The work of one of the students.
Introduction, ,,If the sale goes through, what are the possible liabilities of the buying company , in
relation to enbeselment in the target company . Or other risks arising from finding irregularities or
threats to company A due to finding something untidy in acquired company B after due diligence.
And how can we protect ourselves against them . ,,
Chapter 1: Introduction
-Introduction to mergers and acquisitions (M&A) transactions
-Context and relevance of M&A in today's economy
-Purpose and structure of the work
Chapter 2: Fundamentals of M&A and Liability Transfer
-Definition of M&A transactions
-Issue of liability transfer in the M&A process
-Methods of transferring liabilities and debts
- Aspects of due diligence
Chapter 3: The case of Company "A" and "B"
-Characteristics of company "A" and "B"
-Important information on the energy sector
- Clean energy for all Europeans" package.
-Purchase offer and selection of preferred bidder
Chapter 4: Risk analysis
-Identification of significant risks in the M&A process
-Transfer by the CEO of company 'B' as a risk factor
-Analysis of potential financial and legal consequences
Chapter 5: Legal and Regulatory Aspects
-Commercial Companies Code and M&A transactions in Poland
-Criminal and fiscal provisions and liability for transfereeing
-Role of Ministerial Orders and other legislation
Chapter 6: Safeguards and protective measures in the event of a transaction
-The role of transaction agreements in risk mitigation
- MAC clause.
-lock up agreement
-Guarantee clauses, limitation of liability and liability transfer provisions
-Transaction insurance as a protection measure
Chapter 7: Ethics and Corporate Responsibility
-Ethical aspects of M&A transactions
-Duty of transparency and preservation of shareholders' interests
-Role of corporate responsibility in the M&A process
Chapter 8: Alternatives and Consequences
-Analysis of alternative scenarios
-Consequences of the acquisition of company "B" by company "A"
-Comparison of the situation in the context of Polish law, EU law and US law
Chapter 9: Summary and Conclusions
-Recapitulation of key issues and findings
-Stressing the importance of the complexity of M&A transactions
-conclusions in the practical context and further research
Chapter 10: Conclusion
-Summary of considerations and arguments
-final summary
Chapter 1: Introduction
In the contemporary economic landscape, merger and acquisition (M&A) deals have become an
integral component of numerous organizations' growth strategy. The integration of diverse entities
with the aim of achieving synergistic effects, expanding market reach, and consolidating resources
frequently results in enhanced competitiveness and operational effectiveness. Nonetheless, the
execution of these transactions presents notable legal, financial, and strategic obstacles that
necessitate thorough consideration and analysis throughout the negotiating and implementation
phases.
This dissertation examines significant topics pertaining to the process of mergers and acquisitions,
with a specific focus on the case study of business A's interest in purchasing firm B within the energy
industry. A comprehensive examination is conducted on multiple facets of this transaction, with a
special focus on the component for which I held responsibility - the transfer of liability for debts.
Additionally, the analysis encompasses considerations of legal protection, legal and economic
ramifications, and, of utmost significance, safeguards. Within a legal framework, this discourse will
elucidate the ramifications pertaining to the Commercial Companies Code, criminal law, and other
legislative measures, encompassing international law, the European Union, and specifically Poland, as
the author originates from said jurisdiction. I pursued a legal education in the aforementioned
country for a duration of three years at the esteemed Leon Kozminski Academy of Law. It is of
personal significance to me to ascertain the statutes pertaining to a particular case within the context
and circumstances of Poland, should such a scenario arise.
My work will also focus on key ethical issues that should accompany such processes, such as
transparency, corporate responsibility and the duty to preserve shareholders' interests. In considering
the consequences of improper conduct, however, the thesis will first and foremost apply and focus on
the topic of the possible consequences and risks associated with a particular M&A transaction.
The aim of this dissertation is to provide a deeper understanding of the complexity of M&A
transactions in a legal, financial and strategic context, based on an analysis of the real case of
Company A and B and the general knowledge available at the date of writing. By discussing aspects of
liability transfer, collateral, legal analysis and possible consequences, this thesis aims to show a fair
representation of the challenges and potential pathways in the M&A transaction process.
-Introduction to mergers and acquisitions (M&A) transactions
Mergers and acquisitions (M&A) transactions play a crucial role in the business strategies of
organizations within the contemporary dynamic economic landscape. Mergers and acquisitions
(M&As) are of considerable importance in facilitating growth, enhancing market positioning,
obtaining new technologies and talents, and facilitating organizational restructuring. The process of
acquisition involves one corporation, referred to as the acquirer, gaining control over another
company, known as the target of the merger or acquisition. This is typically accomplished by the
acquisition of shares or assets. The ramifications of these transactions are experienced in both
economic and legal spheres.
-Context and relevance of M&A in today's economy
Mergers and acquisitions (M&A) activities play a crucial role in the contemporary business landscape.
Companies endeavor to optimize their operations by pursuing efficiency, innovation, and enhanced
shareholder value. Merger and acquisition (M&A) transactions serve as a means to accomplish these
objectives by facilitating the harmonious integration of resources and capabilities. The case presented
herein highlights the strategic endeavor of Company A to enhance its capabilities within the energy
sector through the proposed acquisition of Company B.
-Purpose and structure of the dissertation
The objective of this dissertation is to examine the intricate procedure involved in a merger and
acquisition (M&A) transaction and to ascertain probable risks and hazards related to the transfer of
liabilities, specifically within the framework of the case involving Company A and B. The primary
objective of this thesis is to examine the legal, regulatory, and ethical dimensions of the transaction,
drawing upon relevant provisions found in European Union legal frameworks, Polish legislation, and
international legal norms.
Examples from the Legal Codes:
Commercial Companies Code in Poland: Article 492a on the duties of the board of directors when
carrying out a merger or acquisition.
Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on mergers
of limited liability companies.
