Despite a global decline in M&A deal volumes and values in 2023 compared to 2022, due to the geopolitical and economic instability worldwide, the M&A market in Serbia has demonstrated resilience and stability. The COVID-19 pandemic did not affect the pace of deal activity in Serbia in 2023.

M&A transactions in Serbia in 2023 continued to be mainly strategic, even though a number of transactions contemplated acquisitions by financial investors. Contrary to general expectations, no insolvency boom has taken place in Serbia, partly due to the state aid distributed to Serbian businesses in the course of the COVID-19 pandemic.

The financial services sector in Serbia has remained very vibrant, with intense mergers and acquisitions being conducted as part of the pending consolidation of the banking sector, resulting in a decrease in the overall number of banks to 20 (compared to 34 less than a decade ago).

M&A in the IT, energy and life sciences sectors continued an upward trajectory in 2023, and there was a steady increase in the number of M&A transactions in the game of chance industry.

Due to growing interest among investors for M&A in the education industry in the course of 2023, the coming year could be marked by a rise in M&A activities in this sector.

Share deals remain the primary means of acquiring companies in Serbia, resulting in direct acquisitions of target companies and indirect acquisitions of their businesses, assets and employees. In general, share deals contemplate, the execution and notarisation of share transfer deeds and further registrations of the resulting corporate changes in the Business Registers Agency and, to the extent shares are acquired in joint stock companies, the Central Securities Depository and Clearing House (CRS). Acquisitions of public joint stock companies may require the launching of takeover bids, the publication and approval thereof by the Securities Exchange Commission (SEC) and the following of stringent takeover procedures.

Asset deals are the customary means of acquiring businesses in Serbia, enabling acquirers to cherry-pick the assets being acquired. However, unlike in the European Union (EU), acquisitions of businesses through asset deals do not result in the automatic transfer of employees to the acquirers, making this acquisition technique less efficient. In addition, asset deals generally result in joint and several liability of the transferors and the acquirers for the obligations related to the acquired pool of assets.

Corporate restructuring is  mostly used as a technique for intra-group restructuring, but may also serve as a valid legal means of acquiring companies or businesses in Serbia.

The primary regulators for M&A activities in Serbia differ depending on the type of shares being acquired (ie, in joint stock companies, public joint stock companies or limited liability companies) and the industries concerned (regulated or unregulated industries).

The main institutions in charge of the regulation and/or supervision of M&A activities include:

• the Serbian Competition Protection Commission (CPC), which is in charge of protecting competition and enforcing the applicable competition regulations in Serbia;
• the SEC, which is the regulatory body in charge of, inter alia, implementing the Capital Markets Law, supervising the operations of public joint stock companies and approving and supervising takeover bids; and
• the National Bank of Serbia (NBS), which supervises the operations of financial institutions and issues approvals for acquisitions of shares therein.

Foreign investors in Serbia have the so-called “national treatment”, meaning that they have the same status, rights and obligations as Serbian investors, unless otherwise provided in specific laws.

Unlike in the EU, there is no general screening of foreign direct investments in Serbia. Accordingly, no foreign direct investment approvals are required, regardless of the origin of the foreign investors.

However, certain sector-specific rules may apply to both domestic and foreign investors with respect to investments in regulated industries (defence, banking, insurance, energy, telecommunications, gambling, etc). In addition, any investment in Serbia, by either a domestic or a foreign investor, that may qualify as a concentration under the Serbian Law on Protection of Competition requires approval by the CPC if the following thresholds have been met in the financial year preceding the filing:

• the combined worldwide turnover of the undertakings concerned exceeded EUR100 million and the turnover of at least one undertaking concerned exceeded EUR10 million in Serbia; or
• the combined turnover of at least two of the undertakings concerned exceeded EUR20 million in Serbia and the turnover of each of at least two of the undertakings concerned exceeded EUR1 million in Serbia.

Foreign-to-foreign transactions that meet the turnover thresholds prescribed by the Serbian Law on Protection of Competition are also subject to the Serbian merger control regime, regardless of whether or not they have any effects in Serbia.

