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1 Legal Due Diligence in JVS and M&As presented by Picharn Sukparangsee at the Conference on Legal & Financial Due Diligence Strategies for Successful.

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Presentation on theme: "1 Legal Due Diligence in JVS and M&As presented by Picharn Sukparangsee at the Conference on Legal & Financial Due Diligence Strategies for Successful."— Presentation transcript:

1 1 Legal Due Diligence in JVS and M&As presented by Picharn Sukparangsee at the Conference on Legal & Financial Due Diligence Strategies for Successful Acquisitions, JVs & Strategic Alliances arranged by the Asia Business Forum on October 28-29, 2010 at the Royal Orchid Sheraton Hotel, Bangkok

2 2 LEGAL DUE DILIGENCE IN JVS AND M&As I. LEGAL RATIONAL FOR DUE DILIGENCE II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS III.AVOIDING PITFALLS AND SOLUTIONS IV.CASE STUDY

3 3 I.LEGAL RATIONAL FOR DUE DILIGENCE

4 4 M&A amalgamation amalgamation merger merger takeover takeover acquisition of shares or assets acquisition of shares or assets Joint venture unincorporated joint venture unincorporated joint venture incorporated joint venture incorporated joint venture

5 5 Legal rational for due diligence comply with laws and regulations comply with laws and regulations identify and solve legal problems identify and solve legal problems protect an interested party from any legal liability protect an interested party from any legal liability due diligence as used as defence in any lawsuit due diligence as used as defence in any lawsuit enable a legal claim against a defaulting party enable a legal claim against a defaulting party I.LEGAL RATIONAL FOR DUE DILIGENCE

6 6 Types of due diligence Financial due diligence by financial advisor Financial due diligence by financial advisor accounting due diligence by auditor accounting due diligence by auditor legal due diligence by legal advisor legal due diligence by legal advisor technical due diligence by technical consultant technical due diligence by technical consultant I.LEGAL RATIONAL FOR DUE DILIGENCE

7 7 Methods applied in the conduct of legal due diligence management discussion and analysis management discussion and analysis review and summary of agreements and documents review and summary of agreements and documents representations and warranties under agreements representations and warranties under agreements issuance of legal opinion issuance of legal opinion

8 8 I.LEGAL RATIONAL FOR DUE DILIGENCE Fiduciary duties of directors duty of care duty of care duty of loyalty duty of loyalty duty of obedience duty of obedience duty of disclosure duty of disclosure

9 9 I.LEGAL RATIONAL FOR DUE DILIGENCE Obligations of directors under laws duties of care duties of care no conflict of interest no conflict of interest no competition with the business of the company no competition with the business of the company no sale, no purchase or doing business with the company unless approved by the board of directors no sale, no purchase or doing business with the company unless approved by the board of directors disclosure of interest in any contract, shareholding and bondholding disclosure of interest in any contract, shareholding and bondholding no loan to a director or an employee unless made under the regulations on the welfare or any law no loan to a director or an employee unless made under the regulations on the welfare or any law comply with laws and regulations comply with laws and regulations

10 10 II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

11 11 II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Examples of important laws Civil and Commercial Code Civil and Commercial Code Public Limited Company Act Public Limited Company Act Securities and Exchange Act Securities and Exchange Act Foreign Business Act Foreign Business Act Land Code Land Code Investment Promotion Act Investment Promotion Act Industrial Estate Authority of Thailand Act Industrial Estate Authority of Thailand Act Factory Act Factory Act Building Control Act Building Control Act Act on Mortgage of Machinery Act on Mortgage of Machinery Foreign Employment Act Immigration Act Foreign Employment Act Immigration Act

12 12 II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Examples of important laws Revenue Code and Double Taxation Agreements Revenue Code and Double Taxation Agreements Customs Act Customs Act Excise Act Excise Act Financial Institutions Business Act Financial Institutions Business Act Foreign Exchange Act Foreign Exchange Act Environmental Protection and Promotion Act Environmental Protection and Promotion Act Competition Act Competition Act Labour Protection Act Labour Protection Act Act on Establishment and procedures of the tax court Act on Establishment and procedures of the tax court Trade Mark Act Trade Mark Act Copyright Act Copyright Act Patent Act Patent Act

13 13 Conduct of legal due diligence Affidavit, Memorandum and Articles of Association and the list of shareholders shall be reviewed. Affidavit, Memorandum and Articles of Association and the list of shareholders shall be reviewed. Financial statements of the target company shall be provided. Financial statements of the target company shall be provided. MOU is signed between a seller and a purchaser. MOU is signed between a seller and a purchaser. Confidential undertaking is signed by the purchaser. Confidential undertaking is signed by the purchaser. A kick-off meeting between a seller and its advisors and a purchaser and its advisors. A kick-off meeting between a seller and its advisors and a purchaser and its advisors. II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