A concrete illustration of an alternative Common European Sales Law (CESA) might be provided.
Mergers and acquisitions (M&A) transactions represent a substantial domain that is subject to
regulation under European Union (EU) legislation. The purchase deal of Tiffany & Co. by LVMH, the
luxury conglomerate that holds control over the fashion brand Louis Vuitton, was approved by the
European Commission in 2019. The assessment of the deal by Company A necessitates careful
consideration of Tiffany's historical background, reputation, and the relevant antitrust legislation.
Chapter 2: Fundamentals of M&A and Liability Transfer
In the context of a transaction pertaining to the acquisition of Company B's shares by Company A
within the energy sector, it is crucial to comprehend the fundamental principles of mergers and
acquisitions (M&A) and the notion of liability transfer. The forthcoming chapter will center its
attention on the analysis of the concept of a merger and acquisition (M&A) transaction, the
significance of liability transfer within the M&A process, and the diverse approaches employed for
the transfer of liabilities and debts. Furthermore, this paper will examine the essential components
associated with due diligence as a technique for assessing risks and acquisitions.
-Definition of M&A transactions
Mergers and acquisitions (M&A) transactions serve as a strategic approach for firms to foster growth
by leveraging the consolidation of their resources and competencies, ultimately resulting in enhanced
shareholder value. In the present scenario, Company 'A' endeavors to obtain full ownership of
Company 'B' by acquiring 100% of its shares. This type of transaction can manifest as a merger,
wherein two companies combine to form a single entity, or as an acquisition, wherein one company
assumes ownership of another. During our session, a corporation assumes ownership of another
company.
-Issue of liability transfer in the M&A process
Liability transfer is when one party in a deal takes on the responsibilities and duties of another party.
The difficulty at hand entails the presence of potential liabilities and debts associated with the
operations of firm 'B', including contractual obligations, financial debts, and prospective fines. In
accordance with the idea of corporate continuity, the acquisition of company 'B' by company 'A' may
result in the assumption of company 'B's liabilities. Consequently, company 'A' may be held
accountable for the repercussions stemming from the prior activities of company 'B'.
-Methods of transferring liabilities and debts
There exist multiple approaches for transferring obligations and debts within the context of mergers
and acquisitions (M&A) deals. A frequently employed approach involves the utilization of transaction
agreements, such as an Asset and Liability Transfer Agreement (SPA) or sales and purchase
agreement. According to the terms of this agreement, company B would be able to undertake the
responsibility for all present and future liabilities and debts of company 'B' at the moment of
acquisition. The precise delimitation of liability transfer and explicit identification of exempt liabilities
are crucial aspects to consider.
-Key aspects of due diligence
The due diligence process is an essential component of a merger and acquisition (M&A) deal,
facilitating a comprehensive examination of the target company's financial, legal, and operational
aspects. The possible risk to company 'A' arises from the previous involvement of company 'B's CEO
in misappropriation actions, as indicated in the given challenge. Performing comprehensive due
diligence can aid in the identification of potential liabilities, debts, or hazards pertaining to the past
performance of firm 'B', so enabling a well-informed decision on whether to proceed with or
terminate the deal. In light of our analysis, it is evident that we have made the decision to acquire
the company.
Examples from the legal codes:
Article 491 § 1 of the Code of Commercial Partnerships and Companies (CCC) indicates that, upon
registration of the transformation, the acquiring company assumes all the rights and obligations of
the acquired company.
Regulation (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019
concerning the recording of transactions in international trade in goods.
Article 443 § 1 of the Companies Act specifies that in the event of a merger of companies, the rights
and obligations of the companies that are parties to the merger are transferred to the merged
company.
Real-world examples
In a merger deal involving not only companies A and B but also companies X and Y, when we have an
SPA agreement that says company X, or in our case, company A, is responsible for all of company Y's
debts and liabilities at the closing of the transaction, we say that company X is responsible for all of
company Y's debts and liabilities. During the due diligence process, undocumented financial liabilities
of company Y were found. After the transaction, these liabilities became the duty of company X, so
they had to be paid off. This is always something to watch out for.
Chapter 3: The case of Company A and B in the Challenge Context
In this chapter, I will take a closer look at both Company A and Company B, analysing their key
features and operating history. It is important to also look at the energy sector in which both of these
companies operate. In addition, we will focus on the details of the acquisition offer and the selection
of the preferred bidder in the context of the challenge presented.
-Characteristics of Company A and B
Company A is a prominent publicly traded corporation engaged in the energy sector. The entity
possesses substantial financial and technological assets, rendering it an appealing participant in the
market for mergers and acquisitions. In contrast, Company B is a limited liability entity that specializes
in the utilization of renewable energy resources, specifically focusing on wind farms and solar power
plants. The company possesses a collective sum of 11 operational assets within the renewable energy
industry.
-Important Information on the Energy Sector
When it comes to renewable energy, the energy industry is a part of the economy that is growing
quickly. Because of problems with the environment around the world, many countries and businesses
are putting more money into renewable energy. Wind farms and photovoltaic plants are important
parts of this environment. They help cut down on the amount of greenhouse gases that are released
into the air. It is important to pay attention to the rules in your own country. Each country in the
European Union may have laws or rules about energy that do not exist in the other countries, even if
they are close by.
-It is important to pay attention to the : "Clean energy for all Europeans" package.
The plan will help meet the goals of the European Green Deal by reducing the amount of carbon in
the EU's energy system. It will be passed in 2019. The Clean Energy for All Europeans package is a
2019 European Union initiative that aims to decarbonize the energy industry in line with the goals of
the European Green Deal. The box comes with different parts, such as:
Energy efficiency of buildings: Puts in place steps to improve the energy efficiency of buildings, which
use a lot of energy and release a lot of CO2 in the EU.
green energy: Sets a high goal for how much green energy should be used in the EU's energy mix by
2030.
