M&A in SPANISH LAW

M&A in

SPANISH LAW

GÓMEZ-ACEBO & POMBO

M&A in

SPANISH LAW FIFTH EDITION

Directors ÁNGEL CARRASCO PERERA JOSÉ Mª ÁLVAREZ ARJONA

Editor RALPH SMITH

First edition, 2015 Fifth edition, english translation

It includes digital version

The publisher takes no responsibility for the opinions collected, comments and statements expressed by the authors. The present work includes only the opinion of the author as a manifestation of his right to freedom of expression. Editorial expressly opposed to any page of this work or parts thereof are used for conducting press briefings. Any way of reproduction, distribution, public communication or transformation of this work can only be done with the consent of their owners, except where exempted by law. Please contact CEDRO (Spanish Reproduction Rights Center) if you need to photocopy or scan a fragment of this work (www. conlicencia.com; 91 702 19 70/93 272 04 45). Therefore, this book may not be reproduced in whole or in part, or transmitted by electronic means, mechanical, magnetic or computer storage and retrieval or any other means, being prohibited its loan, rent or any other form of transfer of use copy writing, of the holders of copyright, without prior permission. Thomson Reuters and the Thomson Reuters logo are trademarks of Thomson Reuters. Aranzadi is a trademark of Thomson Reuters (Legal) Limited. © 2015 [Thomson Reuters (Legal) Limited / Gómez-Acebo & Pombo. Abogados] © Cover: Thomsom Reuters (Legal) Limited © Translation: M. Laura Fuentes Editorial Aranzadi, SA Camino de Galar, 15 31190 Cizur Menor (Navarra) ISBN: 978-84-9059-177-2 Legal deposit: NA 784/2015 Printed in Spain. Impreso en España Fotocomposition: Editorial Aranzadi, SA Print: Rodona Industria Gráfica, SL Polígono Agustinos, Calle A, Nave D-11 31013 - Pamplona

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FOREWORD TO THE ENGLISH EDITION  .............................................................. 35 FOREWORD TO THE FOURTH EDITION  .............................................................. 37 FOREWORD TO THE THIRD EDITION  .................................................................. 39 FOREWORD TO THE SECOND EDITION  ............................................................... 41 ABBREVIATIONS  ............................................................................................................ 45 PART I

STRATEGY, NEGOTIATION AND CLOSING CHAPTER 1 COMMON ELEMENTS AND CLOSING STRATEGY  .......................................... 51 JOSÉ Mª ÁLVAREZ ARJONA

1. Background  ............................................................................................................ 51 2. Motives, reasoning  ................................................................................................ 52 3. The acquisition process  ........................................................................................ 55 4. Types of acquisitions: shares vs. assets  ............................................................. 56 5. Acquisition and investment agreements: typical content  ............................. 58 5.1. Approach  ..................................................................................................... 58 5.2. Typical content of an agreement  ............................................................... 58 A. Formal Aspects  ................................................................................ 58 B. Subject Matter of the Contract  ...................................................... 59 C. Price and Consideration  ................................................................ 59 D. Representations and Warranties  ................................................... 60 E. Limitation of Liability  ..................................................................... 60 F. Closing, Terms and Conditions  .................................................... 60 G. Conditions Precedent  ..................................................................... 61 7

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6.

8

H. Guarantees  ....................................................................................... 61 I. Additional Agreement  .................................................................... 62 J. Interim Management of the Business  ........................................... 62 K. Reference Balance Sheets  ............................................................... 62 5.3. Miscellaneous  .............................................................................................. 64 A. Notices  .............................................................................................. 64 B. Severability  ....................................................................................... 64 C. Assignment  ...................................................................................... 65 D. Invalidation Clause  ......................................................................... 65 E. Heading  ............................................................................................ 65 F. Sovereign Immunity  ....................................................................... 65 G. Languages  ......................................................................................... 65 5.4. Exhibits and side letters  ............................................................................. 66 A. Exhibits  ............................................................................................. 66 B. Side Letters  ....................................................................................... 66 Closing strategy  ..................................................................................................... 67 6.1. Approach  ..................................................................................................... 67 6.2. Typical content of a closing clause  ............................................................ 68 A. Date and Venue  ............................................................................... 70 B. Payment and Delivery  .................................................................... 71 C. Required Conditions for Closing  .................................................. 72 D. Miscellaneous  .................................................................................. 74 E. Statement of Representations and Warranties at Closing  .......... 74 6.3. Complexity of the closing and related issues  ............................................ 75 6.4. Preparing for the closing, closing checklist  ................................................ 77 6.5. Representation issues: incomplete powers of attorney, ratifications, addenda  ........................................................................................................... 79 A. Powers of Attorney  ......................................................................... 79 B. A Foreigner’s Power of Attorney, Immigration Regulation  ....... 79 C. Signature without Power of Attorney, Ratifications  ................... 80 D. Adhesion  .......................................................................................... 81 6.6. Additional issues on the purchase price, bank transfers and foreign currency  ............................................................................................................ 82 A. Introduction  ..................................................................................... 82 B. Payment in Foreign Currency  ....................................................... 82

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7.

C. Payment by Bank Transfer  ............................................................. 84 6.7. Language of the closing document  ............................................................ 86 The foreign component  ........................................................................................ 88 7.1. Legislative evolution  ................................................................................... 88 A. Foreign Investments in Spain  ........................................................ 89 B. Spanish Investments Abroad  ......................................................... 90 7.2. Current legislation  ...................................................................................... 90 7.3. Cross-border economic transactions and exchange control  .................... 93

CHAPTER 2 LETTERS OF INTENT  .................................................................................................. 95 ÁNGEL CARRASCO PERERA

1. Definition  ............................................................................................................... 96 2. Definition of the subject  ...................................................................................... 97 3. The process of issuing letters of intent  ............................................................. 97 3.1. Offer and acceptance  .................................................................................. 97 3.2. Letter-style and memorandum of understanding  .................................... 98 3.3. Avoiding commitment  ................................................................................ 100 3.4. The letter of intent as an obligatory step  ................................................... 100 4. The functions of a letter of intent  ...................................................................... 101 4.1. Fault in the conclusion of a contract  ......................................................... 101 4.2. Anticipating agreements with specific consent  ......................................... 102 4.3. No definite terms early in the negotiation process  ................................... 102 4.4. The need to agree on the non-binding nature  .......................................... 103 4.5. Restrictions on the freedom to negotiate  .................................................. 104 4.6. Search for financing  .................................................................................... 104 4.7. Risks of a letter of intent  ............................................................................ 105 5. Structure of a letter of intent  .............................................................................. 105 5.1. Defining the subject matter of the agreement  .......................................... 105 5.2. The costs of failed negotiations  .................................................................. 107 5.3. Clause on risk allocation and failed costs  ................................................. 108 5.4. Non-binding clause  .................................................................................... 109 5.5. Non-binding content  .................................................................................. 111 5.6. Is a letter of intent presumed to be non-binding?  .................................... 112 5.7. Degrees of binding  ...................................................................................... 113 9

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6.

7.

8.

