Corporate M&A 2024 Comparisons

While the COVID-19 pandemic certainly caused a slowdown in M&A market activity, deal activity has since considerably resumed, with the M&A market today being almost as busy as before the pandemic. However, the pandemic accounted for a number of new rules that have impacted Liechtenstein legislation regarding corporate decisions in relation to M&A transactions. For instance, an amendment to the Persons and Companies Act permits shareholder resolutions to be passed virtually or by way of hybrid shareholder meetings.

In addition, digital notarisations and certifications will soon be feasible due to the forthcoming change in legislation, along with electronic company incorporations and online applications for entry into the commercial register. These new provisions facilitate the preparation of signings and closings as they reduce the need for personal presence and, as a result, the time and cost of travelling. In general, the digitalisation enables faster, more efficient and cost-effective corporate transactions and greater flexibility for all parties involved.

There have recently been extensive changes in the area of corporate law to implement Directive (EU) 2019/1151 in the Liechtenstein Persons and Companies Act (PGR). Inter alia, the Liechtenstein legislator created the possibility to incorporate companies digitally and to file electronic applications regarding the commercial register. These changes will come into force on 1 May 2024, marking a significant milestone in the digitalisation of corporate law matters.

Furthermore, the Liechtenstein legislature has increased efforts to make certain corporate requirements more flexible by reducing the number of formalities set forth by previous statutory law. For instance, in addition to the new options to hold hybrid and virtual shareholder meetings as mentioned in 1.1 M&A Market, formalities for the pledging of bearer shares have been reduced.

The Notary Act was amended to permit the notarisation of corporate decisions in which not all participants are physically present but exercise their rights in the meeting through electronic means. In future, digital notarisation and authentication will also be possible, as will the exchange of information via the European Registry Networking System. Moreover, new provisions in relation to shares with privileged voting rights were implemented in the PGR, meaning that minority shareholders with privileged shareholder rights can no longer block corporate decisions of a company unless the company's articles enable the shareholders to do so.

Many Liechtenstein companies are required to implement and comply with ESG standards. In fact, Liechtenstein law was recently amended to impose a general obligation on certain large Liechtenstein companies to include ESG-related statements and considerations in their corporate governance reporting. Accordingly, such compliance becomes increasingly relevant in the legal due diligence stage of M&A transactions.

To a large extent, M&A transactions in Liechtenstein concern private equity investments and are cross-border in nature, due to the small size of the country. On the other hand, M&A deals that involve public listed companies based in Liechtenstein frequently take place via stock exchanges situated outside of Liechtenstein.

There is currently increased deal activity amongst regulated financial services providers such as insurers, asset managers and fund management companies, and fintech market players. In addition, cross-border transactions often involve holding companies that have their registered seat in Liechtenstein and have been created as holding entities for family-owned large groups of companies, or for industrial undertakings.

Typically, an acquisition of a Liechtenstein company is made by way of share purchase. However, there are also other transaction types that can lead to the same result, such as (cross-border) mergers or spin-offs/demergers.

Conversely, asset deals are less common in Liechtenstein. They are predominantly chosen for transactions in which only a certain part or a business unit of a target company is to be divested.

The Liechtenstein Financial Market Authority (FMA – www.fma-li.li) is in charge of deciding on applications for approvals or notifications triggered by M&A transactions involving Liechtenstein licensed financial service providers (banks, insurers, asset managers, etc) as targets. In particular, the FMA must decide on applications to approve new shareholders by way of an extensive “fit and proper test”.

To the extent corporate transactions lead to changes in the commercial registry entries of Liechtenstein companies, the Office of Justice is in charge. It is also in charge of granting approvals for the transfer of (direct and indirect) ownership in Liechtenstein real estate properties and so-called real estate companies (Immobiliengesellschaften).

To the extent that any state-owned or state-controlled companies in Liechtenstein are the target of a corporate transaction, other governmental agencies are in charge of granting the required approval under the pertinent public laws. In some of these cases, political bodies must consent.

Basically, there are no restrictions on the acquisition of participations or stakes in a privately held Liechtenstein company (except for the regulatory approvals noted in 2.2 Primary Regulators).

