Acquisition
Acquisition Based on Majority Shareholder Resolution
Consequences
Compensation
Share Redemption Request
Share Purchase Agreement
Other Measures
On March 23 2000 Latvia's legislature adopted the new Law on Control in Group Companies. It was published and took effect on April 13 2000. The main aim of this new legislation was to provide protection for minority shareholders in Latvian limited liability companies and joint stock companies. The legislation will have an impact on how acquisitions are effected in Latvia.
The general meeting of an acquiree company may adopt a resolution on its acquisition by another company (the acquiror), if the acquiror has acquired all shares in the acquiree company.
This resolution will only take effect with the agreement of the acquiror's general meeting. It will be adopted at the general meeting if three-quarters of the share capital that is present at the general meeting vote in favour of the resolution. The articles of association may require a greater majority of votes for adoption of the resolution.
Once notice has been given of the convention of the acquiror's general meeting, at which the resolution may be approved, the acquiror's executive body must ensure that all relevant documentation will be available to the shareholders at the place and time specified in the notice. This includes:
- the draft resolution on the acquisition;
- annual reports and reports on the last three accounting years for both companies; and
- a report on the acquisition.
Upon a shareholder's request, the acquiror's executive body must also provide information on the acquiree's economic position at the general meeting.
The acquiree is considered to have become a part of the acquiror once the acquisition is registered with the Latvian Register of Enterprises.
Acquisition Based on Majority Shareholder Resolution
A company's general meeting may also adopt a resolution on its acquisition by another company if the acquiror has acquired at least 90% of the acquiree's available shares (the number of shares that the acquiree holds itself, and the number of shares that are held by another person for the benefit of the acquiree, will deducted from this number).
The acquiror will offer its shares as compensation to shareholders who lose their shares in the acquiree, and will provide additional monetary compensation in the case of any share exchange inequalities. Notice must be given of this offer in the agendas of the general meetings of both companies.
The acquisition is subject to mandatory inspection by an auditor appointed by the acquiror's executive body.
Once the convention of the acquiror's general meeting, at which a decision on the acquisition will be given, has been notified, the acquiror's executive body must make all relevant documentation available to the shareholders of both companies, together with the auditor's report, at the place and time specified in notice. The report on the acquisition must explain and justify the legal and economic implications of the type and amount of compensation that is specified.
All shares of the acquiree that are not owned by the acquiror must be transferred to the acquiror once the acquisition is registered with the Register of Enterprises. If these shares are issued as registered or bearer papers (ie, securities printed on paper), they afford only the right to reimbursement until they have been surrendered to the acquiror.
A 'removed shareholder' is defined as a former shareholder of the acquiree. Removed shareholders have the right to receive compensation in the form of an exchange of their shares with the shares of the main company. If the acquiror is itself a dependent company, the removed shareholders may choose between an exchange of shares or payment of corresponding cash compensation.
Compensation in the form of share exchange is considered to be proper if the shares are exchanged in the same proportion as would be granted in the event of a merger between the companies. Any differences must be adjusted by means of additional cash payment.
With respect to the corresponding cash compensation, the acquiree's property situation and income level must be taken into account, as of the time when the resolution regarding the acquisition was adopted. The acquiror and the acquiree are jointly and severally responsible for the payment of cash compensation.
If the compensation offered to the removed shareholders of the company is not adequate, the amount of compensation will be determined by a court, based on a removed shareholder's respective claim. Any removed shareholder of the company may make a claim regarding the amount of compensation within three months of the date on which the acquisition's registration with the Register of Enterprises is published in Latvia's official newspaper.
If a company has directly or indirectly acquired at least 90% of shares in another company, each of the acuiree's minority shareholders may request the acquiror to redeem his shares. The minority shareholder must first submit this request to the acquiree, which in turn delivers it to the acquiror.
Within one month of the date of receipt of the request to buy out the minority shareholder, the acquiror must propose a share purchase agreement to the minority shareholder. The acquiror must notify the minority shareholder of whether it has redeemed any shares from other minority shareholders in accordance with the provisions of the new law, and upon what conditions this has been done, within one year of delivering the proposal to the minority shareholder.
If the minority shareholder refuses the proposal, then the price for which the shares may be redeemed is determined by a court, based on a claim made by the minority shareholder. A minority shareholder has the right to make such a claim within one month of receiving the acquiror's proposal.
Other Measures
The provisions regarding acquisitions also contain creditor protection measures, and describe the responsibility and liability of management of both the acquiror and the acquiree.
For further information on this topic please contact Filip Klavins at Klavins & Slaidins by telephone (+371 703 5222) or by fax (+371 703 5252) or by email ([email protected]).
The materials contained on this web site are for general information purposes only and are subject to the disclaimer.