Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • Changi Airport Group
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • BCC Partners
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek International Pte. Ltd.
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • Kazakhstan Potash Corporation Limited
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V. (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • TMI Associates (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Jurie Advokat AB (Sweden)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

Monthly Archives: October 2013

CHINESE UPDATE – Shanghai Free Trade Zone – Still Much to Expect

Editors’ Note: Contributed by Adam Li (Li, Qi), a partner at Jun He and a member of XBMA’s Legal Roundtable. Mr. Li is a leading expert in international M&A, capital market and international financial transactions involving Chinese companies. He has broad experience with VIEs and other structures for foreign investment in China. Authored by Daniel He (He, Kan), a partner of Jun He Law Offices, and Cui, Yu, an associate of Jun He Law Offices. Mr. He is a partner at Jun He, specialized in mergers and acquisitions, foreign direct investment, general corporate law, and regulatory compliance.

Highlights:  The highly anticipated China (Shanghai) Pilot Free Trade Zone (the “Zone”) was officially launched on September 27, 2013, followed by a flurry of implementing rules and measures.  The central government of China expects the Zone to be the country’s testing ground for groundbreaking economic reforms to be extended nationwide in the future.  The most notable reforms in the Zone, among others, are: (i) reforms on investment administration system; (ii) further open up of service sector; (iii) financial system liberalization, and (iv) transform of government functions.  Even though details of how the reforms will work remains sparse, we believe the Zone has been poised to move on the direction towards what it is set out to achieve.

The Shanghai Pilot Free Trade Zone was Officially Launched On September 29, 2013, Followed by a Series of Legislations

On September 29, 2013, China officially launched the China (Shanghai) Pilot Free Trade Zone (the “Zone”). Two days earlier, on September 27, 2013, the State Council approved the Blueprint for the Zone (the “Blueprint”), which is the overarching framework for policies within the Zone. On September 29, 2013, the same day of Zone’s launch, the Shanghai municipal government issued the negative list (discussed in details below) and five other administrative measures governing the administration of the Zone, the procedures of establishing foreign-invested enterprises (“FIEs”) in the Zone. A series of rules were also issued by various industry regulators and other agencies to support the contemplated reforms in very general terms.

Objectives of the Zone Reforms

On the Chinese central government level, expectations of the Zone are much more than just a traditional bonded zone, which features primarily import and export businesses with released customs intervention. The Zone is expected to serve as China’s testing ground for groundbreaking economic reforms to be extended to other areas or even nationwide in China. With Premier Li Keqiang’s strong backing, the Zone’s significance could be comparable to that of the Shenzhen Special Economic Zone established more than 30 years ago.

Major Reforms in the Zone

We touch on a few of the most significant reforms in Zone below. The reforms explored in the Zone are designed to be adoptable and implantable nationwide in the future if the pilot in the Zone turns to be successful. We even see the State Council is now proposing to expand certain reforms within the Zone, namely, the loosened requirements of registered and paid-in capital and annual inspection with the Administration of Industry and Commerce, to the rest of China in the near term.  It worth noting that no financial benefits/subsidies, like the previously reported lower 15% income tax rate, will be implemented in the Zone.

A. Reform on Investment Administration System.

i. Negative List

Until now, the most concrete and significant reform can be seen in the Zone is the adoption of the “negative list” approach towards foreign investment administration, which means that foreign investment in all sectors should be allowed to set up in the same manner as domestic companies, unless listed in the “negative list” (the “Negative List”). The Negative List covers 18 main sectors divided further into 1,069 subcategories, incorporating 190 special regulatory measures. This approach represents a long leap for foreign investment administration in China, from the government authorities’ approval on each project to a treatment equally applied to domestic and foreign investors (unless the foreign investment is on the Negative List).

