In the first and second quarters of 2020, M&A activity in the Liechtenstein market was slower than in previous quarters. Yet, as from summer of 2020, the number of deals has surged.
The COVID-19 pandemic has put some Liechtenstein companies in distress. This has made them attractive targets for foreign companies. Therefore, in particular in the third and fourth quarter of 2020, the number of cross-border deals increased.
The financial sector was almost entirely unaffected by COVID-19. However, the manufacturing industry suffered. A significant portion of employees were requested to work reduced hours.
In Liechtenstein, most deals which are structured as private M&A transactions are accomplished by way of a share deal. Very few deals are completed by way of an asset deal.
In a share deal the majority or totality of shares in a target company is acquired by the buyer. The assets of the target company remain in the target company whilst the buyer owns the majority or totality of the shares in the target company. Thus, the buyer acquires the assets of the target indirectly.
In asset deals, however, the targeted assets are transferred by the seller to the buyer. In contrast to a share deal transaction, the assets are transferred directly from the seller to the buyer.
Whether a deal is accomplished via a share or an asset deal depends on many factors. These include whether the buyer wishes to acquire only one specific asset of the target or all assets of the target. Furthermore, the complexity of the business, regulatory issues as well as tax implications are considered.
In Liechtenstein law, there is no primary regulator for M&A activity. There is no national antitrust law or merger control law in Liechtenstein.
Yet, in transactions in the financial industry pertaining to targets which are monitored by the Liechtenstein Financial Market Authority (FMA), certain transactions are supervised by the FMA and in some instances need to be approved by the FMA.
Under Liechtenstein law, there are generally no restrictions regarding foreign investments. Yet, concerning the financial industry, in some instances transactions will need to be approved by the Liechtenstein FMA.
There is no national antitrust law or merger control law in Liechtenstein.
Applicable labour law provisions are laid down Sections 1173a Article 1 sqq of the Liechtenstein Civil Law Act (Allgemeines Bürgerliches Gesetzbuch (ABGB)). Liechtenstein labour law is very liberal, and most provisions are not binding. Some provisions, however, must be observed at all times (eg, those concerning overtime work, assignment and pledging of wage claims, vacation pay, termination of employment, and abusive termination).
Under Liechtenstein law there is no national security review of acquisitions.
The Market Abuse Regulation, as amended from time to time, as well as the delegated and implementing acts issued by the EU Commission in this regard, have been directly applicable in Liechtenstein since 1 January 2021. At the same time, the EEA Market Abuse Enforcement Act (EEA-MDG; Law Gazette 2020 No 155) also applies. The previous Market Abuse Act (MG), the Market Abuse Ordinance (MV) and the Financial Analysis Market Abuse Ordinance (FinMV) have been out of force since 1 January 2021.
As part of the implementation of the 4th EU Anti-Money Laundering Directive (Directive (EU) 2015/849), the Law on the Register of Beneficial Owners of Domestic Legal Entities (VwEG) was adopted in December 2018. The VwEG establishes a register for the purpose of combating money laundering, predicate offences to money laundering and terrorist financing, which register contains information on the beneficial owners of domestic companies or other legal entities as well as trusts. With the decision of the EEA Joint Committee regarding the adoption of Directive (EU) 2015/849, the Anti-Money Laundering Directive entered into force on 1 August 2019.
The Liechtenstein Takeover Act has been amended in light of the Market Abuse Regulation and the EEA Market Abuse Enforcement Act.
According to the Liechtenstein Takeover Act, the offeror may disclose their consideration of, and their intention to make, an offer to the board of directors of the target company prior to the announcement or publication thereof and may negotiate thereon with such bodies.
The board of directors of the target company shall ensure confidentiality.
The shareholders of the target company with whom the offeror negotiates the acquisition shall also be obliged to maintain confidentiality.
It does not happen frequently that a bidder builds a stake in the target prior to launching an offer. Usually, when negotiations commence the parties enter into a non-disclosure agreement (NDA).
Thresholds apply to certain companies which hold licences issued by the FMA.