Resident legal entities are obliged to report foreign investments made to their share capital to the NBS, for statistical purposes.

The main antitrust regulations that apply to business combinations in Serbia are:

• the Law on Protection of Competition;
• the Decree on the Form and Manner of Filing a Notification of a Concentration;
• the Decree on Criteria for Determining the Relevant Market;
• the Serbian Vertical Block Exemption Regulation; and
• the Serbian Horizontal Block Exemption Regulation.

While EU antitrust regulations do not officially apply to business combinations in the Republic of Serbia, the CPC does, in practice, adhere to the basic principles set out therein, and to the European Commission's practice in the field of the protection of competition.

Acquirers should generally consider the level of employees' rights and benefits available at a target company under the applicable collective bargaining agreement or employment rulebook, employment contracts and/or other documents and policies, as well as those arising out of a transaction completion (transaction-related bonuses, special severance packages arising out of the termination of employment resulting from a change of control, etc).

However, unlike in other EU countries, an asset deal does not result in an automatic transfer of employees; any desired transfer of employees must be completed separately, in full observance of the applicable labour law regulations. This means that, in order to transfer to another employer, employees must first terminate their employment at the previous employer and negotiate new terms of employment at the target.

When it comes to the protection of employment-related rights, the acquirers of shares and/or assets have no specific obligations. In corporate restructurings in particular (such as mergers or spin-offs), employees’ rights cannot deteriorate for a period of at least one year.

The Serbian Labour Law does not provide for specific additional protection against dismissal in relation to a share deal; the general provisions of the Labour Law regarding the dismissal of employees are applicable. In that respect, an employer may terminate the employment contract for justified reasons only, in a rather formalistic procedure (breach of work duty, work discipline, underperformance and redundancy are the most common grounds for the termination of employment).

Finally, even though there is no explicit obligation for the employer to inform or consult employees, their representative/s or a relevant trade union on a share deal, communication in that respect with a trade union (if any) is advisable, since, under the Serbian Labour Law, a trade union is entitled to be notified by the employer of any economic, labour and social matters that are significant for the status of employees or trade union members.

Certain transactions in the defence sector must be notified for screening and approval by the Ministry of Defence, which includes a security review of a foreign acquirer.

The major legal developments in Serbia in the past three years relate to changes of the renewable energy regulation, which introduced greater predictability for costs and incentives for investors, and unbundled electricity and gas transmission system operators, thereby boosting the overall appetite of foreign investors for doing business in this industry in Serbia.

There were no significant changes to takeover law in 2023. Changes are expected in 2025.

Building a stake in the target prior to launching an offer is permissible and is often done in practice. However, such stakebuilding must be carefully conducted to ensure full compliance with the applicable statutory regulations, including those governing capital markets and takeovers, which are relevant in acquisitions of joint stock companies.

Acquisitions of shares in companies whose shares are traded on the Serbian regulated market or a multilateral trading facility (MTF), or that have more than 100 shareholders on each last day in three consecutive months, as well as the entire capital of at least EUR3 million or equivalent in RSD, are subject to a takeover bid as soon as the statutory thresholds have been reached.

The relevant process also requires full observance of the rules on acting in concert: pursuant to the Takeover Law, the establishment of a relationship of “acting in concert” is equivalent to the acquisition of voting shares. When persons are acting in concert, the voting shares of the acquirer are added to the shares carrying voting rights of its concerting parties and when the obligation to launch a takeover bid arises out of the establishment of an “acting in concert” relationship, all parties in such relationship (except for the target company) are required to launch a takeover bid. However, as soon as one party launches a takeover bid, the other party is no longer obliged to do so.

Pursuant to the Serbian Law on Protection of Competition, a takeover of a controlling stake in a company qualifies as a concentration. A concentration arising out of a takeover, whether mandatory or voluntary, must be notified to the CPC even if the jurisdictional thresholds have not been met, provided that the takeover was conducted in the manner regulated by the Takeover Law and resulted in the acquisition of a controlling stake in the target company.