The 2013 version of the Negative List, as published on September 29, basically list all categories that are already restricted or forbidden (including almost all the items under the restricted and forbidden categories for foreign investment under the 2011 Foreign Investment Industrial Guidance Catalogue), with only a few service sectors newly opened to foreign investors in the Zone. For foreign investors looking for new opportunities in the Zone, the extent of open-up is below their expectation, but the Negative List will be subject to annual updates in the following years.

ii. Filing System Supersedes Approval Review

One of the centerpieces of the Zone reforms is a change from a pre-approval system for foreign investment to a filing system with the Administrative Committee of the Zone, for FIEs to be established in the Zone (except for the industry sectors on the Negative List). The filing system, as well as loosened requirements of registered and paid-in capital and annual inspection with the Administration of Industry and Commerce, will save those FIEs substantial time and effort, and will reduce the uncertainty inherent in the interaction with Chinese government authorities. Nonetheless, for FIEs engaged in special industry (e.g. telecom and healthcare) where special permit/license from industry regulator is required, they are still not able to engage in full-fledged business until such special permit/license is obtained.

B. Further Open up of Service Sector

In general, the Zone does not “welcome” manufacturing enterprises. The Blueprint provides more market access to foreign investors by lifting market entry restrictions and eliminating certain qualification thresholds in 18 service sectors (in six major investment areas) ranging from finance to cultural services. Nevertheless, the open-up in the Zone will still be subject to the existing nation-wide limitation, and below some hype over the reform in the Zone, there will no free-market policies totally matching those of Hong Kong or other foreign jurisdictions in the short term.

C.     Financial System Liberalization

There has been much anticipation over the financial system liberalization reform in the Zone. Such reform will be a multi-step and time consuming process, and implemented step-by-step on a trial basis. The Blueprint commits to a wide range of financial reforms, including convertibility for RMB in capital account items and liberalization of interest rates. The China Securities Regulatory Commission’s measures also contemplate to support inbound investment in domestic capital market and outbound investment in foreign capital market. Currently, the reform is only at the general policy level, while implementing regulations still need to be promulgated by the State Administration of Foreign Exchange and other government agencies.

As of October 29, 2013, eight Chinese banks and five foreign banks have set up their branches in the Zone, but at this moment these branches are only carrying on traditional banking business in the Zone. The financial institutions are expecting special approval from the banking and foreign exchange regulators, which will probably require the banks to set up a separate system for the new businesses only allowed to be conducted within the Zone.

The financial system reform will not be boundless. The capital outflow from the Zone to the rest of China will remain subject to restrictions under the exiting foreign exchange control regulations. Unlike other reforms that mostly benefit foreign investors, the financial system reform is anticipated to benefit domestic investors more.

D.    Transform of Government Functions

In the Zone, the Administrative Committee functions as the window to interface with enterprises, so that enterprises will enjoy one-stop services and do not have to deal with various government authorities separately. The bureaucratic reform illustrates the direction of governmental reform in China in the long haul.

Our Thoughts

The framework of Zone policies, as released to date, is far from mature. In most areas (such as financial system reforms), there is little articulation on the detailed implementing rules. It remains to be seen how the detailed rules will give effect to the objectives announced in the Blueprint by the State Council, which intended to push forward the reforms more extensively. However, the lack of detailed implementing measures does not diminish the significance of the Zone reforms. With high aspirations on the highest level of the government, the reform is on the direction towards what it is set out to achieve.

For multi-national companies already having presence in China (especially those having entities doing business in the Zone), generally we see no immediate demand to set up new entities in, or relocate existing entities to, the Zone in light of the reforms within the Zone.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

Global Update – M&A Outlook: Global Deal Volumes And Appetite Expected To Improve

Editors’ Note: Franny Yao (Yao Fang), who contributed this article, is a Partner & Leader at Ernst & Young in Beijing, responsible for Key Accounts and Government Relations in China. She is a founding director of XBMA and has broad expertise in cross-border M&A, representing major Chinese companies in their global expansion and other strategic drives.

