Overseas Investment, mergers and acquisitions to be courageous

Indian Investment laws, legal

Cross-border investment/mergers and acquisitions to be courageous

When companies invest overseas, in addition to considering domestic approvals and their own food and salary supply, they also need to pay attention to the differences in the political system, economic policy, and culture of the investment target country. In addition, it is more important to Understand and abide by the relevant laws and regulations of the target country, so as to ensure legal investment behavior and effectively avoid legal risks in overseas investment. The legal problems encountered by companies in overseas investment cannot be said to be like tigers, but they can be overcome as long as they are handled carefully.

 

1. Weather vane-foreign investment policy of target country

The country where foreign investment activities are located inevitably has its own unique system. Therefore, before starting investment, you must go to the country to do as it is, study and understand the relevant laws and regulations of the target country and the policy and legal environment related to foreign investment in order to conduct investment feasibility analysis and transaction structure, the determination and subsequent operational planning lay the foundation.

For example, in addition to understanding Indian laws and regulations, companies investing in India should also understand the FDI policies, which industries are allowed to invest, and where are “forbidden areas”, recognize the automatically permitted part of the investment, and also understand that the government and RBI can Only by grasping the “wind vane” of the boundary of the hand, can the company move forward and retreat freely.

 

Foreign investment incentives in the target country

Most countries support and welcome foreign investment to varying degrees. Some countries have even introduced a series of preferential policies to attract foreign investment, such as low-priced land, opening of special economic zones, tax reduction and exemption policies, etc. Understand and make full use of these preferential policies. Only when companies can increase revenue and reduce expenditure and strengthen themselves in overseas investment Rely on.

 

Foreign investment restrictions

Before investing, it is necessary not only to see the preferential policies provided by the target country, but also to have an overall understanding of the legal environment of the target country.

Many countries also have different degrees of restrictions on foreign investment, such as industrial restrictions, foreign ownership, or foreign exchange. Therefore, there must be laws and regulations for understanding this area, as well as corresponding government regulatory agencies.

 

Most of the forms of foreign investment restrictions are embodied in the form of additional conditions (proportion of foreign equity) or requirements for review or permits. It is worth noting that some countries completely prohibit foreign investment in certain sensitive industries. For example, Indian law prohibits foreign investment in the lottery industry, gambling industry, tobacco industry, etc. Of course, there are also industries that restrict investment to control the proportion of foreign shares.

Although foreign direct investment in certain areas is restricted or prohibited, the laws of the country are always changing, especially foreign investment policies may be constantly adjusted due to the influence of domestic and international political and economic situations. Therefore, enterprises must keep abreast of the latest situation of the “weathervane” in order to respond actively and effectively.

 

2. Understanding the double-edged sword-the impact of antitrust laws on cross-border investment

The legal supervision of mergers and acquisitions in various countries in the world is largely related to anti-monopoly. Developed countries often have relatively mature anti-monopoly laws.

Since the mergers and acquisitions of enterprises may cause certain negative effects on market competition, all countries are starting to maintain market competition. From the perspective of certain regulations on mergers and acquisitions.

 

India promulgated the “Competition Law” in 2002, the scope of regulation includes anti-competitive agreements, abuse of market dominance, and business mergers. Taking this country as an example, in overseas M&A transactions, the antitrust legal requirements for investment in India need to be considered from the following aspects:

 

 Will the acquisition result in violation of anti-competitive agreements?

Enterprise mergers and acquisitions will inevitably lead to the elimination of competitors in the market, and may therefore lead to or strengthen a monopolistic market structure.

The purpose of this control is not to limit the absolute scale of the enterprise, but to ensure that effective competition can still be carried out in the market after the transaction, thereby protecting the interests of consumers.

 

Does the acquisition abuse its dominant market position?

Occupying a dominant market position is not illegal in itself, but abuse of such a position so that the company’s operations can be protected from external competition or negatively affected its competitors or consumers can be regarded as an abuse of dominant market position.

Although the influence of these companies on the scale of the global economy is still relatively limited, there are still relatively few transactions that may have a significant negative impact on the competition in the target country’s market.

However, with the continuous expansion of these enterprises’ own strength, the scale and market position of the required acquisition targets will increase day by day, and overseas mergers and acquisitions of these enterprises will also face anti-monopoly regulations.

 

3. Localized operation-labor law issues in overseas investment

The scope of legal issues involved in overseas investment by these companies is very wide. There are not only laws directly related to investment and mergers and acquisitions, but also laws and regulations related to continuous operations in the local area after investment.

Just like labor law, social insurance, foreign exchange control and other aspects of legal norms and regulations are also very different.

 

In the main target countries for these companies’ overseas investments, these legal systems protect the legitimate rights and interests of employees and maintain the standards of social welfare, but on the other hand, they also bring a greater economic burden to companies.

