PRC outbound acquisition cautions and approvals

Grandall Legal Group
Charles Guan
[email protected]

n cases of overseas acquisitions by PRC listed companies, the role of lawyers qualified to practice in the country of the target company is undoubtedly important in the project. However, as a PRC listed company, all of its activities must comply with the relevant laws and regulations of the PRC. The following will, from the perspective of PRC laws, offer a brief introduction to cautions and approvals relating to overseas acquisitions by Chinese listed companies.

Whether parties to proposed acquisitions validly exist

(1) Chinese company

For a Chinese listed company that intends to make an overseas acquisition, the examination mainly focuses on the following: does the company (i) validly exist; (ii) have the power or authority to make an overseas acquisition; and (iii) has the power or authority to sign the relevant agreement or contract?

(2) Counterparty and target company

Foreign lawyer(s) shall make relevant investigation and issue his/her/their legal opinion on such questions as (i) whether the counterparty of the proposed acquisition and the target company validly exist or not; (ii) title to those assets involved in the transaction; and (iii) creditor-debtor relationship. If the acquisition is required to be reported to the PRC governmental authorities for approval, the PRC lawyers will issue PRC legal opinions based on such opinions issued by foreign lawyer(s).

Contracts or agreements

Examination of the relevant acquisition agreement, financing agreement, guarantee agreement and other transaction documents focuses on whether such documents comply with PRC laws. It also focuses on whether any registration/ filing is required to be made in respect of such documents.

If such documents are governed by the laws of any jurisdiction other than the PRC, the legal opinions of foreign lawyer(s) will be required to be issued. This is in respect of such matters as: (i) legality and effectiveness of such agreements; (ii) binding force and enforceability on the parties thereto; and (iii) whether any approval procedures shall be made with foreign governmental authorities. If the acquisition is subject to any approval by the PRC governmental authorities, then PRC lawyers will issue PRC legal opinions based on such opinions issued by foreign lawyer(s).

Necessary approval procedures

(1) In accordance with the Administration Measures on Restructuring Major Assets of Listed Companies promulgated by the CSRC, if the total amount of assets to be purchased by a PRC listed company – and/or a company controlled by it – reaches a certain ratio, this constitutes a restructuring of major assets and such purchase shall be subject to approval by (i) its board of directors, (ii) its shareholders' meeting, and (iii) the CSRC;

(2) In accordance with the Interim Administration Measures for Examination and Approval of Overseas Investment Project promulgated by the SDRC, if the investment to be made by a PRC listed company in a project requires a sum of foreign currency of US$50 million or more, such project shall be submitted to the State Council for approval after it has been examined by the SDRC;

(3) In accordance with the Measures for Administration on Foreign Currencies Involved in Overseas Investment promulgated by the State Administration of Foreign Currency (SAFE), if an acquisition project involves a sum of foreign currency exceeding US$10 million, the source of such foreign currency shall be examined by the SAFE.

(4) According to Rules on Approvals for Establishing Foreign Company of the Ministry of Commerce, in acquisitions of foreign equities, the regulatory authority at provincial level shall ask the economic and commercial counsellor's office of the Chinese embassy/consular in the relevant country for opinions. After the regulatory authority has made a preliminary examination, it shall submit the proposed acquisition to the Ministry of Commerce for approval. An anti-trust investigation also shall be made in the case that any monopoly behaviour is involved therein.

(5) Furthermore, in accordance with the Measures for Administration on Foreign Currencies Involved in Overseas Investment, Notice on Further Intensifying the Reform of Control on Foreign Currency in Overseas Investment and other relevant regulations promulgated by the SAFE, with respect to an overseas investment, a PRC listed company shall make foreign-currency registration and perform approval formalities for remitting out foreign currencies with foreign exchange regulatory authorities according to laws.

Internal authorisation and information disclosure

As the purchaser of the relevant project is a Chinese listed company, an investigation will be made following the announcement being posted on the relevant media (e.g. China Securities Journal). This is to confirm whether the purchaser has already performed the necessary internal approval/authorisation formalities, and whether it has performed its statutory obligation of information disclosure in accordance with the relevant PRC laws, administrative rules, rules and regulations of the departments under the State Council and other regulatory documents.