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.
Advisers, negotiation and documentationAppointed advisers
In addition to external lawyers, which advisers might a buyer or a seller customarily appoint to assist with a transaction? Are there any typical terms of appointment of such advisers?
A buyer or seller will generally appoint accountants to advise on the financial and tax aspects of a transaction and undertake financial due diligence of a target company. Professional advisers generally have standard terms of engagement.Duty of good faith
Is there a duty to negotiate in good faith? Are the parties subject to any other duties when negotiating a transaction?
It is generally understood that Myanmar law does not impose a duty to negotiate in good faith, but this is often included as a contractual obligation in term sheets and other preliminary agreements for Myanmar transactions.
In terms of other duties, under the MCL, as in other jurisdictions, directors are subject to a number of duties, including when negotiating a transaction, such as the duty to act in good faith and in the best interests of the company in relation to such negotiations.Documentation
What documentation do buyers and sellers customarily enter into when acquiring shares or a business or assets? Are there differences between the documents used for acquiring shares as opposed to a business or assets?
As in other jurisdictions, typically buyers and sellers will enter into:
- shareholders’ agreements for joint ventures or sale and purchase agreements; and
- any other document required to effect the transfer of the shares, or the business or assets, for example, conveyances of land.
Are there formalities for executing documents? Are digital signatures enforceable?
There are generally no specific formality requirements to execute documents in Myanmar. Under the MCL, documents may be executed by a company either by affixing its common seal, or by the signature of two directors (or if the company has only one director, that director) or a director and company secretary.
The 2004 Electronic Transactions Law provides that contracts may be executed electronically.
Due diligence and disclosureScope of due diligence
What is the typical scope of due diligence in your jurisdiction? Do sellers usually provide due diligence reports to prospective buyers? Can buyers usually rely on due diligence reports produced for the seller?
As in other jurisdictions, the scope of legal due diligence in Myanmar is comprehensive and covers, for example, the corporate information of the company, compliance with Myanmar law, verification of its licences and assets (including intellectual property) and contracts, labour and environmental compliance, and outstanding financial obligations and securities of the company.
It is particularly important in Myanmar to undertake thorough due diligence of the licences and approvals obtained by the target company for its business, and verifying the nature of any interests it has in immovable property. Verifying compliance with licensing requirements is important as there are varying levels of understanding of, and compliance with, applicable licensing and approval requirements in Myanmar. Verifying the property rights of a target company can also be challenging due to the poor quality of official documentation of land rights (Myanmar lacks a comprehensive land titles registry), and the prevalence of informal arrangements for land use in Myanmar (eg, companies often operate on land belonging to a third person such as a major shareholder as noted in question 7).
Another issue to be mindful of in carrying out due diligence is evidence of corruption. Given the poor record-keeping of Myanmar companies, this is generally difficult to ascertain other than through interviewing the target company’s management.
Sellers typically do not produce due diligence reports in Myanmar.Liability for statements
Can a seller be liable for pre-contractual or misleading statements? Can any such liability be excluded by agreement between the parties?
Under the Myanmar Contracts Act, if a contract is caused by coercion, fraud or misrepresentation, at the option of the person whose consent was so caused, the contract may be voidable, or such person may be entitled to insist on the performance of the contract and the provision of a remedy to put him or her in the place he or she would have been in if the misrepresentation had been true.
The Contract Act’s protections regarding misleading statements cannot be excluded by contract.Publicly available information
What information is publicly available on private companies and their assets? What searches of such information might a buyer customarily carry out before entering into an agreement?
Under the MCL, private companies registered in Myanmar are required to maintain registers, among others, of shareholders, at their registered office or principal place of business and make them available to shareholders. However, few companies currently comply with this requirement and, in general, limited information is publicly available about unlisted companies registered in Myanmar.
Under the MCL, any person may obtain an extract of the corporate information of a registered company from DICA’s electronic register, called MyCo, on payment of the prescribed fee. DICA published Notification No. 57/2018 on 9 July 2018 setting out its fees for filings. The filing fees include fees for requesting extracts of the corporate information of a company.
