How may businesses combine?
In Belarus there are several viable options to combine businesses.
Combination through corporate reorganisation
This may be effected through a 'true merger' where at least two (or more) entities merge and form a new entity, each preceding entity ceasing to exist.
In the case of an accession the surviving entity takes over a target entity, the target entity being incorporated into the surviving entity and thereby ceasing to exist. The surviving entity takes over the rights and obligations of the surviving entity.
In the case of separation a legal entity is split into two or more new legal entities that undertake its rights and obligations; the original entity ceases to exist.
A spin-off contemplates that one or more new legal entities are split off from the original entity and take certain rights and obligations with them, while the original entity remains in existence.
Acquisitions
A target company may be acquired through shares (participatory interest) acquisition or through assets acquisition. Acquisition of shares, as a general rule, requires registration of the share transfer agreement with the professional participant at the securities market and registration of the transfer of title to the shares with a depositary holding the shareholders' register. Acquisition of participatory interests may require notarisation of the purchase and sale agreement and requires subsequent registration of amendments to the organisational documents of the target company. Registration is effected promptly, on the day the documents are submitted.
For a specific type of legal entity - unitary enterprises - Belarusian legislation requires registration of an enterprise as a single property complex, which is a specific type of real estate. Such property complex includes land plots, buildings, equipment, firm name and trademarks, raw materials, claims, debts and other assets and liabilities of an enterprise being registered as a property complex. A property complex is to be sold as such, under the asset acquisition transaction, which should be registered with the state registry of immoveable property, and such registration is more complicated than the above-mentioned registrations of shares or participatory interest transfers.
Joint ventures
Businesses may set up a new company to serve as a joint venture for them, or a new shareholder may be accepted into an existing company (sometimes this may require transformation of
In addition, cooperation may be arranged through execution of a “simple partnership” agreement, whereby joint activities of the cooperating entities do not contemplate creation of a new entity; businesses combine some assets for operation of a 'simple partnership' and distribute any profits gained between them.
What are the main laws and regulations governing business combinations?
There are no specific laws or regulations in place that govern mergers and acquisitions.
Primarily mergers and acquisitions are governed by the Civil Code, the Investment Code, the Law 'On Commercial Companies', the Law 'On Securities and Stock Exchanges', the Law 'On Counteraction to Monopolistic Activities and Development of Competition' and a range of regulations approved by the Ministry of Finance concerning issue and circulation of securities.
In addition, specific rules applying to mergers and acquisitions of banks and insurance companies are found in the Banking Code of the Republic of Belarus, Presidential Edict 'On Insurance Activities' and a vast range of regulations adopted by the National Bank and Ministry of Finance respectively.
Specific regulations are applied in the case of acquisitions under a privatisation procedure.
What law typically governs the transaction agreements?
Generally, the parties to an acquisition transaction may agree upon the choice of law in the transaction documentation, including choice of a non-Belarusian law as the governing law. The parties' agreement that the non-Belarusian law will govern the transaction documents is subject to the mandatory application of certain laws of the Republic of Belarus, including those relating to foreign trade and currency control, bankruptcy (insolvency), reorganisation, passing of title to securities, tax, capacity of legal entities, corporate governance, authorities of company officers, execution and form of agreements, etc. The operation of these mandatory rules may not be excluded by an agreement of the parties to apply the laws of another jurisdiction.
Also, it should be noted that a Belarusian court should apply non-Belarusian laws, provided that such court:
• determines that at least one party to the agreement is a foreign person or entity, or that the respective legal relationship involves another foreign element;
• can ascertain the contents of the relevant laws of that jurisdiction within a reasonable time; and
• determines that the application of foreign laws would not contradict Belarusian public order.
In certain cases, the mere choice of non-Belarusian law as the governing law is prohibited or restricted. Thus, acquisition of
Which government or stock exchange filings are necessary in connection with a business combination? Are there stamp taxes or other government fees in connection with completing a business combination?
Filings with anti-monopoly authorities
Anti-monopoly filings are regulated by the Law of the Republic of Belarus 'On Counteraction to Monopolistic Activity and Development of Competition' dated 10 December 1992, as amended.
