Trends and climate
What is the current state of the M&A market in your jurisdiction?
Mergers and acquisitions between large international companies that hold assets in Bolivia generally do not trigger regulatory scrutiny, unless they take place in a regulated sector. As a result – and unless the acquisition involves the merger of two Bolivian companies – most acquisitions can proceed without regulatory filings and approvals.
Have any significant economic or political developments affected the M&A market in your jurisdiction over the past 12 months?
The Bolivian legislature approved a new investment law on April 5 2014 in order to establish a general legal framework for the promotion of investments in Bolivia. The new law regulates not only foreign investments, but also domestic and public investments. The law follows the same political and economic principles set out in the Constitution and, as a result, it gives greater importance to Bolivia’s participation – particularly with regard to the exploitation of natural resources. The law focuses on investments that:
- promote economic and social growth;
- generate employment;
- contribute to the eradication of poverty; and
- reduce inequality.
Are any sectors experiencing significant M&A activity?
There have been recent mergers between large international players in the aviation sector and the beer industry.
Are there any proposals for legal reform in your jurisdiction?
There are proposals to submit mergers and acquisitions to antitrust control. This would give the Company Regulating Authority the right to review and approve or reject mergers between competitors if it finds that a monopoly may be formed.
What legislation governs M&A in your jurisdiction?
Mergers between Bolivian corporations are regulated by the Commercial Code, which requires companies to notify their creditors and shareholders of a proposed merger. In general terms, if the transaction involves the merger of two Bolivian entities, creditors and shareholders may object through a judicial procedure before a civil judge. Mergers and acquisitions that involve only a change of control typically do not require notice to creditors and shareholders, but may require regulatory approval in specific regulated sectors.
Companies that have outstanding instruments issued in public securities markets must inform those markets and the Supervisory Authority of the Financial System of any relevant changes regarding the company, including mergers and joint ventures.
How is the M&A market regulated?
The M&A market is not regulated in Bolivia. As a result – and unless the target is in one of the regulated sectors below – no prior regulatory filing or authorisation is required.
Are there specific rules for particular sectors?
Specific rules for mergers and acquisitions apply to particular regulated sectors and industries. The following laws contain regulations pertaining to mergers and joint ventures:
- the Electricity Law;
- the Telecommunications Law;
- the Hydrocarbons Law;
- the Banks and Financial Institutions Law;
- the Securities Law; and
- the Insurance Law.
These regulations are administered and enforced by the supervisory and control authorities for each sector.
The following sectors are regulated:
- oil, gas and other fossil fuel distributors and transporters;
- electricity generators, transmitters and distributors;
- telecommunications providers; and
- banks and other financial institutions, including loans and savings cooperatives or associations and foreign exchange houses.
Types of acquisition
What are the different ways to acquire a company in your jurisdiction?
Most companies are either limited liability partnerships or stock corporations. The transfer of stock or share participations in corporations is generally unrestricted and straightforward, requiring only registration in the company books with no prior filing. Transfer of participation in limited liability partnerships is more cumbersome, as it requires that documentation evidencing the existence and legal representation of the acquirer be legalised in Bolivia and thereafter filed before the Registry of Commerce.
In many cases an acquisition is completed by acquiring interests in holding companies that may be several levels above the target with assets in Bolivia. This form of acquisition may be rapid and outside the scrutiny of certain regulators.
Further, joint ventures that do not result in a merger or change of ownership of the relevant regulated company typically do not fall under the scrutiny of merger control. However, joint ventures that involve regulated companies are subject to some review and could be opposed by the relevant regulator to the extent that they could be considered contrary to antitrust or competition policies.
An additional but more cumbersome process involves the acquisition of a portion of the assets that are of interest. This method avoids tax and labour liabilities in the underlying target. However, this ‘cherry picking’ – which requires adequate identification of the productive units that are of interest – may take more time.
Due diligence requirements
What due diligence is necessary for buyers?
A close review of potential labour and environmental liabilities is key in most due diligence procedures, as liability in this regard may be substantial
What information is available to buyers?
All companies must file their audited financial statements with the Registry of Commerce, along with all power of attorney incorporation documents and bylaws. These documents may be made available to the potential buyer.
What information can and cannot be disclosed when dealing with a public company?
No restrictions on the disclosure of information of public companies exist.
How is stakebuilding regulated?
Stakebuilding is not regulated in Bolivia.
What preliminary agreements are commonly drafted?
Confidentiality and non-disclosure agreements are commonly drafted and discussed before any substantial exchange of non-public information. Thereafter, general terms of agreement or a memorandum of understanding is often drafted.
What documents are required?
The acquisition of shares in a Bolivian corporation requires only the endorsement of shares and registration in the share registry book, followed by registration of the foreign investment with the Central Bank. The transfer of participation in a Bolivian limited liability partnership may require legalised and duly certified translations of the acquirer’s incorporation documents.
Further, regulated entities must file documentation and, in many cases, obtain prior authorisation from the relevant regulator before proceeding with the acquisition.
As a result, the requisite documentation may substantially differ from one transaction and another.
Which side normally prepares the first drafts?
The seller typically prepares the initial drafts of the confidentiality agreement and the initial memorandum of understanding, and the buyer prepares the initial drafts of the acquisition agreement.
What are the substantive clauses that comprise an acquisition agreement?
The substantive clauses will involve transfer of the company, consideration and time to execute the agreements.
What provisions are made for deal protection?
Break fees may be sought as damages for extra-contractual fault. In such cases, the claimant must show that there was a good-faith negotiation, that certain agreements were reached and that breach of those preliminary agreements caused it damage.