Energy efficiency: Focuses on saving energy by setting fixed goals to improve energy efficiency.
Governance Regulation: This sets up a plan for changing the EU's energy system and a method for
running the energy union.
Structure of the power Market: Aims to make the power market more flexible and less centralized.
The goal of the package is to reach goals for lowering greenhouse gas pollution and making energy
use more efficient. This is important for our dissertation, in which we look at how EU rules have
affected the growth of the energy industry.
I'd like to talk about this in my dissertation as an example of how EU energy policy affects the way
energy companies work and how they meet environmental goals. Every country has to put these
rules in place, and they affect our case study area, or our A and B companies.
-Offer of Acquisition and Selection of Preferred Bidder
Firm 'A' has made a formal proposal to acquire the entirety of Company B's shares for a total sum of
EUR 90 million. The Seller saw the offer as preferable, so granting Company 'A' a competitive edge in
the negotiation proceedings. However, the complexity of this process may arise from several causes,
including the historical context of the business, regulatory frameworks within the industry, and
potential hazards associated with Company B's prior activities.
Example: Let's say Company B has been accused of bad trash management in the past, which led to a
violation of environmental rules. In this situation, Company A would have to look at these claims in
light of its long-term goals, the risks of the M&A deal, and the possible penalties from the state in
which it works.
Chapter 4: Risk Analysis in the Context of M&A Transactions
This chapter aims to provide a comprehensive analysis of the various risks and dangers that may arise
from the acquisition of Company B by Company A. Our analysis will center on the transfer of funds
conducted by the former Chief Executive Officer (CEO) of Company B, with a particular emphasis on
evaluating the potential financial and legal ramifications that may result from this activity.
-Identifying Significant Risks in the M&A Process
Without a doubt, a significant risk factor pertains to the previous track record of Company B's Chief
Executive Officer (CEO), who engaged in the misappropriation of EUR 1.5 million throughout the
period spanning from 2011 to 2015. While the resolution of this event has been confined to internal
channels, it remains a significant factor within the framework of a merger and acquisition deal.
Undoubtedly, the chairman assumes a pivotal role within the organizational framework of the firm,
and his unscrupulous conduct has the potential to undermine the company's standing and exert a
detrimental impact on its overall worth.
From my perspective, given the revelations regarding the embezzlement perpetrated by the previous
Chief Executive Officer, it is imperative for Company A to thoroughly evaluate the compatibility of the
purchase of Company B with its strategic goals, as well as ascertain the presence of sufficient
safeguards to mitigate the likelihood of such misconduct occurring in the future.
-Analysis of Potential Financial and Legal Consequences
M&A transactions have many potential consequences, both financial and legal. In the case of
company A, the financial consequences may include losses related to the mismanagement of funds in
company B, which may give rise to future recovery costs and loss of client confidence, especially
when the clients may be local governments or countries that are subject to laws and regulations that
may prohibit them from dealing with companies that are not in good standing.
An interesting provision from Polish law:
Article 299 of the Commercial Companies Code: "Where the board of directors acts to the detriment
of the company or with the aim of benefiting itself or third parties at the expense of the company,
the board of directors is obliged to compensate the company for the damage caused".
In the aforementioned scenario involving our case study, there exist various possible dangers that
could emerge as a result of the CEO's activities at Company B and the subsequent response of the
organization. The following are potential risks:
1.The misappropriation of funds by the chairman of Company B may expose him or her to potential
criminal culpability, as it constitutes a financial crime. The potential consequences of this risk include
potential damage to the reputation of Company B and the post-acquisition reputation of Company A,
particularly in the event that information regarding these acts becomes publicly disclosed.
2.Financial risk might arise when there is a misappropriation of cash by the Chief Executive Officer
(CEO), potentially leading to adverse consequences for the financial health of Company B. If the
company incurs financial losses as a result of this situation, it could have a negative impact on both
the company's reputation and its capacity to earn profits subsequent to the acquisition by Company
A.
3.Reputational risk arises from the conduct of firm B's CEO and the subsequent response of the firm,
which has the potential to impact the reputations of both Company B and Company A. The revelation
of pertinent information regarding these incidents has the potential to impact the trust and
assurance of consumers, business associates, and investors in both Company B and Company A, the
latter being the acquiring entity.
4. Possible assertions and obligations: In the event that the acts undertaken by the Chief Executive
Officer (CEO) of Company B result in financial losses or legal transgressions, there exists a potentiality
for claims and liabilities to be directed towards Company B or Company A subsequent to the
purchase.
Within the framework of the dissertation/capstone/project examining the collaboration between
Company A and B and the strategies that Company A can employ to mitigate the potential risks
arising from Directive (EU) 2017/1132, I have identified the key articles that warrant particular
attention.
The first article, sometimes known as the Purpose of the Directive, In the given context, it is
important for Company A to comprehend that the objective of this Directive is to streamline the
process of establishing and conducting limited liability businesses throughout the European Union. It
is important for Company A to acknowledge that this Directive has the potential to bring about
procedural and regulatory simplifications that could impact the operational practices of Company B.
According to Article 2 of the Directive, it is imperative for Company A to possess a comprehensive
understanding of the specific categories of enterprises that meet the criteria outlined in this
provision. This consideration holds significance in the event that firm B is classified as a capital firm
that falls under the purview of the recently enacted rules outlined in this Directive.
In accordance with Article 22, entities are required to fulfill their financial reporting requirements.
The present article addresses the financial reporting responsibilities associated with limited liability
businesses. It is imperative for Company A to ensure that Company B adheres to these commitments
in their entirety to mitigate the risk of potential penalties or other forms of punishment.
Company A should familiarize itself with the procedures and regulations pertaining to the conversions
of capital companies as outlined in Article 53. This information holds significance in the context
where Company A intends to undertake a restructuring or conversion of Company B in response to
the aforementioned mandate.