However, any transfer of ownership in Liechtenstein real estate properties is restricted by law and requires the advance approval of the Office of Justice. This applies not only to the direct transfer of ownership in a real estate property but also to an indirect acquisition by way of acquiring shares in a Liechtenstein real estate company. Under the applicable statutory provisions, such transactions are null and void if the required approval from the Office of Justice is not obtained. Consequently, particular focus on these requirements is necessary during the legal due diligence phase of a transformation.

Further restrictions exist for the acquisition of shares in state-owned or state-controlled Liechtenstein companies.

Finally, as a result of the conflict between Russia and Ukraine, further sanctions were enacted to restrict investments by certain Russian investors.

As a member state of the European Economic Area (EEA), Liechtenstein is subject to the European antitrust/merger control regime as applicable in the EU/EEA. As a consequence, the pertinent EU/EEA Regulations and thresholds also apply, in principle, in relation to Liechtenstein companies. Liechtenstein does not have any additional national/domestic antitrust or merger control legislation.

Liechtenstein labour law sets forth certain provisions for the transfer of employees in the event of an asset deal. However, these provisions are not applicable regarding share deals.

Some requirements to inform or consult with the target’s employees or employee representative body can apply, but a transaction cannot be stopped or prevented by any of these bodies, nor by labour unions.

If an M&A transaction leads to a mass dismal of employees in Liechtenstein, specific proceedings before the Office of Public Economics must be initiated, aimed at mitigating the financial and social consequences for the respective employees. In addition, internal decision-taking processes that involve a company's employee representative body must be complied with.

There is no such review in Liechtenstein.

The FMA is publishing an increasing amount of guidance and decisions on landmark cases regarding transactions with regulated and supervised financial services providers. Conversely, relatively little case law regarding litigation before the courts has been published.

There have been no such changes. The Liechtenstein Takeover Act (Übernahmegesetz) is the result of the implementation of EU Directive 2004/25. Once this EU Directive is amended, the Takeover Act is expected to be amended accordingly.

It is quite customary for a bidder to build a stake in the target prior to launching an offer, with large and institutional investors frequently building stakes in targets that qualify as start-up companies. In such cases, stakebuilding strategies and the legal steps for the implementation are usually dealt with in a shareholder agreement that is entered into between the investor and the other shareholder.

The material shareholding thresholds and filing obligations predominantly depend on the specific area in which the transaction takes place. Under statutory law, there are specific disclosure thresholds for licensed financial service providers such as banks, insurers, asset managers, etc. Typically, these thresholds are 10%, 20%, 30% and 50% of the share capital and of the voting rights. For listed companies, the disclosure thresholds set forth by the Disclosure Act (Offenlegungsgesetz) apply. The Act also contains additional rules for the aggregation and calculation of the applicable percentages.

Similar but additional specific thresholds are laid down in financial services laws (eg, the Insurance Supervision Act, the Banking Act or the investment fund legislation), which apply even if the target is not listed on a stock exchange but is subject to the FMA's supervision.

Please note that certain disclosure thresholds can also be set forth in the articles of a Liechtenstein (target) company. This should be borne in mind when carrying out legal due diligence.

Any thresholds requested by mandatory statutory law cannot be opted out of by a company in its articles or by-laws, so a company's leeway in this regard is limited. However, on a shareholder level, shareholder agreements often impose certain restrictions on the participating shareholders when intending to sell their shares to another shareholder or to a third party. Such restrictions can consist of or trigger pre-emptive rights, rights of first refusal, or tag-along or take-along obligations. They can also constitute hurdles to stakebuilding. Under Liechtenstein law, it is also possible to incorporate such restrictions into the articles of a Liechtenstein company.

Basically, a Liechtenstein company is entitled to perform dealings in derivatives to the extent its corporate purpose permits such dealings. However, for any commercial activity (on behalf or for third parties), a licence issued by the FMA is required for dealing in derivatives.

Liechtenstein financial service laws provide for specific obligations in this regard. In addition, due to Liechtenstein's membership of the EEA, the Markets in Financial Instruments Regulation (MiFIR) is directly applicable in Liechtenstein.

In certain circumstances, shareholders have to make known the purpose of their acquisition and their intention regarding control of the company. For instance, such transparency is required during a fit and proper test carried out by the FMA in relation to a significant participation in a regulated Liechtenstein financial service provider.