When these companies conduct overseas investment and mergers, they need to adapt to local conditions and follow the local customs, which usually involves local employees’ labor contracts, compensation, retention, or layoffs. It is important to understand the requirements of local laws and regulations, rather than simply bringing some domestic concepts and practices abroad.

 

 Employee employment legal requirements in foreign country

After the completion of overseas investment, the employment of employees in business operations must meet the legal requirements of the target country. To this end, the companies that invest in need to understand the labor laws of the target country in detail. For example, what are the restrictions on the employment of local employees in Indian laws, what benefits and insurances need to be provided to employees, and what employment methods are legal and efficient, etc. . Only after dealing with the relationship with employees can we “make money with harmony”.

 

 Layoffs and dismissals of employees

After the completion of the acquisition, if the target of the acquisition is a “distressed household”, the acquirer often needs to make arrangements in line with the commercial strategy of the acquired party.

How to integrate the “difficult household” into itself and reduce the debt burden of the acquirer as soon as possible Create profits, so sometimes layoffs become an inevitable part.

The procedures and costs required for layoffs must be fully planned in advance. For example, study in advance the requirements of local laws on layoffs and dismissal of employees, analyze the government’s possible attitude to layoffs, and avoid the purchaser’s commitment to unreasonable restrictions and foreseeable labor disputes in the future.

 

The companies’ response to the labor problems of the target country

Before the acquisition, the acquirer should try its best to rely on the role that lawyers can play in the acquisition project.

For example, during the due diligence stage of the lawyers in the early stage of the acquisition, the labor issues involving the acquiree should be amplified and timely feedback:

 

1. Investigations related to labor issues should be carried out in detail. At the same time, it is also necessary to have a macro understanding of the labor legal environment of the country where the acquired party is located, and understand the requirements for labor contracts, layoffs, social welfare, insurance and other aspects;

 

2. The other two aspects should be microscopically grasp the specific labor situation of the acquired party, such as employees, total number and structure, labor contract, collective contract, social welfare, employee equity incentive plan, etc.

 

For every labor law issue that may be involved in the transaction, the purchaser must formulate a response plan. Even after the completion of the acquisition, Chinese shareholders should urge the acquired party to continue to comply with local labor laws.

 

4. Bundled gold rope-foreign exchange management system

The purpose of a company’s overseas investment is to obtain a return on investment, so the investor can remit profits or other funds back to the country is a key step in investment behavior. If there are foreign exchange control measures in the target country, the impact of these measures on the flow of foreign exchange funds needs to be considered.

 

If the country where the M&A target is located is a country subject to foreign exchange control, it must fully understand its foreign exchange laws and regulations. For example, India, in addition to the “Reserve Bank of India Act of 1934” and “Foreign Exchange Management Act of 1999”, also involves a large number of specific areas of foreign exchange management.

Management rules, such as “Foreign Exchange Management (Establishment of Branches, Offices or Other Business Places in India) Rules 2000”, “Foreign Exchange Management (Transfer and Issuance of Foreign Securities) Rules 2000” and so on.

In the foreign exchange management system, how to make full use of soft regulations to avoid corresponding risks. For example, in which countries the funds transferred from companies can avoid being charged corresponding taxes, and the control rules are less restrictive than other countries, it is possible for the acquirer Reference alternative.

 

5. Use of talents with courtesy-the recruitment of executives and core personnel

In many mergers and acquisitions, the key to successful acquisition is to retain senior management and core technical personnel of the acquired party. Therefore, how to ensure that key personnel can continue to be retained to serve the acquirer after the completion of the acquisition requires planning during the transaction negotiation stage. The acquirer can require the seller to urge the company to sign a lock-up agreement with these personnel, and make the signing of the lock-up agreement one of the prerequisites for delivery, so that the seller’s interests are bound to the acquirer.

In addition, Chinese companies should also consider granting key personnel retention incentives or design and implement executive equity incentive plans based on the usual practices of the local market, so that the interests of core personnel are consistent with those of the company, so as to ensure the retention of core personnel and the stability of the acquired party. Transition operations.

 

From the beginning to the landing, cross-border investment and mergers and acquisitions are full of commercial risks, but in the final analysis, the so-called commercial risks are particularly obvious at the legal risk level.

“It affects the whole body” is especially reflected in cross-border investment and mergers. However, this sentence is not about emphasizing what can not be done, but about which risks can be treated flexibly to achieve avoidance.

 

Conclusion

Cross-border investment needs to give play to the “monopoly spirit”-this depends on whether we truly understand the “rules of the game” in the target region. Since we are not the rulers of the game, we still need to understand the rules of the game to achieve the top.

 

 

 

Author’s Bio

Name: Ajay Rastogi

Educational Qualification: LLB

Profession: Advocate / Lawyer

Work Experience: 20 Years of Legal Practice

Profile Link: https://lawjc.com/members/advajayrastogi/

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