Structure and process, legal regulation and consents

Structure

How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?

Acquisitions are most commonly structured either as a share sale or a sale of business. Even where a business is sold, it is occasionally carved-out into a newly established limited liability company prior to the transaction, and the new company is then sold to the buyer. Structuring a private transaction as a merger is generally uncommon. Instead, the acquired company is often merged with the buyer following the completion of the transaction.

The transaction process varies somewhat depending, among others, on how the transaction is structured, the field the company operates in, as well as whether any regulatory approvals are required to complete the transaction. A typical transaction process usually involves parties entering into a confidentiality or non-disclosure agreement (NDA) followed by the buyer’s due diligence. During due diligence, parties usually begin negotiations on the transaction agreement followed by signing. Depending on the conditions precedent, the timing between signing and closing is usually some weeks or months, depending on, inter alia, whether any authority approvals are required. The whole transaction process usually takes some months.

Legal regulation

Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?

The laws primarily governing private acquisitions and disposals are the Finnish Companies Act and the general Finnish contract law principles. If one of the transaction parties is a publicly listed company, the Market Abuse Regulation (No. 596/2014) and Finnish Securities Markets Act may also apply, especially as regards insider information. In addition, the Finnish Competition Act or the EU Merger Regulation, if the thresholds for turnover are exceeded, often apply either by imposing an obligation to notify the transaction to the Finnish Competition and Consumer Authority or the European Commission, as applicable. If the transaction is between competitors, exchange of competition sensitive information is usually subject to applicable competition laws and regulations. Finally, depending on the target or the acquiring company’s business, the Act on Monitoring Foreign Acquisitions in Finland and sector-specific legislation may apply.

The acquisition agreement does not need to be governed by Finnish law, although this is often the case. However, in the case of a sale of a business, certain transfers of assets, for example a transfer of real estate, require that such ancillary transfer agreements are governed by Finnish law to satisfy the statutory requirements of such agreements. In cases where the transaction is carried out as a merger, the provisions of the Companies Act apply to the merger.

Legal title

What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?

Finnish law does not generally make a distinction between legal and equitable title, and full title to shares or business passes normally upon the completion of the transaction agreement in accordance with the terms of the agreement. However, the transfer of shares needs to be notified to the target company in order for the transferee to exercise his or her voting rights attached to the shares.

Multiple sellers

Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?

Generally, each shareholder must agree to the sale in order for the buyer to acquire such shareholder’s shares. Where there are multiple sellers, the rights and obligations of the seller are often governed by a shareholders’ agreement containing tag-along and drag-along rights. In such case, an individual shareholder is contractually forced to sell, usually upon the occurrence of a triggering event such as a sale of the company, substantially on the same terms as the other shareholders. The Companies Act provides a squeeze-out right to a shareholder owning more than 90 per cent of the company’s shares and votes to redeem the remaining shares for a fair price. Where a squeeze-out right exists, the minority shareholder is also entitled to demand the majority shareholder to redeem his or her shares. The redemption price is the ‘fair price’ preceding the initiation of the squeeze-out procedure, which, in the case of a dispute, will be finally resolved in statutory arbitration.

Exclusion of assets or liabilities

Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?

As a starting point, the parties are contractually free to allocate the liability for any assets or obligations between themselves, for example the seller may indemnify the buyer against certain liabilities. In the case of a share purchase, the company continues to hold its assets and liabilities as before the transaction, and thus any prior liabilities remain with the target. In an acquisition of a business, the parties can generally agree which assets and liabilities are included in the transaction and which are excluded. However, there are some liabilities for which the transferee can be liable under mandatory law towards third parties.

For instance, the buyer may become liable for environmental damage and be obliged to remediate any polluted land, although the remedial obligation lies primarily with the party having caused the environmental damage. Where the seller is bankrupt or has ceased to exist, the liability may fall on a party to whom the activity that caused the environmental damage was transferred if the transferee knew, or should have known, at the time of the transfer of the damage or the risk of it.