If a Liechtenstein target company has set forth transfer restrictions regarding its own shares in its articles, the approval of the target's board of directors must be sought in advance for such share transfer. In such cases, and depending on the scope of the transfer restrictions, the company can be required to disclose the identity of the new shareholder to the board, and to provide the aforementioned transparency.

Target companies that are listed on a stock exchange or regulated market need to disclose deals in accordance with the applicable stock exchange rules and their articles of association. As Liechtenstein does not have its own stock exchange for shares, the applicable rules are typically part of foreign laws and their listing rules. In most cases, public Liechtenstein companies have listed their shares either on the Swiss stock exchange SIX or on a stock exchange in the EEA.

Private companies whose shares have not been listed must disclose a deal only internally if their articles contain an obligation to do so. Target companies that are under the supervision of the FMA must make such disclosure as soon as there is an intention to enter into the deal, typically at the stage after the negotiations have commenced but before any definitive agreements are signed. In many cases, a clause containing a condition precedent in the transaction agreement ensures that disclosure is made in a timely manner.

Market practice on the timing of disclosure does not differ from the legal requirements; see 5.1 Requirement to Disclose a Deal.

If the target is a Liechtenstein company, the scope of the legal due diligence is usually extensive. Mere red-flag due diligence exercises are less common but are regularly carried out, for instance, for Liechtenstein companies that are material subsidiaries of a foreign target.

A broad legal due diligence exercise covers corporate law issues, material agreements (change of control clauses), employment law issues, litigation issues, compliance and KYC issues, regulatory issues (to the extent applicable to the target), data protection issues, IT and IP issues, commercial contracts, real estate issues, increasingly ESG issues, etc. Depending on the industry in which the target is active, environmental law issues have also become increasingly important.

Granting a bidder exclusivity during the negotiation phase is quite common. Standstill agreements are less common, considering that hostile takeovers are not very frequent in Liechtenstein.

It is permissible for tender offer terms and conditions to be documented in a definitive agreement if said agreement clearly demonstrates the will of all parties to accept such terms and conditions. However, documenting such tender offer terms and conditions in a definitive transaction agreement is not very frequent.

The length of such process depends on the specific transaction structure. It goes without saying that the process takes longer if regulatory approvals and consents are required to be issued between signing and closing. In the absence of such approval or consent requirements, it is quite common to close smaller transactions on the same day as the signing takes place. This can considerably abbreviate the length of the transaction process.

The flexibility of the Liechtenstein legislature to introduce the possibility to hold virtual and hybrid shareholder and board meetings contributed to the avoidance of such delays or impediments. The upcoming digitalisation measures will also have a positive impact on and accelerate the process.

Outside of regulated business areas and industries, there is no mandatory offer threshold for private companies. However, for public companies the thresholds under the Liechtenstein Disclosure Act must be complied with.

However, according to the Liechtenstein Takeover Act, certain price rules must be observed for both mandatory and voluntary bids. Accordingly, the price offered in a mandatory bid must not be lower than the last price that was granted or agreed to be paid for the same security during the 12 months preceding the notification of the bid. Furthermore, the price must be at least equal to the average market value of the security in question over the six months preceding the date of the announcement of the intention to bid.

Further requirements pursuant to foreign listing rules may also be applicable.

Cash is more common than shares as a consideration type. Several tools are used to bridge value gaps between the parties, ranging from performing several staged closings to agreeing on escrow arrangements. Earn-out structures are also quite popular. In some transactions, the introduction of targeted incentive bonus plans for the target's management team has been chosen as an additional measure.

Common conditions for takeover offers are contained in the Takeover Act. While regulators do not interfere unnecessarily with the use of offer conditions, they can decide to restrict the use of offer conditions in certain specific circumstances – eg, if a financial service provider under the regulator's supervision is sold as part of an extraordinary liquidation or dissolution.

The Liechtenstein Takeover Act includes minimum acceptance requirements if the target company is a listed company. Therefore, a mandatory takeover bid is triggered by the direct acquisition of more than 30% of the offeree company's voting securities or by the indirect acquisition of a controlling stake of 30% in such company. Individuals acquiring such a majority shareholding – whether by acting alone or in concert with other persons – are obliged to notify the FMA without undue delay and to make an offer for all securities issued by the target company within 20 days, in accordance with the Takeover Act.