Executive Summary:  There is a strong consensus global M&A volumes will increase as confidence in the overall economy climbs. Below are the results of Ernst & Young’s Capital Confidence Barometer April 2013 – October 2013.  The Global Capital Confidence Barometer is a regular survey of senior executives from large companies around the world, conducted by the Economist Intelligence Unit (EIU).

Main Article:

Global deal volumes and appetite expected to improve

There is a strong consensus global M&A volumes will increase as confidence in the overall economy climbs. In total, 72% of companies expect global deal volumes to improve over the next 12 months.

Twenty-nine percent of respondents expect their company will pursue one or more acquisitions in the next 12 months.

What is your expectation for global M&A/deal volumes in the next 12 months?

Global deal Volumes

53% expect to do deals between US$51 million in the next 12 months, up from 46% from October 2012.

The improvement in acquisition plans (29%) is largely driven by an increasing number, and a higher quality, of acquisition opportunities. Thirty-nine percent of companies say there are quality acquisition opportunities available, compared with 30% six months ago; 50% feel more confident about the number of opportunities available, versus only 37% six months ago.

Bias toward smaller deals as conservatism persists

Consistent with sentiment over the past six months, deals are likely to remain smaller in size despite record amounts of available cash and improving credit conditions. In total, 88% of respondents planning acquisitions expect deals to be under US$500 million. The pursuit of smaller transactions aligns with companies’ overall strategy toward organic growth and lower-risk sentiment.

Valuations increasing

Expectations for increased valuations are now at their highest level in the history of our Barometer: 44% of companies expect prices/valuations to rise in the next year, up from 31% in October 2012. Just 7% of companies expect valuations to decline, compared with 27% six months ago, suggesting the market has stabilized.

Most respondents (82%) say the valuation gap is 20% or less, compared with 68% in October 2012. However, while valuation gaps are narrowing, this trend is not expected to continue over the next year, as 79% of respondents expect the gap to widen or stay the same.

Deals to span developed and emerging markets

Investment destinations continue to evolve as companies challenge their growth strategies and underlying risk tolerance. The top five countries include both emerging and developed markets: China, India, Brazil, the United States and Canada.

This is a shift from six months ago, when the US ranked second behind China, and Germany rounded out the top five instead of this year’s new entrant, Canada.

Companies remain optimistic about deals in emerging markets but are exercising more caution. In light of slowing growth, almost 70% of respondents have changed their approach to investing in these markets, of those, 45% say they will apply “further rigor.”

Divesting for value

Divestments are now an established tool for creating shareholder value. In total, 29% of respondents* either have a divestment in progress or are planning one in the next 12 months, and nearly half expect to divest in the next two years. A steady stream of divestments will provide capital to fuel growth in the future.

In total, 83% of the companies planning divestments expect that those divestments will involve the carve-out of one or more business units. These transactions — whether structured as an outright sale, spinoff, IPO or contribution to a joint venture — are highly complex and will require companies to employ formal and rigorous processes around divestment.


A possible inflection point in asset valuations

A contributing cause to the ongoing slowdown in deal-making is a perceived gap in asset valuations between buyers and sellers. Companies pursuing divestments are seeking high valuations for their assets, while potential buyers are primed for discounts and reluctant to pay a premium.

However, we may now be nearing equilibrium between what buyers will pay and what sellers will accept. This equilibrium is vital, signaling the deal markets are at an inflection point and ready to rebound. The pendulum is primed to swing the other way — toward growing prices by buyers and more profitable exits for sellers.

This also suggests a comeback in market fundamentals, corporate health and a stable foundation for deal-making.

With 44% of respondents expecting M&A assets to increase in value over the next 12 months (and only 7% anticipating a decrease), companies should consider taking advantage of this inflection point now.

