 6C and 6D of the Corporations Act • Chapter 6 of the Corporations Act relating to acquisitions of controlling interests, in particular the provisions relating to the mechanisms by which such acquisitions are permitted (see below). A shareholder can increase its holding in the target company by up to three per cent every six months without making a takeover bid (the creep exception). This allows a shareholder to gradually increase its holding without launching a bid for the remaining shares. Once a shareholder has had a voting interest of at least 19 per cent for an entire six month period it may acquire shares that increase its voting power by a further three per cent after each succeeding six month period. Depending on the circumstances, a major shareholder may be satisfied with gradually increasing its shareholding in the target company using the creep exception. However, care must be taken in applying the three per cent creep exception, as the calculation can be affected by other factors, such as movements in the issued capital of the target company and the holdings of associates. It is Australian Securities and Investments Commission (ASIC) policy that the three per cent creep exception is not cumulative with the other permitted acquisitions. Disclosure of shareholding interests Any person who has a relevant interest (with his associates) in five per cent or more of the voting shares or interests in a listed company or trust is deemed to be a substantial shareholder and must lodge a substantial shareholding notice with the ASX within two business days of becoming a substantial shareholder, or before the start of trading on the business day following the change in substantial holding during the currency of a takeover offer. Every change of one per cent or more in the shareholding of such person and to provide a reference point for companies about their corporate governance structures and practices, including matters such as board structure, diversity, remuneration and trading policies. Director and executive remuneration reforms The Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011, which came into effect on 1 July 2011, is designed to strengthen the accountability and transparency of Australia’s executive remuneration framework and provide shareholders with more influence over the level and composition of the remuneration of their directors and executives. In particular, one of the key reforms is the opportunity for shareholders to vote in favour of holding a general meeting to re-elect the board if the remuneration report receives a “no” vote of 25 per cent or more at two successive annual general meetings. Director “good fame and character” requirement The ASX introduced a requirement with effect from 1 January 2012 that an applicant for ASX listing must satisfy the ASX that its directors or proposed directors at the date of listing are of good fame and character. The documents required to satisfy the ASX of this condition include national criminal history checks, national bankruptcy checks and a statutory declaration by such director or proposed director that they have not been the subject of relevant disciplinary or enforcement action by an exchange or securities market regulator. Nationality/residency requirements for directors and other officers A proprietary company must have at least one director, and one director must ordinarily reside in Australia. There is no requirement for a proprietary company to have a company secretary, but if it so chooses, at least one company secretary must ordinarily reside in Australia. A public company must have at least three directors, two of which must ordinarily reside in Australia. A public company must also have at least one company secretary and one company secretary must ordinarily reside in Australia. Achieving effective control of a company A simple majority of the votes of those present, in person or by proxy, is the level of approval required for most shareholder resolutions to be passed. However, some resolutions require a 75 per cent majority, including a resolution to amend a company’s constitution. 14  Norton Rose Fulbright M&A law in Asia Pacific
  14. 14. Proportional offers (ie, offers to each holder of bid class securities for a proportion of their shares) are permitted under an off-market takeover bid (however, there may be restrictions and procedures to follow under the target company’s constitution) and could also be achieved by a scheme of arrangement. All takeover documents (such as bidder’s statements, target’s statements, explanatory statements for schemes of arrangement) are required to be lodged with ASIC. ASIC has broad powers to exempt and modify the takeover laws contained within the Corporations Act. It is also the main body responsible for regulating and enforcing these laws. ASIC has the power to refer matters to the Takeovers Panel. The Takeovers Panel is the main forum for resolving disputes in relation to control transactions. The Takeovers Panel may review any ASIC decision to exempt or modify the takeovers law on the application of any person whose interests are affected by the decision. It may also make a declaration of unacceptable circumstances on the application of the offeror, the target company, ASIC or any other person whose interests are affected by the relevant circumstances. Where the Takeovers Panel makes a declaration of unacceptable circumstances, it may make a wide range of orders, which may be enforced by court order. The concept of unacceptable circumstances covers actual breaches of the law as well as breaches of the spirit of the law. A person who makes or proposes to make a takeover offer must not, in general terms, acquire securities in the six month period before a takeover bid is made or announced and give a benefit (at any time) to the person who sold the securities to the offeror, the value of which is linked to the consideration under the takeover bid if the benefit is referable to the acquisition. Off-market takeover bids Off-market bids are the most commonly used takeover method. Timetable issues The offeror must prepare a bidder’s statement which must be sent to shareholders no earlier than 14 days and no later than 28 days after it is first sent to the target company, the ASIC and any relevant Australian securities exchange (unless the target company consents to earlier despatch). The offer must be open for a minimum period of one month and must not remain open for more than 12 months. Within 15 days of the bidder’s statement being sent to shareholders, the target company must send to its shareholders a target’s his associates must also be disclosed within the same time frames or if their interest is reduced to below five per cent. Directors of listed companies are required to disclose the acquisition or disposal of any interest in the securities of that listed company by the director within five business days after their appointment, after they cease to be a director and after any change in their interest. Where there is a control transaction, the Takeovers Panel expects that all long positions in equity derivatives which already exist, or which are created, are disclosed unless they are under a notional five per cent threshold. General offers Chapter 6 of the Corporations Act governs takeovers and other acquisitions of controlling interests in Australian companies and trusts that are listed on an Australian securities exchange and Australian companies that have more than 50 members. The primary purpose of this law is to ensure that: • the acquisition of control takes place in an efficient, competitive and informed market • the target company’s shareholders and directors know the identity of the offeror, have a reasonable time to consider the proposal and are given enough information to assess the merits of the proposal • shareholders have a reasonable and equal opportunity to participate in any benefits of the proposal • an appropriate procedure is followed for compulsory acquisition. In order to achieve these aims, the Corporations Act sets out limited ways in which controlling interests can be acquired and specific rules for governing the timing, manner and terms of an offer and the contents of the documents to be sent to shareholders. The Takeovers Panel expects participants in a takeover bid to have regard to the spirit of these principles as well as the letter of the law. The three main mechanisms by which investors can acquire controlling interests in such companies are: • off-market takeover bids • on-market takeover bids • schemes of arrangement. Norton Rose Fulbright   15 Australia