The following acquisition transactions are subject to anti-monopoly filing and prior approvals:
• acquisition by
• acquisition of more than 25 per cent of participatory interests, or entering into transactions involving more than 25 per cent of shares, or entering into any other transactions providing the possibility to influence decisions of,
• acquisition of any rights allowing to substantively define conditions of business operation of
Market share thresholds relate to market share rather than turnover; markets in issue are regional or national market in Belarus.
The acquirer is responsible for filing; no filing fee is payable.
The anti-monopoly authority is the Department of Pricing Policy of the Ministry of Economics or its local agencies. The anti-monopoly authorities normally issue their decision within 30 days of receipt of all necessary documentation.
No specific penalty is established for failure to file. An administrative fine (20 to 50 basic units, presently equivalent to approximately €200 to €500) may be imposed for failure to comply with mandatory instructions of the anti-monopoly authorities, failure to provide documents or information or provision of false information. Non-filing or non-compliance with an anti-monopoly authority's resolution prohibiting the transaction may be a ground for a court to invalidate the transaction.
Filings required by securities regulation (mandatory offer)
Belarusian securities regulation requires mandatory offer to be made in cases when any person is planning to acquire or acquired (eg, as a result of subscription for newly issued shares) more than 50 per cent of shares with voting rights; or shares are acquired by issuer or persons having access to the closed information of the company. In such cases a public offer must be made to acquire all shares from all the shareholders of the company.
The offer should be filed with the stock exchange and Department of Securities and must contain information about the name of the acquirer; name of the shares issuer; number of shares planned to be bought; price, terms, form and order of payment, date of start and end of share acquisition (should not exceed six months).
A person that has made such an offer cannot acquire shares in respect of which such an offer has been made on conditions that differ from the conditions in the offer.
Certain exceptions are provided when the offer is not mandatory, for example when shares are acquired from the state or an entity's own shares are acquired by the issuer by demand of its shareholders in accordance with the law.
Filings with government authorities and stock exchange
Business combinations require that constitutional documents (in the event of creation or reorganisation of companies) or amendments to the constitutional documents (under certain circumstances, in the event of acquisitions) be filed with the company registering authorities (Minsk City and local executive committees; the National Bank for banks and the Ministry of Finance for insurance companies). Registration is application-based and is to be completed within one working day, except registration of banks which takes two months.
In certain cases (for example, if the transaction includes the issuance by the target company of shares and subsequent purchase by the investor of such shares) the target company also has to register with the Department of Securities the prospectus of issue, short information about open subscription or sale of shares and the shares itself. In the prescribed cases changes in registration of shares should also be recorded (eg, changes of the shares' nominal value). Such registration is carried out within 20 days after filing an application on registration and 10 days in the event of registration of the prospectus of issue and short information.
Filing fees
Filing fees are collected for the state registration of companies (including by way of reorganisation) and registration of amendments to the constitutional documents. Also, fees are payable for state registration of securities in the State Securities Register and amendments to the State Securities Register.
Fees are established in fixed amounts and are insignificant, except for the fee for registration of securities, which as a general rule amounts to 0.2 per cent of the total nominal value of the shares issued.
What information needs to be made public in a business combination? Does this depend on what type of structure is used?
There are different requirements regarding disclosure of information depending on the legal form of
If a joint-stock company issues new shares to be publicly purchased or subscribed for, it should also make publicly available a prospectus of issue of prescribed content and respective short information. Such short information about the subscription or sale have to be published and the prospect of issue available for public access (traditionally, it is made accessible to the public at the headquarters of the target company).
If a mandatory offer (as discussed in question 4) has to be made, such offer needs to be published in such a way so that it could be accessible to the public.
For the special requirements regarding transactions involving open joint-stock companies, please see also question 6.
What are the disclosure requirements for owners of large shareholdings in
Under Belarusian legislation, once a shareholder acquires 5 per cent or more of the voting shares issued by an open joint-stock company, the investor must notify such acquisition to the Department of Securities of the Ministry of Finance of Belarus, the stock exchange and the company itself within five days. The same requirement arises upon the purchase of every additional 5 per cent of shares.
Every open-joint-stock company has to submit quarterly to the Department of Securities a report in which, inter alia, it should be disclosed whether such
What duties do the directors or managers of
Directors' duties and liabilities
Under Belarusian legislation, the director (as a sole executive body) as well as members of the supervisory board (board of directors) or directorate (managing board or a similar collective executive body) must act reasonably, in good faith, and in the best interests of the company.