Profile of respondents

  • Panel of almost 1,600 executives surveyed in February and March 2013.
  • Companies from 50 countries
  • Respondents from more than 20 sectors
  • 794 CEO, CFO and other C-level respondents
  • 912 companies would qualify for the Fortune 1000 based on revenue
The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

Polish Update – The Risk of Inaccurate Statements in Representations and Warranties

Editor’s Note: This update comes from Tomasz Wardyński, founding partner of Wardyński & Partners and a member of XBMA’s Legal Roundtable. The authors of this article are Dominika Stępińska-Duch and Paweł Mazur, members of Wardyński & Partners Dispute Resolution & Arbitration Practice.

Executive summary: In transactions involving the sale of shares in companies in Poland, as well as agreements on sale of enterprises or significant assets, the representations and warranties of sellers are becoming more and more extensive.

Main Article:

The notion of representations and warranties was adopted from common law systems and has become part of Polish legal practice. Although they are not specifically regulated in the Polish codes, they are commonly used in transactions on the basis of freedom of contract.

Representations and warranties may concern both legal and financial aspects of the enterprise being sold. From the buyers’ perspective, it is particularly important to obtain assurances that the financial reports of the entity they are acquiring accurately reflect the true financial condition of the target. It should be borne in mind that indicators such as EBIDTA generally serve as the basis for valuation of an enterprise and in the parties’ negotiations are fundamental for determining the final sale price. It is thus not surprising that the contract will often require the owner of the enterprise or a controlling stake of shares to provide assurances that the balance sheet and the profit and loss account accurately reflect the company’s results and all of its material obligations as of the date of the transaction.

Liability for the accuracy of representations and warranties may be analysed in terms of both civil law and criminal law.

From the point of view of civil liability, it is important to determine whether the representations and warranties are given on the basis of fault or risk. If the latter, the seller’s liability will be unconditional, and the seller will not be able to release itself from liability by proving that it used due care in preparing or verifying the financial statements. In practice, it may happen that the owner does not serve on the management board or supervisory board of the company, and must make representations and warranties in reliance on information provided by the company authorities, accountants and auditors. Nonetheless, the seller is still contractually liable, and the effectiveness of recourse claims against the individuals guilty of negligence in such cases appears doubtful in practice. The scope of the seller’s liability will obviously depend on the nature and details of the transaction, but often it represents a significant proportion of the overall value of the transaction, resulting in an obligation to pay the buyer millions in damages.

In terms of criminal liability, there is no separate offence of making false representations and warranties. Nonetheless, making representations and warranties that do not reflect the true state of affairs may be viewed under criminal law as a species of fraud if the other party acts to its disadvantage in reliance on the representations and warranties. Making inaccurate representations and warranties concerning legal or financial circumstances material to the transaction involves creation of a false picture of reality, misleading the other party. Thus, if as a result of the inaccurate impression on the buyer’s part based on inaccurate representations and warranties by the seller, the buyer decides to acquire an enterprise or a stake of shares (which then proves to be a less favourable transaction than could be expected on the basis of the seller’s representations and warranties), there are grounds for a finding of fraud.

It should be pointed out, however, that making false representations and warranties may result in criminal liability only if it is proved that the seller knowingly and intentionally made false statements in order to induce the buyer to enter into an unfavourable transaction.

Nonetheless, it is increasingly common for businesses injured as a result of inaccurate representations and warranties to file a criminal complaint in addition to pursuing civil claims.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.


Editors’ Note: Cyril Shroff is the Managing Partner and head of the Corporate group of Amarchand & Mangaldas & Suresh A. Shroff & Co. Mr. Shroff is also a member of XBMA’s Legal Roundtable and one of the deans of the Indian corporate bar and a leading authority on Indian M&A, with extensive experience handling many of the largest and most complex domestic and cross-border M&A, takeover, banking and project finance transactions in India. This article was co-authored by Mr. Shroff and Ms. Vandana Sekhri (Partner) of the Mumbai office of Amarchand & Mangaldas & Suresh A. Shroff & Co.

Executive summary: This article briefly examines a few key changes made to the process for court based restructurings introduced by the Companies Act, 2013.