In order to facilitate a comprehensive understanding of the liquidation process for capital businesses,
it is advantageous for company A to acquaint itself with the applicable processes outlined in Article
57. In the event that circumstances necessitate the liquidation of company B, company A is obligated
to adhere to the stipulations outlined in this order.
Article 61 addresses the liability of the board of directors and outlines the specific criteria that govern
their accountability. It is crucial to comprehend the implications and provisions set forth in this
article. It is imperative for Company A to prioritize the oversight of Company B's board of directors,
ensuring their compliance with the stipulations and constraints outlined in this order.
In light of the aforementioned paragraphs, it is advisable for Company A to safeguard its interests by
ensuring compliance with and harmonization of its operations and procedures with the stipulations
outlined in Directive (EU) 2017/1132. This may encompass the examination of financial alignment
and audits, meticulous oversight of provisions pertaining to the conversions and liquidations of
limited liability companies, and the enforcement of liability provisions by the board of directors.
Chapter 5: Legal and Regulatory Aspects of M&A Transactions
This chapter will focus on the most important legal and regulatory parts of Company A's plan to buy
Company B. By looking at these things, possible liabilities can be found, along with ways to minimize
the risks.
-Commercial Companies Code and M&A Transactions in Poland
The Polish Commercial Companies Code serves as a significant cornerstone in the realm of regulating
mergers and acquisitions (M&A) activities. When conducting an analysis of transactions between
businesses A and B, it is crucial to take into account the requirements pertaining to the liability of the
board of directors as well as the provisions governing mergers and acquisitions.
For example:
Article 299 of the Companies Act stipulates that the board of directors of a company is obliged to
repair the damage caused to the company as a result of actions to its detriment. Therefore, if the
actions of the chairman of target company B contributed to the embezzlement and damage, the
board will be liable.
Criminal and Fiscal Law and Liability for Transfer of Property
The legal framework in Poland encompasses both criminal and fiscal regulations that govern the
responsibility for acts of misappropriation of funds and fraud. If the conduct of the president of
Company B can be deemed as constituting a criminal offense, it has the potential to exert a
substantial influence on the merger and acquisition (M&A) transaction.
For example:
Article 296a of the Penal Code provides for offences against property, including transfer of property. If
the president of company B were convicted of embezzlement, it would affect the company's image
and its attractiveness as a transaction object.As well as it could affect the possible prohibition of
cooperation and provision of services to public entities and institutions , which in this case could end
tragically for a company in the energy sector.
-Role of Ministerial Decrees and Other Acts
In the context of a merger and acquisition (M&A) transaction, the regulations pertaining to
enterprises operating in the energy sector assume significant importance. The realization of the
transaction may be subject to certain requirements and obligations outlined in ministerial rules and
other legislation.
Practical Example:
The Regulation of the Minister of Energy on the technical conditions to be met by wind power plants
contains technical requirements for wind farms. When analysing an M&A transaction, it is important
to ensure that Company B's wind farms comply with these requirements. A regulation may come into
force which may affect Company B's future after embezzlement if all aspects are not agreed with the
judiciary.
Chapter 6: Safeguards and Protective Measures in the Context of Liability Transfer
Contractual provisions can be broadly characterized as deal protection devices.This has the effect of
enhancing the likelihood of successful completion of a merger and offering protection in the event
that the merger does not result in the anticipated level of consumption.These provisions can manifest
in economic, structural, or combined forms.Although the majority of transaction protection
mechanisms are typically outlined inside the merger agreement, it is possible for them to be included
in separate agreements. From the standpoint of a buyer, the purpose of employing deal protection
mechanisms is straightforward. In return for a binding commitment to acquire a target corporation,
such as company B in this instance, company A seeks guarantees that its bid will not be surpassed by
a higher nominal amount. Additionally, deal protection devices are utilized by company A to mitigate
the potential loss of reputation and operational expenses incurred in the event that the transaction
fails to be completed.
In the context of Mergers and Acquisitions (M&A) transactions, the utilization of collateral and
protective measures assumes a crucial role in the mitigation of potential liabilities and risks. The
primary objective is to ensure sufficient safeguards for the involved parties in a transaction, mitigating
unforeseen outcomes such as undisclosed risks or hidden liabilities. This is particularly relevant in the
context of company A's acquisition of company B, as there is a possibility of undisclosed information
surfacing subsequent to both a comprehensive field audit and an internal audit of all pertinent
company data.
-Role of Transaction Agreements in Risk Mitigation
Transaction agreements, such as share purchase agreements or takeover agreements, are crucial in
the mitigation of risks associated with the transfer of liabilities. Guarantee clauses, representations,
and promises offer a measure of assurance in safeguarding against undisclosed liabilities.
As an illustration,
Company A and Company B have entered into a transaction agreement wherein Company B provides
a guarantee that there are no undisclosed liabilities associated with the act of embezzlement. If any
liabilities are subsequently discovered, Company A is entitled to make a claim in accordance with the
agreement.
The clauses pertaining to warranty, limitation of liability, and liability transfer.
Mergers and acquisitions (M&A) contracts commonly have diverse terms aimed at indemnifying the
involved parties from potential liabilities. Warranty clauses pertain to the tangible elements of a
transaction and impose an obligation on a party to affirm the accuracy of specific information.
As an illustration, Company A may seek to get a warranty provision from Company B pertaining to the
nonexistence of undisclosed embezzlement liabilities. If such liabilities exist, Company A has the right
to make a claim under this provision.
Another crucial factor to consider is the prevention of business B from presenting an initial
agreement to other potential buyers. The non-shop, go-shop, and no-talk provisions are commonly
employed mechanisms for this purpose. Another significant clause commonly utilized in merger
agreements are board recommendation covenants and force-the-vote provisions.