  15. 15. On-market takeover bids On-market takeover bids are infrequently used as a takeover method. An on-market takeover bid is carried out by the offeror purchasing the target company’s securities on-market for cash only. An on-market takeover bid must be an unconditional offer for all of the quoted securities of the target company. The major steps involved are as follows: • the offeror arranges for a broker to make an announcement that it will stand in the market and purchase all shares offered at the offer price for a minimum period of one month. The on-market takeover bid commences 14 days after the announcement is made • the offeror must give a copy of its bidder’s statement to the target company, the relevant securities exchange and the ASIC on the same day as the bid is announced. It must send the bidder’s statement, and the target company must send its target’s statement, to the target company’s shareholders within 14 days of the announcement of the bid. The content requirements of the bidder’s and target’s statements are essentially the same as with an off-market takeover bid • to accept an on-market takeover bid each shareholder must contact a stockbroker and arrange for the sale of his or her shares on the securities market. The sale will proceed in the ordinary course of trading on the market and is subject to the normal three day trade settlement process, commonly referred to as T+3. The cash consideration is paid to each seller by his or her stockbroker in the usual way for a market trade. Schemes of arrangement A court approved scheme of arrangement pursuant to Section 411 of the Corporations Act may be used to acquire control in preference to a takeover bid in certain circumstances. For a number of reasons, schemes have increasingly become the preferred method for implementing “friendly” takeovers. Schemes of arrangement are also commonly used in complex, large-scale mergers that would otherwise be difficult or impossible to achieve with sufficient certainty through a takeover bid because of the flexibility in transaction structure they facilitate. In practice, schemes are generally only appropriate where the parties agree to the transaction because of the requirement for them to be implemented by the target company. statement which includes the target company’s directors’ recommendations. Form of consideration Offerors have wide flexibility in the consideration they can offer in off-market bids. The consideration can be cash or securities or a combination of both. Where share consideration is offered, the offeror must include in the bidder’s statement all information that would be required to be included in a prospectus for an offer of that security. Minimum consideration The consideration must equal or exceed the highest price at which the offeror or an associate agreed to acquire any bid class securities during the preceding four months. Where the offeror is offering shares (scrip) as part of its consideration, the value of the scrip consideration must be determined at the time the offer is made (ie, when the offers are sent). Conditionality Off-market takeovers may be conditional although certain types of conditions are not permitted. These include maximum acceptance conditions (causing inequality of acceptance opportunities), conditions that discriminate between individual shareholders, conditions requiring payments to officers of the target company, and conditions which rely on the offeror’s subjective opinion. Conditions known as “defeating conditions” are permitted. A defeating condition allows the offeror to rescind the contract or prevent a binding contract from being formed. Common defeating conditions include: • minimum acceptance conditions, which are often set at 90 per cent, allowing offers to be withdrawn unless the offeror is able to proceed to compulsory acquisition (see below) and outright control. A minimum acceptance condition may be fixed at 50 per cent or less if the offeror is satisfied with less than complete control • FIRB approval, where the offeror is a foreign person • Australian Competition and Consumer Commission (ACCC) approval, where there are anti-trust concerns • conditions relating to certain events not occurring during the bid period, such as the target company not disposing of all or a substantial part of its business or assets or an insolvency event or a material adverse change affecting the target company. 16  Norton Rose Fulbright M&A law in Asia Pacific
  16. 16. Compulsory acquisition of shares (squeeze out) The Corporations Act contains a procedure for an offeror who has acquired 90 per cent (by number) of the shares in the bid class and 75 per cent (by number) of securities that the offeror offered to acquire under a takeover bid, to compulsorily acquire the remainder. This procedure seeks to balance the rights of the offeror to gain the benefits of the full acquisition of the target company against the rights of the minorities. In addition to the above compulsory acquisition power, there is also a general compulsory acquisition power under the Corporations Act that may be exercised (irrespective of whether there has been a takeover offer) within six months of a person becoming a 90 per cent holder (by number or value) of securities in a class. Delisting An entity may not withdraw its listing without permission from ASX, which may impose conditions to its removal from the official list. However, ASX will delist a target company shortly after an offeror has reached the compulsory acquisition thresholds and has commenced the compulsory acquisition process. ASX may also require a company to delist if it ceases to meet ASX’s listing criteria, including, for example, if the company no longer has the required spread of shareholders or ceases to conduct an appropriate business. Anti-trust and merger control regulations Section 50 of the Competition and Consumer Act 2010 (CCA) prohibits mergers or acquisitions that would have the effect, or be likely to have the effect, of substantially lessening competition in a market. Section 50(3) provides a non- exhaustive list of the factors to be taken into account when assessing whether a merger would be likely to substantially lessen competition. Voluntary merger clearance regime There is no formal requirement in Australia for the notification of a proposed merger or acquisition. However, it is recommended by the ACCC that transactions are notified to them for review in advance of completion of the transaction where the following apply: • the products of the merger parties are either substitutes or complements Shareholder meetings are convened by court order to consider the scheme. A detailed explanatory memorandum (with content requirements similar to a bidder’s statement and target’s statement) is required to accompany the notice of meeting, as is the report of an independent expert. The requisite majorities for shareholders to approve a scheme of arrangement are: • a simple majority of members present, in person or by proxy in each class of security to be bound by the scheme • 75 per cent of the votes cast on the resolution in person or by proxy in each class of security to be bound by the scheme. After shareholders approve the scheme, the court will then consider granting orders to implement the scheme, which will be binding on all shareholders in each class to which the scheme applies. As part of the approval process, ASIC reviews scheme documents and gives a “no objection” statement to the court. The court will not approve a scheme unless the ASIC has provided the Section 411(17) notice or ASIC is satisfied that it has not been proposed to avoid the takeover provisions. On 22 September 2011, ASIC released its revised Regulatory Guide 60 in respect of schemes of arrangement, and in particular, changes to the circumstances when ASIC will give its “no objection” statement. As a result of these revisions, if a shareholder undertakes to ASIC that they will object to a scheme and the objection relates to the matters ASIC takes into account when deciding whether to give its “no objection” statement, ASIC will consider the objection before deciding whether to give its statement. Schemes of arrangement have a more finite timetable than a takeover bid once the notice of meeting and explanatory memorandum have been despatched, and usually take between three and four months to implement. Mandatory offers There is no concept of mandatory offers under Australian law or regulation. However, a person and his associates can only acquire a relevant interest from below 20 per cent to above 20 per cent or from above 20 per cent to less than 90 per cent of the voting shares of the target company through one of the exceptions in Chapter 6 of the Corporations Act or “gateways”, which include a takeover bid or scheme of arrangement. Norton Rose Fulbright   17 Australia