What documents are normally executed at signing and closing?
Depending on the agreement structure, the documents may vary greatly. That said, they typically include a purchase agreement and transfer of shares.
Are there formalities for the execution of documents by foreign companies?
Documents must often be notarised and filed before the Registry of Commerce. In such cases, the foreign company’s documents and a power of attorney on behalf of the signatory must be legalised before the Bolivian consulate in the country of origin and in Bolivia before they are signed.
Are digital signatures binding and enforceable?
Digital signatures are binding and enforceable pursuant to the Telecommunications Law and must comply with the law’s provisions on electronic signatures.
Foreign law and ownership
Can agreements provide for a foreign governing law?
Generally, the courts and authorities consider agreements that provide for a foreign governing law void. Agreements may provide for a foreign governing law only to the extent that the transfer occurs outside Bolivia at the level of a foreign holding company.
What provisions and/or restrictions are there for foreign ownership?
One relevant change introduced by the new Investment Law involves the mandatory registration of foreign investments in Bolivia through the Central Bank. Once registered, the Central Bank must issue a certificate of investment, which refers to the origin, purpose, amount and investment mechanisms. The Central Bank will also register any distribution, capital repayment and payments to creditors or third-party goods and services providers.
Valuation and consideration
How are companies valued?
The parties can agree to value companies using various methods.
What types of consideration can be offered?
The types of consideration may be negotiated between the parties.
What issues must be considered when preparing a company for sale?
In some cases, the target may be restructured before acquisition – for example:
- shareholdings may need to be restructured to holding companies outside Bolivia; and
- certain assets or liabilities may need to be isolated before closing.
Much depends on the type of target. If it is a corporation, a transfer may occur rapidly. If it is a limited liability partnership, filing before the registry make take several months, as all relevant documentation from the acquirer must be obtained, legalised and translated.
What tips would you give when negotiating a deal?
Special attention must be paid to the way the deal is structured, as this will have significant implications on the liabilities that are assumed by either party, as well as regulatory and tax implications.
Are hostile takeovers permitted and what are the possible strategies for the target?
Few corporations in Bolivia are listed on the stock exchange; those that are listed have only a small percentage of their issued stock on trade. As a result, there is little choice but to approach an acquisition as a friendly negotiation with the principal or controlling shareholders.
Warranties and indemnities
Scope of warranties
What do warranties and indemnities typically cover and how should they be negotiated?
Warranties typically cover the fact that the company owns the principal assets to which it has purported ownership and that all relevant information regarding any liabilities has been disclosed.
Limitations and remedies
Are there limitations on warranties?
No strict limitations on warranties exist. Any limitations are generally restricted to the value of the transaction.
What are the remedies for a breach of warranty?
The party that claims a breach of warranty must claim breach of contract and request payment of damages.
Are there time limits or restrictions for bringing claims under warranties?
The general statute of limitations on these types of claim is five years.
Tax and fees
Considerations and rates
What are the tax considerations (including any applicable rates)?
The acquisition of participations in Bolivian companies is exempt from transactions tax; thus, the acquisition may not be taxed. However, if the seller will make capital gains on the sale of the participation, it may be subject to substantial tax liability on such gains – up to 25%. In addition, all pre-existing tax liability in the target will be passed onto the acquirer; as such, due diligence in relation to tax compliance is typically recommended.
Exemptions and mitigation
Are any tax exemptions or reliefs available?
The acquisition of participations in Bolivian companies is exempt from transactions tax.
What are the common methods used to mitigate tax liability?
A transfer may be structured through the Bolivian Securities Exchange. This process may mitigate the seller’s liability to capital gains tax.
What fees are likely to be involved?
If structured through the Bolivian Securities Exchange, the acquirer and target must pay fees to the relevant securities intermediaries.
Management and directors
What are the rules on management buy-outs?
No restrictions and rules exist in this regard.
What duties do directors have in relation to M&A?
Directors have a fiduciary duty towards the company and must consider the company’s interests when resolving any actions.
Consultation and transfer
How are employees involved in the process?
Although labour unions may not directly oppose or block an acquisition, their protected status under Bolivian law may result in substantial liability. Bolivian employees may not be terminated at will. If they are terminated without due cause (as defined by law), they may seek reinstatement. As such, a special agreement must be reached in connection with the termination of key positions and senior management. Further, employees in Bolivia are legally entitled to severance pay and other social benefits that should be provided for by the company. Failure to pay these social benefits on termination or when due under law may result in serious liability to the company and its management.
What rules govern the transfer of employees to a buyer?
The principal rule is that employees retain any rights and privileges acquired from their prior employer on transfer. As such, the acquirer assumes all potential liability for past practices.
What are the rules in relation to company pension rights in the event of an acquisition?
Pensions are considered part of employees’ social rights and are legally protected. Pension rights are transferred with the target and the employees, and the acquirer assumes any deficiencies or liabilities. These social rights have no statute of limitations and may result in managers having direct liability.
Other relevant considerations
What legislation governs competition issues relating to M&A?
No general competition regulations exist; however, transactions in regulated sectors must undergo a prior review and approval, which may consider competition issues.
Are any anti-bribery provisions in force?
The Criminal Code contains anti-bribery provisions. In addition, Bolivia has an anti-bribery law with a broader application and stricter penalties, which applies when state-owned entities and interests are in question.
What happens if the company being bought is in receivership or bankrupt?
Substantial limitations to the disposal of and access to funds and accounts may be imposed by a court or administrative agency. However, an acquisition can form part of a transaction with the principal creditors and administrative agency in order to inject capital into the company and allow it to survive.