The director and members of the collective management bodies of the company may be held liable for losses incurred by the company as a result of their improper actions or failure to act according to the procedure established by constitutional documents of the company or by law.
The director and other members of management bodies may be exempted from liabilities if they voted against the respective decisions that caused losses to the company or did not participate in the voting.
Both law and practice in this field are undeveloped.
Parent liability
The shareholders of the company can be held subsidiarily liable for the obligations of the company if they had the right to give to the company mandatory instructions or had the ability to control the activity of such company by other means and there is a cause-effect relationship between the usage by respective person of such rights and bankruptcy (insolvency) of the company.
What approval rights do shareholders have over business combinations? Do shareholders have appraisal or similar rights in business combinations?
Approval rights of the shareholders
In the event of business combination by way of reorganisation (merger, accession, separation or spin-off) shareholders are entitled to make decisions at the general shareholders' meeting and authorise the reorganisation itself and approve conditions of the reorganisation (in the event of merger or accession, in the form of an agreement), approve a separation balance sheet or act of transfer of assets and liabilities and approve amendments to the constitutional documents and form managements bodies of the newly created companies.
Under Belarusian law, the decisions authorising reorganisation must be approved by a three-quarters majority of votes in a joint-stock company and unanimously in a limited liability company.
In limited liability companies and closed joint stock companies shareholders and the company itself have pre-emptive rights in the event of sale of shares by shareholders.
Under Belarusian law, the general shareholders' meeting is also required to make decisions on participating in legal entities, creation and reorganisation of legal entities (unitary enterprises), unless decision-making on such matters is delegated by the general shareholders' meeting to the supervisory board (board of directors) of the company.
If an acquisition transaction is considered as a major transaction (i.e., if the balance value of the assets sold or purchased under the transaction constitutes 25 per cent or more of the company assets), such a transaction requires prior consent of the general shareholders' meeting or supervisory board (board of directors), depending on the transaction value.
Appraisal rights of the shareholders
Belarusian law provide for appraisal rights of the shareholders in the following circumstances:
• making non-monetary contribution to the company's charter capital at the stage of the company's formation or any subsequent capital increase;
• evaluation of the company's assets for the purposes of approval of the major transaction or related-party transaction or in other cases when it may be by the company's constitutional documents or by law; and
• approval of the price of redemption of shares by the company from its shareholders in cases when such redemption may be claimed by the shareholders.
What are the special considerations for unsolicited (hostile) transactions?
Belarusian laws do not establish any special regime for hostile transaction. The process of review and unification of court practice connected with hostile transaction is at a very early stage.
Which types of break-up and reverse break-up fees are allowed? What are the limitations on a company's ability to protect deals from third-party bidders?
There is no specific regulation concerning break-up fees. No particular deal protection measures are provided by Belarusian law.
The shareholders of a subsidiary may request reimbursement by the mother company of the damages incurred by the subsidiary through the fault of the mother company.
Other than through relevant competition (antitrust) regulations, or in specific industries in which business combinations are regulated, may government agencies influence or restrict the completion of business combinations including for reasons of national security?
Business combinations in specific industries such as banking and insurance are subject to particular limitations and procedures.
It is necessary to seek preliminary approval of the National Bank of Belarus for each of sale of shares in Belarusian banks to foreign investors or increase in charter capital financed by foreign investors. The approval is granted within the quota participation of foreign capital in Belarusian banking system and is also subject to certain particular requirements established by the National Bank to shareholders of the banks (financial sufficiency, etc).
As regards the insurance sector, there is also a quota for participation of foreign investors in the Belarusian insurance market. Belarusian insurance companies must seek preliminary approval of the Ministry of Finance for each case of sale of shares to foreign investors or their subsidiaries and increase of charter capital financed by foreign investors or their subsidiaries. Belarusian shareholders of insurance companies should seek such preliminary approvals for sale of their shares to foreign investors or their subsidiaries. Such approval shall be denied if the above-mentioned quota might be exceeded because of the scheduled transaction. Also, the Ministry of Finance may refuse in registration of an insurance company with participation of foreign investors or their subsidiaries if is it is required by necessity to protect Belarusian insurance companies and, more generally, national safety in the economic sphere.
What conditions to a tender offer, exchange offer or other form of business combination are allowed? In a cash acquisition, may the financing be conditional?
