Structure and process, legal regulation and consentsStructure
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?
Myanmar has only recently implemented a significant reform of its company law. The Myanmar Companies Law (MCL), enacted on 6 December 2017, entered into force on 1 August 2018, replacing the 1914 Myanmar Companies Act (MCA). This reform is outlined in question 2.
Under the MCL, acquisitions or disposals may be structured as share purchases, business (asset) transfers or schemes of arrangement.Share purchases
Share purchases are expected to become a more common method for private M&A transactions in Myanmar following implementation of the MCL.
Share purchases were rarely used under the MCA as companies incorporated in Myanmar are classified as either a ‘foreign company’ or a ‘Myanmar company’. This distinction is important as there are a number of legal and practical restrictions to foreign companies doing business in Myanmar. For example, in relation to acquisitions in sectors involving significant land use (such as agriculture or construction) the 1987 Transfer of Immovable Property Restriction Law (TIPRL) prohibits the transfer of immovable property to, or its acquisition or lease for more than one year by, a foreign company.
A Myanmar company was defined under the MCA as a company with no foreign shareholding. If a company changes classification from a Myanmar company to a foreign company (or vice versa), the company’s registrar, the Directorate of Investment and Company Administration (DICA), requires that it apply to amend its registration number. Its previous practice under the MCA was to not permit a Myanmar company to change its registration to become a foreign company, effectively prohibiting foreign investment in Myanmar companies.
However, under the MCL the definition of a Myanmar company has been liberalised to include companies with up to 35 per cent foreign ownership. DICA also began to change its practice of refusing to change the classification of Myanmar companies in early 2017, and such change of classification is now possible.Business (asset) transfers
Given the historical difficulties associated with acquiring shares in Myanmar companies under the MCA, the most common method for private M&A transactions in the past has been a transfer of the business or assets, and this will continue to be an option under the MCL.Schemes of arrangement
Schemes of arrangement are also possible under the MCL and permit the acquisition of a company subject to court supervision where 75 per cent of the shareholders’ vote has been obtained. While schemes of arrangement may theoretically also have been possible under the MCA, they have not historically been used in Myanmar. It is likely however, that there will be some uncertainty regarding their operation, as noted in question 4.Timing and process
As in other jurisdictions, the typical process for acquiring privately owned companies, businesses and assets in Myanmar involves undertaking due diligence, negotiating and executing sale and purchase agreements, and obtaining any regulatory approvals and making any filings required by law.
The time to complete acquisitions and disposals can vary, for example, depending on the sector or target company or business.
Due diligence in particular continues to be challenging in Myanmar, reflecting the poor record keeping and compliance of Myanmar companies, lack of familiarity with due diligence and sensitivity to disclosing company information. Prospective acquirers are advised to engage early with potential target companies to explain the purpose and nature of due diligence procedures and build the relationships required to ensure an appropriate quality of disclosure.
The main regulatory approval is likely to be under the 2016 Myanmar Investment Law (MIL). Generally, for any investment in certain large-scale projects, a permit will be required from the Myanmar Investment Commission (MIC) under the MIL. This includes investments that are strategically important, capital intensive, have a large potential impact on the environment or local community, use state owned land and other designated investments. Foreign investors will also require an endorsement from the MIC to have the right to enter into a long-term lease of land or to obtain certain tax incentives even where a permit would not be required.
The approval of the MIC will also be required for the direct (and technically, indirect) acquisition of a majority of shares or controlling interest in a company with an MIC permit or endorsement, or the acquisition of 50 per cent or more of the assets of a company with an MIC permit. However, the MIC has advised recently that indirect transfers of shares in companies with MIC permits or endorsements that occur because of a transfer of shares in an entity located offshore do not need to be notified to it; however, a prudent approach would be to seek a view from MIC on a matter-by-matter basis.
The MIC typically takes around two weeks to one month to process transfers of shares in, or the business of, investments with permits under the 2012 Foreign Investment Law or the MIL. In relation to applications for a permit or endorsement under the MIL, the MIC has 15 business days to undertake an initial assessment regarding whether the application is complete and a further 60 business days for a permit or 30 business days for an endorsement, to undertake a substantive assessment of the application and grant the permit or endorsement. The approval is required to be issued within a further 10 business days.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?Key Myanmar laws applicable to acquisitions and disposals
Myanmar has been rapidly updating its laws relating to private M&A transactions as it has opened up to foreign investment, and the legal environment for businesses more broadly is also changing rapidly. Many of these laws have been only recently implemented or have only recently begun to apply. In general, Myanmar’s legal system lacks clear precedents to confirm the legal position. The answers given to these questions must be understood in this context.
The main laws governing acquisitions and disposals of privately owned companies, businesses or assets are the MCL, the MIL and the 2015 Competition Law.
The MIL, which was passed on 18 October 2016, simplified and deregulated the investment regime in Myanmar. It combined the previous local and foreign investment laws into one law and provided for a streamlined investment approval process.