In certain circumstances, any person who reaches, exceeds or falls below 10%, 20%, 30%, or 50% of the voting rights in a licensed company as a result of an acquisition, sale or otherwise must notify the FMA of the proportion of voting rights held. In this respect, it should be noted that, under certain circumstances, even if the threshold of 10% has not been reached, if the acquirer otherwise "controls" the target as if it held 10% or more of the shares, this will also trigger the notification obligation towards the FMA.
The regulatory provisions apply only to notifications to a public authority such as the FMA.
If all legal requirements are met, dealings in derivatives are allowed.
The European Market Infrastructure Regulation
Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on over-the-counter (OTC) derivatives, central counterparties and trade repositories (European Market Infrastructure Regulation (EMIR)) entered into force on 16 August 2012 and regulates trading in derivatives in the EU, the authorisation of central counterparties domiciled in the EU and the recognition of non-EU domiciled central counterparties in the EU. EMIR also regulates trading in OTC derivatives, which is subject to settlement, reporting and risk mitigation obligations. The settlement obligation must be fulfilled via a central counterparty. The central counterparty performs a risk mitigation function by assuming the settlement risks of the counterparties to a derivative transaction. Reports must be made to a trade repository, which must either be authorised or recognised in the EU.
The regulation distinguishes between so-called financial counterparties and non-financial counterparties. Financial counterparties are all:
All other entities domiciled in an EU/EEA state are to be classified as non-financial counterparties for the purposes of the regulation.
EMIR Implementation Act
Liechtenstein is not a member of the EU but a member of the EEA. Still, it was not necessary to transpose the EMIR into national Liechtenstein law, as it became directly applicable in Liechtenstein upon the entry into force of the relevant decisions of the EEA Joint Committee on incorporation into the EEA Agreement. Only supplementary provisions regarding the competent authority and its powers as well as penalty provisions and regulations regarding compliance with EMIR by non-financial counterparties needed to be enacted in national law. For this purpose, the EMIR Implementation Act was enacted in Liechtenstein. This entered into force simultaneously with the decision of the EEA Joint Committee regarding the adoption of Regulation (EU) No 648/2012.
Based on the endorsement decisions of the EEA Joint Committee (JCD 112/2018 and 113/2018, dated 31 May 2018), the legal basis became largely applicable in Liechtenstein when the decisions came into force on 1 June 2018.
There is no national antitrust law or merger control law in Liechtenstein.
There is no requirement for any notification under corporate law. As relates to regulatory law, the notification depends on which type of licence is held by the target company. Generally, a threshold of 10% is considered a qualified interest which shall be reported to the FMA. The FMA shall be notified of such "intent". Under certain circumstances, even if a buyer does not acquire a qualified interest of 10% but through other means (voting rights, shareholder agreements, etc) is in the same position as qualified interest holder of 10%, that buyer shall notify the FMA accordingly.
From a corporate law perspective, there is no mandatory requirement to disclose a deal. If the target company holds a licence issued by the Liechtenstein FMA, then any disclosure requirements will depend on which licence has been issued by the FMA. Usually, the regulatory laws stipulate that the FMA shall be notified of each and every "intent" to acquire a qualified interest.
Usually, the regulatory laws stipulate that the FMA shall be notified of each and every "intent" to acquire a qualified interest. In Liechtenstein legal practice, "intent" means the signing of a memorandum of understanding or term sheet. Sometimes, the parties notify the FMA only once the share purchase agreement or asset purchase agreement has been signed.
In a private M&A transaction, depending on the target company and in which field of business it is active, the due diligence examination could encompass legal, tax, environmental, business, and industrial examinations.
In public transactions, exclusivity is not frequently required. In private deals, however, exclusivity clauses are regularly requested. It should be noted that such requests are not always met.
It is permissible but not common for tender offer terms and conditions to be documented in a definitive agreement.
The length of the acquisition process depends on the target company and in which field of business it is active. If the target company is licensed by the FMA, then the accomplishment of the acquisition might take up to a year or more. For non-licensed companies the closing could be achieved faster. It would certainly also depend on the complexity of the deal, the size of the target company and the preparedness of the contracting parties to collaborate efficiently.