  17. 17. is currently proposed to be abolished in New South Wales from 1 July 2013 (such abolition having been deferred from 1 July 2012). South Australia previously announced that share transfer duty would be abolished from 1 July 2012 but the date for the proposed abolition has been deferred until “budget circumstances allow”. Share transfer duty has been abolished in all other States and Territories and does not apply to transfers of shares in listed companies in New South Wales or South Australia. Where the assets of an unlisted company in any State or Territory include real estate (which can include mining tenements), duty at higher rates may apply (up to 6.75 per cent of the value of the interest in the real estate and certain other assets indirectly acquired) to a sale of shares in the company if certain thresholds are exceeded. All States and Territories levy a “landholder” duty, but both the applicable rate and the threshold conditions vary depending on the particular State or Territory in which the real estate is located. Capital gains tax Profits on the sale of shares by the transferor may be subject to income tax or capital gains tax (CGT) depending on whether those shares were held on capital or revenue account by the transferor. The current Australian corporate tax rate is 30 per cent. If subject to CGT, then roll-over relief may be available for the transferor in the case of an exchange of shares in the target company for shares in the acquirer, which can defer the recognition of CGT for the transferor. In the case of a transferor that is a non-resident of Australia, whether profits on the sale of shares is subject to income tax in Australia depends on whether, amongst other things, the transferor is located in a country that has a double tax agreement with Australia which may operate to shield those profits from Australian tax. Where the non-resident transferor holds the shares on capital account, then CGT will generally not apply to profits on the sale of shares unless the transferor holds a direct or indirect interest of ten per cent or more in the company and more than 50 per cent of the company’s assets comprise Australian real estate. Miscellaneous Publicly available information Corporate information Corporate information such as the identity of officers and status of incorporation (and for proprietary companies, shareholders) can be obtained for companies incorporated in • the merged firm will have a post-merger market share of greater than 20 per cent in the relevant market(s). Clearance of a proposed merger or acquisition can be achieved by an informal or formal clearance process by the ACCC, or authorisation by the Australian Competition Tribunal. The informal clearance process is the avenue most commonly used by merger parties, and allows for flexibility and negotiation with the ACCC on any perceived competition issues. This process also enables parties to make a confidential submission on the proposed acquisition and obtain an assessment of its view as to whether any potential competition issues arise. Informal assessment by the ACCC of the proposed acquisition is over a two to eight week assessment period (subject to any further extensions of the timeline proposed by the ACCC due to potential issues or further information requirements from the market). The ACCC will then advise the parties whether the ACCC is of the view that the proposed merger or acquisition is likely to substantially lessen competition in the relevant market and make a statement as to whether it is likely to oppose the acquisition should the parties proceed. Remedies and sanctions Since notification is voluntary, there are no penalties for failure to notify a transaction. However, where the ACCC forms the view that a merger or acquisition is likely to contravene Section 50, it may apply to the Federal Court to grant injunctions, declare a merger or acquisition void, accept an undertaking and/or impose a penalty for a contravention of up to the greatest of: • fines of up to A$10 million for companies (up to A$500,000 for individuals) • three times the value of the benefit the company obtained directly or indirectly and that is reasonably attributable to the contravening conduct • ten per cent of the annual turnover of the company and all its subsidiaries (if any). Tax Stamp duty Share transfer duty at the rate of 0.6 per cent (on the higher of the consideration for the transfer or market value) applies to a sale of shares in an unlisted company which is registered in New South Wales or South Australia. Share transfer duty 18  Norton Rose Fulbright M&A law in Asia Pacific
  18. 18. security interests over personal property such as the ASIC register of charges. However, in relation to charges, historical information (such as charges that have been satisfied) will remain on the ASIC register and will be available for searching for seven years. Winding up or bankruptcy It is possible to ascertain whether a creditor has commenced an application to wind up a company by performing a search of records held by the Federal Court of Australia or the Supreme Court of each State and Territory of Australia. If a company has been wound up (whether by order of a court, or members so resolve in general meeting), this will be evident from an electronic search of the register of companies maintained by ASIC (although there may be a time lag between the making of the order or passing of a resolution to wind up and the filing of that information with ASIC). It is also possible to ascertain whether a creditor has filed a creditor’s petition seeking to bankrupt an individual by performing a search of the records held by the Federal Court of Australia and whether an individual has been made bankrupt by searching the records held by the Federal Court of Australia or the Insolvency Trustee Service of Australia. Australia by performing an electronic search of the register of companies maintained by ASIC upon payment of a nominal fee. Announcements by and certain information relating to ASX listed companies are also available on the ASX website. Intellectual property The registration details of registered intellectual property rights such as trade marks, patents and designs are available on certain publicly available registers. Patent, trade mark and design registrations are administered by IP Australia, a Federal Government organisation, and searches can be conducted through the Australian Trade Marks Online Search System (ATMOSS), which is a free search engine accessed via the IP Australia website. Business name registration details can be obtained from ASIC upon payment of a nominal fee. Litigation Information about parties to litigation commenced in superior Australia courts can be obtained by conducting litigation searches of the registries of the Supreme Courts in each State and Territory of Australia as well as the Federal Court and High Court of Australia. While all of the senior appellate Courts for each State and Territory can be searched, it is not possible to search the registries of the junior and intermediate Courts in some States and Territories. The Courts in each jurisdiction must be searched individually and each Court will charge a nominal fee to provide search results. Real property Information can be sourced from the government agency managing land titles in each State and Territory of Australia relating to ownership of property in that jurisdiction upon payment of a nominal fee. Copies of encumbrances (such as leases, caveats, mortgages and memorials) registered against the title to properties can also be obtained through these agencies for a nominal fee (although the information available in each jurisdiction varies). However, it is not possible in some jurisdictions to undertake general searches to identify land leased by parties (corporate entities or individuals). Personal Properties Securities Register The national Personal Property Securities Register commenced on 30 January 2012. The new single online national register replaces (either wholly or in part) many of the existing State or Commonwealth registers for recording Norton Rose Fulbright   19 Australia
  19. 19. Examples of business activities subject to foreign ownership restrictions Financial institutions Banking Foreign investment proposals in this sector are examined with regard to the additional requirements under other Australian Government policies and regulations. Foreign investment must comply with applicable banking laws and policy, including prudential requirements. Any proposed foreign acquisition or takeover is considered on a case-by-case basis and assessed on its merits. Acquisitions in financial sector companies by US investors are exempt from the FATA, but subject to the Financial Sector (Shareholdings) Act 1998. New banking authorities to foreign owned banks will be permitted if the Australian Prudential Regulation Authority is satisfied as to the standing of the applicant and its home supervisor and the applicant agrees to comply with the Authority’s prudential supervision arrangements. Infrastructure, mining and commodities Real estate The real estate sector, particularly residential real estate, is a sensitive sector subject to specific criteria. All contracts by foreign persons to acquire interests in Australian real estate must be conditional on FIRB approval (regardless of the percentage interest), subject to certain exempt acquisitions which do not require notification. Notification is required prior to acquisition of the interest. Transport Aviation Domestic airlines (except Qantas; see below): acquisitions of up to 100 per cent of Australian domestic airlines by foreign persons (including foreign airlines) can generally expect to be approved unless contrary to the national interest. International airlines (except Qantas; see below): acquisitions up to 49 per cent equity in an Australian international airline, individually or in aggregate, can generally expect to be approved unless contrary to the national interest. Qantas Airways Limited (Australia’s largest domestic and international airline): total foreign ownership is limited to a maximum of 49 per cent in aggregate (with individual holdings limited to 25 per cent and aggregate ownership by foreign airlines limited to 35 per cent). There are also a number of national