14 14 Conduct of legal due diligence Roles of local advisors and foreign advisors. Roles of local advisors and foreign advisors. Data room and documents Data room and documents List of requested legal due diligence documents List of requested legal due diligence documents Legal due diligence questions Legal due diligence questions Interview directors and/or the management Interview directors and/or the management Site visit Site visit Preparation of memorandum Preparation of memorandum A draft and a final legal due diligence report A draft and a final legal due diligence report II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

15 15 Legal due diligence report Disclaimer provision Executive summary II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

16 16 II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Summary of Documents corporate documents corporate documents licences, concessions, permits, certificates and approval licences, concessions, permits, certificates and approval financing agreements financing agreements material agreements material agreements land title deeds, land documents, buildings, factories, machinery and equipment land title deeds, land documents, buildings, factories, machinery and equipment insurance insurance trade mark, copyright and patent trade mark, copyright and patent employment employment environmental issues environmental issues regulatory requirements regulatory requirements tax disputes tax disputes litigation and arbitration litigation and arbitration II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

17 17 Corporate documents Affidavit Affidavit Memorandum Memorandum Articles of association Articles of association List of shareholders List of shareholders Holding company, subsidiary, related company and affiliated companies Holding company, subsidiary, related company and affiliated companies Notices and minutes of the meetings of the management Notices and minutes of the meetings of the management Continue II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

18 18 Corporate documents Notices and minutes of the board of directors meetings Notices and minutes of the board of directors meetings Notices and minutes of the general meetings of shareholders Notices and minutes of the general meetings of shareholders Groups of shareholders Groups of shareholders A branch A branch A representative office A representative office A regional office A regional office Regional operating headquarters Regional operating headquarters II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

19 19 Corporate Issues to be focused upon Major shareholders Major shareholders Authorized directors Authorized directors Restriction on transfer of shares Restriction on transfer of shares Important matters as approved by the board of directors Important matters as approved by the board of directors Important matters as approved by the meeting of shareholders Important matters as approved by the meeting of shareholders II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

20 20 Licenses, permits, approval, certificates BOI privileged certificate foreign shareholding foreign shareholding ownership of land ownership of land tax exemption and reduction tax exemption and reduction exemption of importation of raw material and finished products exemption of importation of raw material and finished products work permits for experts and technicians work permits for experts and technicians II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

21 21 IEAT government industrial estate government industrial estate private industrial estate private industrial estate Factories Factories types of factory licences types of factory licences construction license construction license use of building license use of building license II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

22 22 Financial Agreements single loan agreement single loan agreement syndicated loan agreement syndicated loan agreement underwriting agreement underwriting agreement subscription agreement subscription agreement purchase agreement purchase agreement mortgage agreements mortgage agreements pledge agreements pledge agreements assignment agreements assignment agreements ISDA Master Agreement ISDA Master Agreement II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

23 23 Material agreements joint venture agreement joint venture agreement consortium agreement consortium agreement shareholders agreement shareholders agreement share sale and purchase agreement share sale and purchase agreement asset sale and purchase agreement asset sale and purchase agreement Issues in the Agreements representations and warranties representations and warranties affirmative covenants affirmative covenants negative covenants negative covenants events of default events of default II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

24 24 Materiality test percentage of the total assets percentage of the total assets percentage of the total revenues percentage of the total revenues percentage of profits percentage of profits material adverse effect or change material adverse effect or change Land Documents land title deeds land title deeds land utilization certificate land utilization certificate land possession certificate land possession certificate mortgage and other encumbrances over property mortgage and other encumbrances over property II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

25 25 Intellectual property trademark and trade service trademark and trade service copyright copyright patent (product patent and process patent) patent (product patent and process patent) know-how know-how Licensing Agreement Licensing Agreement Know-how Agreement Know-how Agreement Technical Assistance Agreement Technical Assistance Agreement II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

26 26 Human resources labour protection law labour protection law labour relation law labour relation law law on establishment and procedures of labour courts law on establishment and procedures of labour courts Environmental compliance environmental impact assessment report environmental impact assessment report health impact assessment report health impact assessment report II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

27 27 Insurance life and non-life insurances life and non-life insurances product liability insurance product liability insurance professional insurance professional insurance Dispute settlement litigation vs arbitration litigation vs arbitration professional expert, arbitrators, umpire, judges professional expert, arbitrators, umpire, judges Governing law issues on conflict of laws issues on conflict of laws II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

