No, not for a holiday but to look for an asset.
In competitive times where projects are hard to come by clients will increasingly look overseas for that next opportunity. Be it in Africa, Asia or Europe, Australian resources companies must be among the most active and entrepreneurial when it comes to seeking new frontiers for exploitation. But while the principles of geology may be largely universal, the legal systems which govern the ownership and development of geological projects are not and there may be important differences that impact on negotiations for the acquisition of projects in foreign jurisdictions.
For example, minerals may be owned by the relevant Government and licensed to individuals (as they are in this country) or privately owned (as was, until recently, the case in South Africa). Governments may also be entitled to an ongoing interest in resources project in their country and this may take many forms varying from royalty interests (which are common in many jurisdictions) to a right to take a share of, or market and distribute, production (not uncommon for oil or gas projects) or a right to take a direct and possibly free-carried interest (such as in Ghana or Eritrea). Foreign investment restrictions may apply which substantially limit the structure of the investment by requiring either a local partner (such as in South Africa) or a locally incorporated company with local directors in order to hold mining rights (such as in many French speaking African countries). Similarly, foreign exchange controls will need to be considered.
So how to do you navigate these foreign legal waters when looking to acquire overseas assets?
In this age of the internet it is not difficult to make preliminary enquiries in relation to the commercial and legal environment of the jurisdiction of interest. By way of example, comparative country and regional data on doing business in various jurisdictions is available from organisations such as the World Bank (see www.doingbusiness.org). Additionally, "doing business" guides are commonly available over the internet, often from the major accounting groups. The websites of the relevant Governments are another valuable source of information and often provide a detailed summary of their legal system and links to relevant legislation (although not necessarily in English!).
Another source of information is simply from asking questions of the counterparty you are dealing with and/or your local technical advisers. They will obviously have experience in dealing in the relevant country and are often well versed in the tricks and traps you might encounter and while this information will commonly be anecdotal it can be invaluable to know how things work in practice.
Being armed with some of this basic information may assist in your early negotiations but nothing can substitute for the need to obtain proper legal advice from a qualified lawyer in the relevant jurisdiction. In many cases, there is neither the time nor opportunity to obtain all relevant advice in advance. Therefore, when it comes to documenting a proposed acquisition, be it in a 2 page letter or more detailed agreement, it is advisable to incorporate some conditions precedent that will provide you the opportunity to make full and detailed enquiries and/or the ability to withdraw from the deal. While these conditions will no doubt be tailored as a consequence of the parties' relative bargaining positions and the outcome of the negotiations, the broader the vendor will accept the more flexibility they allow for the acquiring party. Examples include:
- obtaining board approval;
- satisfactory completion of legal (as well as other) due diligence enquiries, which may extend beyond the usual issues as to title and assignability of the asset to cover general operational and foreign exchange/investment issues; and
- obtaining all regulatory approvals and consents as may be necessary for the transaction, which can include those required in the foreign jurisdiction as well as shareholder approvals.
It is also likely that significant consideration will need to be given to the structuring of the acquisition and the tax implications. It may be that a special purpose vehicle will be established and you will need to consider where that SPV will be located (which in itself raises another set of jurisdictional issues to be considered). Again, where there has not been sufficient time to properly canvas these issues before documentation they can be included in the scope of the due diligence or as a general condition to the agreement. In any case, in order to maintain maximum flexibility all early documentation can be expressed to be an acquisition by the relevant company "and/or its nominee".
As a final matter there is always the question of what jurisdiction should apply to govern disputes under the agreement. This question is a topic in itself. By way of example in choosing a forum or law you also need to consider whether any judgment obtained from that forum can be enforced against the counterparty to the action. There is little point having a judgment from an Australian court against a counterparty located in a country which does not recognise the judgment or where the counterparty does not have assets in Australia. This said, your own jurisdiction will be more convenient and cost effective but given other considerations a neutral, English speaking forum may be a good alternative.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.