Getting the Deal Done: Ethics and Due Diligence in Cross-border Transactions in the US, South...

GETTING THE DEAL DONE Ethics and Due Diligence: Cross-border Transactions

in the US, South America and China

Faculty of Ethics and the Deal The Commons Institute | Ottawa, Ontario

June 2, 2014

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Prepared for

Faculty of Ethics and the Deal The Commons Institute | Ottawa, Canada

June 2, 2014

This program has been accredited by the Law Society of Upper Canada and contains 1 Professionalism Hour.

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Prepared by

SkyLaw is a boutique corporate law firm offering sophisticated legal and strategic advice to public and private companies.

www.skylaw.ca

Kevin R. West Founder

•  Kevin West is the founder of SkyLaw, an innovative boutique corporate law firm in Toronto.

•  After clerking for Justice Binnie at the Supreme Court of Canada, Kevin practiced with Sullivan & Cromwell in New York and Australia and as a partner at Davies in Toronto.

•  Kevin obtained his LLB from Dalhousie University in 1998.

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Presented by

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Timeline

LinkedIn: www.linkedin.com/in/kevinrobertwest E-mail: [email protected]

Kevin R. West

•  Acquisition of Corriente Resources Inc. by Tongling Nonferrous Metals Group Holdings Co. Ltd and China Railway Construction Corporation Limited for $679 million.

•  Acquisition of Northern Peru Copper Corp. by China Minmetals Nonferrous Co. Inc. and Jiangxi Copper Company for $455 million.

•  Xstrata plc hostile take-over of Falconbridge Limited for $24 billion. •  Acquisition of PetroKazakhstan Inc. by China National Petroleum Corporation

for $4.2 billion. •  Royal Bank of Canada’s acquisition of Centura Banks, Inc. for $2.3 billion.

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Selected Transactions List

Kevin R. West

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AGENDA Part 1: Anatomy of a Cross-Border Transaction

1.1 – Types of Transactions

1.2 – Stages of a Transac6on

1.3 – Selec6ng Local Counsel and Services Providers

1.4 – Overview of Professional Responsibili6es

1.5 – Helpful Resources

Part 2: Ethics and Professional Responsibilities

2.1 – Confidentiality

2.2 – Competence

2.3 – Know-‐Your-‐Client Rules

2.4 – Importance of Retainer Agreements

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AGENDA

…CONTINUED

Part 3: Providing Legal Services on Cross-Border Transactions

3.1 – Confirming the Scope of Work

3.2 – The Importance of Planning

3.3 – Understanding Cultural Differences

3.4 – Understanding Legal Differences

3.5 – Choosing the Governing Law

3.6 – Finding the Right Advisors

Part 4: Due Diligence Issues

2.1 – Understanding Diligence Practices

2.2 – Bilateral Trade Agreements

2.3 – Foreign Investment Review and Compe66on Laws

2.4 – Practical Considerations

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AGENDA

…CONTINUED

Part 5: Dispute Resolution in Multi-Jurisdictional Transactions

5.1 – Arbitration or Litigation?

5.2 – The Advantages of Arbitra6on

5.3 – The Advantages of Li6ga6on

Part 6: Anti-Corruption Legislation

6.1 – Bill S-14 Amendments

6.2 – 2014 and Beyond

Part 7: Concluding Remarks

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Part 1 Anatomy of a Cross-Border Transaction

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TYPES OF TRANSACTIONS

Part 1 – Session 1.1 ANATOMY OF A CROSS-BORDER TRANSACTION:

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TYPES OF TRANSACTIONS

Part 1: Anatomy of a Cross-Border Transaction – Session 1.1

•  Acquisitions of Canadian companies by foreign companies

•  Acquisitions of Canadian companies with significant foreign operations

•  Joint ventures in Canada with a foreign partner

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STAGES OF A TRANSACTION


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STAGES OF A TRANSACTION


•  Initial discussions and Non-Disclosure Agreement

•  Letter of intent •  Due diligence •  Negotiation of definitive transaction

documents (Share purchase agreement, etc.)