Additionally, it has previously been unclear whether the liability for past infringements of competition law follows in the acquisition of a business. The new Finnish Act on Compensation of Damages Related to Infringement of Competition Law is silent on the issue. Currently the only case on the matter, the ‘Asphalt cartel’, is on appeal in the Finnish Supreme Court, which submitted a request for a preliminary ruling to the European Court of Justice in December 2017. On 14 March 2019, the European Court of Justice ruled that in a case such as that in the main proceedings, in which all the shares in the companies that participated in a prohibited cartel were acquired by other companies (and the acquired companies had dissolved the former companies and continued their commercial activities), the acquiring companies may be held liable for the damage caused by the cartel in question. In the lower courts, the District Court of Helsinki applied the principle of financial succession, under which the liability for infringement of competition law transferred to the buyer, whereas the Court of Appeals held that there is no such general rule in Finnish law that would result in a third party’s liability for another’s infringement based on financial succession. The Finnish Supreme Administrative Court, on the other hand, has confirmed in a recent ruling in 2018 that administrative penalty payments can, based on the principle of financial succession, be imposed on the acquiring company for infringements on competition law committed by the acquired company prior to the acquisition.

Regarding consents or notifications, in share purchases, consents are often requested from the company’s main contracting counterparties whose agreements provide for a change of control right triggered by the transaction. In business purchases where the contracts need to be assigned to the buyer, the contracting party’s consent must normally be obtained to effectively transfer the contract, except in cases where the transaction is structured as a merger and the assets and liabilities automatically transfer under law. Finally, municipalities have the right of pre-emption in connection to transfers of certain real estate located within the municipality, which can be triggered in connection to a sale of business involving a transfer of real estate.

Consents

Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?

Save for the possible approval under the Competition Act or the EU Merger Regulation, the Act on Monitoring Foreign Corporate Acquisitions in Finland may become applicable where the target company operates in the field of defence or dual-use goods, or is otherwise considered vital to the functioning of the society and a foreign buyer acquires a controlling stake of 10 per cent or more in the company. Under the Act, a non-Finnish buyer is considered as foreign if the buyer is domiciled outside the EU or European Free Trade Association (EFTA), or more than 10 per cent of the acquirer’s shares (or equivalent control) is held by a person outside the EU or EFTA. However, even EU and EFTA buyers are considered ‘foreign’ if the acquisition concerns the defence or dual-use goods sector. Acquisitions in the defence or dual-use sector must always be notified and approved beforehand by the authorities. In other cases, an advance notification is voluntary, but the Ministry of Economic Affairs and Employment may examine the acquisition later on where no advance notification was made. The Act is quite open-ended and gives the Ministry substantial leeway in determining which companies may be considered to be vital to the functioning of Finnish society.

In addition to the above, there are various sector-specific regulations that may become applicable to a specific transaction. For instance, changes of ownership in credit institutions require notification to the Finnish Financial Supervisory Authority, which can, under certain limited circumstances, reject the credit licence if the buyer fails to meet the set criteria for owners of a credit institution.

Are any other third-party consents commonly required?

Third-party consents are generally not required under law. If the buyer issues shares as a consideration, the share issue requires an approval by the shareholders (unless the board has been previously authorised to decide on a share issue). In addition, should the articles of association of the target company include a redemption or a consent clause triggered upon the transfer of shares to a third party, waivers to the right of redemption or consent for the transfer of shares may need to be sought. The redemption clause generally gives the other shareholders or the company the right to redeem the transferred shares. In cases of a consent clause, the board of directors of the target usually needs to consent to the transfer before the transferee can exercise his or her voting rights in the target company. Third-party consents may also be sought from the target’s agreement counterparties if they have a right to terminate their agreement upon a change of control. Finally, if the target has received public subsidies such as research grants, such grants often contain a change of control provision to which a waiver may be sought.

Regulatory filings

Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?

The most common mandatory regulatory filing is the competition notification under the Competition Act (or under the EU Merger Regulation). If the target is a defence industry company, an advance approval under the Finnish Act on Monitoring of Foreign Acquisitions is required. The cost of a decision is €2,000 per decision for 2019. See question 6.

The acquirer, or in some cases the Finnish seller, is required to pay and file a notification of the Finnish transfer tax in the case of a share purchase or acquisition of real estate. Additionally, if the buyer decides, for example, to change the composition of the target’s board of directors or amend the articles of association, the changes need to be notified and registered with the Finnish Trade Register, with the notification fees generally being in the region of €100.