Mergers and Acquisitions

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.

Approval Process and Timing

Upon receipt of all necessary documents for either a direct acquisition or an asset acquisition in the PRC, the approval authority will review the substance of the Chinese versions of the documents, and may request changes to them. The time for obtaining the necessary approvals can range from several weeks to more than a year, even assuming that the approval authority has raised no issues during the approval process.

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.