Apart from the companies’ registry under the MCL, Myanmar does not maintain computerised records of ownership of property, or security taken on such property. For example, while it is possible to register a declaration of ownership of intellectual property rights such as trademarks under the 2018 Registration Law, such records are filed in paper format and are not easily searchable.Impact of deemed or actual knowledge
What impact might a buyer’s actual or deemed knowledge have on claims it may seek to bring against a seller relating to a transaction?
Under the Contracts Act, a contract caused by misrepresentation (including silent misrepresentation) or fraud will not be voidable if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.
Pricing, consideration and financingDeterming pricing
How is pricing customarily determined? Is the use of closing accounts or a locked-box structure more common?
Pricing can be challenging in Myanmar owing to the poor accounting practices and record-keeping of companies in Myanmar. There is no restriction in Myanmar on the use of closing accounts or a locked-box structure. However, in practice, the consideration is generally not adjusted, reflecting in part the difficulty obtaining financial information of the target company.Form of consideration
What form does consideration normally take? Is there any overriding obligation to pay multiple sellers the same consideration?
Where a private M&A transaction is in the form of a joint venture, shares in the project company are commonly offered as consideration for the transfer to the project company of the business or assets of the Myanmar joint venture partner. The foreign joint venture partner would typically make their contribution to the project company in cash.
There is no overriding obligation to pay multiple sellers the same consideration under Myanmar law.Earn-outs, deposits and escrows
Are earn-outs, deposits and escrows used?
How are acquisitions financed? How is assurance provided that financing will be available?
Acquisitions are generally financed through retained earnings or loans, but in the case of loan financing, in general the practice in Myanmar is not to deal with financing in the transaction documents because Myanmar’s banking sector is still developing. Such finance is generally obtained offshore.
In terms of financing Myanmar investments, it is generally understood that in practice, all transfers of funds into or from Myanmar are governed by the 2012 Foreign Exchange Management Law. Prior approval from CBM is likely to be required in practice for loans, while equity fund transfers need only to be declared to CBM.
Assurance is generally provided where an acquisition is financed through loans by including closing conditions in the sale and purchase agreement requiring the purchaser to secure such loans on terms which are satisfactory to both parties.Limitations on financing structure
Are there any limitations that impact the financing structure? Is a seller restricted from giving financial assistance to a buyer in connection with a transaction?
While the drafting of the financial assistance provisions of the MCL is not clear, they appear to permit private companies to give financial assistance in connection with the acquisition of their shares without limitation.
Conditions, pre-closing covenants and termination rightsClosing conditions
Are transactions normally subject to closing conditions? Describe those closing conditions that are customarily acceptable to a seller and any other conditions a buyer may seek to include in the agreement.
Transactions are generally subject to closing conditions, which typically include the following:
- execution of all ancillary agreements (including any loan agreements);
- attainment of corporate approvals;
- attainment of all licences, permits and approvals (including under the MIL);
- representations and warranties of the parties remain true and accurate; and
- non-occurrence of any material adverse events or force majeure.
What typical obligations are placed on a buyer or a seller to satisfy closing conditions? Does the strength of these obligations customarily vary depending on the subject matter of the condition?
Generally, all parties will be expected to exert reasonable efforts to secure the satisfaction of any closing conditions.
Given the scope for delay in satisfying closing conditions (particularly regulatory approvals) in Myanmar through no fault on the part of either party, the typical approach to closing conditions is to include a long-stop date for closing.Pre-closing covenants
Are pre-closing covenants normally agreed by parties? If so, what is the usual scope of those covenants and the remedy for any breach?
Typically parties will include pre-closing covenants to preserve the value of the target business or assets. Common covenants include general obligations to keep the business intact and operate it in the ordinary course of business in accordance with the past practice of the seller. The parties may also include obligations to consult or obtain approval from the acquirer for certain corporate actions that may affect the profitability of the target business or assets.
