Everything that used to be simple and straightforward when concluding or completing M&A transactions poses major challenges to market participants in today’s crisis circumstances. New legal and technical solutions have been designed to overcome these difficulties, some of which are expected to remain with us even after the crisis.
“Social distancing” and its effects on transactions
Almost all company employees these days are currently working from home. For this reason, it’s not possible to sign contracts in person or to conclude deals in the usual way. All the more, so where one of the parties to a transaction is based abroad, as there are legal and physical restrictions on movement between countries. How can deals be done in this sort of environment?
There’s no legal impediment to the parties’ signing their contracts in separate copies and sending them to each other by post at a later date. It’s also possible to sign the documents by power of attorney: with the appropriate instructions, the same authorised person can sign on behalf of all the parties concerned. And at the same time, the use of electronic devices has become increasingly widespread: with a certified electronic signature, the parties can sign the same document from several places at the same time.
Limits on the availability of authorities and banks as a risk factor
Implementing a transaction is often dependent on the approval or on certain procedures of a bank or the authorities. However, in the new circumstances, the way both banks and the authorities are processing requests has changed. Administration times at many official offices has increased and, due to the absence of personal service, not all these offices are receiving documents. But it’s not just the authorities: banks, too, often don’t have the capacity needed to approve a transaction or to execute a payment.
When planning a transaction, therefore, it’s currently more important than ever to find out in advance how to obtain the necessary authority documents and permissions and to know how long it will take. You should certainly assume there’ll be an increase in processing times when it comes to obtaining any kind of external approval.
How can we make any company decisions like this?
Concluding a deal may call for various company decisions to be made. For example, it may be in the interests of the buyer to replace certain senior executives or to amend the company’s articles of association. How can you do this if the company’s shareholders can’t physically meet due to the current restrictions?
Even before the crisis, the regulations allowed companies to hold their meetings by phone or video conference, provided that the company’s articles contained a provision to that effect. This option has now been extended by a government decree that came into force last Friday to cover effectively all companies. Under certain conditions, shareholders will now be able to meet virtually, via telecom devices, even if the founding document does not provide for this. In other cases, the company’s management is entitled to make decisions that would otherwise fall within the competence of the general meeting.
The pandemic as force majeure
In the current, uncertain business situation, few people are prepared to take the risk of undertaking a contractual commitment to implement a sale or other transaction at a later date. But if they are, it is in the basic interests of the parties not to make a commitment that they will not be able or willing to honour in the future due to a possible escalation or protraction of the crisis.
The statutory regulations recognise any reference to an unavoidable external cause, i.e. to “force majeure”, as a reason for not honouring a contract only to a very limited extent. Therefore, the specific cases in which the parties may withdraw from a contract should be spelled out in detail in the contract. Working out the exact circumstances that will allow withdrawal, requires serious negotiation between the parties – and thorough legal work.
How long will the new methods stay with us?
While the restrictions that are currently encouraging parties to seek creative solutions will sooner or later disappear as the threat of the pandemic subsides, several of the transactional arrangements that are now being developed are expected to persist in post-crisis transaction practices. The possibility of electronic signature has been around for a long time, but so far it has not really caught on. The crisis situation is likely to have a positive effect on the take-up of this practice, and hopefully in the future we’ll no longer be faced with cart loads of contracts that need to be physically signed when closing deals. It’s expected that electronically-held general meetings will also remain with us after the crisis. Many travel and logistical issues will be solved if everyone can sit in front of their own screens to vote and otherwise participate in the running of the company.