10

5.8. Obligations and conditions  ........................................................................ 116 5.9. Three final comments on the nature of letters of intent  ........................... 117 Unity of the agreement and partial agreements  ............................................. 118 6.1. Partial agreements and incorporation power of the courts  .................... 118 6.2. Partial validity vs. non-binding contract  .................................................. 120 6.3. Agreement and written form  ..................................................................... 121 6.4. Good faith and renegotiation  .................................................................... 122 Defined agreements  .............................................................................................. 124 7.1. Requirement of a fully defined subject matter  ......................................... 124 7.2. Determinability and negotiation in good faith  ........................................ 124 7.3. Definitive agreement subject to a condition and letter of intent to negotiate  .............................................................................................................. 125 Spanish case law on letters of intent and pre-contractual agreements  ...... 126 8.1. Ineffectiveness of definitions given by the parties (Supreme Court Judgment of 2 December 1995 [Aranzadi Case Law Digest No. 9156 of 1995] and Supreme Court Judgment of 14 October 1996 [Aranzadi Case Law Digest No. 7560 of 1996])  ......................................................... 126 8.2. Partial agreements and final disagreement (Supreme Court Judgment, Chamber 4, 9 March 1998 [aranzadi Case Law Digest No. 2372 of 1998])  .......................................................................................................... 127 8.3. Essential elements of the agreement and the powers of the court to incorporate terms into agreements: pre-contractual agreements to set up companies (Supreme Court Judgment Of 5 July 1940 [aranzadi Case Law Digest No. 684 Of 1940]; Supreme Court Judgment Of 9 July 1940 [aranzadi Case Law Digest No. 691 of 1940] and Supreme Court Judgment Of 13 November 2009 [CLA No. 474637 of 2009]; Ruling of the Provincial Appeal Court of Vizcaya of 13 October 2000 [Civil Aranzadi No. 2441 of 2000] and Ruling of the Provincial Appeal Court of Madrid of 13 September 2000 [CLA No. 279377 of 2000])  ................... 128 8.4. Compliance and compensation claims (Ruling of the Provincial Appeal Court of Granada of 27 April 1999 [Civil Aranzadi No. 4573 of 1999])  .......................................................................................................... 131 8.5. Pactum de contrahendo, theories on pre-contractual agreements, memoranda of understanding, and degree of contractual determination (Supreme Court Judgment of 11 November 1943 [Aranzadi Case Law Digest No. 1170 of 1943]; Supreme Court Judgment of 1 July 1950 [Aranzadi Case Law Digest No. 1187 of 1950]; Supreme Court Judgment of 7 February 1966 [Aranzadi Case Law Digest No. 793 of 1966]; Supreme Court Judgment of 1 June 1966 [Aranzadi Case Law

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8.6.

8.7.

8.8. 8.9.

8.10. 8.11.

8.12.

8.13.

Digest No. 2848 of 1966]; Supreme Court Judgment of 30 January 1998 [Aranzadi Case Law Digest No. 353 of 1998]; Ruling of the Provincial Appeal Court of Coruña of 9 December 1994 [Civil Aranzadi No. 2103 of 1994]; Supreme Court Judgment of 28 April 2000 [Aranzadi Case Law Digest No. 2677 of 2000]; Ruling of the Provincial Appeal Court of León of 8 February 2002 [CLA No. 113725 of 2002]; Ruling of the Provincial Appeal Court of Murcia of 18 September 2003 [CLA No. 250942 of 2003])  ......................................................................................... 132 Cooperation, statement of intent or fulfilment (Supreme Court Judgment of 5 October 1961 [Aranzadi Case Law Digest No. 3284 of 1961])  .......................................................................................................... 137 Letters of intent: obligation to negotiate vs. obligation to sign a statement of intent (Supreme Court Judgment of 4 july 1991 [Aranzadi Case Law Digest No. 5325 of 1991]; Supreme Court Judgment of 3 June 1998 [Aranzadi Case Law Digest No. 3715 of 1998]; and Supreme Court Judgment of 30 March 2010 [Aranzadi Case Law Digest No. 2538 of 2010])  .......................................................................................................... 137 Impossible performance (Supreme Court Judgment of 19 July 1994 [Aranzadi Case Law Digest No. 6698 of 1994])  ...................................... 141 Potential liability of one of the parties (Supreme Court Judgment of 28 December 1995 [Aranzadi Case Law Digest No. 9402 of 1995] and Ruling of the Provincial Appeal Court of Valladolid of 9 November 1998 [Civil Aranzadi No. 8974 of 1998])  .......................................................... 141 Multiple consents and implied conditions (Supreme Court Judgment of 14 October 1996 [Aranzadi Case Law Digest No. 7560 of 1996])  ......... 143 Fault in the conclusion of a contract (Supreme Court Judgment of 16 May 1988 [Aranzadi Case Law Digest No. 4308 of 1988]; Supreme Court Judgment of 14 June 1999 [Aranzadi Case Law Digest No. 4105 of 1999]; and Ruling of the Provincial Appeal Court of Navarra of 31 July 1999)  .................................................................................................... 144 Agreements and consensual pre-contractual agreements of real contracts (Ruling of the Provincial Appeal Court of Baleares of 12 May 1997 [Civil Aranzadi No. 1144 of 1997]; Ruling of the Provincial Appeal Court of Madrid of 4 June 1998 [Civil Aranzadi No. 1420 of 1998] and Supreme Court Judgment of 20 April 2001 [Aranzadi Case Law Digest No. 5282 of 2001]  ............................................................................ 147 Memoranda of understanding and pre-contractual agreements with condition subsequent (Supreme Court Judgment of 24 July 1998 [Aranzadi Case Law Digest No. 6393 of 1998])  ................................................ 148 11

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8.14. Offers, pre-contractual agreements and incorporation of terms by a third party (Supreme Court Judgment of 29 November 2000 [Aranzadi Case Law Digest No. 9245 of 2000])  ......................................................... 149 8.15. Conclusions  ................................................................................................. 151 8.16. Final note on section 708 of the Spanish Civil Procedure Act/2000  ...... 152 CHAPTER 3 DUE DILIGENCE  ........................................................................................................... 155 ROSANA HALLETT CHARRO

1.

2.

3.

4. 5.

12

Introduction to legal due diligence  ................................................................... 155 1.1. Legal due diligence: meaning and relevance  ............................................ 155 1.2. Timing and preliminary commitments  ..................................................... 157 1.3. Meaning of due diligence in connection with representations and warranties  .......................................................................................................... 159 1.4. Duty of the seller to provide information  ................................................. 161 1.5. Considerations on the information provided by the seller  ........................... 165 1.6. Confidentiality of the information provided  ............................................ 166 A. Confidentiality obligations with third parties  ............................. 167 B. Legal privilege  .................................................................................. 168 Due diligence questionnaire  ............................................................................... 168 2.1. General considerations  ............................................................................... 168 2.2. Subject areas to analyse  ............................................................................. 169 2.3. Adapting items to each specific case of the questionnaire  ....................... 170 Personnel engaged in the investigation and information disclosed  ........... 171 3.1. Personnel engaged in the due diligence and organisation process  .......... 171 3.2. Information provided by the transferor for the purposes of the legal due diligence: approaches  .................................................................................. 174 A. Information predefined by the seller  ............................................ 174 B. Information provided by the seller upon the buyer’s requests  .. 176 Due diligence approach  ....................................................................................... 177 Confirmations. non-registered information. confirmation or information from registries or other public entities  .................................................... 179 5.1. Information from the corresponding commercial registry or the land registry  ......................................................................................................... 179 5.2. Information on industrial property rights  ................................................ 180 5.3. Certificates or information from the ministry of economy and finance  . 181

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5.4. 5.5. 5.6. 5.7. 6.