The Companies Act, 2013 (“2013 Act”), having been approved by the Lok Sabha in 2012, was approved by the Rajya Sabha on August 8, 2013 and now only awaits Presidential assent and notification in order to become law. Once notified, the 2013 Act will replace the more than 50 year old Companies Act, 1956 (“1956 Act”) in an effort to modernize and streamline the legal and regulatory framework in which Indian companies operate.

Whilst the 2013 Act introduces a number of far-reaching changes over the current legal regime, notably in the detailed treatment of corporate action and its regulation, and is characterized by the degree to which specific prescriptions or prohibitions in respect of such action have been set out whilst at the same time delegating a large number of matters (a common criticism is too many) for executive rule making, the focus of this article is to briefly examine the changes made to the process for court based restructurings and comment on the key aspects in relation to the same.[1]

Brief Overview of the Court Based Restructuring Process

Court based restructurings, referred to as “compromises” or “arrangements” between a company and its members or class or members, or a company and its creditors or class of creditors, are dealt with in Chapter XV of the 2013 Act (Clauses 230-240) and set out a framework that will replace the erstwhile framework under Sections 391-394 of the 1956 Act.

A brief overview of the key steps of the court based restructuring process is set out below:

  • The first step is the making of an application to the Tribunal for sanctioning the compromise or arrangement. The application may be made by the company concerned or its members or creditors or class or members or creditors. In the event of a company being wound up, the application is required to be made by the liquidator.
  • On receipt of the application, the Tribunal may order a meeting of the company’s various classes or members or creditors as it deems fit. The Tribunal may dispense with a meeting of the creditors or class or creditors where such creditors (or class of creditors), holding at least 90% in value of the debt, give their confirmation to the proposed compromise or arrangement through an affidavit.
  • Appropriate details of the proposed compromise and arrangement are required to be given to the classes of members and creditors in order to enable them to take an informed decision. A copy of the valuation report in respect of the proposed transaction (if any), together with a statement disclosing the effects of the compromise or arrangement on the key managerial personnel and directors of the company is required to be shared with the members and creditors as part of the notice for the meetings.
  • A copy of such notice is also required to be sent to the Central Government, the income-tax authorities, the Reserve Bank of India (“RBI”), the Securities and Exchange Board of India (“SEBI”) and the stock exchanges (for listed companies), the Registrar of Companies, the Official Liquidator and the Competition Commission of India (“CCI”) and such other sectoral regulators and authorities as are likely to be affected by the compromise or arrangement, requiring them to make representations (if any) on the proposed compromise or arrangement within a period of 30 days from the date of receipt of such notice.
  • Where a majority of the persons representing three-fourths in value of the creditors or class or creditors, or members or class of members, agree to a compromise or arrangement, the Tribunal may sanction such compromise or arrangement, which order then binds the company and its creditors and members.

A Few Key Changes and Their Implications

A few of the important changes introduced by the 2013 Act are highlighted below;

(i)                 Enhanced Regulatory Scrutiny and Multiplicity of Regulators – As set out above, the 2013 Act now requires that companies forward the notice of the compromise or arrangement to a plethora of regulatory bodies including such other sectoral regulators or authorities which are, “likely to be affected by the compromise or arrangement”, together with such other documents as may be prescribed. It is currently unclear who these other sectoral regulators and authorities would be – whilst it can be expected that this will become established through market practice in the course of time for companies engaged in diverse businesses, a degree of uncertainty nevertheless remains at least at the initial stages.

The other question that arises is one of potential regulatory overlap. Under the Competition Act, 2002, the CCI is already empowered to rule on combinations within a period of 210 days of being notified of a proposed combination. Similarly, the SEBI is authorized to regulate, and has issued for this purpose, circulars dealing with court based restructurings of listed companies. It is currently unclear what happens if the CCI or the SEBI make or omit to make representations within the prescribed timeline of 30 days under the 2013 Act and what impact any such representation/omission will have on their independent statutory powers under separate legislation. Furthermore, it has always been understood that court approval for a restructuring does not do away with specific regulatory approvals that may be required for a proposed compromise or arrangement under different laws.