Pursuant to the Serbian Capital Markets Law, a direct or indirect acquisition of voting shares in a target company whose shares are traded at the regulated market or the MTF, at or above the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75%, must be reported to the SEC, the respective target company (issuer), the regulated market or the MTF where the respective shares are traded, within the deadlines prescribed in the relevant SEC reporting rulebooks. The same notification obligation applies to a shareholder whose shareholding drops below any of such thresholds as a result of the disposal of shares.

The above disclosure requirements also apply when the thresholds have been reached, exceeded or dropped below, resulting in a change of the overall number of voting shares or votes arising thereunder, for reasons not attributable to the shareholder (capital increase or decrease, etc). This requirement also applies when the issuer has been established outside of Serbia, but their shares had been admitted for trade on a regulated market in Serbia.

Specific disclosure requirements are prescribed for share acquisitions and disposals in financial institutions.

The material shareholding disclosure thresholds prescribed under the law are mandatory and must be observed as prescribed.

Dealings in derivatives are allowed under the law.

In general, as of the date Serbia accedes to the EU, investment firms and market operators managing venues for the trade of commodity derivatives, emissions allowances or derivatives thereof will be obliged to:

• publish weekly reports on the aggregate positions held by the different categories of persons for the different commodity derivatives or emissions allowances or derivatives thereof traded on their trading venue;
• deliver such weekly reports to the European Securities and Markets Authority; and
• deliver complete breakdowns of the positions held by all persons on that trading venue to the SEC, including members or participants and the clients thereof, at least daily. Additional detailed requirements are prescribed, depending on the trade volumes and jurisdiction.

The Law on Protection of Competition does not deal specifically with derivatives.

Pursuant to the Takeover Law, a takeover bid must include an indication of the bidder’s objectives and intentions regarding the target company that is subject to a takeover. Similar requirements are imposed on acquirers of financial institutions and companies acting in certain regulated industries.

While no disclosure requirements are generally prescribed for limited liability companies being acquired, target joint stock companies are obliged to inform the public of insider information that directly concerns such companies, as soon as possible. This disclosure requirement applies to target joint stock companies that have requested or approved the admission of their financial instruments to trading on regulated markets or, in the case of instruments only traded on an MTF or an organised trading facility (OTF), companies that have approved trading of their financial instruments on an MTF or OTF or have requested admission to trading of their financial instruments on an MTF.

Target companies may decide to delay the disclosure of insider information to the public if:

• it is expected that the immediate disclosure would prejudice the legitimate interests of the relevant companies;
• such delay in disclosure is not expected to mislead the public; or
• the companies would be able to ensure the confidentiality of the relevant information.

Under the same circumstances, companies may delay the disclosure of insider information to the public in the case of a protracted process occurring in stages with the aim of bringing about, or resulting in, a particular circumstance or a particular event. In the case of delayed disclosure of insider information, the companies must inform the SEC thereof as soon as possible following such a delay, and also when the insider information has been disclosed to the public (in which case specific elaborations to the SEC must be provided).

The Capital Markets Law also entitles joint stock companies to disclose information to one or more potential investors in the course of the so-called “Market Sounding” before the announcement of the transaction, in order to assess the interest of potential investors. The disclosure of inside information by a person intending to make a takeover bid or a merger to parties entitled to the relevant securities shall also constitute a Market Sounding if:

• such information is necessary to enable the parties to form an opinion on their willingness to offer their securities; and
• the willingness of the parties to offer their securities is reasonably required for the decision to make the takeover bid or merger.

The acquisition of a target company through a takeover on the basis of insider information is prohibited and sanctioned by imprisonment.

The legal requirements on the timing of disclosure and permissible delays in the process must be observed.

The scope of due diligence depends on the type of transaction and the nature of the business conducted by the target.

In large M&A transactions, it is advisable for each investor to conduct at least financial, operational, legal and tax due diligence. The COVID-19 pandemic partially extended the scope of regular due diligence, as state aid issues became relevant outside the ordinary scenarios.