The MIC issued the 2017 Myanmar Investment Rules (MIR) on 30 March 2017 setting out the process of obtaining approval, and Notification No. 15/2017, titled List of Restricted Investment Activities, which is made in relation to section 42 of the MIL (MIL Notification) on 10 April 2017, setting out the types of investments that are restricted to foreign investment, require approval of a Myanmar government ministry or may only be made through a joint venture with a Myanmar company.
The MIL Notification is intended to be a comprehensive list of all such restrictions. However, while the MIC updated the MIL Notification during 2018 (for example, on 9 April 2018, it updated the criteria for approvals from the Ministry of Electricity and Energy (MOEE) for energy sector projects), as Myanmar’s laws evolve, the MIL Notification will become dated, and investors are advised to obtain advice on the particular approvals applicable at the time of their investment.
The MCL modernises the MCA (for example, improving companies’ ability to manage their capital structure) and removes some barriers to foreign investment. In particular, as noted above, it broadens the definition of a Myanmar company to include companies with foreign investment of up to 35 per cent, and abolishes the requirement for foreign companies to obtain ‘Form of Permit’, which is also called a permit to trade (which, in practice, was only very rarely given for foreign companies intending to engage in trading activities).
Myanmar’s Competition Law (Law No. 9/2015) entered into force on 24 February 2017. This law prohibits business combinations that:
- have the purpose of ‘extremely raising market dominance’, or lessening competition in a limited market; or
- would result in a market share above the prescribed amount.
Business combinations prohibited under the Competition Law may be exempt in certain circumstances, including if the acquired business is at risk of insolvency or if it will promote exports, technology transfer or productivity. The Competition Law is a new law and it is not clear how its requirements will be applied in practice. While Myanmar’s Ministry of Commerce (MOC) issued Notification No. 50/2017 in accordance with section 56(a) of the Competition Law dated, 9 October 2017, these rules address mainly administrative issues and do not clarify the application of the Competition Law. The Myanmar Government issued Notification No. 106/2018 forming the Competition Commission on 31 October 2018. However, the Commission has only recently been formed, and has yet to systematically enforce compliance.Governing law
Under Myanmar law, parties are free, in principle, to choose the governing law of an agreement, subject to the operation of any applicable mandatory principles. In practice, state-owned enterprises and Myanmar government agencies will rarely agree to a choice of foreign governing law, and Myanmar private parties also prefer that Myanmar law applies to the transaction agreements. For agreements that are subject to scrutiny under the MIL, the MIC will generally require a choice of Myanmar law.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?
It is possible to obtain full legal title to movable property in Myanmar, including shares. Under the MCL, the possession of a share certificate in respect of a share provides prima facie evidence of ownership. The ownership (and transfers) of a company’s shares should be recorded in its register of members to ensure it is effective.
It is possible for title to shares, businesses or assets to transfer automatically by operation of law, for example, upon the death of the titleholder.
The type of title can vary between asset categories, and in particular, the rights to land are classified based on the administrative implications of the land. The two main categories of land are ‘freehold land’, which is only rarely found in Myanmar, and ‘grant land’, which is leasehold land owned by the state and leased on a long-term (eg, terms of 10, 30 or 90 years) basis to private parties. In addition to these, there are a number of other categories of land owned by the state over which a land use right is granted to private parties for a particular purpose, such as agricultural land, grazing land and vacant, fallow and virgin land.
Legally, there is a difference between legal and beneficial title in Myanmar; however, trusts are rarely used in practice.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?
Schemes approved by 75 per cent of shareholders (or creditors) are binding on all shareholders (or creditors) and the MCL provides for a court, either by the order sanctioning such scheme or a subsequent order, to make provision for the transfer of a company’s undertaking or its shares, pursuant to such scheme. However, there is no precedent in Myanmar for schemes of arrangement, and Myanmar’s courts have not yet developed their practice regarding such schemes.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?
There are no specific restrictions under Myanmar law regarding the exclusion of assets or liabilities from transactions by the parties, and this is generally a matter for agreement of the parties in structuring the transaction.
Regulatory filings, approvals and consents are described in questions 6, 7 and 8.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?
Foreign investment restrictions may apply in Myanmar depending on the particular sector. As noted in question 2, the MIL Notification sets out the types of investments that are restricted to foreign investment, require approval of a Myanmar government ministry or may only be made through a joint venture with a Myanmar company (under the MIR, the Myanmar company is required to have at least a 20 per cent shareholding in such a joint venture).
Under the MIL Notification, up to 100 per cent foreign investment is permitted in, for example, the establishment and operation of offices or commercial buildings. Foreign investors can also invest through a joint venture with a local partner in a number of sectors, including the development, sale and lease of residential apartments and condominiums.
On the other hand, only Myanmar companies may undertake certain investments that are of a local character (such as printing local language periodicals) or relate to certain businesses, including artisanal oil wells and mini-markets. As noted above, the MCL is expected to permit up to 35 per cent foreign ownership in Myanmar companies.
The MIL Notification also lists sectoral approvals required prior to investment. For example, the approval of the Ministry of Health and Sports is required for investments in businesses for the supply of health services.
