Trends and climate
What is the current state of the M&A market in your jurisdiction?
Malta is considered a mature and steadfast jurisdiction for M&A activity and has proved highly attractive as a forum through which to structure M&A transactions. M&A activity in Malta should be viewed from both a domestic and international context. The local perspective largely orientates towards amalgamations of smaller entities into larger groups in order to increase market share, enhance diversification and improve economies of scale. The broader international context witnesses the majority of transactions involving companies in the gaming and gambling, pharmaceutical, retail, property, telecoms, technology and financial services sectors.
Have any significant economic or political developments affected the M&A market in your jurisdiction over the past 12 months?
There have been no major economic developments over the past 12 months which may be said to have adversely affected the M&A market in Malta. To the contrary, the economic outlook for the country is positive. A mid-2017 snap election and political issues surrounding and following such election appear to have had little effect on the M&A market. From a tax perspective, on 11 December 2018 Malta transposed the provisions of the EU Anti-tax Avoidance Directive (2016/1164/EC), on tax avoidance practices that directly affect the function of the internal market into Maltese income tax legislation. During the course of 2019 it will be interesting to see the impact, if any, that these rules will have on M&A activity in Malta, particularly from an international perspective.
Are any sectors experiencing significant M&A activity?
The telecoms, IT, gaming and gambling, retail and pharmaceutical industries have experienced significant M&A activity over the course of 2018.
Are there any proposals for legal reform in your jurisdiction?
Other than the tax reforms stated above, there are no proposed legal reforms directly relevant to the M&A market. However, from 1 January 2020 a taxpayer may be subject to tax on capital gains where assets are owned by the taxpayer and are transferred outside the Maltese income tax net in certain circumstances.
What legislation governs M&A in your jurisdiction?
The Companies Act (Cap 386 of the Laws of Malta) and the General Law of Obligations governing contracts, contained in the Civil Code (Cap 16), are the legal mainstay for M&A transactions. Maltese law distinguishes between the acquisitions of companies whose equity securities are listed on a recognised exchange and those whose equity securities are unlisted. While the Companies Act applies to both types of company, the takeover rules found in the Listing Rules (published by the Listing Authority) apply to the acquisition of listed companies (equity).
Where companies registered in an EU member state or European Economic Area state are concerned, the Cross Border Mergers of Limited Liability Company Regulations (SL 386.12), which transpose European Community Directive 2005/56/EC of the European Parliament and of the Council (26 October 2005) on crossborder mergers of limited liability companies, apply to mergers involving such foreign entities and Maltese companies.
In terms of competition law requirements, company mergers and acquisitions are governed by the Control of Concentrations Regulations (SL 379.08), which transpose into Maltese law EU Council Regulation 139/2004 (20 January 2004) on the control of concentrations between undertakings 2004.
How is the M&A market regulated?
From a corporate perspective, the Registry of Companies is the competent authority regulating all pre-completion filings or post-transaction notifications required in connection with M&A transactions.
The Malta Competition and Consumer Affairs Authority is the authority which oversees mergers and acquisitions insofar as concentrations are concerned. Concentrations occur where two or more previously independent undertakings merge, or one or more undertaking acquires control of the whole or parts of one or more other undertaking. The latter may take place through the purchase of securities or assets, by contract or any other means. To determine whether a merger or acquisition falls within the definition of a ‘concentration’ certain turnover thresholds must be satisfied.
The Listing Authority is the regulatory authority empowered to supervise the takeovers of companies whose equity securities are listed on the Malta Stock Exchange.
Where the company being acquired is a regulated entity (eg, a credit institution, financial institution or insurance undertaking), Malta Financial Services Authority approval is required for the acquisition of significant stakes in regulated entities.
Are there specific rules for particular sectors?
Regulatory consent may be required depending on the industry sector in which the target is authorised to undertake a regulated activity. Typically, regulatory consent will be required in the case of targets which are licensed as:
- credit or financial institutions under:
- the Banking Act (Cap 371); and
- the Financial Institutions Act (Cap 376); or
- licensed operators under:
- the Investment Services Act (Cap 370);
- the Insurance Business Act (Cap 403);
- the Insurance Intermediaries Act (Cap 487);
- the Trust and Trustees Act (Cap 331); or
- the Special Funds (Regulation) Act (Cap 450).
