M & A

Documentation, Approval Process and Timing

Direct Equity Acquisition

In the case of a direct acquisition in the PRC, the main documentation includes:

• An agreement for the transfer of or subscription for the target’s registered capital.
• Where the target is converted into a joint venture (“JV”) or a multi-investor wholly foreign owned enterprise (“WFOE”) upon completion of the transaction, a new joint venture contract (for a JV) or shareholders’ agreement (for a multi-investor WFOE) may be necessary.
• Unanimous board resolution of the target enterprise, consent from existing investors in the target and waiver of their pre-emptive rights to purchase the equity transferred, or shareholders’ unanimous resolution in case of acquisition of domestic companies.

Asset Acquisition

In the case of a direct acquisition in the PRC, the main documentation includes:

• An appropriate asset transfer agreement for the primary transaction.
• The resolution of the seller of the assets approving the sale of assets.
• Notification to creditors, or staffing plans.

Governmental Procedures for Acquisitions by Foreign Investors

Apart from acquisitions that are regulated under the Negative List for foreign investment, which are subject to special administrative measures for foreign investments, equity and asset acquisitions by foreign investors are no longer subject to the approval/filing procedures. Instead they are only required to be reported to the commerce department. According to the new regime, an equity or asset acquisition by foreign investors shall be subject to an information report obligation stipulated under Measures for the Reporting of Foreign Investment Information (“Reporting Measures”). Reporting Measures require the foreign investors to report relevant investment information to commerce departments through the enterprise registration system and the National Enterprise Credit Information Publicity System. Particularly, a foreign investor that acquires a PRC enterprise by equity acquisition shall submit an initial report through the enterprise registration system when undergoing modification registration of the acquired enterprise.

It is worth noting that although the market access approval/filing requirements have been abolished, the requirements of the Development and Reform Commission on project approval/filing are still applicable to both foreign invested enterprises and domestic companies.

Non-Governmental Consents and Approvals

In the case of an acquisition, certain other non-governmental consents and approvals may be required before the transaction can be completed, including: the consent of the seller; consents and waivers from other shareholders; board approval; contractual obligations (for example, bank loans or security agreements may contain provisions requiring lender approval for any change of control of a borrower).

In the case of an asset acquisition, public announcements and creditor notifications will also be required. A domestic company selling its assets should notify its creditors and make a public announcement within 10 days of the date on which its board passes the relevant resolution to sell the assets. Any creditors will have the right to demand that the seller provide commensurate security. If the target company is to be dissolved pursuant to an asset transaction, all creditors should be notified within 10 days of receiving an initial approval reply from the approval authority, pursuant to the PRC liquidation and dissolution procedures.