•  Signing •  Closing •  Post-closing integration

Image Source: hXp://vincitlaw.com/wp-‐content/uploads/Crossborder.final_.jpg

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SELECTING LOCAL COUNSEL AND SERVICE PROVIDERS


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SELECTING LOCAL COUNSEL AND SERVICE PROVIDERS


•  Get a referral from a reputable source •  Prefer counsel trained in New York, London or

similar jurisdiction •  Google search firm and specific lawyers •  Check websites •  Have a call or meet in person

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OVERVIEW OF PROFESSIONAL RESPONSIBILITIES


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OVERVIEW OF PROFESSIONAL RESPONSIBILITIES


•  Rules cited in this presentation are from the Law Society of Upper Canada’s rules of professional conduct

•  Lawyers in other jurisdictions may have very different approaches to issues like conflicts

•  Planning and communication are key. If you are required to make a filing in a foreign jurisdiction, plan for it. Avoid that feeling of dread when you find out that the filing you need to make for a client can’t be made on time because the government office is closed for a local five-day holiday.

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HELPFUL RESOURCES


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HELPFUL RESOURCES


•  Dateandtime.com – Plan your meetings efficiently •  Local government websites, e.g. Industry Canada •  Export Development Canada (EDC) has excellent

publications, e.g. “Doing Business in China” •  Law firm and accounting firms have helpful online

summaries often comparing jurisdictions

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Part 2 Ethics and Professional Responsibilities

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CONFIDENTIALITY

Part 2 – Session 2.1 ETHICS AND PROFESSIONAL RESPONSIBILITIES:

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CONFIDENTIALITY

Part 2: Ethics and Professional Responsibilities– Session 2.1

Rule of Professional Responsibility 2.03:

A lawyer at all times shall hold in strict con!dence all information concerning the business and affairs of the client acquired in the course of the professional relationship and shall not divulge any such information unless expressly or impliedly authorized by the client or required by law to do so.

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CONFIDENTIALITY

Part 2: Ethics and Professional Responsibilities– Session 2.1 ...CONTINUED

•  Understand rules of confidentiality that apply in the local jurisdiction

•  Expressly state that information must be kept confidential

•  Only disclose what you need to disclose •  At conflict check stage, consider if the first step of

the conflict is to clear the name of the opposing party instead of your client

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CONFIDENTIALITY


•  Local law may not provide privileges the same way, e.g. lawyer and client privilege

•  Attorney whistleblowing rules could permit or require disclosure of client confidential information to regulators.

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COMPETENCE


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COMPETENCE


Rule of Professional Responsibility 2.01:

A lawyer shall perform any legal services undertaken on a client’s behalf to the standard of a competent lawyer

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COMPETENCE


•  Be careful not to practice law in respect of a jurisdiction in which you are not qualified

•  Consider the rules for foreign legal consultants, LSUC By-Law 14:

No person shall give legal advice in Ontario respecting the law of a foreign jurisdiction except in accordance with this By-Law

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KNOW-YOUR-CLIENT RULES


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LSUC By-Law 7.1, Part III:

Subject to specific exceptions, a lawyer shall, (a)  when retained to provide her or his

professional services to a client, comply with the client identi!cation requirements; and

(b) when giving instructions in respect of the receiving, paying or transferring of funds, comply with the client identi!cation requirements and the client veri!cation

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•  If working with someone internationally, you might need a local solicitor to verify information

•  Check local corporate registries •  Google searches or other background searches •  Be careful of fraud – check with LawPro

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IMPORTANCE OF RETAINER AGREEMENTS

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•  Retainer or engagement agreements are not required under law society rules, but it is advisable to set out the terms of the retainer and have the client sign an acknowledgement of those terms

•  Limited scope retainers must be reduced to writing (Rule 2.02(6.2))

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•  Agreements avoid misunderstandings that can result, particularly when the customary scope of work for a matter may differ in the local jurisdiction

•  Consider obtaining a cash retainer in your trust account

•  Can be difficult to enforce outstanding legal bills in foreign jurisdictions

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Part 3 Providing Legal Services on Cross-Border Transactions

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Part 3 – Session 3.1 PROVIDING LEGAL SERVICES ON CROSS-BORDER TRANSACTIONS