It is common for the parties to include exclusivity clauses in regular M&A transaction documents. Standstill arrangements to prevent takeovers are not standard, and the permissibility of such and other agreements aimed at conducting a takeover is very limited. In takeover processes, bidders and persons acting in concert with bidders are prohibited from acquiring or disposing and agreeing to acquire or dispose of shares of target companies outside of takeover processes, from the moment the obligation to launch takeover bids has arisen until the lapse of the bids' duration.

Tender offers may be documented in definitive agreement(s), and often are. However, these agreements cannot replace the offer, which must contain details on:

• the target;
• the bidder, the persons acting in concert with the bidder, and such acting in concert;
• the type and number of shares the bidder intends and is obliged to acquire, including the number of votes;
• the price per share, as well as the terms and conditions of payment;
• the sources and manner of provision of funds for the purchase of shares;
• the investment company acting for the bidder;
• the takeover bid’s validity period;
• instructions on the manner in which the shares should be deposited, as well as other rights and liabilities of shareholders who deposit shares, including the right to cancel their prior acceptance of the takeover bid by withdrawing the shares from the depository facility;
• the bidder’s objectives and intentions regarding the target company; and
• other information that may be required under the Takeover Law or the SEC’s regulations.

The offer must also include a clear statement that the bid is submitted to all shareholders who hold voting shares in the target company and that the bidder undertakes to buy each voting share tendered, pursuant to the stipulated and published conditions.

The length of the process of acquiring/selling a business in Serbia depends mainly on the target company's size, the industry, the complexity of shareholders' relationships, the transaction structure, regulatory requirements, the complexity of negotiations and other transaction specifics. On average, most transactions may be closed within a six-month period but this average period may differ, depending on the complexity of the process.

Acquisitions via takeovers are regulated in detail in the law. The minimum takeover bid duration is 21 days, while the maximum is set at 45 days. However, the latter period can be extended due to changes in the takeover bid or as a result of a counter-takeover bid. In case of changes to the takeover bid, the takeover bid's duration is extended by seven days, but the maximum bid duration period may not be longer than 60 days. In case of counter-takeover bid(s), the total period for both the original and the subsequent counter-takeover bid(s) cannot exceed 70 days from the day on which the initial short-form takeover bid was published.

Competition clearance in Serbia is generally obtained within one month from the date of submission of a complete merger filing with the CPC. In complex cases that require the instigation of Phase II procedures, the CPC is obliged to issue its decision within four months from the date such Phase II procedure is initiated. Please note, however, that competition clearance outside of Serbia, triggered by a Serbian M&A transaction, may sometimes significantly prolong the overall length of the process.

Pursuant to the Takeover Law, a takeover bid must be launched by a person who has acquired – directly or indirectly, solely or by acting in concert – voting shares that, together with the shares already acquired, represent more than 25% of the overall number of the target company’s voting shares (“General Threshold”).

Once the General Threshold has been surpassed and a takeover bid published in line with the applicable rules and/or upon publication of the takeover bid for the further acquisition of shares whose initial acquisition was exempted from the takeover bid obligation, a direct or indirect acquisition of an additional 10% of the target company’s voting shares, solely or by acting in concert, triggers a takeover bid obligation for the acquirer (“Additional Threshold”).

The acquirer shall be obliged to publish a takeover bid even if it has acquired – directly or indirectly, solely or by acting in concert – less than 10% of the target company’s voting shares, if such newly acquired shares, together with the already acquired ones, represent more than 75% of the overall number of the target company’s voting shares (“Ultimate Threshold”).

A further acquisition of shares by the acquirer who published a takeover bid due to the share acquisition above the General Threshold and/or the Additional Threshold does not trigger a takeover obligation if the respective acquirer owns shares that represent at least 75% of the target company’s voting shares.

Cash is the predominant means of payment of consideration in an M&A transaction. Nevertheless, the Serbian Takeover Law explicitly provides that shares and bonds may be used as payment tools for the acquisition of takeover shares.

Conditions to a takeover offer are permitted only for voluntary takeover bids and are limited to an indication of the minimum number of shares and/or percentage of voting shares of the target company to be acquired.