7.

Certificates from the general treasury of the social security  ................... 181 Information on urban planning  ................................................................ 181 Administrative information  ....................................................................... 181 Information from other types of registries or entities, as the case may be  .................................................................................................................. 182 Issues to be considered and verified in relation to documents provided for legal due diligence purposes  ........................................................................ 182 6.1. Corporate aspects  ....................................................................................... 183 6.2. Assets of the company  ................................................................................ 186 6.3. Contracts  ..................................................................................................... 190 A. Financing and banking contracts  ................................................. 191 B. Insurance policies  ........................................................................... 192 6.4. Labour aspects  ............................................................................................ 192 6.5. Administrative aspects  ............................................................................... 194 6.6. Tax issues  ..................................................................................................... 195 6.7. Litigation  ..................................................................................................... 196 6.8. Competition law  ......................................................................................... 196 6.9. Urban planning and environment  ............................................................ 197 Legal due diligence report  .................................................................................. 198 7.1. Presenting information  .............................................................................. 198 7.2. Content  ........................................................................................................ 200 7.3. Use of the information in the report  ......................................................... 201

CHAPTER 4 CROSS-BORDER ASPECTS OF CORPORATE OPERATIONS  ......................... 205 ELISA TORRALBA MENDIOLA

1.

Cross-border mergers  .......................................................................................... 205 1.1. Intra-community cross-border mergers  .................................................... 208 A. Scope of the law governing each of the companies to be merged  .............................................................................................. 209 a. Merger proposal  .................................................................... 209 b. Merger agreement  ................................................................. 210 c. Special consideration: the right of shareholder separation  .......................................................................................... 211 d. Pre-merger certificate  ........................................................... 212 13

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B. Scope of the law governing the company resulting from a merger  ............................................................................................... 213 C. Other issues  ..................................................................................... 214

1.2. 2.

a.

Employee participation  ........................................................ 214

b.

Merger of listed companies  ................................................. 214

Extra-community cross-border mergers  ................................................... 215

Transfer of the headquarters and registered office  ........................................ 215 2.1.

General aspects  ........................................................................................... 215

2.2.

Transfer of the registered office  .................................................................. 216 A. Transferring the registered office of a Spanish company abroad  ............................................................................................... 219 B. Transferring the registered office of a foreign company into Spain  ................................................................................................. 220

3.

The european corporation in cross-border mergers and transfers of registered office  ........................................................................................................... 222

4. De-mergers  ............................................................................................................. 222 5.

Global transfer of assets and liabilities  ............................................................ 223 PART II

THE CONTRACT CHAPTER 5 REPRESENTATIONS AND WARRANTIES AND LIABILITY FOR BREACH  . 227 ÁNGEL CARRASCO PERERA

1.

2.

Function of representations and warranties  ................................................... 228 1.1.

Concept and application  ............................................................................ 228

1.2.

Misrepresentation in english law  ............................................................... 228

1.3.

The process of representations and warranties  ......................................... 231

1.4.

The sale of shares and assets  ...................................................................... 233

1.5.

The party making representations and warranties  .................................. 235

1.6.

Function of the representations and warranties clause  ........................... 236

1.7.

Indemnity for breach of representations  ................................................... 239

Typical representations  ....................................................................................... 239 2.1.

14

Representations relating to incorporation, status, share capital and statutes of the selling or target company  ................................................... 240

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2.2.

3.

4. 5.

Representations relating to governing bodies, auditors and powers of attorney  ....................................................................................................... 241 2.3. Representations relating to financial statements and accounting books  ............................................................................................................ 241 2.4. Taxes  ............................................................................................................ 242 2.5. Principal agreements  .................................................................................. 242 2.6. Intellectual property  ................................................................................... 242 2.7. Movable assets and real estate  ................................................................... 243 2.8. Insurance  ..................................................................................................... 243 2.9. Staff and service agreements  ...................................................................... 243 2.10. Administrative licences and authorisations  ............................................. 244 2.11. Litigation  ..................................................................................................... 244 2.12. Changes and other adverse events  ............................................................ 244 2.13. Information  ................................................................................................. 244 2.14. Environmental issues  .................................................................................. 245 2.15. Product safety  ............................................................................................. 245 2.16. Accuracy of information  ............................................................................ 245 2.17. Exclusion of implicit commitments  ........................................................... 245 2.18. Materiality  .................................................................................................. 245 2.19. Third party claims  ...................................................................................... 246 2.20. Representations at the closing  .................................................................... 246 Classification of representations  ....................................................................... 247 3.1. Representations of past/present events and representations of future events  ........................................................................................................... 247 3.2. Representations of beliefs  ........................................................................... 249 3.3. Representations of sufficient title  ............................................................... 250 3.4. Representations of best efforts  ................................................................... 251 3.5. Meta-representations  .................................................................................. 252 3.6. Representations of the party’s own past behaviour  .................................. 253 Reference to the price and the agreement in its entirety  .............................. 255 Spanish case law on representations and warranties in corporate acquisitions  ......................................................................................................................... 255 5.1. Judgment of provincial appeal court of barcelona of 5 january 2000 (civil aranzadi no. 686 of 2000)  ................................................................ 255 5.2. Supreme court judgment of 30 june 2000 (aranzadi case law digest no. 6747 of 2000)  .............................................................................................. 256 15

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5.3.

Supreme court judgment of 11 july 2000 (aranzadi case law digest no. 6683 of 2000)  .............................................................................................. 257 5.4. Supreme court judgment of 21 july 2008 (aranzadi case law digest no. 4721 of 2008)  .............................................................................................. 257 5.5. Supreme court judgment of 11 june 2008 (aranzadi case law digest no. 3561 of 2008)  .............................................................................................. 259 5.6. Supreme court judgment of 20 november 2008 (aranzadi case law digest no. 283 of 2009)  ................................................................................... 260 5.7. Supreme court judgment of 30 march 2011 (aranzadi case law digest no. 3133 of 2011)  ........................................................................................ 262 5.8. Supreme court judgment of 19 december 2011 (aranzadi case law digest no. 297 of 2012)  ................................................................................... 263 6. General application of the provisions in the civil code  ................................. 263 6.1. Warranty of title  ......................................................................................... 263 6.2. Warranty against hidden defects  ............................................................... 264 6.3. Claims for breach of contract  .................................................................... 265 6.4. Indemnity and annulment due to fraud  ................................................... 266 7. Effectiveness of representations  ......................................................................... 269 7.1. Negligent misrepresentation  ...................................................................... 269 7.2. Risk of no liability waiver for unknown information  .............................. 270 7.3. Digression: how should warranties be structured?  .................................. 272 7.4. Elimination of the risk of no material defect  ........................................... 273 7.5. Elimination of the risk of unforeseeable damage  ..................................... 274 7.6. Elimination of risks resulting from the concept of hidden defects  .......... 274 7.7. Contingency of qualities «not consistent» with the agreement  ............... 275 7.8. The purpose of identifying contingencies  .................................................. 277 7.9. Unbalanced information and reasons to disclose information  .............. 277 8. Disclaimers  ............................................................................................................ 278 9. Limitation period  ................................................................................................. 281 10. Conventional limitation of the effective time period  .................................... 282 11. Contractual allocation of known or knowable risks; disclosure letter and entire agreement clause  ....................................................................................... 283 12. Contractual and statutory remedies  ................................................................. 284 13. Guarantees  ............................................................................................................. 290 13.1. General guarantees  ..................................................................................... 290 13.2. Escrow  .......................................................................................................... 290 16