Further, general antitrust filings may be required in terms of the Control of Concentrations Regulations (SL 379.08).
Types of acquisition
What are the different ways to acquire a company in your jurisdiction?
The principal ways in which a Maltese company may be acquired include the following:
- the transfer of shares from the existing shareholders of the target company;
- merging with the company to be acquired (mergers may be either by acquisition or the formation of a new company); and
- the acquisition of assets of the company (transfer of business).
Different transactions require different approaches. The majority of Maltese companies are family-owned. Shareholders may be reluctant to give up overall control or reduce their direct involvement in the business. For this reason, insofar as private companies are concerned, mergers of Maltese companies remain rather uncommon in the Maltese market and transactions concerning Maltese companies typically take the form of an outright acquisition where the seller wishes to cash in on his or her investment. With the same rationale applied, namely that of retaining a core shareholding, a public float in most instances would be in the region of 25% of a company’s total issued share capital (the minimum amount which must be listed in terms of the Listing Rules).
Due diligence requirements
What due diligence is necessary for buyers?
Conducting a legal due diligence exercise before the completion of a merger or acquisition is of prime importance. Due consideration should be given to the contractual terms, as well as issues which may have an effect on the feasibility of the merger. Material considerations in the legal due diligence process include:
- the existence of contingent liabilities and claims;
- change of control provisions;
- the validity of licences;
- employment protection;
- antitrust clearances; and
- tax exposures which may arise from the merger.
Such matters should be taken into account in order to avoid the possibility of the transaction being stalled at a later stage and to address any concerns as early as possible.
Due diligence reports may take the form of a red-flag report or full description report. The former is limited to a description of those issues which, in the opinion of the legal advisers, should be flagged to the buyer as being of potential material relevance, while a full due diligence report provides a more comprehensive overview, including a review and summary of all documentation examined.
In addition to legal due diligence, financial advisers are typically engaged to conduct financial due diligence and offer advice regarding the proposed acquisition.
What information is available to buyers?
The information available to the buyer typically depends on whether the seller is a private company or public listed company.
With respect to private companies, limited information is publicly available, typically limited to website content and the documents uploaded on the online databased of the Registry of Companies and Registry of Courts in relation to:
- past and present company directors;
- past and present company shareholders;
- authorised and issued share capital;
- whether the shares are subject to a pledge;
- the company’s audited accounts of the for each financial year end;
- whether the company is subject to insolvency proceedings; and
- litigation involving the target or its directors.
Since information relative to private companies is restricted, the majority of the information on the target is supplied by the seller in response to a due diligence request list, pursuant to which the buyer’s counsel would request documentation and feedback on various items relating to the target’s business.
In terms of the Listing Rules issued by the Malta Financial Services Authority, public listed companies must disclose certain information to the public through the issuance of company announcements which are made publicly available on the websites of the issuer and the Malta Stock Exchange. Moreover, at the time of listing, listed companies must publish a prospectus with in-depth detail on the company’s business and operations. Although the prospectus may be outdated, depending on the time between its date of issue and the date of the proposed transaction, updates on the company’s affairs should be publicly available. Such information would typically relate to:
- any material transactions;
- the company’s annual financial report;
- corporate governance matters;
- price-sensitive facts which arise in the issuer’s sphere of activity and which are not public knowledge;
- the date fixed for the issuer’s board meeting, at which a dividend is expected to be declared or recommended, or at which any announcement of profits or losses is to be approved;
- changes in the board of directors, company secretary or other senior officers;
- whether the filing of a winding-up application has been made;
- any material changes to its capital structure; and
- any resolutions put to a general meeting of the issuer which are not ordinary business and whether such resolutions were approved.
What information can and cannot be disclosed when dealing with a public company?
All price-sensitive facts must be made public by virtue of a company announcement from the issuer. For this reason, issuers are generally prohibited from disclosing material information which has not been made public. However, listed companies may furnish in confidence to a genuine offeror and the corresponding genuine transferor such information, including unpublished price-sensitive information, as may be necessary to enable the offeror, transferor and their advisers to make, confirm, withdraw or modify the offer. Such information may be provided only if certain conditions are satisfied, including the entry into a confidentiality agreement and an undertaking not to deal in the shares for one year following the completion of the transaction.
How is stakebuilding regulated?
