On August 25, 2011, the Ministry of Commerce
(MOFCOM) promulgated the Provisions on
Implementation of Security Review System Regarding Mergers and
Acquisitions of Domestic Enterprises by Foreign Investors
("Provisions"), which will become
effective on September 1, 2011. The Provisions state that foreign
investors must file an application for security review with MOFCOM
for merger and acquisition ("M&A")
transactions that fall within the scope of security review. If a
given M&A transaction is within the scope of security review,
MOFCOM will inform foreign investors within 15 working days of the
application being filed, and submit the application to the Joint
Ministerial Panel for security review within 5 working days. The
Provisions also state that foreign investors must not use any
means, including but not limited to nominee shareholdings, trusts,
multi-tier investments, leasing, loaning, control agreements, and
offshore transactions, to evade M&A security review.
Before the promulgation of the Provisions, relevant ministries
regulated inbound M&A transactions through controlling foreign
investment access and anti-trust investigations over the
concentration of business operators. On February 3, 2011, the State
Council released the Circular of the General Office of the State
Council on the Establishment of Security Review System
Regarding Mergers and Acquisitions of Domestic Enterprises by
Foreign Investors ("Circular"),
providing that the Joint Ministerial Panel will conduct security
reviews for inbound M&A transactions. The Circular requires
that if the industrial sector in which an inbound M&A
transaction takes place is crucial to national security (such as
major farm products, energy and resources, defense industrial and
affiliated military enterprises) relevant ministries will conduct a
security review. When the Circular was promulgated, MOFCOM
spokesman Yao Jian commented that the establishment of the security
review system will facilitate China's opening-up policy.
Relevant officials of the National Development and Reform
Commission have assured that China's opening-up and foreign
capital utilization policies remain intact after the implementation
of the security review system. The security review mechanism is
similar to the Committee on Foreign Investment in the United States
(CFIUS), which is an inter-agency committee
composed of representatives from various departments within the US
government. These Provisions signal the formalized regulation of
inbound M&A in China's legal system.
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.
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The Hon'ble High Court of Bombay has held that where a Scheme of Amalgamation is executed between two companies registered in two different states [...], then the said two orders are two independent instruments.
Lawyers are pretty good at figuring it out quietly and amicably among themselves, without recourse to a public courtroom.
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