Accordingly, it is debatable whether it was necessary to require companies to notify specific regulators as part of the restructuring process through express legislation and whether such inclusion will result in regulatory overlap and confusion. Perhaps this is also something where market practice will evolve with the passage of time.

In any event, the requirement for dissemination of the scheme to such a variety of regulators can be expected to result in an enhanced level of regulatory and government scrutiny (particularly in the case of listed companies or schemes involving related party transactions) thereby necessitating a higher degree of foresight and care in undertaking and implementing a transaction and better transaction management.


(ii)               Prohibition of Treasury Stock – Companies are no longer permitted to hold treasury stock as a result of the compromise or arrangement either in their own name, in the name of a trust or on behalf of any subsidiary or associate company, and any such shares are required to be either cancelled or extinguished. Accordingly, a holding company will not be able to issue and hold shares in itself arising out of a merger of its subsidiary into such holding company.


Historically, companies have found treasury stock to be a useful tool for liquidity and as a source of easy finance. Such stock has also indirectly served to cement the control of the “promoter” or controlling shareholder. Minority investors have however frowned upon this.

It is unclear what happens to companies which already own such stock. The grandfathering provisions of the 2013 Act provide that any action taken under the erstwhile act will be valid so long as it is not inconsistent with the 2013 Act. However, as the 2013 Act contains an express bar on companies holding such stock there are two views possible – the first that companies already holding such stock will be required to cancel or extinguish such shares (which will have a bearing on the shareholding pattern and balance sheet of such companies) and the second, that historical holdings will be exempt.

(iii)             Restructuring with Foreign Companies permitted – Whilst the 2013 Act continues to permit arrangements between a company and its members and/or creditors (or a class of members and/or creditors) as before, Indian companies and foreign companies in jurisdictions notified by the Central Government have now been permitted, pursuant to Clause 234 of the 2013 Act, to enter into amalgamations with each other subject to such rules and conditions as may be prescribed by the Central Government and the RBI in this behalf.

Under the 1956 Act, it was not possible for an Indian company to merge with, or demerge an undertaking into, a foreign company, although a foreign company (in any jurisdiction and not just a notified jurisdiction) could merge/demerge into an Indian company. Inbound mergers were possible but not outbound mergers.

The change set out in the 2013 Act is a significant step forward in providing companies greater flexibility in restructuring their operations. However, the key will lie in the manner in which this is implemented and the countries which are notified as being eligible jurisdictions for inbound and outbound mergers. Suitable changes in the Foreign Exchange Management Act, 1999 & Rules (FEMA) will also be needed. Also the Income Tax law will need to be amended to extend the exempt nature of such transaction to such reverse cross border mergers as well


(iv)             Threshold for Raising Objections – Unlike the 1956 Act, the 2013 Act now prescribes a threshold for objecting in court to the proposed scheme of compromise or arrangement. Only persons holding not less than 10% of the shareholding or having outstanding debt amounting to not less than 5% of the total outstanding debt as per the company’s latest audited financial statement may object to the scheme.

It has been market experience in India that small investors acquire a small stake (sometimes just one share) in a large number of companies only with a view to objecting to schemes and hold transactions to ransom (usually there is a delay of a few months in the implementation of the transaction whilst the court considers their objections). The introduction of a threshold therefore will reduce frivolous objections/harassment by such professional troublemakers and is a welcome step. Sadly the message coming from SEBI, under recent pronouncements (4th February) are at variance with the 2013 Act and seem to empower minority shareholders.