CONFIRMING THE SCOPE OF WORK

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CONFIRMING THE SCOPE OF WORK Part 3: Providing Legal Services on Cross-Border Transactions – Session 3.1

•  Standards for lawyers can vary greatly from what we are used to in Canada

•  Asking a local firm to conduct due diligence on a corporation or a property in the local jurisdiction may result in significantly less, or significantly more, work than you would expect in Canada

•  Law firms may outsource certain functions, e.g., search functions

•  Confirm the state or provincial jurisdictions in which property or people are located

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THE IMPORTANCE OF PLANNING

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Part 3: Providing Legal Services on Cross-Border Transactions – Session 3.2

•  The additional amount of time required because of the number of people involved

•  Time zones and travel require careful planning •  Translators or interpreters required? •  Holidays may be different •  Build in time to incorporate comments and work

product from the various jurisdictions

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Part 3: Providing Legal Services on Cross-Border Transactions – Session 3.2 ...CONTINUED

•  Getting documents signed or filed in time •  How will closing occur in multiple jurisdictions? •  Check with banks for timing on wire transfers •  Use trust accounts and escrow arrangements

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UNDERSTADING CULTURAL DIFFERENCES

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UNDERSTANDING CULTURAL DIFFERENCES


•  Determine who has decision-making authority •  Understand the work ethic and speed of work •  Importance of in person •  Research basics about

appropriate greetings, e-mail communications, etc.

Image Source: hXp://www.cartoonstock.com/newscartoons/cartoonists/ato/lowres/travel-‐tourism-‐japanese-‐japan-‐protocol-‐wwii-‐mergers__acquisi6ons-‐aton1407l.jpg

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UNDERSTANDING CULTURAL DIFFERENCES


•  Don’t make assumptions •  Some cultures are less time sensitive, for example:

“Mañana” literally means tomorrow. But when conducting business in some Latin countries be prepared that when someone says they will do something “mañana”, they don’t mean tomorrow literally. Rather they mean that they will get to it eventually.

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UNDERSTADING LEGAL DIFFERENCES

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UNDERSTANDING LEGAL DIFFERENCES


•  Terminology can be confusing, e.g. articles of incorporation may be a certificate of incorporation, a public deed of incorporation, a constitution, etc. There may be other constating documents as well.

•  Data privacy laws can vary •  Employees may be treated differently, particularly

with respect to severance and constructive termination

•  Directors may have personal liability for taxes, employees, etc.

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UNDERSTANDING LEGAL DIFFERENCES


•  There may be a need for more than one shareholder •  There may be minimum capital requirements •  Types of agreements may be different, e.g. civil law

countries have a general good faith understanding and do not need extensive representations and warranties

•  Some civil law countries require notarization for things like share transfers

•  Be careful of public statements. Some jurisdictions have a truth in takeovers policy, like Australia.

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CHOOSING THE GOVERNING LAW

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CHOOSING THE GOVERNING LAW


•  Where is the transaction happening? •  Does a court or regulator need to be involved? •  If there is a dispute, where will it likely be? •  Familiarity •  Getting local counsel •  Enforceability of judgments

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FINDING THE RIGHT ADVISORS

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•  Confirm your advisors have cross-border experience

•  Always consider tax •  There can be significant

legal differences, e.g. how employees are treated, how approvals are obtained

Image Source: hXp://www.ifrasia.com/Pictures/web/m/o/t/A6jigsaw_web.jpg

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•  Consider government and political issues •  Consider PR, community meetings, integration

issues

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Part 4 Due Diligence Issues

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Part 4 – Session 4.1 DUE DILIGENCE ISSUES

UNDERSTADING DILIGENCE PRACTICES

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UNDERSTANDING DILIGENCE PRACTICES

Part 4: Due Diligence Issues– Session 4.1

•  Public registries may have different information, e.g. some types of liens and other security interest are not generally available in civil law jurisdictions

•  Litigation searches may not be centralized •  It may take a long time for public searches and they

may not be reliable

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BILATERAL TRADE AGREEMENTS

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BILATERAL TRADE AGREEMENTS


•  Check if there are any treaty or trade agreements that could benefit your client

•  Foreign investment promotion and protection agreements (FIPAs) are bilateral agreements aimed at protecting and promoting foreign investment through legally-binding rights and obligations

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FOREIGN INVESTMENT REVIEW AND COMPETITION LAWS

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FOREIGN INVESTMENT REVIEW AND COMPETITION LAWS


•  Most countries have some type of review for significant transactions made by foreigners

•  Competition or anti-trust laws can be complex •  Some areas can be very sensitive, including

cultural, telecommunications, resources, etc.