The Liechtenstein Takeover Act regulates the procedure for takeover bids for the acquisition of equity securities issued by a target company and admitted to trading on stock exchanges on a regulated market – within the meaning of Directive 2014/65/EU of the European Parliament and of the Council 15 May 2014 on markets in financial instruments and amending Directives 2002/92/EC and 2011/61/EU – in one or more EEA member states or for trading on stock exchanges in third countries. It should be noted, however, that there is no stock exchange in Liechtenstein. The Takeover Act regulates the negative conflict of competencies in relation to third countries. The Takeover Act forms the legal framework for the cross-border takeover of listed companies and regulates the procedure.
Any person who acquires a direct or indirect controlling interest in a company (target company) through sole acquisition or through acquisition with persons acting in concert must notify the FMA thereof without undue delay and, within 20 trading days, announce an offer for all equity securities of the target company that complies with the provisions of the Takeover Act.
A controlling interest is an interest which enables the bidder to exercise a controlling influence over the target company. In the assessment, particular consideration shall be given to the percentage of the participation in the voting share capital, the spread of other shareholdings with voting rights, the voting share capital usually represented at general meetings and the provisions of the articles of association. The obligation to make an offer does not exist if the direct shareholding in the target company amounts to less than 30% of the voting rights attached to the shares with permanent voting rights.
Cash is more commonly used than shares in Liechtenstein as consideration.
According to Article 8 of the Liechtenstein Takeover Act, offer conditions and a reservation of the right of withdrawal are only permissible if they are objectively justified, in particular if they are based on legal obligations of the bidder, or if the occurrence of the condition or the assertion of the right of withdrawal does not depend exclusively on the discretion of the bidder.
The period for acceptance of the offer may not be less than two weeks and not more than ten weeks from the publication of the offer document. If the administrative body of the target company plausibly demonstrates that it is unable to adequately assess the offer in a timely manner if the offeror's acceptance period is less than three weeks, the FMA may set a minimum acceptance period of three weeks.
It should be noted that if an offer to acquire equity securities has failed, the offeror and all persons acting in concert with it may not make any further offer for equity securities of the target company within one year from the publication of the result of the offer. During the same period, they are also prohibited from any acquisition of shares that would trigger an obligation to make an offer.
For the purpose of reviewing the offer document, the offeror shall appoint an expert who is independent of the offeror and subject to the auditors. The expert shall examine the completeness and legality of the offer document, in particular with regard to the consideration offered, and prepare a written report thereon. Furthermore, the expert shall summarise the results of the examination in a concluding statement and, in this statement, also make a declaration that the offeror has at its disposal the funds necessary for the complete fulfilment of the offer.
Offer conditions and a reservation of the right of withdrawal are only permissible if they are objectively justified, in particular, if they are based on legal obligations of the bidder, or if the occurrence of the condition or the assertion of the right of withdrawal does not depend exclusively on the discretion of the bidder.
Subject to the restrictions set out below, under Liechtenstein law the principle of freedom of contract enables the contracting parties to agree on any security deal measure as long as it is in line with good morals.
Offer conditions and a reservation of the right of withdrawal are only permissible if they are objectively justified, in particular if they are based on legal obligations of the bidder, or if the occurrence of the condition or the assertion of the right of withdrawal does not depend exclusively on the discretion of the bidder. In Liechtenstein legal practice, break-up fees are sometimes agreed upon.
If a bidder does not acquire 100% ownership of a target, that bidder would usually wish to bind the other shareholders somehow. This could be achieved by a shareholders' agreement, amending the statutes of the target company accordingly, etc.
Shareholders may generally appoint a proxy who exercises their voting rights.
There is no law regulating squeeze-out mechanisms in Liechtenstein. Therefore, only the common corporate measures could be adopted (eg, a share capital increase). In such cases, each shareholder shall be entitled to that portion of the newly issued shares which corresponds to their existing shareholding. Yet, the resolution of a General Meeting of Shareholders on the increase of the share capital may, with a majority of two thirds of the votes represented, exclude the subscription right in whole or in part. Accordingly, existing shareholders may be diluted.
There is no standard or universal approach to irrevocable commitments by principal shareholders in Liechtenstein. It really depends on the relative deal and transaction.
First, the bidder must notify the FMA of the takeover offer, including the offer document and the expert's report. The date of receipt of the notification shall be confirmed by the FMA. The bidder must then publish the above-mentioned documents no earlier than on the twelfth and no later than on the fifteenth trading day after receipt by the FMA – unless the FMA has prohibited the publication of the offer.