interest criteria to be satisfied, relating to board members and operation location. Airports: acquisitions of interests in Australian airports by foreign persons is subject to case by case examination. Ownership limits apply to airports offered for sale by the Australian Government (49 per cent foreign ownership limit, five per cent limit on ownership by airlines and cross ownership limits between Sydney airport (together with Sydney West) and Melbourne, Brisbane and Perth airports). Shipping For a ship to be registered in Australia, it must be majority Australian-owned, unless it is designated as chartered by an Australian operator. Technology and innovation Media All foreign direct (non-portfolio) proposals to invest in the media sector are subject to prior approval under the foreign investment policy, irrespective of size. Portfolio investments in the media sector of five per cent or more are also subject to prior FIRB approval, irrespective of size. Telecommunications Telecommunications Foreign ownership of Telstra Corporation Limited (Australia’s largest telecommunications and information services company which was progressively privatised over a ten year period by the Australian Government) is restricted to 35 per cent of the privatised equity in aggregate and individual foreign holdings are limited to no more than five per cent of the privatised equity. About 83 per cent of the company has been privatised and is owned by institutional and individual investors whilst the remaining 17 per cent is held by the Future Fund (a fund established by the Australian Government). 20  Norton Rose Fulbright M&A law in Asia Pacific
  20. 20. China
  21. 21. applicable to both listed and private companies) that remain in certain key industry sectors. Availability of exemptions from foreign ownership restrictions Partial exemptions from foreign ownership restrictions are available in certain circumstances. As part of China’s Western Development strategy, foreign ownership restrictions may be relaxed for certain projects located in western regions of China. Preferential treatment is based on the Foreign Investment in Preferred Industries in the Central and Western Regions Catalogue (the Western Regions Catalogue) issued by NDRC. The latest version of the Western Regions Catalogue (issued in December 2008) provides that investment in irrigation technology, mineral exploration, telecommunications services and highway passenger transportation, among others, may enjoy preferential foreign investment policies which offer relaxed foreign ownership restrictions. Under the Closer Economic Partnership Arrangement (CEPA) entered into separately by mainland China with each of Hong Kong and Macau, eligible investors from Hong Kong or Macau are permitted to invest in a range of sectors that would otherwise not be open to foreign investment. To qualify for the CEPA concessions, a foreign investor must satisfy certain conditions prescribed in the relevant CEPA provisions. For example, in order to qualify for the Hong Kong CEPA concessions, a foreign investor must, amongst other things, be incorporated in Hong Kong, have been doing business in Hong Kong for a requisite period of time as prescribed for the relevant industry and its workforce must comprise a minimum percentage of local Hong Kong workers. Regulatory approvals Governmental agencies play a key role in regulating foreign investment into China. The primary regulator of foreign investment is the Ministry of Commerce (MOFCOM). In addition to MOFCOM, the NDRC is responsible for approving the planning aspects of a project while business registration is handled by the State Administration for Industry and Commerce (SAIC) or its local counterparts referred to as AIC. Chinese approval bodies operate at both local and national level. Generally, the amount of foreign investment and the category that the investment falls under in the Investment Catalogue determine the level of approval the investor needs to obtain. Broadly speaking, investments that meet the following thresholds require the approval of MOFCOM at the national level: China Regulatory issues Foreign ownership restrictions The last decade has seen a progressive relaxation of the regulatory regime governing foreign investment into China. Notwithstanding these changes, foreign ownership restrictions remain in place. The Investment Catalogue Restrictions on foreign ownership are principally imposed through China’s Foreign Investment Industrial Guidance Catalogue (most recently revised in 2011) (the Investment Catalogue). The Investment Catalogue classifies certain foreign investment activities as “Encouraged”, “Restricted” or “Prohibited”, depending on the industry sector. Activities not listed in the Investment Catalogue fall into a fourth category, which are the “Permitted” industries. Under the investment approval process, the type of investment vehicle which can be used and the permitted level of foreign ownership will generally depend on the category the investment falls under in the Investment Catalogue. In addition, other conditions, such as licensing requirements, may also be imposed by industry- specific regulations. A new version of the Investment Catalogue was jointly issued by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) on 29 December 2011 (the New Catalogue). The New Catalogue came into effect on 30 January 2012, replacing the previous version issued in 2007. The New Catalogue includes more environmentally-friendly and high-end industries in the “Encouraged” category. Industries included in previous versions of the Investment Catalogue which are not considered environmentally-friendly or high-end have been eliminated. Generally, the New Catalogue is more focused on encouraging foreign investment in industries involving alternative energy resources, new methods of energy utilisation, energy efficiency, research and development and new technologies. The changes introduced by the New Catalogue demonstrates China’s continual progress in opening up its market to foreign investment and its attempts to leverage foreign investment to upgrade its own industrial capabilities. Foreign ownership restrictions may apply to all categories listed in the Investment Catalogue. Therefore even “Encouraged” or “Permitted” industries may restrict full foreign ownership or specify a minimum Chinese participation. The table at the end of this section sets out examples of foreign ownership restrictions (which are 22  Norton Rose Fulbright M&A law in Asia Pacific
  22. 22. dividends to its offshore shareholder(s). These conditions include paying up its registered capital in accordance with the approved timetable, making up any losses incurred in previous years of operation and allocating a certain proportion of its after-tax profits to the FIE’s own statutory enterprise funds. At the point of remittance, the FIE must submit the requisite documents to designated banks which can operate foreign exchange activities. The banks will review the documents and, upon being satisfied that the relevant requirements have been met, facilitate the payment of dividends to the offshore shareholder(s) either by using the foreign currency that the FIE has in its accounts or allowing the FIE to purchase foreign currency with its Renminbi (RMB) income. It should be noted that under the Enterprise Income Tax Law, repatriation of profits by foreign investors is subject to withholding tax at a rate of ten per cent in China, unless a more preferential tax rate is available under a reciprocal tax treaty. Since 2005, the RMB has been allowed to float in a band against a basket of foreign currencies. Currency fluctuation is an issue to be considered when negotiating price and payment mechanisms in M&A deals. In the longer term, questions of the re-valuation and convertibility of the RMB will be important for anyone considering doing business in China. Foreign direct investment in RMB In line with the internationalisation of the RMB, investors can now use offshore RMB funds to carry out foreign direct investments into China. This was introduced through the Administrative Measures on RMB Settlement in respect of Foreign Direct Investment issued by the People’s Bank of China (PBOC) (PBOC Measures) and the Notice on Various Questions related to Cross-border RMB Direct Investment issued by MOFCOM (MOFCOM Notice). Both the PBOC Measures and the MOFCOM Notice took effect on 14 October 2011. The PBOC Measures and MOFCOM Notice open another channel for offshore RMB funds to flow back into the China market as capital items (including foreign direct investment and cross-border financing) in addition to RMB inflow through cross-border trade. Under these new measures, foreign investors may use their legitimate offshore RMB funds to invest into China upon satisfaction of certain requirements. Legitimate offshore RMB funds include: (i) RMB proceeds derived by foreign investors from cross-border RMB trade settlement, issuance of RMB bonds or shares outside China; or (ii) RMB profits gained, or proceeds obtained, by foreign investors resulting from share • total investment amount equal to or exceeding US$300 million in “Encouraged” or “Permitted” industries • total investment amount equal to or exceeding US$50 