Minimum acceptance conditions are permissible. A bidder is not bound by their conditional bid if the relevant number of shares is not tendered and deposited into a special purpose account for the takeover bid duration. On the other hand, if, for the bid duration, a lesser number of shares is tendered and deposited into a special purpose account than is required by the conditional takeover bid, the bidder is not permitted to acquire such lesser number of shares, but is obliged to return such shares, at its own expense, within three business days from the date of receipt of a report by the CRS on the result of the takeover bid. In the case of multiple bids, if the original bid was conditional upon the acquisition of a minimum number of shares, the competing bid cannot refer to a larger number of voting shares in the target company.

Even though decisions in a joint stock company are generally passed by a simple majority of votes, a number of decisions require a 75% majority of votes, and squeeze-out decisions require the 90% majority of share capital and voting shares. Accordingly, minimum acceptance conditions shall seldom be lower than 75% of voting shares.

While the parties to private transactions are free to make closing conditional on the prior receipt of financing, such structures are rarely seen in practice.

However, in business combinations involving takeover bids, the financing requirement is prescribed in the law. Prior to submitting a request for the approval of the publication of the takeover bid to the SEC, a prospective bidder has to secure the necessary funds for payment of the shares to be acquired in the takeover bid process.

The funds must be secured in one of the following manners:

• by depositing the relevant cash funds and securities into a special bank account;
• by concluding a loan agreement with a bank for this purpose; or
• by obtaining an irrevocable first demand bank guaranty for the amount required for the payment of shares.

If the bidder is a foreign (non-Serbian) person/entity, they are obliged to deposit the relevant funds into or obtain the relevant loan or guaranty from a Serbian bank.

Parties have discretion to negotiate security measures in private transactions, subject to the limitations provided under the law. As a rule, a target company is never permitted to provide, directly or indirectly, any security or financial assistance to a prospective bidder aimed at facilitating the acquisition of shares therein. In addition, a company’s representatives are generally obliged to act in the best interest of the relevant company. The post-COVID-19 period triggered the more frequent inclusion of material adverse change (MAC) clauses in transaction documents.

Agreements on deal security measures are less feasible in takeover bid processes, which are thoroughly regulated in the law. Bidders should be wary of any arrangements with third parties aimed at the acquisition of shares in a target company, as such may qualify as acting in concert. Namely, under the law, it is considered that persons act in concert when they co-operate based on an agreement – express or tacit, oral or written – aimed at acquiring voting rights, exercising voting rights in concert or preventing another person from executing a takeover (see 4.1 Principal Stakebuilding Strategies).

In addition, a bidder's rights in the course of the takeover process are significantly limited, as follows:

• in general, a bidder cannot amend its offer by decreasing the previously offered share purchase price, but can rather make the offer better by, for example, increasing the offered price or eliminating the conditions contained in a conditional takeover bid; and
• in the case of a conditional offer, it is prohibited for a bidder, its subsidiaries, persons that control the bidder and/or persons that provide takeover-related services to a bidder to affect the fulfilment of a takeover bid condition.

Management reports on takeover bids, as well as employees' reports, must contain true information, whereby management and the supervisory board cannot pass decisions from the scope of their competencies (other than issuing management reports) that could unlawfully prevent or impede a takeover or have a detrimental effect on the operations of the company.

A bidder that does not hold 100% ownership in a target may have a broad palette of shareholders' rights, including the right to appoint a certain number of board members, specific rights in case of a deadlock and quasi-veto rights on so-called “reserved matters”. Such rights are often stipulated in the shareholders' agreement, but due to the specific requirements of the Serbian Company Law are often also provided in the articles of association of a company.

Aside from these, minority shareholders have specific rights provided under the law, which include but are not limited to:

• the right to information;
• the right to file individual and derivative actions;
• the right to request convocation of the shareholders' meeting and/or to request amendments of the agenda for the shareholders' meeting;
• the right to request special purpose and/or extraordinary auditing of audited financial reports;
• the right to request dissolution of the company, etc.