The board recommendation covenant necessitates that a targeted board of directors persist in
endorsing a merger agreement that serves the best interests of the corporation and its stakeholders.
Transaction insurance serves as a safeguarding mechanism
Transaction insurance serves as an additional mechanism for safeguarding against potential liabilities.
These mechanisms enable the mitigation of risks related to embezzlement or other anomalies within
the target organization.
As an illustration, Company A has the option to procure an insurance policy that provides coverage
for the potential risk of embezzlement occurring at Company B. In the event that such acts, or any
other similar activities, are discovered, Company A has the right to seek reimbursement from the
insurer.
Example From Polish Law:
Article 631^1 of the Civil Code (CC) governs the insurance of transactions. If Company A decides to
take out an insurance policy in connection with the transaction, it can obtain additional protection
against potential embezzlement liabilities at Company B.
-MAC clause
In the context of buying a target company or business, a clause in the acquisition agreement that
gives the buyer the right to back out of the deal if certain bad things happen to the target, its
business, or its assets between the exchange of the acquisition agreement and the closing. Both state
and private acquisitions use MAC clauses.
In the context of loan transactions, to which they often relate, and loans that are more or less public,
a clause that acts as a "catch all" provision to allow the lender to ask for payment if something bad
happens to the borrower (for example, if the borrower's financial statements show a big change for
the worse). There are often MAC clauses in loan deals. MAC clauses are rarely used for borrower
defaults, even though they are always the subject of heated negotiations.
It's hard to say exactly what counts as a big bad change, which is a shame. Latham & Watkins says
that when courts look at MAC claims, they focus on whether there is a significant risk to overall
profits (or EBITDA) potential based on past performance rather than on forecasts. When figuring out
if there is a danger to EBITDA, the buyer has to show proof, and this is usually done with a long-term
(years, not months) view.
Most of the time, courts won't let acquirers back out of a deal by using a MAC argument unless the
circumstances that lead to one are very clear. Still, acquirers often add a MAC clause to improve their
negotiating position and give them a way to threaten to sue the target if problems arise after the
announcement.
Exclusions in MAC contracts: Materially adverse changes are hard to discuss, so MAC contracts usually
have a list of things that aren't considered to be a materially adverse change. The biggest difference
between a buyer-friendly MAC and a seller-friendly MAC may be that a seller-friendly MAC will have a
lot of specific event exclusions that DO NOT count as a major adverse change.
For example, shutdowns (events that clearly will not be counted as MAC calls) :
-Changes in general economic conditions
-Changes in financial, credit or capital market conditions
-General changes in conditions in the industries in which the Company and its Subsidiaries operate,
changes in regulatory, legislative or political conditions
-Any geopolitical conditions, outbreak of hostilities, sabotage, terrorism or military
actionEarthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, fires or other natural
disasters, weather conditions
-Changes or proposed changes to GAAP
-Changes in the price or volume of trading in the Company's ordinary shares
-The failure of the Company and its Subsidiaries to meet any public estimates or expectations
regarding the Company's revenues, profits or other financial performance or results of operations for
any period.
-Another important aspect is the Lock -up agreement
The subject matter can be categorized into two distinct types:
The lock-up period refers to a specific duration wherein shareholders who are bound by a lock-up
agreement are prohibited from engaging in the sale or redemption of their shares or stocks. In the
context of mergers and acquisitions (M&A), when a block of shares is being transacted that does not
encompass the entirety of a company's share capital, a temporary constraint is imposed on the
shareholders' ability to sell their shares. This constraint is implemented to facilitate the collaborative
execution of the company's development strategy by both the new and current owners. If the current
shareholders express a desire to fully divest from the firm, it is advisable to utilize this phase to
facilitate the transfer of managerial expertise from the existing shareholders to the incoming
shareholders. The duration of this term is open to negotiation and has the potential to span multiple
years.
Expansion of the chapter including a comprehensive compilation of noteworthy illustrations.
The transfer of liability is a significant factor to be taken into account in the selling agreement when
Company A acquires Company B. The transfer of liability for the debts and obligations of company B
to company A is contingent upon the specific arrangements and terms outlined in the agreement.
This document provides an overview of the difficulties pertaining to liability transfer and the methods
by which it can be effectively established in the context of a sale transaction.
The transfer of liability should be explicitly delineated in the sales agreement, outlining the specific
liabilities and duties of company B that will be assumed by company A consequent to the transaction.
These may encompass several types of duties such as financial commitments, contractual
agreements, legal disputes, tax responsibilities, and so on. Thorough analysis and specification of the
liabilities to be transferred is crucial in order to mitigate potential ambiguities and disputes that may
arise in the future.
Prior to the acquisition of company B, it is imperative for company A to undertake a comprehensive
audit and evaluation of the liabilities associated with company B. This include both overt liabilities,
such as contracts and financial records, as well as covert liabilities, such as prospective legal claims.
By doing a comprehensive study, it is possible to identify potential risks and determine appropriate
hedging strategies.
Indemnity clauses are contractual provisions that can be incorporated into the sale agreement with
the purpose of safeguarding company A from potential liabilities and claims that may arise
subsequent to the transaction, specifically in relation to company B. In certain instances, it may be
necessary for the seller to offer indemnification or financial assurance in order to address potential
obligations that were not considered or were unknown at the time of the transaction.
Company A may contemplate acquiring liability insurance in order to safeguard itself from potential
claims and liabilities arising from the actions of Company B. This type of insurance provides coverage
for potential claims or losses that may occur as a result of anomalies or liabilities that develop
subsequent to the transaction.
Reservation clauses, also known as escrow agreements, can be implemented by Company A as a
means of securing assets. This involves retaining a portion of the cash in a designated account, such
as a reserve account or escrow, to serve as a safeguard in the event of any liabilities or claims arising
subsequent to the transaction. These funds have the potential to be utilized for the purpose of
covering expenses, contingent upon the fulfillment of specific requirements.