Any shareholder which acquires or disposes shares to which voting rights are attached, in the case of companies where the home member state is Malta, must notify the issuer and the Listing Authority of the proportion of voting rights of the issuer held by such shareholder as a result of the acquisition or disposal where that proportion reaches, exceeds or falls below:
- 75%; and
A disclosure of any direct and indirect shareholdings (including indirect shareholdings through pyramid structures and cross-shareholdings) in excess of 5% of the share capital of a listed company, must be disclosed in the company’s annual report. The holders of any securities with special control rights and a description of those rights must also be disclosed in the directors’ report of the listed company. Accordingly, any stakebuilding exercise is subject to the foregoing mandatory disclosure requirements set out in the Listing Rules.
The acquisition of a controlling interest in a listed company will trigger the obligation to make a mandatory bid and the acquisition of significant stakes in a regulated company may require regulatory approval.
What preliminary agreements are commonly drafted?
The most common agreements that are entered into at the initial stages of the negotiations are:
- non-disclosure or confidentiality agreements – a non-disclosure agreement is entered into by the parties to protect sensitive information relating to the company disclosed throughout the due diligence process; and
- letters of intent – a letter of intent typically outlines the basic terms of the proposed transactions and lays down both binding (eg, governing law and exclusivity) and non-binding terms (eg, timing, process and structure of the transaction).
What documents are required?
The principal document for an M&A transaction is the share purchase agreement or asset purchase agreement.
Where a merger is concerned, draft terms of a merger must be prepared by the directors of the merging companies. It is the key documentation for this type of transaction.
Which side normally prepares the first drafts?
Regarding share purchase agreements, the buyer’s counsel usually prepares the first drafts of the transaction documents, except where the shares are sold as part of a competitive process, in which case the seller’s counsel would prepare the first drafts.
Typically, the buyer’s counsel would also prepare the acquisition agreement documentation.
Merger documentation is prepared by the directors of the merging companies.
What are the substantive clauses that comprise an acquisition agreement?
Generally, the substantive clauses in the acquisition agreement comprise:
- the object of the transaction document (asset purchase or share purchase) and, in the case of an asset purchase, the assets of the company which will be acquired;
- the purchase price, adjustment mechanism and payment terms;
- conditions precedent to the transaction;
- representations and warranties;
- closing conditions;
- termination; and
- general clauses (eg, notices, confidentiality, severability, assignment and taxes).
Draft terms of mergers include the following information:
- the status, name and registered office of each of the amalgamating companies;
- the share exchange ratio and the amount of any cash payment;
- the terms relating to the allotment of shares in the acquiring company;
- the date from which the holding of such shares entitles the holders to participate in profits and any special conditions affecting that entitlement;
- the date from which the transactions of each of the companies being acquired will be treated for accounting purposes as being those of the acquiring company; and
- the rights conferred by the acquiring company on the holders of shares to which special rights are attached and on the holders of debentures or other securities, or the measures proposed concerning them.
What provisions are made for deal protection?
Deal protection provisions principally include exclusivity and confidentiality provisions, as well as non-solicitation clauses. Other alternatives of protection include:
- restrictive covenants as to how the target should be managed in the period between signing and closing of the transaction;
- seeking an irrevocable undertaking from the target’s majority shareholders that they will not sell or transfer to a third party other than the prospective buyer; or
- a letter of comfort to this effect from such shareholders.
Break fee provisions may also be provided for in the acquisition agreement. However it would be necessary to ensure that such provisions do not give rise to a breach of the financial assistance restrictions under the Companies Act (Cap 386). The financial assistance provisions essentially provide that a company may not provide, directly or indirectly, any financial assistance for the purpose of an acquisition or subscription made or to be made by any person of or for any shares in the company (or its parent).
What documents are normally executed at signing and closing?
On signing, it is usually the share purchase or acquisition agreement, including the disclosure letter signed off by the buyer, that would be signed.
Between signing and closing, the documentation implementing the conditions precedent is typically signed.
On financial closing of a share purchase transaction, the following documentation is processed:
- the share transfer instruments relating to the share transfers are signed by the existing shareholders and delivered;
- the register of members of the target are duly updated;
- statutory forms noting the transfer of shares are registered with the Registry of Companies in Malta;
- share certificates are delivered;
- director resignations of the board of directors are typically delivered; and
- a closing checklist is signed.