In Liechtenstein, a public offer of securities may, in principle, only be made if the issuer has published in advance an approved securities prospectus which complies with the requirements of the EEA Securities Prospectus Implementation Act (EEA-WPPDG).
In the interest of investor protection, the prospectus must contain, among other things, information about the issuer (for example, the assets and liabilities) and the security to be published. In principle, the FMA must decide within ten working days of the submission of the draft prospectus whether or not it approves the prospectus.
Companies limited by shares are required by law to prepare financial statements even if they do not carry on a commercial business. The statutory representative are required to submit documents to the Office of Justice by the end of the 15th month following the balance sheet reporting date.
The offeror shall prepare an offer document which shall contain, at least, the following information:
Article 182 paragraph 2 of the Persons and Companies Act (Personen- und Gesellschaftsrecht (PGR)) provides for a "safe harbour" for directors when acting on behalf of the legal entity ("business judgement rule"). This principle requires directors to act on the basis of appropriate information and in the best interest of the company, and to ensure that they are not misled by irrelevant issues.
It is not very common for boards of directors to establish ad hoc committees in business combinations.
See 8.1 Principal Directors' Duties. There are several Supreme Court rulings on the business judgement rule found in Article 182 paragraph 2 of the PGR.
Sometimes directors of target companies seek advice from lawyers if they anticipate that upon completion they could be replaced.
There have not been any notable cases concerning conflicts of interest concerning a public M&A transaction.
Hostile tender offers are permitted.
Defensive measures approved by the shareholders' meeting are permissible if the target company's corporate bodies are already obliged to do so or if they have been resolved by the shareholders' meeting after the bidder's intention – to make an offer – has become known. If members of the target company's corporate bodies bring about such resolutions by providing incorrect or incomplete information to the shareholders, they may be liable for damages.
The approval of the shareholders' meeting is required from the time the target company becomes aware of the bidder's intention – to make an offer – until the publication of the result. If the takeover comes about, the period lasts until the bid is executed.
This includes all measures taken by the management and administrative body which could frustrate the bid, in particular for the issuance of equity securities which could prevent the bidder from gaining control over the target company. Measures relating to the search for competing offers are excluded.
General regulations under company law that can make a takeover more difficult include (i) maximum voting rights; (ii) all contractual provisions that prevent a rapid change of control, such as staggered management or supervisory board mandates; and (iii) long-term contracts with members of the management board.
Furthermore, a takeover can be made more difficult by the sale of parts of the company that are particularly interesting from the bidder's point of view, or by a capital increase from already authorised capital and the issue of shares with the exclusion of shareholders' subscription rights.
Moreover, change of control clauses are frequently used in relevant agreements.
The Takeover Act does not provide for any specific duties for administrative bodies with respect to taking defensive measures.
Directors can "just say no"; the business judgment rule applies. This principle requires directors to act on the basis of appropriate information and in the best interest of the company, and to ensure that they are not misled by irrelevant issues.
Litigation in connection with M&A deals is not at all common in Liechtenstein.
See 10.1 Frequency of Litigation.
See 10.1 Frequency of Litigation.
Shareholder activism is not an important issue in Liechtenstein.
See 11.1 Shareholder Activism.
See 11.1 Shareholder Activism.
Liechtenstein Economy: Overview
The Principality of Liechtenstein has a highly industrialised, export-oriented and very competitive economy. Liechtenstein's economy has grown steadily in recent years. It seems that 2021, however, will still be affected by the COVID-19 pandemic. The subsequent slowdown in the field of M&A transactions should be overcome by the end of this year. Nonetheless, holding companies domiciled in Liechtenstein are still actively involved in M&A transactions with a cross-border dimension. Furthermore, industrial Liechtenstein companies maintain successful subsidiaries abroad and are therefore regularly involved in both intra-group and extra-group M&A transactions.
Nevertheless, to date, Liechtenstein has been able to keep its triple A-rating and remains debt free.
Although Liechtenstein has very small domestic market there is a comparatively high number of companies that are world leaders in their fields, which is a result of the legal certainty and liberal economic framework that the Liechtenstein legislature has provided over decades. In addition, the small size of the country allows governmental institutions to support companies in an unbureaucratic manner.