The regulation of responsibility transfer in M&A transactions within the framework of Polish law is
governed by the rules of the Civil Code and other relevant legislation. In the next section, I present an
overview of the fundamental concepts governing responsibility transfer within the framework of the
Polish legal system.
The Civil Code governs the fundamental concepts of contractual and tort responsibility. The rules
stipulated by the Code will be applicable in the transfer of contractual liability. In the context of
assignment of receivables, it is worth noting that in cases where the sale agreement encompasses the
transfer of Company B's financial obligations, creditors own the entitlement to request Company A to
fulfill these obligations.
The sale agreement in a merger and acquisition (M&A) transaction would typically include clauses
pertaining to the transfer of liabilities. The involved parties possess the autonomy to select the
specific liabilities and obligations that will be transferred to the purchaser. The legal consequences of
the transfer in question will be determined by the relevant provisions on contracts, including Article
353 and subsequent articles.
The consideration of applicable code laws pertaining to various forms of liability is crucial when
examining the transfer of liability. In instances involving financial irregularities or fraudulent activities,
various responsibility regulations may be applicable, including civil, criminal, or criminaladministrative liabilities.
Contractual safeguards can be incorporated into the sales contract by the parties involved in order to
mitigate potential liabilities or claims. For instance, security provisions, also known as indemnification
clauses, or conditional transfers may be incorporated into agreements based on the fulfillment of
specific criteria.
In the context of an M&A transaction, the transfer of liability in the Polish legal system may give rise
to many possible concerns. The following examples illustrate the potential risks associated with the
sales contract or its provisions, as outlined in the pertinent articles of the Civil Code: One such risk is
the potential invalidity of the contract or certain contractual clauses, as stipulated by the Civil Code.
For instance, in the event that a clause is in conflict with the relevant legislation (such as if it
contradicts the principles of equity or ethical standards), it could potentially be deemed null and void.
The criteria governing the invalidity of contracts are regulated by Article 58 of the Civil Code.
The present discourse aims to elucidate the constraints and restrictions associated with liability. In
the event that a sales contract includes provisions that restrict the liability of one party in a manner
that contradicts the stipulations outlined in the Civil Code, there is a potential risk of rendering such
clauses unlawful. The restrictions of contractual liability are governed by Article 385^1 of the Civil
Code.
Non-compliance with information obligations: It is incumbent upon the parties involved in a
contractual agreement to fulfill their duty of disclosing accurate and comprehensive information
pertaining to significant elements of the transaction. Non-compliance with these requirements may
result in potential responsibility for violation of the principles of equity. The provision outlined in
Article 353^1 of the Civil Code pertains to the obligations related to the disclosure of information in
contractual agreements.
Modifying the provisions of the contract without obtaining the agreement of the counterparty.
Modifying a sales contract without obtaining the necessary consent from the counterparty can
provide a potential danger. Disputes over nullity or responsibility may arise when one party makes
significant alterations without obtaining the consent of the other party. The subject matter of
contract modification is addressed under Article 384 of the Civil Code.
The transfer of liability has the potential to result in the infringement of the rights of third parties,
including creditors, employees, or contractors. In this scenario, there exists a potential for legal claims
to be made against the buyer, either on the grounds of contractual obligations or tortious culpability.
The provisions outlined in Articles 471 and 471^1 of the Civil Code pertain to the responsibility of the
recipient in assuming the duties that have been transferred to them by the party making the transfer.
Herein lie additional prospective options that Company A may contemplate inside the framework of
procuring Company B in a merger and acquisition (M&A) endeavor, along with their respective
benefits and hazards.
To mitigate risk and secure its interests, Company A has the option to implement more rigorous
guarantees and safeguards inside the acquisition agreement. These provisions may encompass
several aspects, such as assurances pertaining to the financial stability of Company B, the possibility
of terminating the agreement in the event of more irregularities being uncovered, or the
responsibilities to rectify any resulting damages.
Potential Challenges: The imposition of stringent guarantees and collateral requirements may
encounter opposition from the Seller, hence resulting in challenging negotiating processes. The
introduction of additional obligations poses a potential risk to the relationship between the
Companies, perhaps disrupting the harmonious nature of the transaction.
One advantage of implementing tight guarantees and safeguards is that it provides Company A with
an enhanced level of security and protection in the event of any abnormalities. This practice aids in
the reduction of both financial and legal risks that are commonly linked with the transaction.
The potential renegotiation of the price and terms of the transaction may be pursued by Company A
in light of the identified anomalies. This may encompass measures such as price reduction, imposition
of supplementary requirements on the Seller, or negotiation of more advantageous payment
conditions.
Potential risks associated with the acquisition include the possibility of pricing and conditions
renegotiation, which may result in heightened tensions and challenging negotiations between the
involved companies. There exists a potentiality for the parties involved to encounter difficulties in
reaching a mutually satisfactory agreement, so resulting in the potential termination of the
transaction.
One advantage of renegotiation is that it enables Company A to modify the terms of the transaction
in accordance with any identified irregularities, so reducing risk and protecting its financial interests.
In order to enhance the level of scrutiny, Company Am may opt to undertake further comprehensive
due diligence, particularly in domains that have raised suspicions or where anomalies have been
identified. This may encompass a comprehensive examination of accounting research, an extensive
financial audit, or a thorough analysis of legal aspects.
There are potential risks associated with conducting extra due diligence, which may result in
significant financial expenses and time delays. There is a potential risk that any irregularities that are
identified could potentially have a significant influence on the overall outlook of the transaction.
One of the benefits of conducting more due diligence is that it allows Company A to acquire more
comprehensive information regarding Company B and the potential hazards associated with it. This
facilitates the process of making well-informed decisions on the transaction and mitigates the
occurrence of unexpected outcomes in subsequent instances.
