Structuring and Negotiating Joint Ventures Contracts

Report
“Structuring and Negotiating Joint Ventures
Contracts – Procedures and Key Legal Risks”
presented by
Mr. Picharn Sukparangsee
the Conference on
“2nd Negotiating, Drafting & Managing Risks on
COMMERCIAL CONTRACTS”
arranged by : Ideal Forum Co., Ltd.
From : 17 to 18 July 2014
at Pullman G. Hotel, Silom, Bangkok,
STRUCTURING AND NEGOTIATING JOINT
VENTURES CONTRACTS – PROCEDURES
AND KEY LEGAL RISKS
I.
Understanding procedures and negotiating
process relating to forming a joint venture
II. Key agreements and documents involved in
negotiation
III. Drafting rights and obligations as well as
contributions of the parties
IV. Analyzing key legal risks and dispute issues in
forming a joint venture
V. Pitfalls in drafting and designing joint ventures
contracts.
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I. UNDERSTANDING PROCEDURES AND
NEGOTIATING PROCESS RELATING TO FORMING A
JOINT VENTURE
• Joint venture as opposed to consortium in terms and work,
profits and loss and members as individual and legal entity
• Unincorporated joint venture or incorporated joint venture
• Purpose of joint venture such as manufacture and distribution
of products or completion of a construction project
• Details of products to projects to be carried out
• Territories of distribution of the products
• Planning for direct or indirect shareholding in a joint venture
• Arrangement for composition of the board of directors
• Division of positions of the management of a joint venture
company (CEO, CFO , COO, plant manager, accounting
manager, financing manager)
• Matters to be managed by each of joint venture partners
• Legal and tax issues to be taken into consideration
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II. Key agreements and documents involved in
negotiation
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joint venture agreement/ shareholders agreement
supply agreement
engineering agreement
technical assistant agreement
licensing agreement
service agreement
memorandum of association
articles of association
list of shareholders
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III. DRAFTING RIGHTS AND OBLIGATIONS AS WELL AS
CONTRIBUTIONS OF THE PARTIES
definitions and interpretations
establishment and purpose of the JV company
corporate and individual shareholding
authorised and issued share capital
notice of a general meeting, quorum of a general meeting
and resolution of a general meeting
• matters to be approved by a general meeting -simple
majority or absolute majority
• voting rights or non-voting rights
• board of directors, composition of the board, change of
any member of the board, notice of a board meeting,
quorum of a board meeting, resolution of a board meeting
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III. DRAFTING RIGHTS AND OBLIGATIONS AS WELL AS
CONTRIBUTIONS OF THE PARTIES
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matters to be approved by the board
number of directors and authorized directors
level of authorization- International, regional and local
management – CEO,CFO, COO, MD and President
business plan
to be approved by the board of directors meeting
financing - equity financing, debt financing and quasifinancing
guarantee and letter of comfort
bank accounts
establishment and expansion of facilities
representations and warranties – company duly organised
and in good standing, due execution and delivery of the
agreement, representations and warranties true, correct
and accurate, not pending or threatened litigation
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III. DRAFTING RIGHTS AND OBLIGATIONS AS WELL AS
CONTRIBUTIONS OF THE PARTIES
• undertakings - change of shareholding structure, sale,
transfer of disposal of assets, sale and lease back,
mortgage, pledge , lien, lease and other encumbrances of
assets , approval of business plan , limit of capital
expenditures, entering into agreements, capital increase
or reduction
• mutual cooperation
• supply of raw materials and sale of finished products
• exclusive export of products and pricing formula
• know-how and technology
• non-competition
• appraisal mechanism
• book of accounts, accounting, accounting year,
accounting standards, annual and quarterly financial audit - internal audit and external audit
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III. DRAFTING RIGHTS AND OBLIGATIONS AS WELL AS
CONTRIBUTIONS OF THE PARTIES
• dividend- dividend pay-out policy, annual and
interim dividends
• confidential information
• right of inspection
• right of first refusal
• tag along provisions
• drag along provisions
• initial public offering
• listing of shares on stock exchange
• notices
• termination
• governing law
• jurisdiction
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IV. ANALYZING KEY LEGAL RISKS AND DISPUTE
ISSUES IN FORMING A JOINT VENTURE
• affiliated companies- holding company, subsidiary,
related companies
• conditions precedent to be fulfilled
• differences between representations, warranties,
undertakings and covenants
• Are closing provisions the same as the completion
provisions ?
• matters to be approved by the management
• matters to be approved by the board of directors
• matters to be approved by a general meeting of
shareholders
• majority – absolute majority and simple majority
• legal and beneficial ownership
• inconsistency between provisions of joint venture
agreement and provisions of the articles of association of
a joint venture company
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IV. ANALYZING KEY LEGAL RISKS AND DISPUTE
ISSUES IN FORMING A JOINT VENTURE
• single or series and limit of capital expenditure
• non-competition between joint venture parties and their
affiliated companies
• commercial loan, syndicated loan, issuance and offer of
new securities, call option, put option, securitization,
derivatives
• property fund , infrastructure fund, Real Estate
Investment Trust or REIT
• Is floating charge provided under law of Thailand ?