While some minority shareholder rights pertain to all shareholders, most of them are linked to at least 5% or 10% shareholding in the company, and some require a higher shareholding therein (eg, 20%).

Voting through proxies is permissible in Serbia. Proxies are either bound by explicit instructions on how to vote on a specific decision or, in the absence thereof, are obliged to act in good faith and vote in the best interest of the shareholder they represent.

Pursuant to the Company Law, a squeeze-out procedure may be initiated upon the suggestion of a shareholder holding shares that represent at least 90% of the share capital and voting rights of all shareholders holding ordinary shares (“Majority Shareholder”). Based on such proposal, the shareholder assembly passes a decision on a squeeze-out of all minority shareholders, notwithstanding encumbrances, disposal prohibitions/limitations or third-party rights on shares (if any). Shares held by related persons qualify as shares of the Majority Shareholder, provided that the relevant persons became related to the Majority Shareholder at least one year before a squeeze-out decision was made.

The squeeze-out price is determined in line with the rules on the buyout of dissenting shareholders and should be the higher of:

• market value determined as weighted average value achieved on the stock exchange market or MTF in the six months preceding the date of the decision determining said price, provided that the trade volume for the respective class of shares in the relevant six-month period was at least 0.5% of all issued shares of the relevant class and that trade of shares was conducted on more than 1/3 of trading days on a monthly level;
• the book value of the shares; or
• the appraised value, determined by the court expert, auditor or another professional that is authorised by the State to conduct the valuation of shares.

The squeeze-out price is determined based on the share value on a date no more than three months before the date the decision on the squeeze-out was made, notwithstanding the accepted increase/decreases resulting from the squeeze-out decision. If the squeeze-out decision results in the termination of special benefits enjoyed by certain shareholders, such fact is taken into consideration when determining the share price.

The clearing and settlement of share transfers under the squeeze-out is executed under the delivery-versus-payment principle. If the squeeze-out concerns pledged shares that are subject to sale initiated by the pledgor, the CRS shall transfer the assets to the account of the pledgor. If the sale of the pledged shares that are subject to squeeze-out has not been initiated, assets shall be transferred to the account of the pledgee. If, however, pledged shares that are subject to squeeze-out cannot be disposed of due to a temporary injunction or a transfer prohibition, assets shall be transferred to the account of the corporate agent of the issuer.

In general, pursuant to the Serbian law, unilateral commitments may be revoked, most of the time. On the other hand, pursuant to the Takeover Law, shareholders may withdraw their shares at any time before the expiration of the takeover bid period. They may also withdraw their shares following the expiration of the deadline for the payment of shares by the bidder if the bidder has not paid for the shares in the specified period of time. Shareholders cannot waive the right to withdraw their shares from the relevant deposit account, nor can the bidder invoke such a waiver.

In M&A transactions conducted through takeovers, after acquiring the relevant number of voting shares that triggers an obligation to launch the takeover bid process, the bidder must, within two business days, publish the Notification of the Takeover Intent and submit such notification simultaneously to the relevant regulated market/MTF where the shares of the target company are traded, the CRS, the SEC and the target company. The bidder must publish the Notification of a Takeover Intent in the same manner in which the actual takeover bid will be published.

Within 15 business days from the day on which the obligation to launch a takeover bid arises, the bidder must file the following with the SEC:

• the request for approval of the publication of a takeover bid;
• the takeover bid;
• the short-form takeover bid;
• the text of the Notification of a Takeover Intent; and
• the supporting documentation.

The general deadline for the SEC to issue its approval of the application to publish a takeover bid is ten business days.

The Notification of a Takeover Intent must contain the same information that must be included in the actual takeover bid (see 5.5 Definitive Agreements), as well as the bidder's confirmation that it will publish a takeover bid within the statutory deadlines. The Notification of a Takeover Intent cannot be amended or waived after the submission of the request for approval for publication of a takeover bid.

In terms of a voluntary takeover bid, the publication of the Notification of a Takeover Intent creates an obligation for the bidder to publish the relevant takeover bid in line with the Takeover Law.