In an asset acquisition, the documentation required for the transfer of assets is signed. In the event that special formalities apply to the transfer of particular assets of the business, such as immovable property which would require the execution of a public deed in order to be transferred, these formalities will need to be addressed. In addition, if customer contracts need to be assigned as part of the asset transfer, notices must be sent to customers, and in some cases, consent needs to be sought, in anticipation of formalising such transfers.
The draft terms of a merger are signed and registered with the Registry of Companies (including any corporate authorisations approving the merger and any other additional merger documentation, where applicable). The merger will be completed within three months of the publication of a notice in the government gazette relating to the decision to approve the amalgamation, provided that no creditor brings any claims within the three-month waiting period.
Are there formalities for the execution of documents by foreign companies?
There are no formalities for the execution of documents by foreign companies under Maltese law.
Are digital signatures binding and enforceable?
Electronic signatures are binding and enforceable under Maltese law, subject to the conditions of the Electronic Commerce Act (Cap 426). There are exceptions to the general rule, such as:
- granting a power of attorney; and
- contracts that create or transfer rights over immovable property other than leasing rights.
Foreign law and ownership
Can agreements provide for a foreign governing law?
The parties may choose a foreign law to govern the transaction. However, mandatory provisions relating to the transfer of title to the shares (including any perfection requirements relating thereto) would still apply, notwithstanding the applicability of the foreign law.
What provisions and/or restrictions are there for foreign ownership?
There are no restrictions under Maltese law relative to foreign ownership of a company registered in Malta. However, in terms of the Immovable Property (Acquisition by Non-Residents) Act (Cap 246), the acquisition by a foreign shareholder of shares in a company which owns immovable property may trigger the requirement of obtaining an acquisition of immovable property permit.
Valuation and consideration
How are companies valued?
The approach to the valuation of a company depends on the company’s type of business. Generally, more than one valuation is adopted to ensure that the value determined reflects the true value of the company. The following are the valuation methods employed in the valuation of a private company:
- Discounted cash-flow approach – a discounted cash-flow analysis involves forecasting the cash-flow stream of the business over an appropriate period and then discounting it back to a present value at an appropriate discount rate.
- Market approach – this approach is based on a comparison of the market value of other companies in a similar line of business, subject to certain adjustments.
- Cost approach – this approach is based on the value of the company’s assets.
In general, the discounted cash-flow approach and the market approach are the valuation methods used for trading companies.
What types of consideration can be offered?
Consideration in private and public acquisitions, whether they take the form of asset or share acquisitions, may be in the form of cash or kind. Earn-out provisions (ie, contractual provisions stating that the seller of a business is to obtain additional compensation in the future if the business achieves certain financial goals) are becoming increasingly popular in the case of cash deals.
The effect of a merger, on the other hand, concerns the issue of shares to the shareholders of the companies being acquired (for a merger by acquisition) or to the shareholders of the newly formed company (for a merger by formation of a new company). A cash payment is also permitted (in addition to the issue of shares), provided that such payment does not exceed 10% of the nominal value of the shares issued.
What issues must be considered when preparing a company for sale?
Advance preparation is of prime importance for the vendor company to secure a sale at the highest value possible. To make the seller company more attractive in the run up to its acquisition, the seller should:
- ensure that all financial statements are duly filed and in order;
- settle any material litigation;
- settle any pending tax payments;
- review loan agreements and material contracts with a view to securing better terms;
- identify change of control clauses with a view to obtaining consent or approval for future mergers; and
- conduct a review of the company’s relationship with its employees, suppliers and clientele.
Carrying out a self-assessment will assist the vendor company to anticipate the queries that may be posed by prospective buyers and to prepare adequate responses to such questions. This in turn would render the typically lengthy and tedious due diligence process smoother and more fruitful.
What tips would you give when negotiating a deal?
There is no one-size-fits-all negotiation strategy. However, buyers would generally be advised to ensure that the financial results of the target and contingent liabilities represented by employment disputes or pending disputes involving the company are given weight.
The due diligence process should be given time and attention from the management. In this respect, the management should be aware that it must be actively involved in the process. The management should give the due diligence process its full dedication, so that questions posed by the buyer’s counsel are answered swiftly and documentation is populated to the virtual data room efficiently.