The Takeover Act also allows for certain limited exceptions from the obligation to submit a mandatory takeover bid. Under the Takeover Act, the obligation to launch a mandatory takeover bid also extends to the indirect acquisition of control (of more than 30% of the share capital of the target company). Furthermore, the offeree company is entitled to opt out of the aforementioned thresholds and requirements by including adequate opting out clauses in its articles.

It is possible to condition a business combination on the bidder obtaining financing. However, it is more common for the bidder to ensure it has adequate financing before submitting a formal bid or entering into negotiations on a business combination.

Break-up fees and non-solicitation provisions are often agreed between the parties of a transaction, but force-the-vote provisions are not very frequent in Liechtenstein. It is the exception rather than the rule that the shareholder meeting of a target company must vote on or consent to the sale of shares in the target or on a business combination (if the latter does not result in a merger or demerger). There are other ways of securing the influence of the shareholders on a transaction – eg, through shareholders' agreements or the representation of the main shareholders on the board of directors of the target.

There have been no recent significant changes to the regulatory environment that have impacted the length of interim periods.

A variety of measures can prove useful to the bidder, such as entering into a shareholder agreement that provides the bidder with certain rights to acquire the shares of other shareholders in certain events, or the increase of any quota in the target company's articles in order to ensure that material decisions cannot be taken without the consent of the bidder. In addition, the bidder has an interest to be adequately represented on the board of directors by having delegated board members appointed.

It is possible for shareholders to vote by proxy. The by-laws of a Liechtenstein company can set forth certain formalities or other requirements for the use of proxies. For instance, it is possible to limit the scope of such authorised representatives to other shareholders. It is possible for a proxy to represent more than one shareholder.

The Liechtenstein Takeover Act contains a statutory squeeze-out mechanism. Certain rules of general company law provide for the buyout of a shareholder in cases of serious obstruction, but the threshold is very high.

The squeeze-out rules under the Takeover Act are confined to Liechtenstein companies that are listed on a stock exchange; they do not apply to any private Liechtenstein company. Under the Takeover Act, a bidder who, upon expiry of the term of the bid, owns at least 95% of the voting rights and of the offeree company's capital that entitles them to vote is entitled to request the FMA to order the nullity (Kraftloserklärung) of the remaining issued shares. However, such squeeze-out has to occur against payment of the offered price or performance of the offered exchange in shares. The bidder must file such request within three months.

Such undertakings are not common.

If a regulatory approval from the FMA is required, the applicable documents must be submitted to the FMA. This does not mean that drafts or copies of the transaction agreements must be submitted to the FMA, but specific parameters may have to be disclosed. Furthermore, the information on the new direct and indirect shareholder(s) required by statutory law and the FMA's Guidelines must be timely submitted to the FMA. Under the Disclosure Act, it is not necessary to make a mere bid public; the disclosure rules thereunder only apply to completed transactions.

In some cases, the articles/by-laws of the Liechtenstein target company contain provisions on the internal disclosure of a bid. For such cases, these provisions must be complied with. Such requirements usually exist if the shares of the target companies are subject to transfer restrictions set forth in the articles/by-laws of the target company.

In addition to the disclosure referred to in 7.1 Making a Bid Public, the issuance of new shares requires the amendment of the target company's articles/by-laws. If the entity has the legal form of a corporation (Aktiengesellschaft, AG) or a company limited by shares (GmbH), the amendment must be performed by way of public deed or notarial deed. In order to record the issuance of new shares and the new share capital in the commercial register, such deed must be filed with the Office of Justice (Commercial Registry) and thereby becomes part of the register file for the target company. As such, any third party is entitled to inspect the register file and, by doing so, the deed.

Under Liechtenstein law, companies are not generally obliged to disclose any other arrangements regarding their corporate governance. However, exceptions apply for Liechtenstein companies whose shares are listed on a stock exchange or traded on another regulated market in an EEA member state; such public companies are obliged to periodically publish a corporate governance report.

Under the applicable listing rules, a listed company must timely publish its annual report following the end of its financial year. As part of the annual report, financial statements drawn up in accordance with a recognised standard (IFRS, GAAP) must be included. In accordance with applicable listing rules, listed companies must also timely inform the market of any facts that are price sensitive.

The transaction documents do not typically have to be disclosed in full.