(v)               Simplified Merger Process for Certain Categories of Companies – Further to Clause 233 of the 2013 Act, (a) two or more small companies i.e. companies which are not public companies, have a paid up capital not exceeding INR 5,000,000/- (Rs. 5 million) and a turnover (as part their last profit and loss statement) not exceeding Rs. 20,000,000/- (Rs. 20 million) (or such higher amount as may be prescribed); (b) holding companies and their wholly owned subsidiaries; and (c) such other class of companies as may be prescribed; can now each enter into schemes of merger/amalgamation pursuant to a separate and simplified procedure and subject to satisfaction of certain conditions which are as follows: (a) giving of notice of the proposed scheme and seeking objections/suggestions to the same from the concerned Registrar of Companies and the Official Liquidator; (b) consideration of such objections/suggestions and approval of the scheme by the members holding at least 90% of the total number of shares, (c) filing of a declaration of solvency in the prescribed form with the Registrar; and (d) the scheme being approved by a majority representing nine-tenths in value of the creditors of the respective companies. If the Registrar and Official Liquidator do not have any objection to the scheme once approved, and if the Central Government is not of the view that the scheme is against public interest or the interests of the creditors, the Central Government is required to register the scheme which has the effect of consummating the merger/amalgamation.


(vi)             Restructurings Involving Listed and Unlisted Companies – The 2013 Act provides that in case of a merger of a listed company into an unlisted company, if the shareholders of the listed transferor company decide to opt out of the transferee company, provision is required to be made for the payment of the value of their shares and other benefits in accordance with a pre-determined price formula or after a valuation is undertaken, and the Tribunal is empowered to make such arrangements, provided that the price is not less than the minimum price specified by the SEBI pursuant to regulations framed by it. It is only when the Rules are out that clarity will emerge, but this seems like a light touch back door delisting possibility.


The 2013 Act nuances the current legislative framework for court based restructurings set out in the 1956 Act by providing greater transactional flexibility (by permitting outbound mergers)[2], shunning a one-size fits all approach (by creating a simplified regime for certain categories of companies) and removing common process bottlenecks (by introducing a high threshold for objections). However, certain process changes introduced by the 2013 Act (such as the requirement to notify a whole host of regulators) would also create uncertainty/confusion, in the initial stages of the implementation of the 2013 Act.

The 2013 Act as it stands now is a mixed blessing and a lot hinges on the rules that are notified and the manner in which the legislation is implemented going forward. It is to be hoped that both will be facilitative of such transactions going forward.

[1] This article deals with the provisions of Chapter XV of the 2013 Act which relate to court based restructurings. It does not deal with certain other provisions in the Chapter which do not relate to court based restructurings such as those pertaining to purchase of minority shareholding.

[2] Although the jury is out on this and much will depend on the list of countries actually notified as eligible countries.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

EU UPDATE – When Failure Brings Success: A Rare Example of the Failing Firm Defence

Editors’ Note:  Contributed by Nigel Boardman, a partner at Slaughter and May and a founding director of XBMA.  Mr. Boardman is one of the leading M&A lawyers in the UK with broad experience in a wide range of cross-border transactions.  Authored by Ingrid Lauwers and Anna Battersby of Slaughter and May.

Executive Summary:   The European Commission approved a proposed acquisition which would create a merged entity that would be the only producer of naphthenic base and process oils in the EEA.  The Commission’s investigation found that  failure to approve such merger would result in a loss of refinery assets and significantly reduce production capacity in the EEA, resulting in higher prices for EEA consumers would follow any closure.

Main Article:


On 2 September 2013 the European Commission adopted a decision under the EU Merger Regulation approving the proposed acquisition by Nynas AB of Shell Deutschland Oil GmbH’s Harburg refinery assets (close to Hamburg, Northern Germany), leaving the merged entity as the only producer of naphthenic base and process oils in the EEA. The Commission’s Phase II investigation established that the closure of the Harburg refinery and the exit of those assets from the EEA market would be the most likely result in the absence of the proposed acquisition. No causal link could therefore be established between the proposed acquisition and the deterioration in competitive market structure. Furthermore, as closure would significantly reduce production capacity in the EEA, the Commission determined that higher prices for EEA consumers would follow any closure.