According to the general concept of conditional transactions under Belarusian law, the parties may put creation or termination of their respective rights and obligations under the transaction in conditions occurrence of which is unclear. Normally, such conditions are circumstances beyond the parties' control.
Although the concept of precedent conditions is not known under Belarusian law, it is generally workable in acquisition transactions governed by Belarusian law (conditions relating to financing, transaction closing, etc).
May minority stockholders be squeezed out? If so, what steps must be taken and what is the time frame for the process?
Minority squeeze-out, which is understood as the possibility of a major stockholder, under certain circumstances, to compulsorily buy out the shares of minority stockholders, is not provided for by Belarusian legislation.
In a limited liability company, it is possible to exclude a shareholder, regardless of the amount of its shareholding, by submitting a respective claim in court if there is a valid reason, for example a shareholder obstructs the activity of the company.
How are cross-border transactions structured? Do specific laws and regulations apply to cross-border transactions?
In Belarus there is no specific legal or regulatory framework governing cross-border transaction. Although Belarusian law provides for a specific status of a commercial organisation with foreign investments (to qualify for such a status a share of foreign investment in the charter capital must be at least US$20,000), however, such a status does not recently provide substantial benefits.
Other than competition laws, what are the relevant waiting or notification periods for completing business combinations? Are companies in specific industries subject to additional regulations and statutes?
In certain industries, such as banking and insurance, business combinations are permission-based, namely they are subject to preliminary approvals of the National Bank or Ministry of Finance respectively.
What are the basic tax issues involved in business combinations?
Reorganisation does not normally lead to payment of taxes.
Acquisitions of shares is subject to 24 per cent profit tax; the taxable base is calculated as the sale price less costs of acquisition of shares by the seller and related costs. If the seller is a nonresident, withholding tax at the rate of 15 per cent is payable, unless the applicable double taxation treaty provides otherwise. Sale of shares (unlike participatory interest) is VAT exempt.
What is the basic regulatory framework governing labour and employee benefits in a business combination?
Labour and employee benefits are regulated by the Labour Code.
Basically, in the case of share acquisitions, employment relationships are not affected, and the employment continues.
As for asset deals and corporate reorganisations, employment continues, however, if the employee does not wish to continue employment, she or he may be dismissed with severance pay of two weeks' average salary.
After the change of ownership of the company (ie, after the acquisition of the company as the property complex) the new owner is entitled to terminate employment of the director and chief accountant of the target company within three months.
What are the special considerations for business combinations involving a target company that is in bankruptcy or receivership or engaged in a similar restructuring?
Bankruptcy procedures are governed by the Law 'On Economic Insolvency (Bankruptcy)' and the Edict of the President of the Republic of Belarus 'On Economic Insolvency (Bankruptcy)'.
The insolvency proceeding in Belarus is divided into two major parts:
• a 'protective period', where the grounds for commencement of bankruptcy proceedings are explored. The protective period starts with the filing an application for insolvency and the decision of the court on the commencement of insolvency proceeding and lasts up to three months; and
• bankruptcy proceeding, which can take the form of restoration (readjustment), which is aimed at restoring solvency of the debtor, or liquidation, which is simply the sale of the property of the debtor, payment of debts, etc.
Generally, during the protective period,
Upon commencement of the bankruptcy proceeding, the management of the debtor (including the directors, meeting of shareholders, etc) cannot make any decisions on behalf of the debtor. All such decisions are made by a specially appointed external manager. Therefore, all M&A transactions that need any decision to be made by the targeted company require the approval of the external manager. Moreover, certain transactions (which include reorganisation of the targeted company-debtor, issuance by the targeted company-debtor of stocks, etc) in addition to the decision of the external manager also require the consent of the creditors' committee, approval by the commercial court and incorporation into the restoration plan.
Update and trends
Future M&A development in Belarus is mainly associated with anticipated privatisations and general liberalisation of the economy. A review of current court practice in the field of corporate disputes should lead to unification of such practice and changes to corporate law are likely be initiated. Certain changes to the securities regulations can also be expected, as their current status does not satisfy the needs of the developing securities market.
The credit crisis generally affected M&A activity in Belarus by reducing the number of potential investors but, on the other hand, the crisis may force the state to more seriously consider privatisation of state-owned companies, which still prevail in the economy of Belarus.
The chapter is prepared by partner
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