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13.3. Guarantees in escrow agreements  ............................................................. 292 13.4. Withholding payment  ................................................................................ 294 CHAPTER 6 ACQUISITIONS IN THE PRIVATE EQUITY AND VENTURE CAPITAL MARKET  ........................................................................................................................... 295 IÑIGO ERLAIZ COTELO

1.

Private equity investors and venture capitalists as buyers  ............................ 296

2.

Private equity and venture capital firms  .......................................................... 297 2.1.

Funds and managers: historic structure and method of operation  ........ 297

2.2.

Spanish system: private equity companies, private equity funds and management companies  ............................................................................. 297

2.3.

Legal regulations for private equity entities  ............................................. 299

3.

Private equity investment and its various stages: entry, growth and exit  .. 303

4.

Shareholding valuation and adjustments at the initial stage of the investment  ......................................................................................................................... 304 4.1. Introduction  ................................................................................................ 304

5.

4.2.

Valuation and adjustment systems in buyout operations  ....................... 305

4.3.

Valuation and adjustment systems in growth capital investments  ........ 306

4.4.

Intangible contributions of the management shareholders, their valuation and different systems for capitalisation  ............................................ 309

Development stage of the investment: private equity entity as shareholder of the company and its relationship with other shareholders. shareholders’ agreement  ............................................................................................... 314 5.1. Introduction  ................................................................................................ 314 5.2.

Typical clauses governing the relationship with shareholders and the exercise of their rights in the investment  .................................................. 316 A. Matters or decisions subject to qualified majority  ...................... 316 B.

Anti-dilution mechanisms; preferential subscription right  ...... 318

C. Pre-emption rights and restrictions on the free transfer of shares  ................................................................................................ 322 D. Clauses on the need for subsequent financing and the contribution of shareholders  .................................................................... 324 E.

Preference rights to the distribution of dividends  ...................... 326

F.

Incentives and retention of managers and key employees  ........ 327 17

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5.3.

6.

7.

Relationships between shareholders in an MBO; trust between the management team and the private equity entity as a key factor to a successful operation  .................................................................................... 329 Disinvestment stage; exit strategies and investment protection  ................. 330 6.1. Introduction  ................................................................................................ 330 6.2. Investor exit clauses included in shareholders’ agreements  ..................... 331 A. Clauses protecting the amount invested  ...................................... 332 B. Clauses protecting the exit  ............................................................. 334 a. Clauses protecting the exit through a sale to third parties  ........................................................................................... 334 b. Clauses protecting the exit through the sale to other shareholders; buy-back agreements and risks associated with these arrangements  ...................................................... 338 c. Clauses protecting an exit through an IPO  ....................... 340 C. Effects of the exit event on incentive systems for directors  ....... 343 6.3. Brief reference to exit mechanisms in the absence of a shareholders’ agreement  .................................................................................................... 343 Other characteristics of private equity acquisition agremeents  .................. 344

CHAPTER 7 ACQUISITIONS IN REGULATED INDUSTRIES  ................................................. 349 CAROLINA SERRANO ALONSO

1. Insurance brokerage, reinsurance and insurance companies  ...................... 349 2. Credit institutions, investment service companies and mutual funds  ...... 354 3. Commercial television  ......................................................................................... 357 4. Telecommunications  ............................................................................................ 359 5. Other industries  .................................................................................................... 360 CHAPTER 8 PRICE AND ITS DETERMINATION  ........................................................................ 363 FRANCISCO PEÑA GONZÁLEZ

1.

Required characteristics of the price  ................................................................ 363 1.1. Required characteristics of the price  ......................................................... 363 1.2. Fair price and protection of minority shareholders  ................................. 364 1.3. Protection of minority shareholders in private company acquisitions  ... 365 2. Pricing  ..................................................................................................................... 367 18

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2.1.

3.

4.

Pricing by a third party arbiter as set out in article 1447 of the civil code  .............................................................................................................. 369 2.2. Effects of the lack of determination  ........................................................... 371 2.3. Price adjustments by a third party arbiter  ............................................... 372 Payment of the price; elements of the payment and deferral of the payment obligation  ..................................................................................................... 373 3.1. Payment requirements  ............................................................................... 373 3.2. Date, place and persons authorised to collect payment  .......................... 374 3.3. Deferral of the acquirer’s obligation to pay  .............................................. 375 Payment deferral; variable component of the price  ....................................... 376 4.1. Deferred payment  ....................................................................................... 376 4.2. Deferral of the variable part of the price and allocation of the company’s profits  ........................................................................................................... 376

CHAPTER 9 THE TRANSFER OF TECHNOLOGY IN BUSINESS TRANSFERS  .................. 379 ÁNGEL GARCÍA VIDAL

1. Background  ............................................................................................................ 379 1.1. Intellectual property rights, know-how and technology transfer  ............ 379 1.2. Transfer of businesses and assignments of IP rights and know-how  ...... 382 A. Transfer of businesses  ..................................................................... 383 B. IP rights and trade secrets as elements of the business  .............. 385 2. Format issues  ......................................................................................................... 388 2.1. Requirements of form in the transfer of IP rights [«Industrial Property»]  ............................................................................................................... 388 2.2. Requirements of form in the transfer of IP Rights [Copyright]  .............. 395 2.3. Transfer of companies and formal requirements to assign IP rights  ...... 396 A. The sale and purchase of a business  .............................................. 397 B. The transfer of a business as a consequence of company events  ................................................................................................ 398 C. Specific regulation on Community trade marks  ......................... 399 3. The effectiveness of the assignment of ip rights to third parties  ................. 400 3.1. Material publication  ................................................................................... 400 3.2. The subjective scope of the principle of effectiveness  ................................ 406 3.3. Consequences of the principle of effectiveness of registered acts  ............. 411 A. Incompatible acts  ............................................................................ 411 19

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B.

3.4.

The registration of rights as a requirement to prohibit their use by third parties [ius prohibendi]: The issue of locus standi / right of standing  .............................................................................. 412

Effectiveness of the assignment of IP rights to third parties in business transfers  ....................................................................................................... 416 A. Business transfers and material publication of the Commercial Registry: Relations with the material publication of IP Registries  ................................................................................................... 416 B. Specific provisions in the Regulation on Community Trade Marks and the Regulation on Community Drawings and Models in connection with the principle of effectiveness and the transfer of a business  ...................................................................... 419

4.