Myanmar government ministries have continued to refine and update the sectoral approvals for which they are responsible since the implementation of the MIL Notification. In particular, MOC issued Notification No. 25/2018, dated 9 May 2018, setting out the criteria for foreign and local companies and foreign and local joint ventures to engage in retail or wholesale distribution in Myanmar. This clarifies the rights of foreign businesses to invest in, and liberalises restrictions on, trading activities in Myanmar. On 26 July 2018, it issued News Bulletins 2/2018 and 3/2018 setting out, respectively, its standard operating procedure for registering retail and wholesale distributors in Myanmar, and the list of priority goods permitted to be distributed by foreign companies and foreign-local joint ventures. To date, 14 companies have registered as wholesalers and four have registered as wholesalers and retailers. The MOC continues to revise its approach to licensing in this sector. Notably, it issued Notification No. 23/2019 on 21 May 2019 requiring companies that were previously permitted exceptionally to import and sell certain types of products (such as fertilisers, seeds, pesticides, and hospital, construction and agricultural equipment) to apply for approval under, and conform to the requirement of, Notification No. 25/2018.
There also continue to be practical restrictions on investing in Myanmar. For example, in many sensitive sectors, investment is possible only through a concession from, or a joint venture with, the Myanmar government, reflecting the role of the government and government agencies in Myanmar’s economy.
Some recent notable liberalisations in such sectoral restrictions are in the insurance and banking sectors. No foreign insurer had been awarded a licence under the Insurance Business Law of 1996 to undertake an insurance business in Myanmar (outside of special economic zones under Notification 2/2017 of the Insurance Business Regulatory Board of Myanmar) until this year. On 2 January 2019, the Ministry of Planning and Finance (MOPF) issued Announcement No. 1/2019 stating it would liberalise foreign investment restrictions in this sector. According to the announcement, three wholly foreign-owned life insurers, and foreign-local joint ventures involving foreign insurers with a representative office in Myanmar, would be licensed to undertake an insurance business in Myanmar. The MOPF announced on 5 April 2019 that five foreign life insurers had been selected as preferred applicants to receive a licence to operate a wholly foreign-owned life insurance business in Myanmar, subject to fulfilment of applicable pre-licensing conditions. It further announced on 31 July 2019 that three foreign-local joint venture candidates had been provisionally approved to conduct a life insurance business, and a further three had been provisionally approved to conduct a non-life insurance business in Myanmar.
Similarly, banking businesses are regulated by the Central Bank of Myanmar (CBM) under the 2016 Financial Institutions Law (FIL). Under the FIL, a foreign bank may only sell its business or acquire a local bank’s business (or a substantial part of either) with the approval of the CBM. In addition, a person must obtain CBM’s approval prior to acquiring (whether directly or indirectly) a ‘substantial interest’ in a bank (defined as 10 per cent or more of the shares in, or the capacity to control the management of, a bank). On 31 January 2019, the CBM issued Letter No. ma ba ba/baan si sit/1 (1/2019) to Myanmar banks requesting them to notify the CBM if they wish to accept foreign equity investment, which may be permitted up to 35 per cent. On 17 June 2019, First Myanmar Investment Public Company Limited disclosed that the International Finance Corporation had converted the outstanding balance of a loan to Yoma Bank Limited into a 5 per cent equity stake, the first foreign equity investment in a Myanmar bank.
Are any other third-party consents commonly required?
Third-party consents may be required from shareholders under shareholders’ agreements for the transfer of shares (for example, first refusal rights), and for the transfer of material contracts. Importantly, land used for the business of a company in Myanmar is commonly held in the name of one of the shareholders or directors of the company. Businesses would be advised to obtain the consent of such land owner to transfer the land to the business prior to acquiring it.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?
In terms of regulatory approvals and filings, a notification of transfer must be filed with DICA within 21 days of a transfer of shares in a company incorporated in Myanmar. Other associated filings with DICA may also be required, for example, for a change in business name.
Under the MIL, a notice must be filed with the MIC for any transfers of shares in, or the business of, a company with an MIC permit or endorsement. As noted in question 1, while the MIC’s practice appears to have changed recently, the prior approval of the MIC will be required for any direct (and technically, indirect) transfer of shares in a company that has an MIC permit (or to transfer the business itself) or endorsement, if it will result in an entity that is not an affiliate of the transferor acquiring majority ownership or control of the shares, or more than 50 per cent of the assets of the business.
In addition, if the transaction involves incorporation of a new company to acquire the business or assets, as noted in question 1, under the MIL, such new entity would require an MIC permit to undertake certain large investments, or an endorsement to obtain the right to enter into a long-term lease of land or certain tax incentives even where the investment would not otherwise require an MIC permit.
Under the 1899 Myanmar Stamp Act, the amount of stamp duty payable depends on the document, but for share transfers, it will be 0.1 per cent of the value of the transfer price (under section 3 of the 2017 Law Amending the Myanmar Stamp Act), and for joint venture agreements, it will generally be about US$100.
Certain acquisitions of property may also be registrable. Instruments that, among others, create or assign rights to immovable property valued above around US$70, and leases of immovable property for a term of more than one year, or fixing an annual rent, must be registered under the 2018 Registration Law, unless they relate to a land grant from the Myanmar government. A failure to register such instruments will affect their validity.