Notwithstanding the prospective upcoming sale, between signing and closing the target should continue to operate on a business-as-usual basis. In fact, the asset purchase or share purchase agreement would typically include clauses prohibiting the target from entering into new transactions over a certain value or entering into new obligations of an onerous nature pending completion of the transaction.
The due diligence exercise and population of the data room with the documentation requested by prospective buyers should take place as early as possible, in advance of the sale. The due diligence process tends to be lengthy, depending on how organised the target is with presenting documentation and tacking the queries received. To ensure that the due diligence exercise does not stall the sale, it is always recommended that this exercise be given the time it deserves for prospective buyers to make a comfortable and informed decision regarding their investment.
Are hostile takeovers permitted and what are the possible strategies for the target?
Hostile takeovers are permitted under Maltese law.
There are limited defensive tactics which a company may use to frustrate a takeover. In terms of the Listing Rules, where the target has received a takeover notice or has reason to believe that a genuine offer is imminent, the board of directors of the company must not take or permit any action in relation to the affairs of the target that could effectively result in:
- an offer being frustrated; or
- the security holders of the target being denied an opportunity to decide on the merits of an offer.
However, defensive tactics are permitted:
- when approved by the company’s shareholders;
- if pursuant to a contractual obligation entered into by the company;
- in the implementation of proposals approved by the board of directors; and
- when such obligations and proposals were approved before the company receiving a takeover notice or becoming aware that an offer was imminent.
Where a private company is concerned, one form of defence tactic is for the board of directors to refuse to register a share transfer in the register of members of the company. However, the power to refuse to register a share transfer must be granted to the company directors in the company’s articles of association.
Warranties and indemnities
Scope of warranties
What do warranties and indemnities typically cover and how should they be negotiated?
Representations and warranties are given by the seller and the buyer and may be considered the most negotiated clauses in the share purchase agreement. Representations and warranties essentially allocate risk between the parties and typically relate to the parties themselves, the target and matters relating to the transaction. The representations and warranties address various matters; however, the most common tend to be the following:
- corporate organisational and representational matters;
- lack of filings;
- share title and ownership;
- adherence to any applicable regulatory or licence requirements;
- litigation matters;
- financial matters;
- party solvency;
- matters relating to certain material contracts;
- employment matters; and
- tax matters.
The extent of the negotiation of the warranties is intrinsically linked to the amount which may be recovered by the buyer under the limitation of liability clauses.
Limitations and remedies
Are there limitations on warranties?
Limitations on warranties may be made contractually through:
- a disclosure letter provided by the seller, which is signed off by the buyer;
- materiality thresholds, whereby the main agreement may require that a materiality threshold must be satisfied for a representation to be breached; and
- the establishment of a period for which the representation or warranty is given.
By virtue of the disclosure letter, the seller is given the opportunity to limit or qualify the representations made in the share purchase agreement so that the representation reflects the factual positon in relation to the seller’s business. Exceptions or limitations to the representations and warranties are listed in the disclosure letter.
What are the remedies for a breach of warranty?
The principal remedies available for breach of warranty are:
- exercising the right not to appear for closing in view of the breach (the appropriate termination clauses would need to be included in the main agreement); and
- claiming damages for loss if completion has already taken place (the appropriate indemnification clauses should be included in the main agreement).
Are there time limits or restrictions for bringing claims under warranties?
Under Maltese law, claims based on contract are time barred by five years after the execution of the contract. Accordingly, a claim for a breach of warranty must be brought within five years of the execution of the share purchase agreement or asset purchase agreement. Notwithstanding this, a shorter period within which a claim may be instituted may be contractually agreed between the parties in the principal documentation regulating the asset purchase agreement or the share purchase agreement, as the case may be.
Tax and fees
Considerations and rates
What are the tax considerations (including any applicable rates)?
M&A transactions are subject, in principle, to two forms of taxation in Malta:
- income tax on capital gains; and
- stamp duty.
Income tax on capital gains In considering the income tax liability of a company, share purchases and asset purchases must be differentiated. With respect to share purchases involving a company that does not own immovable property in Malta, a non-Malta resident seller will generally not be liable to tax on capital gains in Malta. On the other hand, where an asset sale agreement involves a Maltese business that is owned by a company that is resident and domiciled in Malta, that company will be liable to tax on the capital gains arising out of the transfer of the business.