The bidder must publish the short-form takeover bid, as well as all amendments thereto, immediately after receiving the SEC’s approval of the request to publish a takeover bid or its amendments. The publication needs to be made in one daily newspaper that covers the whole territory of the Republic of Serbia. The bidder must immediately submit a copy of the published short-form takeover bid to the SEC.

The bidder must also submit the takeover bid and all amendments thereto to the target company, the regulated market or the MTF and the CRS on the day on which it ordered the publication of the short-form takeover bid in the newspaper, and the respective delivery to the shareholders of the target company must be executed within three days from the date it ordered the publication of the short-form takeover bid in the newspaper.

A public offering of shares generally requires the issuance, approval and publication of a Prospectus, unless such obligation is explicitly waived under the law. A prospectus must contain information that enables investors to assess:

• the property and obligations, profits and losses, financial status and potential business results of the issuer and all surety;
• rights arising out of securities; and
• the reasons for the issuance and the impact of such issuance on the issuer.

Financial statements do not constitute a compulsory part of the takeover bid. However, in the process of approving a takeover bid publication (see 7.1 Making a Bid Public), the SEC may request the delivery of other documents, including the financial statements.

Financial statements are generally prepared in accordance with IFRS on a form prescribed by the Serbian Ministry of Finance, and are registered and published until 31 March of the current year for the preceding year.

M&A transactions in Serbia are generally governed by framework agreements containing all details of the transaction, including but not limited to the purchase price, conditions precedents and pre- and post-closing covenants. Such agreements are supplemented by the actual transfer documents, which range from short-form share transfer deeds in private transactions to takeover bid documents in public takeover processes.

Framework agreements are generally not disclosed to the Business Registers Agency, SEC, CRS or other regulatory bodies, for confidentiality reasons. In private transactions, share transfer registrations are executed based on short-form share transfer deeds or share transfer orders or, in takeover processes, the takeover bid documents.

A director of a Serbian company is in charge of managing the day-to-day operations of the company and representing the company before third parties in accordance with the foundation deed of the company and the shareholders' assembly decisions.

The specific fiduciary duties of a director are as follows.

• Duty of care – a director must carry out their duties in good faith, with due diligence, showing the care of a prudent businessperson, with a reasonable belief that they are acting in the company's best interest.
• Duty related to transactions involving personal interest – a director must notify other managing directors or the supervisory board of their personal interest (or an interest of the director’s related party) in any transaction entered into or any action taken by the company.

• Duty of avoiding conflict of interest – a director cannot, for their own benefit or for the benefit of any related party:
1. use any of the company’s assets;
2. use any information obtained in the capacity of a director, unless such is otherwise publicly available;
3. abuse their position within the company; or
4. use the opportunities that arise for the company for their own benefit.
• Duty of confidentiality – a director should keep business secrets of the company confidential.
• Duty of non-competition – a director should not, directly or indirectly, enter into a relationship with a competitor of the company, unless such has been approved by the company (in a procedure for approval of transactions involving personal interest).

Besides the responsibilities and fiduciary duties of a director explained above, additional obligations of a director may be determined by the foundation deed of a company or shareholders' assembly decisions, and in the agreements concluded between the company and a director.

The board of directors (BoD) of a non-public joint stock company may form committees that would assist the BoD in fulfilling its responsibilities. In public joint stock companies, the BoD must form an audit committee and may form committees for appointments and compensations, and other committees in accordance with the company's articles of association.

The competencies of the BoD cannot be delegated to a committee. Accordingly, committees cannot be used when some directors have a conflict of interest, except to operationally support the BoD by, inter alia, providing opinions and proposals.

A director must carry out their duties in good faith, with due diligence, showing the care of a prudent businessperson, and with a reasonable belief that they are acting in the company's best interests. If a director has certain specific knowledge, skills or experience, such shall be taken into account for the purpose of evaluating the level of diligence that is reasonably expected of such director. A director may also base their decisions on information and opinions provided by persons who are specialised in a specific field (lawyers, tax consultants, etc), if the director reasonably believes that they acted diligently in a specific matter. A director who proves that they acted in accordance with these standards shall not be liable for damages incurred by the company.