Liability for dispossession and hidden defects of an ip right when the assignment results from a business transfer  ....................................................... 421 4.1.

Remedies in IP rights  .................................................................................. 421

4.2.

Dispossession and defects of the IP right and remedy for the business  .. 423

5.

Business transfers and the assignment of licence agreements for ip rights and know-how  ....................................................................................................... 425

6.

Reference to the acquisition of businesses of high technological value and earn-out clauses  ..................................................................................................... 427

CHAPTER 10 DISPUTE RESOLUTION CLAUSE  ............................................................................ 431 JOSÉ Mª ÁLVAREZ ARJONA ESTÍBALIZ ARANBURU URIBARRI

1. Introduction  .......................................................................................................... 431 2.

Alternative dispute resolution mechanisms  .................................................... 432

3.

Deciding between arbitration and litigation  ................................................... 436

4.

Alternatives in arbitration  .................................................................................. 446

5.

4.1.

Ad hoc vs. administered arbitration  ......................................................... 446

4.2.

Seat of the arbitration and legislation applicable to the arbitration process  ............................................................................................................... 452

4.3.

Arbitration at law vs. arbitration in equity. Reason for the award  ........ 454

4.4.

Further considerations  ............................................................................... 458

The decisive role of a third party in share price adjustments  ...................... 463

6. Conclusion  ............................................................................................................. 475 20

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PART III

SPECIAL PROCEDURES AND ACQUISITION RESOURCES CHAPTER 11 CORPORATE RESTRUCTURING OPERATIONS TO TRANSFER COMPANIES  .................................................................................................................... 479 FERNANDO MARÍN DE LA BÁRCENA

1. Introduction  .......................................................................................................... 479 2. Characteristics  ....................................................................................................... 480 2.1.

Concept and mandatory nature of the regulation  ................................... 480

2.2.

Universal block transfer  ............................................................................. 481 A. Joint transfer of the net equity as an entirety  .............................. 481 B.

3.

Fragmented transfer of economic units  ....................................... 482

2.3.

Incorporation of shareholders and the principle of continuity  ............... 483

2.4.

General description of the procedure  ........................................................ 484

Legal regime on the protection of shareholders  ............................................. 485 3.1. Approach  ..................................................................................................... 485 3.2.

Principle of proportionality in swaps  ........................................................ 486 A. Concept  ............................................................................................ 486 B.

Directors and experts’ report  ......................................................... 487

C. Simplified mergers and de-mergers  .............................................. 488 D. Special mergers and de-mergers  ................................................... 489 3.3.

Shareholders’ remedies  ............................................................................... 490 A. General system of challenges and annulments  ........................... 490 B. Indemnity  ......................................................................................... 491

4.

Protection of creditors  ......................................................................................... 492 4.1. Approach  ..................................................................................................... 492 4.2.

Report on the coverage of the capital through contributions  .................. 493

4.3.

Specific and individual protection of creditors  ......................................... 495 A. Right of objection  ............................................................................ 495 B.

4.4.

Extension of liability  ....................................................................... 497

Objection and insolvency rescission as remedies  ..................................... 497 21

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CHAPTER 12 SHAREHOLDERS’ AND FAMILY AGREEMENTS  ................................................ 501 Mª LUISA APARICIO GONZÁLEZ

1. Introduction  .......................................................................................................... 501 1.1. Definition  .................................................................................................... 503 1.2. Corporate scope of shareholders’ agreements  ........................................... 503 1.3. Classification  ............................................................................................... 504 A. Agreements based on the shareholders’ relationships  ............... 504 B. Attribution agreements  .................................................................. 505 C. Agreements on the organisation  ................................................... 505 2. Shareholders’ agreements in listed companies  ............................................... 507 2.1. Legal definition  ........................................................................................... 509 2.2. Agreements on voting rights  ...................................................................... 509 2.3. Agreements restricting or imposing conditions on the free transfer of shares or convertible or exchangeable bonds  ............................................ 510 2.4. Publication regime  ...................................................................................... 511 2.5. Exception to the general regime  ................................................................ 513 3. Shareholders’ agreements in closed companies  .............................................. 513 3.1. Family agreements  ...................................................................................... 514 3.2. Effectiveness of the publication of family agreements  .............................. 514 3.3. Effect of the right of separation in closed companies as a result of the failure to distribute dividends  ................................................................... 515 4. Case law doctrine on the effectiveness of shareholders’ agreements  .......... 516 CHAPTER 13 ACQUISITIONS WITH FINANCIAL ASSISTANCE  ............................................. 519 ÁNGEL CARRASCO PERERA IÑIGO ERLAIZ COTELO AINARA RENTERÍA TAZO

1. 2.

22

Introduction. criteria to interpret the prohibition on financial assistance  ........................................................................................................................ 519 Elements of the legal concept. analysis of article 150 of the companies act  ............................................................................................................................. 523 2.1. Financial assistance. Concept and applicable cases  ................................. 524 A. Advancing funds  ............................................................................. 524 B. Granting loans  ................................................................................. 524

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3.

4. 5. 6.

C. Providing guarantees  ...................................................................... 524 D. Closing clause  .................................................................................. 526 2.2. Company providing assistance and third party acquirer. Operations with a third party beneficiary other than the third party acquirer  ........ 526 2.3. Acquisition of shares  ................................................................................... 528 2.4. Causal relationship or decisive reason as a key factor to grant financial assistance  ..................................................................................................... 529 Legal exceptions to the prohibition on financial assistance  ......................... 533 3.1. Legal exceptions. Article 150 of the Companies Act  ................................ 533 3.2. Directive No. 2006/68/EEC: requirements of financial assistance  ......... 535 Brief reference to special cases in sl corporations  .......................................... 539 Reference to leveraged buyouts  .......................................................................... 540 Infringement penalties  ........................................................................................ 540

CHAPTER 14 ACQUISITION FINANCING  ...................................................................................... 547 IÑIGO ERLAIZ COTELO

1. Introduction  .......................................................................................................... 547 2. An LBO target company  ...................................................................................... 549 3. Structure of an LBO  ............................................................................................. 550 3.1. Description of the organic structure of an LBO. Parties and hierarchy of the debt: senior and mezzanine debt  ........................................................ 550 3.2. The operative structure: stages of an LBO  ................................................ 554 A. Stage one: creation of spvs, financing and guarantees  ................ 554 a. Creation of an SPV  ............................................................... 554 b. Financing and cash flow  ...................................................... 555 c. Guarantees in the first stage  ................................................ 556 B. Second stage: merger (forward merger LBO / reverse merger LBO)  ................................................................................................. 558 4. Debt hierarchy  ....................................................................................................... 561 5. Other common contractual clauses in LBOs  ................................................... 566 5.1. A complex contractual structure  ............................................................... 566 5.2. Specific restrictions on the sale and purchase operation  ......................... 567 A. Safeguarding the feasibility of the financing  ............................... 568 B. Rolling warranties  ........................................................................... 569 C. Financing out clause  ....................................................................... 570 23

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6.

7. 8.