The remedy for a breach of the covenants is generally a claim for damages.Termination rights
Can the parties typically terminate the transaction after signing? If so, in what circumstances?
Generally, termination will be available only after execution of a sale and purchase agreement for a failure to satisfy a closing condition, or to meet a long-stop date.
Are break-up fees and reverse break-up fees common in your jurisdiction? If so, what are the typical terms? Are there any applicable restrictions on paying break-up fees?
Break-up fees and reverse break-up fees are not typical in Myanmar.
Under the Contracts Act, where a break-up fee or reverse break-up fee applies to breach of contract, it will be enforceable only to the extent it is determined by the court to be reasonable (eg, the court may decide to award only a part of such amount).
Representations, warranties, indemnities and post-closing covenantsScope of representations, warranties and indemnities
Does a seller typically give representations, warranties and indemnities to a buyer? If so, what is the usual scope of those representations, warranties and indemnities? Are there legal distinctions between representations, warranties and indemnities?
As in other jurisdictions, the parties will typically negotiate representations, warranties and indemnities in sale and purchase agreements.
Typical warranties of both parties will include their corporate capacity and authority to execute the transaction agreements. A seller will typically additionally provide warranties relating to their title and authority to transfer the transferred business or assets, corporate and financial records, litigation risks, material contracts, solvency, compliance with Myanmar law, attainment of licences for the business, labour and environmental compliance, intellectual property rights and insurance.
Indemnity clauses are subject to negotiation and may be broad, covering any loss caused by a breach of the sale and purchase agreement, including warranties, or limited to specific breaches.
The main distinction between indemnities and warranties is that indemnities are specifically defined in the Contracts Act. The Contracts Act defines indemnities as contracts to transfer to the promisor any loss to a promisee caused by the promisor or a third party. Under the Contracts Act, a promisee is entitled to recover all losses from a promisor under an indemnity clause.
The Contracts Act does not specifically deal with warranties. However the 1930 Sale of Goods Act implies certain warranties into contracts for the sale and purchase of goods. As a result, the common law position regarding warranties is likely to have been preserved in Myanmar.
In relation to representations, see question 14.Limitations on liability
What are the customary limitations on a seller’s liability under a sale and purchase agreement?
Parties customarily limit liability by negotiating the scope of individual representations and warranties. A typical limitation that may also be found in sale and purchase agreements is to limit liability for breach of warranties to the purchase price.Transaction insurance
Is transaction insurance in respect of representation, warranty and indemnity claims common in your jurisdiction? If so, does a buyer or a seller customarily put the insurance in place and what are the customary terms?
Transaction insurance is not available in Myanmar.Post-closing covenants
Do parties typically agree to post-closing covenants? If so, what is the usual scope of such covenants?
Parties may include, for example, non-compete and confidentiality obligations as post-closing covenants. Under the Contracts Act, non-compete clauses are generally prohibited. However, an exception to this rule is that a person who purchases the goodwill of a business may impose reasonable restrictions regarding the conduct of a similar business within specified local limits.
Are transfer taxes payable on the transfers of shares in a company, a business or assets? If so, what is the rate of such transfer tax and which party customarily bears the cost?
Stamp duty will generally be payable for transfers of shares in a company, a business or assets, as described in question 8.
The parties may agree as to who bears the stamp duty, and in the absence of such agreement, the 1899 Myanmar Stamp Act sets out certain default rules, for example, that for certain instruments such as for the transfer of shares, the person drawing, making or executing such instrument will bear the stamp duty.Corporate and other taxes
Are corporate taxes or other taxes payable on transactions involving the transfers of shares in a company, a business or assets? If so, what is the rate of such transfer tax and which party customarily bears the cost?
In addition to stamp duty, capital gains tax is payable on any capital income. The capital gains tax rate is 10 per cent in most sectors or about 40 per cent for oil and gas assets.