Under Liechtenstein law, members of the board of directors owe a statutory duty of care and loyalty to the company, and must treat the shareholders of the company equally in the same circumstances. When exercising these duties, the members of the board of directors must safeguard the interests of the company; this is understood to also include employees and other stakeholders. The board members must comply with all duties in the event of a business combination.

It is not common for boards of directors to establish special or ad hoc committees in business combinations, especially if the board of directors does not consist of a large number of members. For certain large companies, the law requires the establishment of certain committees within a board of directors.

The Liechtenstein courts regularly apply the business judgement rule, including in situations involving business combinations. The resulting case law regularly requires that the board members pass their decisions on an informed basis and free of any conflicts of interest.

Directors regularly obtain legal opinions on the target company or on the other parties in a business combination, and sometimes also on tax rulings, in order to safeguard their duty of care. If companies or targets outside of Liechtenstein are involved, a foreign law firm is usually commissioned to issue an adequate capacity opinion for the transaction.

Depending on the transaction structure, it is also common for independent outside advice to be solicited from other experts.

Conflicts of interest of directors, managers, shareholders or advisers have been the subject of judicial or other scrutiny in Liechtenstein. However, it is not possible to quantify these court/regulatory cases since only a limited number of court cases and regulatory orders are published in Liechtenstein.

Liechtenstein law only contains specific provisions for public/listed Liechtenstein companies. The Takeover Act sets forth rules for such companies in the event of a voluntary takeover bid or a mandatory takeover bid. As long as these rules (to the extent applicable) and any provisions in the articles/by-laws of the Liechtenstein target company in relation to the issuance or the transfer of shares are complied with, tender offers are permitted.

Hostile tender offers are not very common in Liechtenstein. One of the reasons may be that the shares of only a very small number of Liechtenstein companies are listed, which reduces the scope of options for hostile tender offers.

Directors are allowed to use defensive measures; see 9.1 Hostile Tender Offers.

In addition to the defensive measures permitted by the Takeover Act, the board of directors of a Liechtenstein company frequently benefits from a clause in the articles/by-laws that permits the board to refuse approval of a new shareholder in certain events and if such approval is not in the best interest of the company. For instance, the board of directors can do so if a competitor of the company tries to enter the circle of shareholders.

The duties mentioned in 8.1 Principal Directors' Duties also apply if the directors enact defensive measures: when doing so, they must also act in the best interest of the (target) company.

The directors must always act in the best interest of the company and base their decisions on justified reasons. When resolving on a business combination or the prevention thereof, the directors are well advised not to “just say no” (to the extent this would be permissible under the specific articles or by-laws) but to carefully document the reasoning of their decision in adequate minutes of their board meeting.

Litigation before the courts in connection with M&A transactions is not very common in Liechtenstein. However, it is possible for shareholder resolutions to be challenged and for board resolutions to be scrutinised before the Liechtenstein courts. On the other hand, it is quite common for disputes in relation to M&A transactions to be resolved in arbitration proceedings. Obtaining an arbitration award also has the advantage of (increased) enforceability in other jurisdictions.

In contrast, Liechtenstein has only entered into bilateral treaties regarding the recognition and enforcement of court judgments with Switzerland and Austria. As a consequence, the enforceability of a Liechtenstein court judgment in other jurisdictions is limited, which may lower the parties' motivation to initiate international M&A-related litigation before the Liechtenstein courts.

Please see 10.1 Frequency of Litigation.

In some transactions, the force majeure clause in the transaction agreement was tested based on the argument that the COVID-19 pandemic constituted an enforceable event that equals a force majeure event.

Shareholder activism does not constitute a very popular tool in Liechtenstein. Therefore, not surprisingly, Liechtenstein statutory law does not directly address this type of activism. However, the law gives shareholders certain mandatory rights that cannot be opted out of in the articles/by-laws of a company, including the right to call an extraordinary shareholder meeting, the right to place certain motions on the agenda and the right to vote on the discharge of directors.

Exercising these rights can facilitate shareholder activism. However, as mentioned, no significant increase in shareholder activism has been noted over recent years, and no such trend is visible in the Liechtenstein market.

There has been no trend of activists seeking to encourage companies to enter into M&A transactions, spin-offs or major divestitures.

Activists do not seek to interfere with the completion of announced transactions in Liechtenstein.