D. Drop dead clause  ............................................................................. 571 E. Transfer of the agreement  .............................................................. 572 F. Refinancing existing debt  ............................................................... 572 5.3. Specific traits of financing agreements  ...................................................... 573 Consequences of the insolvency act and its effect in LBO agreements: the rule of cause and effect  ......................................................................................... 576 6.1. Overview of the problem  ............................................................................ 576 6.2. Classification of loans and payment order as provided for in the insolvency act  ...................................................................................................... 578 6.3. Rescission and its effect in LBOS  ............................................................... 580 6.4. Regime to enforce guarantees in rem  ........................................................ 582 6.5. Rescission of financing agreements  ........................................................... 584 6.6. Enforcement of loan agreements that have expired prematurely  ........... 584 6.7. Other relevant aspects of the insolvency act  ............................................. 585 Financial assistance and LBOs: an old debate  ................................................. 588 7.1. Practical treatment of the issue  ................................................................. 588 Leveraged recapitalisation: a brief reference  .................................................. 597

CHAPTER 15 ACQUISITIONS OF LISTED COMPANIES  ............................................................ 599 ALBERTO DÍAZ MORENO

1. 2.

3.

24

Control of listed companies and takeover bids (tobs)  ................................... 600 Takeover bids: general ideas  ............................................................................... 601 2.1. Definition, characteristics and applicable law  ......................................... 601 2.2. The choice of a mandatory, total, unconditional, ex post facto and regulated price takeover bid system  ............................................................... 602 2.3. Subjective scope of the application of the takeover bid regulations  ........ 605 Mandatory tobs resulting from takeovers of listed companies  ................... 607 3.1. Introduction  ................................................................................................ 607 3.2. Takeover assumptions  ................................................................................ 608 A. Takeover by attaining 30 percent of the voting rights of a listed company  ........................................................................................... 609 a. Calculation of voting rights  ................................................. 610 B. Appointment of the majority of the board members  ................. 612 C. Waiver of the duty to make a tob  .................................................. 614 3.3. Takeover methods  ....................................................................................... 615

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4.

5. 6.

7.

8.

9.

10.

A. Acquisition of securities conferring voting rights  ...................... 615 B. Takeover by shareholders’ agreements  ......................................... 616 C. Indirect or unexpected takeover  ................................................... 618 3.4. Circumstances excluded from the obligation to make a TOB  ................ 622 3.5. Bidder, recipients and deadline for submitting the mandatory TOB  ..... 625 3.6. «equitable» price  ......................................................................................... 627 3.7. Consequences of breaching the obligation to make a TOB  ..................... 630 Takeover bids with specific purposes  ................................................................ 633 4.1. Characteristics  ............................................................................................ 633 4.2. A delisting bid  ............................................................................................. 634 4.3. Capital reduction bid  ................................................................................. 638 Voluntary bids  ....................................................................................................... 640 Consideration and guarantees of the bid  ......................................................... 643 6.1. Consideration  ............................................................................................. 643 6.2. Guarantees  .................................................................................................. 646 Announcement, submission, authorisation and publication of the bid. directors’ report and information for employees  ........................................... 647 7.1. Announcement of the bid  ........................................................................... 647 7.2. Submission of the bid  ................................................................................. 649 7.3. Authorisation and publication  .................................................................. 652 7.4. Directors’ report and information for employees  ..................................... 653 Responsibility of neutrality of the board of the target company  ................ 654 8.1. Previous concepts  ........................................................................................ 654 8.2. Subjective scope and duration of the duty of neutrality  ................... 655 8.3. Objective scope of the duty of neutrality  ................................................... 656 8.4. Decision of the general meeting  ................................................................. 657 Neutralisation of defensive measures  ............................................................... 659 9.1. Introduction  ................................................................................................ 659 9.2. Optional neutralisation  .............................................................................. 660 A. Decision to apply neutralisation measures  .................................. 661 B. Scope and effects of optional «neutralisation»  ............................ 662 C. Compensation  ................................................................................. 667 9.3. Necessary neutralisation  ............................................................................ 668 Modification, withdrawal and cessation of effects of the bid  ....................... 669 10.1. Irrevocability and ability to modify the bid  ............................................. 669 25

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11.

12.

13.

10.2. Withdrawal and cessation of effects of the bid  ......................................... 671 Acceptance and settlement of the bid  ............................................................... 675 11.1. Acceptance of the bid  .................................................................................. 675 11.2. Result of the bid  .......................................................................................... 676 11.3. Settlement of the bid  ................................................................................... 678 Competing bids  ..................................................................................................... 679 12.1. Concept and requirements  ......................................................................... 679 12.2. Authorisation, acceptance, withdrawal and modification of competing bids  ............................................................................................................... 682 12.3. Equality of information  ............................................................................. 685 Squeeze-outs and sell-outs  .................................................................................. 686 13.1. Concept, economic function and characteristics  ...................................... 686 13.2. Procedure  ..................................................................................................... 690

CHAPTER 16 MERGERS, ACQUISITIONS AND COMPETITION LAW: CONTROL OF CONCENTRATIONS BETWEEN UNDERTAKINGS  ........................................... 693 RICARDO ALONSO SOTO

1. 2. 3.

4.

26

Importance of the control of concentrations in competition law  ............... 693 Scope of the application of control: definition of concentration  ................ 695 Regulation applicable to the control of concentrations: community law and national law  .................................................................................................... 697 3.1. Definition of community dimension  ......................................................... 698 3.2. Meaning of undertakings and calculation method of their aggregate turnover  ....................................................................................................... 699 3.3. Exceptions  ................................................................................................... 701 Control of concentrations between undertakings in the european union  ............................................................................................................................ 703 4.1. Regulations  .................................................................................................. 703 4.2. Concept of concentration  ........................................................................... 705 4.3. Procedure  ..................................................................................................... 707 A. Notification  ...................................................................................... 708 B. Effects of the notification  ............................................................... 709 C. Stages of the procedure  .................................................................. 710 D. Rights of the undertakings concerned  ......................................... 712

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4.4.

5.

6.

Powers of the European Commission in connection with the control of concentrations  ............................................................................................. 714 A. Power of inspection  ........................................................................ 714 B. Power of decision  ............................................................................ 714 C. Power to impose fines  ..................................................................... 715 The spanish system of control of concentrations between undertakings  .. 715 5.1. Characteristics  ............................................................................................ 715 5.2. Concept of concentration  ........................................................................... 716 5.3. Scope of application of the control  ............................................................ 718 5.4. Control procedure  ....................................................................................... 719 A. Notification  ...................................................................................... 719 B. Effects of notification  ...................................................................... 720 C. Procedure  ......................................................................................... 720 5.5. Penalties  ...................................................................................................... 722 5.6. Fee applicable to the assessment and examination of control operations  ............................................................................................................. 723 5.7. Jurisdictional control  .................................................................................. 723 Issues worthy of further examination  ............................................................... 723 6.1. Scope of the relevant market  ...................................................................... 723 6.2. Criteria to assess concentrations  ............................................................... 725 6.3. Joint ventures  .............................................................................................. 728 6.4. Ancillary restraints  ..................................................................................... 730 6.5. Acceptable commitments and solutions  .................................................... 732

CHAPTER 17 EMPLOYMENT LAW/ STOCK OPTION PLAN  ..................................................... 735 ALFONSO AREITITO BASAGOITI

1.