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PRACTICAL CONSIDERATIONS

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PRACTICAL CONSIDERATIONS


•  Use technology such as online data rooms to collaborate efficiently

•  Can you read the documents in the local language? •  Consider immigration and visa requirements, even

for short stays •  Consider political risks – EDC offers political risk insurance for breach of

contract, expropriation, political violence, etc.

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Part 5 Dispute Resolution in Multi-Jurisdictional

Transactions

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Part 5 – Session 5.1 DISPUTE RESOLUTION IN MULTI-JURISDICTIONAL TRANSACTIONS

ARBITRATION OR LITIGATION

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ARBITRATION OR LITIGATION

Part 5: Dispute Resolution in Multi-Jurisdictional Transactions – Session 5.1

Consider whether to: •  use litigation in a particular jurisdiction, or •  use arbitration

Image Source: hXp://www.llmstudy.com/files/editorial/law_-‐_scales1.jpg

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ADVANTAGES OF ARBITRATION

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ADVANTAGES OF ARBITRATION


•  Typically faster •  Determine language to be used •  Less procedural formalities like service of process •  Reliability of local courts can vary greatly •  Typically confidential •  Can be flexible and suit the needs of the parties •  Can determine arbitrators with specific industry

experience

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ADVANTAGES OF LITIGATION

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ADVANTAGES OF LITIGATION


•  The right to an appeal •  Lower costs to start, although can be expensive if it

is lengthy •  Carefully consider local jurisdictions – civil vs.

common law, certainty of laws, political influence, availability of discovery

•  Easier to obtain injunctions, etc.

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Part 6 Anti-Corruption Legislation

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Part 6 – Session 6.1 ANTI-CORRUPTION LEGISLATION

BILL S-14 AMENDMENTS

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BILL S-14 AMENDMENTS

Part 6: Anti-Corruption Legislation– Session 6.1

•  Bill S-14, the Fighting Foreign Corruption Act •  Amendments: – Changing Definition of “Business” –  Increase in the Maximum Penalty –  Elimination of Facilitation Payments – New Books and Records Offence –  Expanding Jurisdiction –  RCMP has Exclusive Ability to Lay Charges

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Part 6 – Session 6.2 ANTI-CORRUPTION LEGISLATION

2014 AND BEYOND

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2014 AND BEYOND Part 6: Anti-Corruption Legislation– Session 6.2

•  35+ ongoing investigations; 5 people facing charges

•  Canadian companies should ensure that they comply

•  Examples: –  Appointing a Compliance Officer –  Proper internal auditing procedures –  Continuing employee & executive education and

training –  Guides that show the company’s policies

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Part 7 Concluding Remarks

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CONCLUDING REMARKS

Part 7: Concluding Remarks

•  Plan, plan, plan (who, what, when, where, how) •  Ensure compliance with professional responsibilities,

even abroad •  Choose your local agents carefully •  Understand cultural and legal differences •  Think about issues unique to cross-border transactions,

like governing law, and arbitration vs. litigation •  Stay on top of current legislation and potential changes

QUESTIONS?

Contact Kevin West:

SkyLaw Professional Corporation 2 St. Clair Avenue East, Suite 800 Toronto, Ontario, Canada M4T 2T5

Tel: 416.644.3190 Fax: 1.866.832.0623

LinkedIn: www.linkedin.com/in/kevinrobertwest E-mail: [email protected]

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Getting the Deal Done: Ethics and Due Diligence in Cross-border Transactions in the US, South...

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Transcript of Getting the Deal Done: Ethics and Due Diligence in Cross-border Transactions in the US, South...