In order to thoroughly evaluate the potential risks associated with a transaction, Company A has the
option to enlist the assistance of external experts, including auditors, legal advisors, and financial
consultants. These professionals can provide a comprehensive analysis and assessment of the risks
involved.When considering the insurance of the transaction, it may be necessary to fulfill certain
requirements.
One potential drawback of hiring external specialists is the potential for increased financial
expenditures. There exists a potential risk that external specialists may encounter difficulties in
identifying all concealed issues.
One of the benefits of engaging external specialists is that it provides Company A with the
opportunity to tap into specialized knowledge and expertise. This enables the company to conduct
thorough risk assessments and make well-informed decisions.
Chapter 7: Ethics and Corporate Responsibility in M&A Transactions
During my studies at Rome Bussiens School, I noticed that there was a strong emphasis on ethics and
corporate responsibility, so I thought I would also include this chapter in my thesis. In M&A
transactions, an important aspect is ethical behaviour and corporate responsibility, especially in the
context of potential liability. In this chapter we will focus on what roles these aspects play in the
acquisition of company B by company A.
-Ethical Aspects of M&A Transactions
For example
When evaluating an M&A transaction, it is important to consider its ethical context. Ethics-based
actions can increase the trust of shareholders, customers and other stakeholders, which can affect
the reputation and value of the company.
If Company A goes ahead with a transaction despite knowledge of embezzlement by the CEO of
Company B, this can undermine its ethical credibility and its relationship with shareholders.
- There is a Duty of Transparency and Preservation of Shareholders' Interests
In M&A deals, owners and other interested parties need to know what is going on. The management
of the company being bought must tell the other company about important parts of the deal, such as
possible risks.
As an example,
Imagine that Company A doesn't tell its owners about how money was stolen from the company. This
failure to tell could lead to possible lawsuits.
But it's important to keep in mind the eu parliament and council decision 2019/2121, which says that
a company's information should be complete and allow stakeholders to figure out how a planned
cross-border operation will affect them. But Union or national law shouldn't force companies to
reveal private information that would hurt their business. This non-disclosure shouldn't change any of
the other rules in this Directive.
And the position of creditors in their relationships with the target company is an important problem
that should be paid attention to because Article 24 of that Directive says, "Member States should
make sure that the company's creditors who did business with it before it announced its plans to do
business across borders are adequately protected." After the plan is made public, creditors should be
able to think about how a change in authority and law because of the cross-border conversion might
affect them. Creditors who need to be protected may also include current and former workers who
have earned occupational pension rights and people who get benefits from occupational pension
schemes. In addition to the general rules set out in Regulation (EU) No 1215/2012 of the European
Parliament and the Council (9), Member States should make sure that these creditors have the right
to file a claim in the Member State of exit for two years after the cross-border conversion takes place.
This Directive gives a two-year protection period for creditors whose claims were made before the
cross-border conversion plan was made public. This protection period should not affect how national
law decides how long you have to file a lawsuit.
Authorities and processes play an important role here:
The Directive makes it clear, in the simplest words, what the role of the State and the Member States
is, as well as how they approve or confirm that a takeover, restructuring, or other action is
acceptable. It is a must to follow the rules. And have to follow rules.
-Role of Corporate Responsibility in the M&A Process
In M&A deals, corporate risk is an important factor. The company that is buying must think about
how it will affect decisions and plans about the transfer of possible liability.
For example, Company A can put embezzlement liability clauses in the deal agreement. These clauses
spell out who is responsible and what will happen if wrongdoing is found.
Chapter 8: Alternatives and Consequences in the Context of Liability Transfer
In M&A transactions, possible liabilities can have a lot of different options and effects that need to be
carefully thought out and planned for. How the parties handle these problems can have a big effect
on how the deal turns out.
Analysis of Possible Outcomes
Before making a deal, it's important to think about the different possible situations and the results
they could have. Taking a "what if?" method lets you plan for different situations and figure out how
to handle them.
Example: Company A can do a case analysis to figure out what would happen if it turns out that more
money was stolen than was first thought. This will let it make plans for the right things to do.
When you buy a company with a past of theft, it can lead to many different things. The company
doing the buying needs to think carefully about whether the benefits of the deal are worth the legal
risks.
Example: Company A needs to think about the risk that embezzlement at Company B could lead to
claims or financial losses. If this chance is too big, Company A might decide not to go through with
the deal.
Putting the situation in the context of Polish law, EU law, and international law
When figuring out who might be responsible, you have to think about how different law systems
work. When it comes to things like liability, sanctions, and protections, Polish, EU, and foreign law
may be different.
For example, civil and criminal responsibility in the case of embezzlement may be handled differently
in different places. Company A needs to know about these differences if it wants to protect itself from
possible legal and financial problems.
Polish law gives an example:
Article 299 of the Commercial Companies Code says how directors and managers can be held
responsible for harm done to the company. If a member of the board of company B stole money,
company A could make a claim under this clause.
As an example,
Company A must think about the risk that embezzlement at Company B could lead to claims or
financial losses. If this risk is too high, Company A may decide to back out of the deal.
When figuring out who might be responsible, you have to think about how different law systems
work. When it comes to things like liability, sanctions, and protections, Polish, EU, and foreign law
may be different.
Taking into account all the information in the statement, if Company A buys Company B, there are a
number of possible outcomes that could happen because of different things. Taking into account
what has been said, here are the possible outcomes risks and liability protection:
1.Reputational risk: If the actions of Company B's CEO (misappropriation of funds) became widely
known, it could hurt the reputations of both Company B and Company A. The buying company could
be associated with the bad actions of the previous management, which could cause customers,
business partners, and investors to lose faith in the company.
2.Legal risks: If the chairman of Company B commits a financial crime, there could be legal
implications, such as criminal charges or claims for compensation from shareholders or other people
who have lost money because of these actions. Company A, which bought the business, might have
to take formal action to protect its own interests if it takes on these risks.