• What does negative pledge affect granting of security ?
• addition financing – accumulated profits , income from
business operation, borrowing from joint venture
partners, borrowing from financial institution, increase
in share capital , initial public offering ,issuance and
offering of new securities, project finance
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IV. ANALYZING KEY LEGAL RISKS AND DISPUTE
ISSUES IN FORMING A JOINT VENTURE
• security arrangement- mortgage of land, buildings and
machinery and equipment , pledge of shares, personal
guarantee, outright assignment or conditional assignment
• conversion of a private company to a public company or a
listed company
• free transfer of shares unless prohibited and restricted by
law
• JV company as a separate legal entity shall apply for a tax
ID card and VAT registration
• distribution of profits by a joint venture Company to its
members is exempted from tax.
• taxes implication on dividend, interest , capital gains, sale
of goods, service fee and royalties
• confidential information and protection of intellectual
property
• conflict of interest of shareholders and directors
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IV. ANALYZING KEY LEGAL RISKS AND DISPUTE
ISSUES IN FORMING A JOINT VENTURE
right of first refusal, tag along and tag along
private company becoming listed company
assignment and transfer of rights and obligations
lease of real property and assignment
selection of legal counsels or accountants
human resources , no solicitation of executives
and employees of the joint venture company, and
additional employment of executives and
employees
• arbitration or litigation
• governing law , choice of law and conflicts of law
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IV. PITFALLS IN DRAFTING AND DESIGNING JOINT
VENTURES CONTRACTS
• be aware of due diligence before preparation of joint
venture agreement
• failure to comply with all laws and regulations including
foreign business law, Revenue Code, Customs Act
• improper cross shareholding structure
• different interpretation on percentage of shareholding in
an affiliate company and level of affiliated companies
• beneficial ownership not enacted in domestic law
• memorandum of understanding, term sheet, head of
agreement, agreement
• issuance of a letter of comfort or a letter of guarantee
• pricing and amount of shares
• pricing and amount of goods
• payment for shares and delivery of shares
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IV. PITFALLS IN DRAFTING AND DESIGNING JOINT
VENTURES CONTRACTS
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restriction on transfer of shares and exceptions
financial statements not updated
liabilities and hidden liabilities
loopholes in share transfers at different levels (at the
first company, at the second company)
put and call options
addition financing (equity or debt financing)
financial obligations and security after a majority
shareholder becoming a minority shareholder
ignore tax issues on agreements such as technical
assistance agreement and service agreement
licenses expired
no stamp duty affixing on an instrument
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IV. PITFALLS IN DRAFTING AND DESIGNING JOINT
VENTURES CONTRACTS
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default of payments
potential default
claims by sellers and contractors
potential problems in real estate
no other joint venture on the same products in the
territories with other non- joint venture partners
non-competition at the level of the domestic company as
separated from any foreign operating companies
protection of trade mark , patent, copyright , know-how,
trade secrets and other intellectual property
keep confidential information
right of inspection of documents and information of the
joint venture company
no clear dispute resolution settlement
appraisal of assets at the time of a deadlock
fair market value, replacement value and liquidation value
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IV. PITFALLS IN DRAFTING AND DESIGNING JOINT
VENTURES CONTRACTS
• validity, binding and enforcement of agreement
• control by a majority shareholders at expense of a
minority shareholder
• management of a joint venture company by a
dominating party
• assignment and exceptions
• costs and expenses to be proportionately borne by each
of joint venture partners
• gross-up provisions in an agreement between two
companies in the same jurisdiction
• encumber on leased land and problem on assignment
• termination of agreement and surviving obligations
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IV. PITFALLS IN DRAFTING AND DESIGNING JOINT
VENTURES CONTRACTS
• rehabilitation and bankruptcy of a parent company of a joint
venture partner
• initial, subsequent waivers and non-waiver
• mutual settlement, a deadlock, right of first refusal,
• non-exclusive jurisdiction , foreign arbitration, bankruptcy
law, set-off and good moral and public order
• no partnership but a separate joint venture company and no
joint liability of joint venture shareholders
• foreign judgment with no automatic enforcement in a
domestic country
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Thank you
for your kind attention.
Mr. Picharn Sukparangsee
SIAM CITY LAW OFFICES LIMITED
20th Floor, Rajanakarn Building,
183 South Sathorn Road, Bangkok 10120, Thailand
Tel: (662) 676-6667 – 8 Fax: (662) 676-6188-9
E-mail : [email protected]
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