million in “Restricted” industries. In most other cases where an investment does not exceed the above thresholds, a foreign investor need only seek the approval of MOFCOM at the provincial level or in the location where the investment project is located. The time frame for obtaining MOFCOM approval varies significantly but is generally less than 90 days. In addition to obtaining approval from MOFCOM, approval from other regulatory bodies or ministries may also be required for transactions involving foreign investors. Transactions in regulated industry sectors will be subject to the approval of the relevant governmental body that is responsible for that industry sector and other features of a transaction may result in the involvement of additional governmental authorities. For example: • transactions in the banking sector require approval by the China Banking Regulatory Commission (CBRC) • transactions in the insurance sector require approval by the China Insurance Regulatory Commission (CIRC) • transactions involving listed companies, securities companies, fund management companies and futures companies will require the involvement of the China Securities Regulatory Commission (CSRC) • transactions with a foreign exchange component (as will be the case with most foreign investments into China) will require the involvement of the State Administration of Foreign Exchange (SAFE) • transactions involving the transfer of state-owned assets will be subject to supervision by, and most likely approval of, the State-owned Assets Supervision and Administration Commission (SASAC). Exchange control issues China maintains a tight foreign exchange control system. All foreign-invested enterprises (FIEs) are required to register with the local SAFE authorities in the area in which they are registered. An FIE will also be required to satisfy certain conditions in order to remit its after-tax profits as Norton Rose Fulbright   23 China
  23. 23. a CJV allows the parties to agree on a preferential profit distribution scheme which is not in proportion to their respective equity investments. In practice, EJVs are far more commonly used as an investment vehicle. Foreign investment must amount to at least 25 per cent of the registered capital of the joint venture for the joint venture to qualify as an FIE and enjoy certain preferential policies. However, it should be noted that the preferential treatment in respect of enterprise income tax which was available to FIEs will be phased out by the end of 2012 in accordance with the new Enterprise Income Tax Law. Foreign investors may also set up joint ventures with, or acquire an equity interest in, state-owned enterprises. These transactions may be subject to special requirements, including, most significantly, SASAC approval. WFOEs WFOEs are limited liability companies wholly-owned by one or more foreign entities (although the regulations governing WFOEs provide that they may take any other legal form with the relevant regulatory approval). Foreign investors are permitted to establish WFOEs for all the “Permitted” industry sectors, but certain industries falling within the “Encouraged” and “Restricted” categories are not allowed to be wholly foreign-owned. A WFOE structure offers greater flexibility in management and control than a joint venture and therefore allows investors to implement management systems and standards that are more consistent with their international operations and is the most popular investment vehicle for foreign investors in China. A foreign investor may establish a WFOE either by: • incorporating an entirely new company as a WFOE • acquiring an existing domestic company and converting it into a WFOE. CLSs A CLS must be established by at least two promoters, at least half of whom must be Chinese investors. The minimum registered capital for a foreign-invested CLS is RMB30 million, while for a Chinese-invested CLS, the minimum capital requirements are significantly lower. To incorporate a foreign-invested CLS, a foreign investor must hold at least 25 per cent of the share capital of the CLS. transfers, capital reduction, liquidation or earlier recovery of capital investment from any other previous investments in China. However, RMB capital investment into China as so permitted must not be used, directly or indirectly, to invest in domestic securities (unless otherwise permitted by other laws or regulations), financial derivatives, or to provide entrustment loans (being inter-company financing arrangements where loans are provided from one company to another company through commercial banks acting as an agent between the companies). Possible acquisition structures Investment vehicles There are five main types of investment vehicle a foreign investor can use: • Sino-foreign equity joint venture (EJV) • Sino-foreign cooperative joint venture (CJV) • wholly foreign-owned enterprise (WFOE) • company limited by shares (CLS) • foreign-invested partnership enterprise (FIPE). The choice of investment vehicle depends largely on the industry in which the investment is made. Investors have a wider choice of investment vehicles if they invest in “Encouraged” and “Permitted” industry sectors. In contrast, certain investment vehicles are not available for “Restricted” industry sectors. EJVs and WFOEs are most commonly used by investors. Where there is no foreign ownership restriction, the choice of vehicle will mainly be driven by commercial considerations. EJVs and CJVs In China, a Sino-foreign joint venture is a specific form of business organisation created through the joint investment of at least one Chinese party and at least one foreign party. A joint venture will usually take the form of a limited liability company. Most joint ventures are established by pooling assets and cash in a newly incorporated joint venture company. PRC law also allows for the acquisition of an interest in an existing company and its subsequent conversion into a joint venture. There are two types of joint venture in China – EJVs and CJVs. The major difference between them is that a CJV offers greater flexibility for the parties to decide the terms of the investment and the distribution of profits to investors. For example, in an EJV, profits must be distributed strictly in proportion to each party’s equity investment, while 24  Norton Rose Fulbright M&A law in Asia Pacific
  24. 24. ratio, or the time limit for making capital contributions to a foreign-invested partnership. However, local governments of several cities (such as Shanghai, Beijing, Tianjin and Chongqing) have issued local regulations in relation to the establishment of FIPEs in order to attract, and also regulate, foreign investment into the onshore private equity funds sector. For example, in Shanghai, various local authorities jointly issued the Implementing Measures on Pilot Program of Foreign-invested Equity Investment Enterprises (effective since early 2011) which provide that: • a foreign-invested private equity fund manager may be established as a PRC partnership enterprise or a PRC limited liability company with a minimum capital contribution of US$2 million in cash • foreign-invested fund managers approved under the pilot program are allowed to invest foreign currency in an onshore fund and, provided that such foreign currency investment does not exceed five per cent of the total funds raised, the domestic status of the invested fund will remain unchanged. However, the current regulatory regime governing FIPEs lacks clear and detailed implementing rules at a national level on issues concerning foreign exchange registration of such enterprises. As such, a foreign investor in a FIPE may still encounter practical obstacles remitting foreign currency capital to a FIPE from overseas. Consultation with local authorities is therefore recommended prior to establishing a FIPE in China. Laws and regulations applicable to M&A The type of target being acquired will determine which laws and regulations will apply to an acquisition. For example, where a target is an FIE, any merger or acquisition involving such FIE will be governed by specific FIE rules (most notably, the Provisions on Changes in Equity Interest of FIEs and the Interim Provisions on Domestic Investment by Foreign- Invested Enterprises). The acquisition of a purely domestic company by a foreign company is subject to the Provisions on Merger and Acquisition of Domestic Enterprises by Foreign Investors (the M&A Rules). The M&A Rules impose stricter requirements than those under the regime for the acquisition of equity interests in FIEs. An acquisition falling within the regulatory ambit of the M&A Rules will require MOFCOM approval at provincial or national level. The M&A Rules impose various requirements including that: PRC regulations do, however, permit smaller investments by foreign investors acquiring an interest in a Chinese- invested CLS. As with joint ventures, a CLS will only qualify for preferential treatment designated for FIEs if foreign investment is at least 25 per cent of the total share capital of the CLS. A CLS is the only appropriate corporate structure for foreign investors contemplating a listing on a Chinese stock exchange under the current regulatory regime. CLSs are not, however, commonly used