Recent Changes in Legislation and Other Recent Legal Developments
Liechtenstein was the first jurisdiction in Europe to create a legal framework regulating distributed ledger technology services: the so-called Blockchain Act (Token und VT-Dienstleistergesetz; TVTG). The Blockchain Act entered into force at the beginning of 2020. The Blockchain Act primarily regulates the transfer of tokenised assets by the use of blockchains (further regulated areas include token-issuance, token-generation and token-custodial services), but also the supervision of service providers by the Financial Market Authority (FMA). The predominant motivation of the legislature was to provide a reliable legal framework for parties involved in token transfers but also for the service providers themselves.
As Liechtenstein had developed a sophisticated practice in the distributed ledger technology space even before the implementation of the Blockchain Act, several service providers settled in or migrated to Liechtenstein. In particular, start-ups with digital business backgrounds tried to finance their businesses by issuing self-generated tokens (financing via initial coin offerings). Issued tokens regularly represented certain rights related to the company (pre-emptive rights on products produced by the start-up or pre-emptive rights regarding shares or separate non-voting shares). It became clear that many legal questions in connection with this new form of corporate financing would need to be solved by way of specific legislation (eg, whether a concrete token is a regulated financial product or not).
With the enactment of the Blockchain Act most questions could be solved. Thus, Liechtenstein created a very friendly environment for start-ups providing fintech and blockchain services. Service providers under the laws of Liechtenstein now have access toa well-suited and modern legal framework within which to provide their services.
The first positive impacts within the fintech and distributed ledger technology scene have already been achieved. One of the world's largest cryptocurrency trading platforms migrated to Liechtenstein. It will be interesting to see if other large fintech companies will follow in the near future.
Persons and Companies Act (Personen- und Gesellschaftsrecht)
In the course of the implementation of the Blockchain-Act there has been a remarkable amendment within the Persons and Companies Act (Personen- und Gesellschaftsrecht; PGR) as well. The newly introduced Article 81a of the Final Section (SchlT) of the PGR introduces the possibility of issuing so-called book-entered securities (Wertrechte). Register or bearer shares can therefore now be represented by book-entered securities which allow share transfers under reduced formal requirements (eg, endorsements or a physical transfer of the share is not a requirement for book-entered securities). The mere registration within the book of shares (Wertrechtebuch), which is kept by the company, is sufficient. Alternatively, the book of shares can be managed and kept using a blockchain, which makes it possible to transfer book-entered securities automatically by way of tokens.
While (physical) registered shares are currently the most popular type of share, (physical) bearer shares have become increasingly regulated and today de facto are "immobilised" due to the legal requirement to register all bearer shares in a specific internal register kept by a special custodian. As a consequence, and also due to the increased administrative effort which they create, new companies no longer issue bearer shares.
With the entry into form of the new Notary Act, Liechtenstein introduced a modern law for notarial services. The law permits Liechtenstein attorneys and other professionals to qualify as public notaries and, in that capacity, to assist contracting parties in the realisation of both domestic and international corporate transactions.
Anti-money laundering measures
By implementing the fourth Anti-Money Laundering Directive (EU Directive 2015/849), Liechtenstein enacted the legal basis for the Register For Beneficial Owners of Liechtenstein legal entities (Gesetz über das Verzeichnis wirtschaftlicher Eigentümer). In the meantime, all legal entities domiciled in Liechtenstein as well as their beneficial owners must be registered. On 1 April 2021 the aforementioned Register will be renamed to be referred to as the Register of beneficially entitled previous (Verzeichnis wirtschaftlicher Berechtigter) under the new law (Verzeichnis der wirtschaftlich berechtigten Personen von Rechtsträgern; VwbPG). For M&A transactions, the consequence is that any resulting change in the identity of the ultimate beneficial owner(s) (who ultimately own or control the entity) must be registered within 30 days (following the date on which the change becomes effective). It is the target entity's obligation to timely arrange for such registration. For closing purposes, it is useful to stipulate the timely registration in the transaction documents by way of a post-closing obligation.