Withholding taxes also apply for certain categories of corporate income, although these generally will not apply to Myanmar-resident companies after 1 July 2018 under Notification No. 47/2018 of the MOPF. Where applicable, residents can offset withholding taxes against their final end of fiscal year tax liability, while non-residents cannot. Under Notification No. 47/2018, the withholding amounts from 1 July 2018 are:
0 per cent
15 per cent
10 per cent
15 per cent
Payments by government and government instrumentalities under contracts for goods and services
2 per cent
2.5 per cent
Payment by the private sector under contracts for goods and services
0 per cent
2.5 per cent
The withholding rates can be reduced if a person not resident in Myanmar is a resident of a country that is party to a double tax treaty with Myanmar. Under the double tax treaty with Singapore, the amount withheld on interest payments will be reduced to 8 per cent if the payment is to a bank or financial institution or 10 per cent if it is to any other person; and the amount withheld on royalty payments will be reduced to 10 per cent for patents, designs or models. Myanmar has double tax treaties with India, Korea, Laos, Malaysia, Singapore, Thailand, the United Kingdom and Vietnam and it is in the process of finalising treaties with other jurisdictions.
Employees, pensions and benefitsTransfer of employees
Are the employees of a target company automatically transferred when a buyer acquires the shares in the target company? Is the same true when a buyer acquires a business or assets from the target company?
The acquisition of shares in a target company will not affect its legal status as the employer, and its employees would continue to be its employees. Such employees would not automatically be transferred in the context of the acquisition of a business or assets.Notification and consultation of employees
Are there obligations to notify or consult with employees or employee representatives in connection with an acquisition of shares in a company, a business or assets?
Legally, there is no obligation to notify or consult with employees or employee representatives in connection with a private M&A transaction.Transfer of pensions and benefits
Do pensions and other benefits automatically transfer with the employees of a target company? Must filings be made or consent obtained relating to employee benefits where there is the acquisition of a company or business?
As noted in question 34, as the employer does not change following the acquisition of shares in a target company, the accrued benefits of employees (including prior service and leave entitlements) will not be affected. In relation to the acquisition of a business or assets, the parties may negotiate recognition by the acquirer of such accrued benefits.
No retirement savings contribution scheme exists in Myanmar for private sector employees.
Update and trendsKey developments
What are the most significant legal, regulatory and market practice developments and trends in private M&A transactions during the past 12 months in your jurisdiction?Key developments36 What are the most significant legal, regulatory and market practice developments and trends in private M&A transactions during the past 12 months in your jurisdiction?
There has been significant liberalisation of foreign investment restrictions in Myanmar over the past 12 months, in particular in the trading, insurance and banking sectors (see question 6).
The liberalisation of the insurance and banking sectors in particular will have wide-ranging impact on Myanmar’s economy. Permitting foreign capital and expertise to these sectors will help bolster market participants, and improve financial services product offerings in Myanmar, allowing Myanmar citizens and businesses to better insure against risk and obtain finance for their business.
Further investment opportunities are expected in the following year. Notably, it is expected that a further round of tenders will be called over the next year for explorations of oil and gas blocks. On 28 June 2019, the MOEE also issued a tender for short-term power generation projects (such as through Floating Storage Regasification Units), and further energy projects are expected, to meet the shortfall in Myanmar’s energy demands. As a precursor to incentivise such projects, on 25 June 2019, the MOEE raised electricity tariffs for the first time in five years, improving the viability of power supply in Myanmar.
In addition to liberalising barriers to investment, the Myanmar government has also been active in developing a robust economy and institutional framework. Notably, the CBM has been active in issuing regulations aimed at strengthening the banking sector. In particular, on 24 January 2019, it issued Directive No. 3/2019 permitting banks to include subordinated debt in their supplementary or Tier 2 capital, up to a maximum of 50 per cent of their Tier 1 capital, with the CBM’s prior approval, providing a framework to allow Myanmar banks to improve their compliance with regulatory capital requirements.
The Myanmar government has also now enacted a full suite of intellectual property laws. While these laws have not yet been implemented, the implementation of trademark, patent and industrial design laws in particular will be important to business to protect their commercial interests in Myanmar.