Income tax, which arises out of the Income Tax Act and is chargeable at the flat rate of 35%, is payable by the transferor upon the actual transfer of the assets. Provisional tax is payable at a rate of 7% of the consideration upon execution of the deed of transfer. Income tax may also be charged upon the transfer of shares in a company which holds immovable property, or the transfer of immovable property between two companies.
Stamp duty Stamp duty, which arises out of the Duty on Documents and Transfers Act, is levied upon the transfer of certain marketable securities (which are defined in the act as “a holding of share capital in any company and any document representing the same”). Duty is chargeable at either 2% or 5% (the latter being applicable where the company has assets which directly or indirectly consist of immovable property situated in Malta, in excess of a certain threshold). This calculation is based on the higher value between the consideration received for the transfer and the market value of the marketable security. Moreover, where a transfer constitutes a donation of family business to a qualifying family member of the donor, a reduced rate of 1.5% will apply, at least up until 1 April 2018.
Exemptions and mitigation
Are any tax exemptions or reliefs available?
The following exemptions apply to income tax in respect of M&A transactions:
- Intra-group company provision – the Income Tax Act provides that the transfer of assets from one company to another is exempt where those companies form part of the same group of companies. A ‘group of companies’ is defined as such if there is more than 50% beneficial ownership and control by the same shareholders in the same companies.
- Exchange of shares – if a transfer involves the exchange of shares in a restructuring arising out of mergers, demergers, divisions, amalgamation and reorganisations, such transfer will be exempt from capital gains tax under the act.
- Listed companies – the transfer of securities that are listed on the Malta Stock Exchange are exempt from capital gains tax under the act.
- Other possible exemptions from taxation on capital gains may:
- apply to gains or profits made by a non-resident person in Malta;
- arise out of a transfer of shares or securities in a company that does not own any immovable property in Malta (subject to certain conditions); or
- apply to income or gains derived by a Maltese company from a participating holding (as defined in the act) or from the transfer of said holding.
Transfers of marketable securities by certain persons are exempt from stamp duty. These include companies which have the majority of their business interests outside Malta and companies that are beneficially owned and controlled by persons not resident in Malta. Further, subject to certain restrictions in the case of companies owning immovable property in Malta, no duty is chargeable on any restructuring of holdings through mergers, demergers, amalgamations and reorganisations within a group of companies.
With respect to mergers, the Rulings (Income Tax and Duty Treatment of Mergers and Divisions) Rules provide that the commissioner for revenue may, after application by one or more companies involved in a merger or division, issue a ruling whereby a transaction carried out in the course of that merger or division will qualify for exemption from income tax and stamp duty.
What are the common methods used to mitigate tax liability?
The common methods used to mitigate tax liability involves availing of the various statutory exemptions outlined above.
What fees are likely to be involved?
Legal fees, fees for tax advice and notarial fees, where the transaction involves the transfer of immovable property or the constitution of security over immovable property, apply in asset acquisitions and mergers.
Management and directors
What are the rules on management buy-outs?
Maltese law has no specific rules relative to management buy-outs. However, where listed companies are concerned, directors must adhere to the rules on market abuse and insider dealing contained in the Market Abuse Regulation (EU Regulation 596/2014 of the European Council, 16 April 2014).
What duties do directors have in relation to M&A?
Directors have a duty to act in the interest of the company and its shareholders as a whole. In this respect, directors owe fiduciary duties towards the company and its shareholders, which include:
- the duty of care;
- the duty to act honestly;
- the duty to disclose conflicts of interest; and
- the duty of confidentiality.
In the context of a merger, directors have the duty to draw up the draft terms of merger which contain details on the proposed transaction. The directors must also draw up a written report which provides an explanation of the draft terms of merger and setting out the legal and economic grounds for them – in particular, the share exchange ratio. The written report must also describe any special valuation difficulties which have arisen. In addition, directors of a merging company must inform the general meeting of the merging company and the directors of the other merging company of any material change in the assets and liabilities between the date of preparation of the draft terms of merger and the date of the general meetings which are to decide on the draft terms of the merger.
In the context of takeovers of listed companies, the board of the offeree company must inform the Listing Authority after becoming aware of the intention of any person to acquire a controlling interest, or divest itself of a controlling interest, in the offeree company. In addition, the board of directors of the offeree company must communicate the offer document to the representatives of their respective employees or, where there are no such representatives, to the employees themselves. The board of directors must also advise and give its views to the holders of securities on the effects of implementation of the bid on employment, conditions of employment and the locations of the company’s places of business.