Employment law  ................................................................................................... 736 1.1. Introduction  ................................................................................................ 736 1.2. The subject matter of the transfer  ............................................................. 749 1.3. Mechanisms for change of company ownership  ....................................... 755 1.4. Contractual changes  ................................................................................... 765 1.5. Corporate changes  ...................................................................................... 766 A. Purchase of assets by the employees through the formation of an Employee-Owned Corporation [Sociedad Anónima Laboral]  ..................................................................................................... 766 27

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B. De-mergers  ...................................................................................... 771 C. Mergers  ............................................................................................. 773 D. Transformation of companies  ....................................................... 774 E. Non-monetary contributions  ........................................................ 775 F. Global transfer of assets  ................................................................. 775 G. Share purchase, subsidiarisation of entities and company restructuring  ....................................................................................... 776 1.6. Special cases  ................................................................................................ 780 A. Outsourcing agreements and subcontracting for works and services  ............................................................................................. 780 B. Changing the business owner that renders services  ................... 780 C. Transferring employment contracts  ............................................. 789 D. Special cases and regulations  ......................................................... 791 E. Transfer of powers from the State to the Regional Autonomous Communities  ................................................................................... 792 F. Public-private transfers  .................................................................. 794 G. Creation of a European SA Corporation (Sociedad Anónima Europea)  ........................................................................................... 794 1.7. Notifying employees' representatives  ......................................................... 796 1.8. Liability for debts before the transfer  ........................................................ 811 A. Scope of joint and several liability  ................................................ 813 B. Effects on the individual employment relationships: affected employees and maintaining working conditions  ........................ 819 C. Collective Bargaining Agreements, and agreements between companies and employees  ............................................................. 828 D. Effects on the contracts of senior executives  ............................... 845 E. Effects relating to Social Security  .................................................. 849 F. Effects for employees' representatives  .......................................... 858 G. Effects on dismissal procedures pending resolution  .................. 865 a. Fair dismissal  ......................................................................... 866 b. Wrongful dismissal  ............................................................... 867 c. Null and void dismissal  ........................................................ 868 1.9. Liability for debts after the transfer  .......................................................... 869 1.10. Challenging the transfer of undertakings  ................................................. 871 1.11. Potential effects of the transfer of undertakings  ....................................... 872 A. Employment Regulation File (ERE)  ............................................. 872 28

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2.

a. Causes  ..................................................................................... 872 b. Quantitative requirements  ................................................... 873 c. Time requirement  ................................................................. 873 B. Collective relocation  ....................................................................... 873 C. Consultation periods and dispute resolution  .............................. 875 1.12. Transferring companies in crisis  ............................................................... 876 Stock option plans or programmes (ESOPs) and their consequences on transfers of undertakings  .................................................................................... 881 2.1. Incentive and payment systems: stock option plans  ................................ 881 2.2. Legal concept and nature of stock option plans  ....................................... 887 2.3. Employment issues  ..................................................................................... 891 2.4. Tax or fiscal matters  ................................................................................... 902 A. Recent developments  ...................................................................... 902 B. Current treatment in Spanish Law  ................................................ 907 2.5. Commercial matters  ................................................................................... 910 2.6. Stock market matters  ................................................................................. 922 A. If the stock option plan is implemented by means of an increase of capital, i.e. if the option is exercised by underwriting new shares  ........................................................................................ 926 B. If the stock option plan is implemented by the company acquiring its own shares  ..................................................................... 928 C. If the stock option plan is implemented through the intervention of funding entities in their execution  ................................... 930 2.7. Other matters relating to stock option plans  ............................................ 931 2.8. Final considerations  ................................................................................... 934

CHAPTER 18 TAX REGIME FOR CORPORATE MERGERS AND ACQUISITIONS AND OTHER CORPORATE RESTRUCTURING OPERATIONS  ................................ 943 ENRIQUE ORTEGA / JAVIER SEIJO / JAVIER VINUESA / JOSÉ MANUEL SÁNCHEZ / REMEDIOS GARCÍA / MARINA RINCÓN / BÁRBARA MAMBRILLA/ MARIANA DÍAZ-MORO

1. Background  ............................................................................................................ 944 2. Preliminary operations  ........................................................................................ 946 2.1. Tax due diligence  ........................................................................................ 947 2.2. Taxation of preliminary agreements (promises and options)  ................. 949 2.3. Valuation of transactions between affiliated entities  ............................... 951 29

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3.

4.

5.

6.

30

Sale and purchase of assets and liabilities  ....................................................... 953 3.1. Direct taxation  ............................................................................................ 953 A. Transferor  ......................................................................................... 953 a. Individual residents in Spain  ............................................... 953 b. Legal entities resident in Spain  ........................................... 955 c. Individuals or legal entities not resident in Spain  ............ 957 B. Buyer  ................................................................................................. 958 3.2. Indirect taxation  ......................................................................................... 959 A. Value added tax  ............................................................................... 959 B. Tax on Capital Transfers and Documented Legal Acts  .............. 963 3.3. Tax liability of the buyer  ............................................................................ 963 Sale and purchase of shares  ................................................................................ 965 4.1. Direct taxation  ............................................................................................ 965 A. Transferor  ......................................................................................... 965 a. Individual residents in Spain  ............................................... 965 b. Legal entities resident in Spain  ........................................... 969 c. Individuals or legal entities not resident in Spain  ............ 970 B. Buyer  ................................................................................................. 971 4.2. Indirect taxation  ......................................................................................... 972 Tax implications of the main methods of financing investments  ............... 976 5.1. Loans  ........................................................................................................... 976 5.2. Joint venture agreements  ............................................................................ 981 5.3. Increases in share capital  ........................................................................... 983 5.4. Other shareholders’ contributions to equity  ............................................. 984 Mergers, de-mergers, contributions of assets and securities exchanges  .... 985 6.1. A brief reference to the accounting treatment  .......................................... 985 6.2. Direct taxation. general system  ................................................................. 989 A. Taxation of transferring entities  .................................................... 991 B. Taxation of shareholders  ................................................................ 992 a. Individuals resident in Spain  ............................................... 992 b. Legal entities resident in Spain  ........................................... 993 c. Individuals or legal entities not resident in Spain  ............ 994 6.3. Special deferral system. transactions subject to the special system  ........ 995 A. Merger; Article 76.1 of the Company Tax Law  ........................... 995

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B.

7.