due to their complicated establishment procedures and significant capital requirements. In line with its objective of establishing Shanghai as an international financial centre by 2020, the PRC Government is considering establishing an international board of the Shanghai Stock Exchange where foreign companies will be able to list directly. However, the implementing regulations for this are likely to take some time to develop due to the complexity of the issues involved. PRC law sets out strict restrictions on the purchase of shares in listed CLSs by foreign investors. In addition, the capital structure of listed CLSs can be quite complicated which may impact the feasibility of foreign investment. There are two main classes of shares in a listed CLS, namely A shares and B shares, which are both publicly traded. Foreign investors may purchase B shares and, under the Measures for the Administration of Strategic Investment in Listed Companies by Foreign Investors (which came into effect on 31 January 2006, see further details below), they are also permitted to invest in A shares of listed companies. In addition, foreign investors who have obtained a “Qualified Foreign Institutional Investor” licence and the relevant quota may acquire A shares directly (see further details below). FIPEs Since 1 March 2010, foreign investors have been permitted to establish FIPEs in China. Foreign investment made through a partnership does not require MOFCOM approval, but NDRC approval and industry-specific approvals may still be required. Foreign investment made via a partnership structure is still subject to the restrictions under the Investment Catalogue. Application documents are submitted to AIC (rather than MOFCOM) for review and AIC is responsible for ensuring compliance with applicable foreign investment controls. AIC is required to report to local MOFCOM at the time of registering a new foreign-invested partnership. There are no national level regulations stipulating the minimum amount of registered capital, the debt to equity Norton Rose Fulbright   25 China
  25. 25. representatives of the joint venture parties. Unlike many other jurisdictions, in the case of both EJVs and CJVs there are no shareholders’ meetings. The composition of the board of directors is a matter for agreement by the joint venture parties and will generally be determined by reference to the equity interests held by the parties. The powers and decision making procedures of the board of directors or joint management committee must be set out in the joint venture contract and the articles of association. For an EJV, the board of directors should comprise between three and thirteen directors and a duly convened board meeting must include at least two thirds of the board in order to be quorate. WFOEs The highest level of decision making in a WFOE is at the shareholder level instead of the board of directors. A WFOE’s board of directors plays the role of an executive body that implements decisions made by the shareholder(s). A joint venture or a WFOE registered as a limited liability company must have at least one supervisor or a board of supervisors in place to supervise the management of the company and the performance of duties by the board of directors and the senior management team. CLSs The highest level of decision making in a CLS is at the shareholder level, while its day-to-day affairs are managed by the board of directors. CLSs are also required to elect a supervisory board that supervises the board of directors. The powers of these bodies are set out in the shareholders agreement and the articles of association and also prescribed by PRC law. Nationality/residency requirements for directors and other officers There are no nationality or residency restrictions or requirements on directors of Chinese entities. Achieving effective control of a company The level of ownership required to achieve effective control of a Chinese entity varies between CJVs, EJVs, CLSs and WFOEs. In the case of a joint venture, the company’s joint venture contract and articles of association will set out the level of effective control the parties will be able to exert. Further, PRC joint venture laws provide that certain key decisions, such as the merger or dissolution of the company, changes • the price of such acquisition must be determined on the basis of an assets valuation of the target company • the acquisition price must be fully paid within three months of the issue of the new business licence (which evidences completion of the transfer) to the target company, unless the investor obtains special approval for an extension. Acquisition structures As in many other jurisdictions, an acquisition in China may be structured either as a share/equity purchase or an asset purchase. With a share/equity purchase, a foreign purchaser may acquire existing equity interests or subscribe for new equity interests in the target company, or a mixture of both. With a purchase of underlying assets by a foreign investor, the acquisition may be achieved through a transfer of title of the relevant assets, including assignment or novation of contracts. The acquired assets would ultimately need to be operated by a foreign-invested Chinese entity established by the foreign investor. It should be noted that where assets are being transferred, the prior consent of employees to the transfer of their employment and the counterparties to any contracts must be obtained. In practice, this tends to make a transfer of assets a time consuming process in China. If any employees or counterparties refuse to grant their consent, the relevant employees and corresponding contracts cannot be transferred. An acquisition of assets by a foreign investor from a domestic company generally requires that creditors of the transferor do not raise any objection to the proposed transfer of assets within a certain time period after receiving notice of such proposed transfer. Although the applicable regulations do not explicitly address the consequences if such “no-objection” is not obtained, in practice the transferor would normally seek to agree acceptable arrangements with creditors in advance to avoid any objection from the creditors at a later stage. Corporate governance Company management and decision making Joint ventures The highest decision making body of an EJV is the board of directors. In a CJV, it may be the board or directors or the joint management committee, each comprising 26  Norton Rose Fulbright M&A law in Asia Pacific
  26. 26. introduce new types of shares but, to date, the State Council has not issued any new rules in this regard. Public M&A issues Regulatory considerations regarding an acquisition of shares in a listed company There are two main ways that a foreign investor can directly acquire a stake in a Chinese listed company: • through a Qualified Foreign Institutional Investor (QFII) (including Renminbi QFII (see below)) • as a strategic investor (for mid to long-term investment). QFII route The QFII route allows foreign fund management institutions, insurance companies, securities companies, commercial banks and other financial institutions approved by the regulatory authorities to carry out investments in certain RMB-denominated financial products (including securities) in China. A QFII may invest in tradable A shares, bonds, securities investment funds and tradable warrants in China through a Chinese custodian (which should be a qualified onshore commercial bank). QFIIs are subject to a qualification approval by CSRC and the allocation of an investment quota (within which the QFII may conduct onshore investments) by SAFE. The QFII must deposit the capital to be invested into an approved bank account within six months of the investment quota being approved and is subject to a “lock-up” period of three months or one year (the length of time will depend on the nature of the business conducted by the QFII) within which the QFII is not allowed to remit the principal of such capital outside China. A single foreign investor may hold up to ten per cent in a Chinese listed company through the QFII route, and the aggregate shareholdings of all foreign investors in the A shares of a single Chinese listed company cannot exceed 20 per cent of the total issued shares of that listed company. Renminbi QFII On 16 December 2011, a pilot RMB QFII (RQFII) scheme was officially launched following the promulgation of the Measures in respect of Domestic Investment by to registered capital and amendments to the articles of association, must be approved by all directors present at a duly convened and quorate board meeting. In the case of a WFOE, control is held at the shareholder level. A shareholders’ resolution in respect of any change to the articles of association, increase or decrease of the registered capital, merger, division, dissolution or change of the form of the company, must be approved by shareholders representing at least two thirds of the voting rights. In the case of a CLS, most resolutions may be passed by a simple majority of shareholders. However, the Company Law provides that certain key decisions, such as the merger or dissolution of the company or amendments to the articles of association, must be approved by shareholders representing