28 28 Courts Constitution Court Constitution Court Court of justice Court of justice ordinary courts of justice- courts of first instance, courts of appeal and the Supreme Court ordinary courts of justice- courts of first instance, courts of appeal and the Supreme Court special courts of justice- labour courts, tax court, intellectual property and international trade court or IP and IT court, bankruptcy court special courts of justice- labour courts, tax court, intellectual property and international trade court or IP and IT court, bankruptcy court administrative courts administrative courts II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

29 29 Court forum place of domicile of defendant place of domicile of defendant place of location of property place of location of property place of occurrence of tort place of occurrence of tort place of committing an offence place of committing an offence II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

30 30 Tax issues Revenue Code Revenue Code Customs Act Customs Act Excise Tax Act Excise Tax Act Signboard Tax Act Signboard Tax Act Land and structure Tax Act Land and structure Tax Act Municipality Tax Act Municipality Tax Act II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

31 31 Revenue Code personal income tax, personal income tax, corporate income tax corporate income tax value added tax value added tax specific business tax specific business tax stamp duty stamp duty Double taxation agreements taxation of income taxation of income taxation of capital taxation of capital II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

32 32 Examples of frequent opinions on laws and regulations opinion on foreign shareholding opinion on foreign shareholding opinion on ownership and mortgage of land and building opinion on ownership and mortgage of land and building opinion on creation and enforcement of security opinion on creation and enforcement of security opinion on investment promotion opinion on investment promotion opinion on joint venture and consortium opinion on joint venture and consortium opinion on bankruptcy and liquidation opinion on bankruptcy and liquidation II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

33 33 Tax opinions Opinion on use of a branch, an office or a subsidiary Opinion on use of a branch, an office or a subsidiary opinion on share purchase opinion on share purchase opinion on asset purchase opinion on asset purchase opinion on sale of goods and provision of services opinion on sale of goods and provision of services opinion on royalty and service fees opinion on royalty and service fees opinion on dividend and interest opinion on dividend and interest opinion on dividend and capital gains opinion on dividend and capital gains II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

34 34 Legal Documentation Memorandum of understanding Memorandum of understanding Term sheet Term sheet sale and purchase agreement sale and purchase agreement shareholders agreement shareholders agreement joint venture agreement joint venture agreement loan agreement loan agreement security agreement security agreement II.SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS

35 35 III.AVOIDING PITFALLS AND SOLUTIONS SOLUTIONS

36 36 III. AVOIDING PITFALLS AND SOLUTIONS Avoiding pitfalls All material documents have not been disclosed. All material documents have not been disclosed. Some documents have severe legal issues. Some documents have severe legal issues. Documents are produced periodically. Documents are produced periodically. Documents are not completely provided. Documents are not completely provided. No correct, true and accurate information has been given. No correct, true and accurate information has been given. Complicated transactions and waxed issues Complicated transactions and waxed issues A limited period for legal due diligence A limited period for legal due diligence Important issues are missing. Important issues are missing. An executive summary does not reflect significant issues. An executive summary does not reflect significant issues.

37 37 III. AVOIDING PITFALLS AND SOLUTIONS Problems Licences are not renewed Failure to meet financial ratio such as debt to equity ration and interest coverage ratio Restriction on foreign shareholding limit Trade secret and confidential information Infringement of intellectual property Non-compliance with laws and regulations Taxes are not paid or are incorrectly paid. floating charge non perfect security outright and conditional assignments Legal cases are pending and are not updated. Business rehabilitation or liquidation of a subsidiary Novation and assignment Legal and beneficial interest

38 38 II.AVOIDING PITFALLS AND SOLUTIONS Solutions to Problems Detailed representations and warranties Detailed representations and warranties strict undertakings strict undertakings escrow agreement escrow agreement right of first refusal right of first refusal tag-along or drag-along provision tag-along or drag-along provision indemnification indemnification events of default – cross default, negative pledge, material adverse change events of default – cross default, negative pledge, material adverse change termination termination Governing law Governing law Arbitration or ligation Arbitration or ligation

39 39 IV. CASE STUDY

40 40 IV. CASE STUDY Case study lease of land owned by a state enterprise lease of land owned by a state enterprise 2 sets of bank accounts- on balance sheet bank accounts and off-balance sheet bank account 2 sets of bank accounts- on balance sheet bank accounts and off-balance sheet bank account Related transactions Related transactions Acquisition or disposition of assets Acquisition or disposition of assets Licences have not been renewed Licences have not been renewed

41 41 Thank you for your attention SIAM CITY LAW OFFICES LIMITED 183 Rajanakarn Building, 20 th Floor, South Sathorn Road, Bangkok 10120, Thailand Tel: (662) 676-6668 Fax: (662) 676-6188 E-mail : picharn@siamcitylaw.com www.siamcitylaw.com


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