Independent outside advice is commonly given to directors in the form of expert opinions or reports issued by financial, legal, tax and technical experts.

The company may file a lawsuit against a director who breached their duty to avoid conflicts of interest (see 8.1 Principal Directors' Duties) and also against the director's related parties, and may:

• claim damages; and/or
• seek a transfer of all benefits gained as a result of such breach of duty from the managing director or their related party.

While court precedents on conflicts of interest of directors, managers, shareholder and advisers are scarce, the topic has been subject to judicial scrutiny.

Within ten days from the date of a bid publication, the management of the target company must publish its opinion regarding the bid in the same newspaper in which the short-form takeover bid was published. If the target company's management receives a separate employees' opinion on the bid, it must publish it, together with its own opinion. However, shareholders are not bound by these opinions – hence, hostile takeovers may take place.

The use of defensive measures by directors against takeover bids is rather limited and generally sums up to a chase for competing bids.

Pursuant to the Takeover Law, upon the publication of a takeover bid, all participants in the takeover process (including directors), as well as third parties, are prohibited from offering benefits to shareholders of a target company, directly or through public media, for the purpose of influencing their decision on the takeover bid.

From the moment of publication of the Notification of the Takeover Intent until the completion of a takeover process, directors or supervisory board members cannot do the following without prior consent from the shareholders' assembly:

• use their authority granted under the articles of association of a target company to increase the share capital therein through a share issuance;
• decide on the execution of extraordinary actions or agreements that would significantly affect the estate or liabilities of the target company;
• decide on the acquisition or disposal of treasury shares; or
• launch a takeover bid for another company.

During the same period of time, a target company cannot include in its foundation deed or articles of association limitations as to the number of votes arising out of shares; if such limitations have already been envisaged, they may be cancelled by the shareholders' assembly by a simple majority of votes.

Other than the issuance of a management report, directors or supervisory board members cannot make decisions that could unlawfully impede or prevent the takeover or have a detrimental effect on the operations of the target company over a longer period of time.

A chase for a competing bid is the most common defensive measure. Depending on the circumstances, a management report and the employees' opinion may also serve as defensive measures.

Except as explained in 9.2 Directors' Use of Defensive Measures, the Takeover Law does not stipulate the specific duties of directors when enacting defensive measures. Therefore, directors must observe their statutory duties, which include acting in the best interest of the company (see 8.1 Principal Directors' Duties).

Directors do not have the right to “just say no” and prevent a business combination. A director or members of the supervisory board are obliged to issue the management report, stating therein whether they support or are against a takeover bid. Such stand is made taking into consideration the overall takeover bid, the price per share offered by a bidder and the bidder's business plan. In addition, a director or members of the supervisory board are obliged to publish the employees' opinion on the bid, if one is received.

Litigation is not common in connection with M&A deals in Serbia as most issues tend to be resolved out of court. In large M&A transactions, parties tend to agree on arbitration as a dispute resolution method.

Disputes in connection with M&A deals in Serbia usually arise out of the violation of purchase price obligations, breaches of representations and warranties and the enforcement of indemnities, post-closing covenants and termination.

The COVID-19 pandemic brought an increase of MAC clauses in transaction documents. However, there are no publicly available court precedents in Serbia on the effects of MAC clauses on transactions.

Shareholder activism has been increasing over the years in Serbia. Minority shareholders tend to be active in joint stock companies, usually in order to:

• include topics of their interest on the agenda of shareholders' meetings;
• challenge unlawful decisions of the shareholders' assembly, directors and supervisory board members;
• protect their acquired rights; and
• fight unlawful takeovers and/or squeeze-out price calculations.

There is no definite scope of the aims of shareholder activism (see 11.1 Shareholder Activism), which has not been impacted by the pandemic.

Shareholder activists do not generally interfere with the completion of announced transactions in Serbia. There have been cases of large privatisations where minority shareholders organised protests in order to prevent their completion, but this type of drastic activism is rather rare in private M&A transactions.