at least two thirds of the voting rights. In the case of a listed company, “effective control” is defined to include any situation where: • an investor holds more than 50 per cent of the total issued shares of a listed company • an investor controls more than 30 per cent of the total voting rights of the listed company • an investor has the power to determine the appointment of more than half of the board directors of the listed company by exercising control over the voting rights • an investor has a significant influence on the passing of shareholders’ resolutions of the listed company by exercising control over the voting rights • CSRC deems that effective control exists. It should be noted that the interest of a person in a listed company includes the interests in such listed company which are, directly and indirectly, held by such person and any persons acting in concert with such person in accordance with applicable PRC listing rules. Golden shares The general rule regarding shares under PRC law is that each share (of a CLS) enjoys the same voting rights. All shares traded on the Shanghai and Shenzhen Stock Exchange Markets are common shares. Preferred shares or “golden shares” are not recognised by PRC law. PRC law does leave room for future changes in this respect. Article 132 of the Company Law provides that the State Council has the right to Norton Rose Fulbright   27 China
  27. 27. In addition to the Administration of the Takeover of Listed Companies Procedures (effective from 1 September 2006 and revised in August 2008, the Takeover Procedures) (please see the section entitled “Mandatory offers” below) and the Strategic Investment Measures, foreign investment in listed companies is also subject to the foreign shareholding restrictions stipulated in the Investment Catalogue. Disclosure of shareholding interests Where a person, and persons acting in concert with such person, acquire more than five per cent of a Chinese listed company’s shares, the acquirer must: • submit a report to the relevant Chinese stock exchange and the CSRC • notify the listed company and make a public announcement of its shareholding within three working days. Thereafter, the acquirer is required to disclose each single increase or decrease of its shareholding amounting to five per cent or more of such listed company’s shares. Where the acquirer holds more than five per cent but less than 20 per cent of the shares in a listed company and such acquirer (together with its concert parties) is not the largest shareholder or a de facto controller of the listed company, CSRC will require a short-form report from the acquirer setting out details of the acquirer, the purpose of the acquirer’s investment in the listed company and its intentions as regards increasing its shareholding over the next 12 months. If the acquirer holds more than 20 per cent but less than 30 per cent of the shares in a listed company, or the acquirer holds more than five per cent and less than 20 per cent but becomes the largest shareholder or a de facto controller of the listed company, a detailed report must be submitted to CSRC setting out the shareholding structure of the acquirer’s group, any competition between the acquirer’s group and the listed company and major transactions between the acquirer’s group and the listed company in the 24 months prior to the acquisition. Tender offers A tender offer can be made in the form of a general tender offer or a partial tender offer. However, if the offeror intends to delist the company, a general tender offer is required to be made by the offeror. Timetable issues The period for acceptance of a tender offer must be not less than 30 days and not more than 60 days, unless there is a RMB Qualified Financial Institutional Investors of Fund Management Companies and Securities Companies jointly issued by CSRC, PBOC and SAFE (the RQFII Measures). Pursuant to the RQFII Measures, RMB funds raised in the Hong Kong market may be invested in the PRC mainland securities market through the Hong Kong subsidiaries of PRC fund management companies and securities companies. The basic regulatory structure applicable to the RQFII is similar to the existing rules governing QFII. The RQFII qualification is subject to the approval of CSRC and the extent of the onshore investment operations of the RQFII must be within a quota approved by SAFE. PBOC will take charge of supervising the RMB accounts opened by RQFIIs for their onshore operations. RQFIIs may invest in certain types of onshore RMB financial instruments although the types of instruments and the proportion of their capital that they can invest in such products are subject to the approval of CSRC and PBOC. Investments by RQFII’s in the interbank market must be conducted in accordance with PBOC regulations. For investment in the securities market, RQFIIs must comply with the existing PRC rules concerning shareholding ratios and information disclosure. A custodian bank must be appointed by a RQFII to play the role of an account manager of the RQFII and to provide a supervisory window for PRC regulators. RQFIIs can remit principal capital and investment proceeds in RMB or foreign currency back to Hong Kong. Strategic mid to long-term investment Under the Measures for Strategic Investment in Listed Companies by Foreign Investors (the Strategic Investment Measures) issued in 2005, a foreign strategic investor may make a strategic investment in a Chinese listed company with a minimum shareholding of ten per cent of the total issued shares of the target company and such shares will be subject to a lock-up period of three years. A strategic investment by a foreign strategic investor may be made either: • as a subscription for new shares in the Chinese listed company through private placement • by entering into a share purchase agreement for the acquisition of existing shares in the Chinese listed company. 28  Norton Rose Fulbright M&A law in Asia Pacific
  28. 28. of the acquisition is to rescue the company and the acquirer undertakes not to transfer its shares within three years. Timetable issues The timetable applicable for a mandatory tender offer is generally the same as that for a general tender offer. Form of consideration A mandatory tender offer must be for cash or have a cash alternative. Minimum consideration The formula for calculating the minimum consideration in a mandatory tender offer is the same as that for calculating the minimum consideration in a general tender offer. Conditionality There is a lack of clear guidance in the Takeover Procedures as to whether conditions may be imposed on a mandatory tender offer. Compulsory acquisition of shares (squeeze out) PRC law does not allow an offeror to compulsorily acquire a minority interest. However, if by the end of the offer period, the listed company is no longer qualified to be a listed company under PRC law as far as its shareholding structure is concerned, the remaining shareholders may sell their shares to the offeror on the terms and conditions set out in the tender offer. The offeror would be obliged to purchase the shares in such circumstances. Delisting Delisting of public companies in China is possible. There are two types of delisting: voluntary and compulsory. There is no specific provision under PRC law or applicable listing rules that expressly provides for shareholders to vote for a voluntary delisting of a listed company in China. Voluntary delisting may only be achieved by way of a takeover under the current legal regime. A listed company will cease to be a listed company in China when either: • an offeror (and its concert parties) acquires more than 75 per cent of the total issued shares of the company • where the value of the total issued shares of the company is more than RMB400 million, an offeror (and its concert competitive offer in place (in which case the initial tender offeror may wish to amend its offer and the offer period may be extended). Form of consideration Normally, the consideration in a tender offer is cash, securities or a combination of both. Where the tender offer is a general tender offer, the consideration may be cash or securities, provided that if securities are used as consideration, the offeror must also offer a cash alternative. Minimum consideration The Takeover Procedures provide that the offer price for a tender offer must not be lower than: • the highest price actually paid by the offeror for shares in the target company in the six months prior to the date of the preliminary announcement of the offer • the weighted average daily trading price of the listed shares over a 30-day trading period prior to the preliminary announcement unless otherwise approved by CSRC. Conditionality A tender offer can be conditional. Common conditions normally include a condition as to minimum acceptances. All conditions in a tender offer must apply to all the target company’s shareholders equally and cannot discriminate against some shareholders or unreasonably favour others. Mandatory offers Where the shareholding of a foreign investor in a listed company reaches 30 per cent of the total issued shares of the listed company and it intends to increase its shareholding, a mandatory takeover will be triggered in accordance with the Takeover Procedures. In these circumstances, it is required to make a general offer or a partial offer to all other shareholders of the listed company, unless an exemption is granted by CSRC. In the case of a partial offer, the shares proposed to be acquired by the offeror must not be less than five per cent of the issued shares of the listed company. Where the offeror acquires more than 30 per cent of the shares of the listed company by way of agreement with other shareholders, any shares exceeding the 30 per cent threshold must be acquired through a tender offer procedure. The CSRC may waive the requirement for a mandatory tender offer where, among other things, the transfer of shares will not result in a change of control of the listed company, or the listed company is facing financial difficulties and the purpose Norton Rose Fulbright   29 China