De-merger; Article 76.2, sections 1 and 2, of the Company Tax Law  .................................................................................................... 996 C. Non-cash contributions by branches of activity; Article 76.3 and 76.4 of the Company Tax Law  ............................................... 1002 D. Securities Exchanges; Article 76.5 of the Company Tax Law  .... 1003 E. Non-cash contributions; Article 87 of the Company Tax Law  . 1003 6.4. Tax implications for transferring entities, acquiring entities and shareholders subject to the special tax deferral regime  .................................... 1006 A. Transferring entities  ........................................................................ 1006 B. Requirements under the tax regime applicable to securities exchanges  ............................................................................................. 1008 C. Waiver  ............................................................................................... 1010 D. Acquiring entities  ............................................................................ 1011 E. Shareholders  .................................................................................... 1012 6.5. Specific aspects  ............................................................................................ 1016 A. Valid economic purpose  ................................................................ 1016 B. Interests in the share capital of both the transferring and acquiring companies above 5%  ......................................................... 1019 C. Subrogation of tax rights and liabilities  ....................................... 1025 D. Special case: securities exchange  ................................................... 1027 E. Tax losses and group taxation  ....................................................... 1028 F. Provisions to avoid double taxation  ............................................. 1032 G. Retroactive accounting  ................................................................... 1036 H. Formal requirements  ...................................................................... 1037 6.6. Indirect taxation regime  ............................................................................. 1039 A. Tax on Capital Transfers and Documented Legal Acts and Value Added Tax  ................................................................................... 1039 B. Article 108 of the Stock Market Act  ............................................. 1041 6.7. Tax on the increase of value of urban land  .............................................. 1041 Cross-border mergers of corporate entities  .................................................... 1042 7.1. Historical background  ................................................................................ 1042 A. Community legislation  ................................................................... 1042 B. Previous domestic regulation of cross-border mergers  ............. 1043 7.2. Current regulation of cross-border mergers  ............................................. 1043 A. Directive 2005/56/EC and Statute for a European Company  ... 1043 31

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7.3.

7.4.

B. Law No. 3/2009 of 3 April on structural changes to companies  .................................................................................................... 1044 C. Chapter VII of Title VII of the Company Tax Law, approved by the Law 27/2014, of 27 November  ................................................ 1044 Specific cases of transactions involving non-residents  ............................. 1047 A. Cross-border mergers  ..................................................................... 1047 B. Non-cash contributions  ................................................................. 1049 a. Non-cash contributions of business branches  .................. 1049 b. Special non-cash contributions  ........................................... 1050 C. Exchanges of securities  ................................................................... 1051 Taxation of non-resident shareholders  ..................................................... 1052 A. Taxation of shareholders in mergers  ............................................ 1052 B. Taxation of shareholders in non-cash contributions and exchanges of securities  ....................................................................... 1053

CHAPTER 19 ACQUISITIONS IN AN INSOLVENCY CONTEXT  .............................................. 1055 JOSÉ Mª ÁLVAREZ ARJONA IÑIGO ERLAIZ COTELO

1. 2.

3.

4. 5.

6.

32

Concept and significance  .................................................................................... 1055 Acquisitions prior to insolvency proceedings: rescission of agreements entered into during the «suspect» period close to the insolvency proceedings  ........................................................................................................................... 1056 Composition as a means to acquire a company  .............................................. 1063 3.1. Standard composition proposal  ................................................................. 1063 3.2. Anticipated composition proposal  ............................................................. 1069 Acquisition of insolvent companies in liquidation  ........................................ 1070 Acquisition of companies at the common stage of the insolvency proceedings under article 43.2  ................................................................................. 1071 5.1. Method and requirements to carry out the sale  ....................................... 1072 Civil, employment and tax liabilities assumed by the buyer  ....................... 1074 6.1. The transfer of civil liabilities  .................................................................... 1074 A. Agreement proposal to assume debt  ............................................ 1075 B. Transfers in the event of a secured or privileged claims  ............ 1075 6.2. Tax contingencies  ........................................................................................ 1075 6.3. Employment and social security liabilities  ............................................... 1077

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7. 8.

9.

Acquisition of liabilities of the target company  ............................................. 1077 «Loan-to-own» acquisition strategies  ............................................................... 1078 8.1. Capital increase through set-off  ................................................................ 1079 8.2. Capital increase through contributions in kind  ....................................... 1079 8.3. Some differences between the two options  ................................................ 1080 Rescue financing and distressed debt acquisition  .......................................... 1081 9.1. Rescue financing  ......................................................................................... 1082 A. Rescue financing prior to the opening of the insolvency proceedings  ............................................................................................ 1082 a. Rescue financing outsidethe scope of a refinancing agreement or the consideration of «other non-rescindable acts» under the insolvency act  ............................................ 1082 b. Rescue financing undera refinancing agreement or granted under the consideration of «other non-rescindable acts» as set out in the insolvency act  .................................. 1083 c. New incentives for equitisations  ......................................... 1085 B. Rescue financing following the opening of insolvency proceedings  .................................................................................................... 1086 9.2. Acquisition of distressed debt  .................................................................... 1087 A. Issues to consider when acquiring distressed debt  ..................... 1087

APPENDICES ANNEX 1. EXCLUSIVITY AGREEMENT  .................................................................. 1093 ANNEX 2. CONFIDENTIALITY AGREEMENT  ...................................................... 1095 1. Definitions  .............................................................................................................. 1095 2. Confidentiality  ...................................................................................................... 1096 3. Use  ............................................................................................................................ 1096 4. Lack of rights on the information  ..................................................................... 1096 5. Protection of the information  ............................................................................ 1096 6. Other restrictions on disclosure  ........................................................................ 1097 7. Representatives’ commitments  .......................................................................... 1097 8. Employees  ............................................................................................................... 1097 9. Prohibition on commercial use  .......................................................................... 1098 10. Notice of information request  ............................................................................ 1098 11. Prohibition on copies  ........................................................................................... 1098 12. Return  ..................................................................................................................... 1098 33

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13. Note  ......................................................................................................................... 1098 14. Indemnity for failure of compliance  ................................................................. 1099 15. Amendments  .......................................................................................................... 1099 16. Applicable legislation and jurisdiction  ............................................................ 1099 ANNEX 3. GUIDELINES ON INVOLVEMENT  ....................................................... 1101 ANNEX 4. DATA ROOM RULES   ................................................................................ 1105 ANNEX 5. PRELIMINARY QUESTIONNAIRE  ........................................................ 1111 ANNEX 6. LEGAL DUE DILIGENCE REPORT  ........................................................ 1121 ANNEX 7. SAMPLE LETTER OF INTENT  ................................................................ 1127 1.1. Main sale and purchase operation  ..................................................................... 1127 1.2. Proposed purchase price  ..................................................................................... 1128 1.3. Adjustment of the purchase price  ...................................................................... 1128 1.4. Due diligence  ......................................................................................................... 1128 1.5. Type of agreement proposed  .............................................................................. 1128 1.6. Conditions for the proposed sale and purchase agreement  ......................... 1128 1.7. Proposed non-competition agreement  ............................................................ 1129 1.8. Other proposed terms  .......................................................................................... 1129 2.1. Non-executable non-binding provisions  ......................................................... 1129 2.2. Definitive agreement  ............................................................................................ 1129 2.3. Access  ...................................................................................................................... 1129 2.4. Exclusive relationship  .......................................................................................... 1130 2.5. Indemnity  ............................................................................................................... 1130 2.6. Management of the business  .............................................................................. 1130 2.7. Disclosure  ............................................................................................................... 1131 2.8. Confidentiality  ...................................................................................................... 1131 2.9. Costs  ........................................................................................................................ 1131 2.10. Rescission  ............................................................................................................... 1131

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