During the COVID-19 crises Liechtenstein enacted an entirely revised Insolvency Code, which entered into force on 1 January 2021. This new piece of legislation also provides for various possibilities to save financially distressed companies entirely or partly. The new law also provides for a more varied scope of transactions within the insolvency proceedings that an insolvency receiver can consider, not only in order to protect the insolvent entity's employees but also to increase the financial compensation which the creditors can expect as a result of the insolvency. The range of such transactions encompasses private asset sales as well as spin-offs and mergers. It goes without saying that the new Insolvency Code can lead to attractive investment opportunities for adventurous investors during the COVID-19 pandemic. The new law constitutes a significant improvement in comparison to the former legislation, which drastically limited an insolvency receiver's options during an insolvency proceeding. It remains to be seen whether the number of insolvencies in Liechtenstein will effectively increase as a result of COVID-19.
Commercial Act (Gewerbegesetz)
Access to the market for simple commercial businesses was made considerably easier by the revision of the Commercial Act, which entered into force on 1 January 2021. The legislature implemented a key change from a broad authorisation requirement to a slim notification requirement with regard to simple commercial activities. Companies which pursue a simple commercial business purpose can now start their business activity in Liechtenstein directly after the notification of the business to the competent national authority. The waiting period until the issuance of the concrete commercial licence has thus been eliminated. Only companies with a business activity that requires official approval need to go through the broader approval process.
M&A Market Trends
Traditionally, M&A transactions in Liechtenstein are private equity-based. Only a very small percentage of the M&A transactions concern listed Liechtenstein companies. In addition, the number of listed/public companies in Liechtenstein is very small since the country does not have a traditional stock exchange of its own. As a consequence, there are no comprehensive public figures on the number of M&A transactions and transaction volumes and neither the number of transactions nor the volumes involved can be allocated between the various industries. In contrast to other, larger markets, the Liechtenstein transaction market traditionally has been dominated by cross-border transactions (both inbound and outbound).
The key industries are the financial services sector (private banks), the manufacturing industry and fintech companies as well as other start-ups. Some of the largest Liechtenstein private banks have successfully expanded their operations throughout Europe and into the Far East. Furthermore, Liechtenstein continues to be one of the most industrialised countries in Europe. Despite its tiny domestic market Liechtenstein has generated very innovative manufacturers, some of which have developed into world leaders in their respective niches. Many international groups of companies have used the COVID-19 crisis to reorganise their structures, which include Liechtenstein subsidiaries and/or holding companies. Such reorganisations frequently include intra-group corporate transactions such as mergers or de-mergers, re-domiciliations, asset transfers and the creation of new intra-group companies.
Furthermore, Liechtenstein companies have recently experienced an increased demand for being set up as so called "special purposes vehicles" (SPVs) or special purpose acquisition companies (SPACs) for cross-border M&A. As a member of the European Economic Area, Liechtenstein forms part of the harmonised EEA-wide passporting regime for security prospectors. Against this background, a Liechtenstein SPV or SPAC is more frequently involved in the issuance and subsequent listing (as part of a public offer) of financial instruments within the EEA.
Similar to its neighbouring jurisdictions, Liechtenstein will not be spared from the implications of the COVID-19 pandemic. In practice, postponements were noted within M&A transactions during 2020. In relation to M&A transaction documents, legal advisors have become more aware of the need to draft specific material adverse change (MAC) clauses in order to cover the risks of material changes between the signing and closing of transaction documents. It is also possible that the market will develop a specific standard practice for such clauses in order to mitigate the risks of any future pandemic for M&A transactions.
In practice one could note an increased demand from the transaction parties to stipulate, in the transaction documents, fairly generous long-stop dates and break-up fees allowing a party to prematurely withdraw from the transaction.
In relation to shareholder agreements for Liechtenstein fintech companies and start-ups, international investors have increasingly requested the negation of specific exit possibilities which are tailored in view of the COVID-19 pandemic. Experience shows that mere force majeure clauses can lead to complications in an exit scenario. Therefore, investors are interested in more specific termination clauses in order to avoid discussions, and potential litigation or arbitration, in the event of an exit.
During recent decades Liechtenstein has maintained its stable and innovative economy. As a result, the country has managed to establish itself as an attractive and reliable hub for corporate transactions with cross-border elements. The country's regulatory framework is in line with modern European and international standards, which also ensures a harmonised approach by the Liechtenstein regulators towards corporate M&A transactions in regulated sectors.