Article 2(3) of the Merger Regulation requires the Commission to prohibit concentrations which significantly impede effective ‘competition, in particular through the creation or strengthening of a dominant position.’ However, Article 2(2) emphasises that the impediment to effective competition must be ‘as a result’ of the concentration. This causal requirement forms the basis of the development by the Commission and the European courts of an exception to the prohibition requirement:  the so-called ‘failing firm’ defence.  This has been incorporated into the Commission’s Horizontal Merger Guidelines, in particular at paragraphs 89-91. Where the deterioration in competitive market structure after a concentration would result even if the transaction had not occurred, the Commission may approve a concentration reducing the number of competitors in the market.

A successful failing firm defence requires the establishment of the following criteria:

(a)        the failing firm would in the near future be forced out of the relevant market because of financial difficulties, if not taken over by another undertaking;

(b)        there is no less anti-competitive purchaser or alternative course of action, as may be demonstrated by the fact that various other scenarios have been explored without success; and

(c)        in the absence of the merger, the assets of the failing firm would inevitably exit the market.  In the case of a merger between the only two players in a market, this may justify a merger-to-monopoly on the basis that the market share of the failing firm would in any event have accrued to the other merging party.

Although recognized by the Commission since 1993, the failing firm defence is exceptional in nature and, in practice, is only rarely successful. The burden of proof to show the above criteria lies with the notifying parties, and in practice tends to necessitate a full Phase II investigation.


Nynas produces and sells naphthenic base oils for industrial lubricants, process oils and transformer oils (TFO). Base and process oils are intermediary products derived from crude oil and used in the further production of numerous applications, including industrial greases, metalworking fluids, adhesives, inks, industrial rubber and fertilisers.  Nynas has its core business in Nynashamn, Sweden.

Shell Deutschland Oil GmbH is part of the Shell Group: a global group of energy and petrochemical companies engaged in exploration, refining, distribution, retail sales and many other aspects of the value chain.  The refinery assets which are being sold to Nynas comprise a base oil manufacturing plant and certain parts of the refinery needed to produce distillate from crude oil.  Shell will retain the remaining parts of the Harburg refinery.

The Commission initiated an in-depth Phase II investigation on 26 March 2013 because of concerns that Nynas would have a near-monopoly in the EEA market for naphthenic base and process oils. Nynas would be the only remaining producer of naphthenic base and process oils and the largest producer of TFO in the EEA. The only other credible competitor would be Ergon, a US-based company importing into the EEA market since 2008.

Notwithstanding the Commission’s concerns, the parties were able to demonstrate that it was not economically sustainable to continue operating the Harburg refinery in its current form.  However, Nynas’s business model offered more opportunity for success. The parties also demonstrated that Nynas was the only buyer interested in acquiring the Harburg assets and that, absent the acquisition, the most likely alternative scenario would be the closure of the refinery.  The reduction in the number of competitors was therefore inevitable.  Moreover, the exit of the Harburg refinery assets would significantly reduce production capacity in the EEA and almost certainly lead to higher prices for EEA consumers.

More positively, the Commission also found that the proposed acquisition would have some positive effects on competition, as Nynas would be able to achieve significant reductions in supply costs and would likely pass on these efficiency benefits to customers.

In light of these considerations, the Commission concluded that the proposed acquisition did not raise competition concerns.

State Aid

5. Commission temporarily approves rescue aid for Slovenian banks Factor banks d.d. and Probanka d.d. —The Commission has temporarily (for two months, or until the Commission adopts a final decision on a restructuring or orderly winding down) approved Slovenian plans to grant State guarantees on newly issued liabilities of two Slovenian banks.  It found that the guarantees were necessary to ensure the continuing stability of the financial system and market in Slovenia and that they did so without unduly distorting competition. The reforms meet the requirements of Section 4 of the “New Banking Communication”, in particular being limited to the minimum necessary, adequately remunerated and providing safeguards to minimise the distortions of competition during the rescue period (IP/13/822, 06.09.2013).

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

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