Consultation and transfer
How are employees involved in the process?
Where there is a takeover bid, the board of directors must communicate the offer document to employees. In cross-border mergers, the draft terms of the merger must also set out the effects of the merger on employment.
What rules govern the transfer of employees to a buyer?
Where the shares of a company are acquired, the employer of the employees of the company remains unchanged.
The transfer of the business of a company to a buyer necessarily results in a change of employer. In this respect, the transfer of employees to a buyer is regulated by the Transfer of Business (Protection of Employment) Regulations (SL 452.85). The regulations apply where there is the transfer of an undertaking or business to a new employer as a result of a legal transfer or merger. There is a transfer within the meaning of the regulations when there is a transfer of an economic entity which retains its identity, with the objective of pursuing an economic activity.
The effects of the regulations include:
- after a transfer, the contract of employment of each person employed by the transferor will have effect as if originally made between the person so employed and the transferee;
- the transferor must effect payment and settle any dues owed to the employees affected by the transfer in relation to the employment relationship with the transferor in respect of any wages, pro rata bonuses and weekly allowances due up to the end of the relationship with the transferor; and
- the transfer of the undertaking, business or part of the undertaking or business will not in itself constitute sufficient grounds for dismissal of employees by the transferor or transferee.
In the context of a cross-border merger, the rights and obligations that arise from contracts of employment or relationships in the merging companies are transferred to the new company resulting from the cross-border merger on the date on which such merger takes effect.
What are the rules in relation to company pension rights in the event of an acquisition?
Contributory retirement pensions in Malta are paid by the state as a benefit under social security laws. In order to be eligible, the employee would require a minimum yearly average of 50 contributions. Contributions are calculated on a weekly basis and are paid equally between the employer and employee up to an accumulated maximum of €87.70. In the case of contributory retirement pensions, the employer acquiring the employees, as a result of the acquisition, would be obliged to continue paying its share of the contributions as it would with any other employee.
In addition to contributory retirement pensions, there is also an option for an employer to set up a voluntary occupational pension scheme as an incentive for its employees. In the event of an acquisition, this benefit would also transfer with the employees benefiting from it and the new employer would be bound to continue making such contributions unless otherwise agreed with the employee. In such an event, employees of the transferee company in the same class as those being acquired may also be eligible to this benefit in accordance with applicable law.
Other relevant considerations
What legislation governs competition issues relating to M&A?
Merging entities which satisfy certain aggregate turnover thresholds must be notified to the director general (competition). The notification of concentrations must be made before their implementation and following the conclusion of the agreement, announcement of the public bid or acquisition of a controlling interest, within 15 working days.
Are any anti-bribery provisions in force?
Anti-bribery provisions are present in the Civil Code (Cap 16) and the Criminal Code (Cap 9).
In terms of the Civil Code, a person who claims to have suffered damage as a result of corruption (which includes giving or accepting a bribe) has a right of action to obtain compensation for the damage caused to him or her by the act of corruption against the persons who have committed or authorised the act of corruption or who have failed to take reasonable steps to prevent that act.
Corruption provisions in the Criminal Code also apply to directors and officers of a corporate body. In terms of the Criminal Code, a fine of between €20,000 and €2 million may be imposed on persons found guilty of corruption.
What happens if the company being bought is in receivership or bankrupt?
In terms of the Companies Act (Cap 386), where a company is insolvent two procedures may be followed:
- The company recovery procedure pursuant to which companies which are unable to pay their debts are imminently likely to become unable to pay their debts are placed under the control of a special controller for a specified period with the aim of rescuing the company.
- The liquidation and winding up of the company in insolvency pursuant to which a liquidator is appointed to take control of the assets and liabilities of the company.
It is possible for a buyer to purchase the assets of a company undergoing the company recovery procedure or a company undergoing liquidation and winding up. The sale of assets of the company undergoing the company recovery procedure will be made pursuant to a judicially sanctioned company recovery plan. Where the company is in liquidation, the assets of the company may be sold as part of the liquidation process. In both instances, it is the sale of assets which may take place rather than the sale of shares. Upon the dissolution of the company, a transfer of shares in the company may not take place without the sanction of the liquidator or the court, as the case may be.