  29. 29. issue formal guidance on this point, in practice parties have notified, and MOFCOM has reviewed, acquisitions of joint control (ie, joint ventures) on the basis that they qualify as “concentrations”. Concentrations are subject to a mandatory pre-merger clearance by MOFCOM where the following turnover thresholds are met: • in the last financial year: —— the combined total worldwide turnover of all undertakings participating in the concentration exceeded RMB10 billion —— at least two of these undertakings each had a turnover of more than RMB400 million within China (and for the purposes of the AML, turnover in China excludes sales in Hong Kong, Macau and Taiwan) • in the last financial year: —— the combined total turnover within China of all the undertakings participating in the concentration exceeded RMB2 billion —— at least two of these undertakings each had a turnover of more than RMB400 million within China. The above thresholds are multiplied by ten and specific turnover calculation rules apply to financial institutions (including banking institutions, securities and futures companies, fund management companies and insurance companies) according to MOFCOM’s Measures of 15 July 2009 on the Calculation of Turnover for Financial Institutions for Merger Control Purposes. The group turnover of each undertaking participating in the concentration is to be taken into account in assessing whether a concentration meets the notification thresholds. Turnover figures must be consolidated at group-level, ie, the sales of the whole group to which the undertaking belongs must be taken into account, including all subsidiaries and affiliates controlled by the ultimate parent company. However, in case of an acquisition, with regard to the target company, only the turnover relating to the target business (and all subsidiaries and affiliates controlled by the target business) is to be taken into account. Even if none of the above thresholds are met, MOFCOM may still require notification of any transaction which it suspects has or may have the effect of excluding or limiting competition. parties) acquires more than 90 per cent of the shares of the listed company. The shares of that company shall then cease to be traded on the relevant stock exchange market. A Chinese listed company may be compulsorily delisted where: • the company fails to meet ongoing listing requirements • there are serious accounting or reporting irregularities • the company commits violations of law which have serious consequences • the company has continuously reported losses over a period of three years. If a listed company triggers the relevant conditions for a compulsory delisting, CSRC may issue an order to suspend trading of the shares of the company. If the company is unable to improve its performance or correct its non- compliance issues, it will be formally delisted. Anti-trust and merger control regulations The Antimonopoly Law of 30 August 2007 (the AML), which came into effect on 1 August 2008, prohibits restrictive agreements, abuses of a dominant market position and abuses of administrative power. It also establishes a broad merger control regime. The AML is enforced by three governmental agencies: MOFCOM’s Antimonopoly Bureau (which is responsible for merger control), the NDRC (which is in charge of monopolistic pricing practices) and the SAIC (which is responsible for non price-related monopolistic practices). The work of the three agencies is co-ordinated by the Antimonopoly Commission. Pre-merger clearance Transactions which qualify as “concentrations” as defined in the AML and meet the turnover thresholds set out in the State Council Regulation of 1 August 2008 on the Notification Thresholds for Proposed Concentrations of Undertakings, are subject to a mandatory pre-merger notification procedure before MOFCOM and cannot be completed pending review. “Concentrations” include mergers and acquisitions of control or decisive influence by means of equity, asset purchase, contract or any other means. Although MOFCOM has yet to 30  Norton Rose Fulbright M&A law in Asia Pacific
  30. 30. National security review regime Article 31 of the AML provides that a national security review will be conducted (in addition to a competition review) if acquisitions of domestic enterprises by foreign investors or concentrations of undertakings in any other forms may affect the national security of China. On 3 February 2011, the General Office of the State Council issued the Notice on Establishing a Security Review System in respect of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the Security Review Notice) which took effect on 5 March 2011. According to the Security Review Notice, the security review procedure will apply to foreign acquisitions of domestic enterprises in the following two circumstances: • where the domestic target enterprise is engaged in military or supporting activities, or is located adjacent to critical military facilities, or is otherwise related to national defence security matters • where the foreign investor is likely to obtain legal or de facto control in a domestic target active in important economic sectors (such as agricultural production, energy and resources, infrastructure and transportation, key technology and major manufacturing activities) likely to affect national security. The Security Review Notice defines “foreign acquisitions of domestic enterprises” to include the following types of transactions: • the acquisition of an equity interest in, or subscription of increased registered capital of, a domestic enterprise so as to convert the domestic enterprise into an FIE • the acquisition of an equity interest in an FIE from domestic shareholders or subscription of increased registered capital of an FIE • the establishment of an FIE which will acquire assets from a domestic enterprise and operate such assets or will acquire an equity interest in a domestic enterprise • the acquisition of assets from a domestic enterprise by a foreign investor which may then be used to establish an FIE operating such assets. Timetable and substantive assessment MOFCOM has 30 calendar days to complete the first phase review, at the end of which it will either clear the transaction or, if it still has concerns about its potential anti-competitive effects, proceed to a 90-calendar day second phase review, which can be extended by another 60 calendar days. It appears, however, that if the expiry of the review period falls on a weekend (or a public holiday), it is automatically postponed to the next working day. If MOFCOM fails to make a decision within the above time limits, the transaction is deemed cleared and the parties can complete the transaction. In practice, the above timelines tend to be extended significantly. MOFCOM has a strict policy as regards the information required for notification and the 30-calendar day first phase review does not start until MOFCOM officials are satisfied that the notification documents are complete. Parties are strongly encouraged to file an advance draft notification before making a formal filing and to engage in pre-filing discussions. The test for compatibility is whether the proposed concentration has or could have the effect of eliminating or restricting competition. MOFCOM may nevertheless approve a transaction that eliminates or restricts competition if the parties can demonstrate either that the proposed transaction has redeeming benefits which outweigh its restrictive effects or that it is otherwise in the public interest. Where a foreign investor participates in a concentration involving a domestic undertaking, an additional national security review may be conducted. Sanctions Pursuant to Article 28 of the AML, MOFCOM may impose fines of up to RMB500,000 for violations of the merger control rules. MOFCOM may also order a transaction completed in violation of the merger control rules to be unwound. In January 2012, MOFCOM issued Interim Measures on the Investigation of Concentrations Not Notified, which provide a legal and procedural framework for the investigation of parties which ignored notification requirements. These measures came into force on 1 February 2012, and are generally viewed as a sign of MOFCOM’s determination to enforce the merger control rules strictly and to sanction non- compliance. Norton Rose Fulbright   31 China

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