3.Financial effects: If the CEO of Company B stole money and did anything else connected to it (like
recognizing debt or transferring credit), it could hurt the company's finances and its ability to make
money. This, in turn, could change how much Company B is worth and how much Company A's
investment is worth in the end.
4.Tax risks: If Company B's finances aren't in order, there is a chance that their taxes will be done
wrong or that their income and spending won't be fully reported. This could mean that Company A
has to pay back taxes, gets fined, or faces other tax consequences after the purchase.
5.Legal disputes: When wrong invoices are found and talks are put on hold, Company A and the
Vendor may have to go to court or use arbitration to settle their differences.
6.Forensic Due Diligence: The choice to do Forensic Due Diligence on Company B after finding strange
invoices could lead to the discovery of more strange or illegal things. This could change the value of
Company B, the talks, and the final terms of the deal.
7.Legal responsibility and compensation: If Forensic Due Diligence finds something wrong, Company
A may be able to file a claim against the Seller, such as a claim for pay for losses caused by the
problem. But going after these claims could mean more costs and risks.
8.Effects on relationships with customers and business partners: Financial problems at Company "B"
could hurt relationships with customers and business partners. Company "A" might find it hard to
keep customers happy and trusting, and to keep doing business with the same people.
9.Asset exclusion: If financial irregularities and illegal actions have caused damage to Company B's
assets, Company A may have to take extra steps to protect its rights or have those assets left out of
the deal.
10.Need for reorganizing: Because of the problems and possible risks that were found, Company A
may need to reorganize Company B after buying it to improve management, get rid of more risks, and
rebuild trust.
11.Shares lose value: If financial irregularities and illegal actions at Company B are found, the value of
the shares may go down, which could hurt Company A's investment.
12.Effects on relationships with regulators: If the actions of Company B's CEO broke rules in the
energy field, regulators could punish Company A or do other things.
13.Value of assets going down: If financial problems at Company B have lowered the value of its
assets, Company A may lose money because it bought assets that were worth less than expected.
14.Costs of the deal may go up because Company A may need to do more forensic due diligence and
take legal action to protect its interests.
15.Integration problems: Financial problems at Company B could make it harder to integrate the two
companies after the purchase. This could make it hard to match up systems, processes, and
organizational culture.
16.Terms of the transaction may be renegotiated. Based on the problems found, Company A may try
to change the terms of the transaction.
Risks: There is a chance that the Seller will not agree to change the terms of the deal or will ask for
more money from the deal. Also, talks can make the process take a long time, which can delay the
deal or even cause it to fall through.
Advantages: If Company A renegotiates the contract, it may be able to get better terms, such as a
lower price or protections against more mistakes. This could help lower risk and protect the interests
of Company A.
17.Leaving the transaction: Because of the problems found, Company A may decide to leave the
transaction all together. We know that a sale is being made in our case.
Risks: If you back out of the deal, you might lose your investment and a market chance. It could also
hurt Company A's reputation as a player in the M&A market and its ties with other stakeholders.
Advantages: If you back out of a deal, you can avoid risks, legal consequences, and financial loses that
could be caused by problems at Company "B." This may be better if the risks and downsides of the
deal are bigger than the benefits.
It's important to assess each of these options carefully, taking into account Company "A's" situation
and goals. Before making a final choice, a full legal, financial, and strategic analysis should be done,
and lawyers, advisors, and other professionals should be talked to.
18.Resolution proceedings: After buying Company "B," Company "A" could decide to go through a
resolution process in Company "B" to fix the damage caused by the irregularities and get back to a
stable financial and operational state.
Risks: The process of getting back on your feet may need a lot of money and other resources.
Changes may also be needed in management, the organization's structure, and the way things are
done. This could make employees nervous and make them less willing to help.
Advantages: Going through with a settlement can help customers, business partners, and investors
trust each other again. It could also help Company A see how good Company B could be and get longterm rewards.
19.Moving on to a partial transaction: Company A could think about buying only a portion of
Company B's shares or some of its assets, leaving out the shares or assets that are connected to the
problems.
Risks: A partial acquisition can make it hard to handle and integrate, especially if the structure of the
shares or assets is still broken up. It may also make it harder to get the most out of Company B's
potential and create partnerships.
Advantages: If Company A buys only a part of Company B, it may be able to focus on the most
important parts of Company B's business and leave out the parts that aren't legal. This can lower risk
and help people pay attention to the transaction's strategy goals.
20.Turning a transaction into a conditional transaction: Company A could suggest a conditional
transaction in which the deal won't go through until certain conditions are met, such as fixing
mistakes or getting approval from the government.
Risks: If irregularities aren't fixed or other conditions aren't met, a conditional transaction can lead to
long talks and delays, as well as more risks.
A conditional deal can help Company A get a better handle on the situation and reduce risk. It gives
you peace of mind that any mistakes will be fixed or that another condition will be met before the
deal is finalized.
21.Rejecting the deal and looking for other opportunities: Company A could decide to stop trying to
buy Company B and instead focus on finding other possible deals.
Risks: Turning down deals can mean losing money and taking longer to reach strategy goals. Also,
looking for new chances can take a lot of time and cost money.
Advantages: Abandoning the deal could help avoid risks and effects that could come from problems
at Company B. It could also make it easier to find other companies that would make better
transaction targets.
22.More control and monitoring: After the acquisition, Company A may decide to control and watch
Company B's actions more closely so that similar problems don't happen again.
Risks: More controls and tracking could make the employees at Company B tense and angry. Also,
putting these steps into place may need more money and other resources.
Advantages: More control and tracking can help stop problems from happening again, protect
Company A's interests, and rebuild trust. It can also help Company B handle risks better and do better
as a business.
23.Alternative transaction structure: Company A could think about a joint venture, a strategic
alliance, or a partial purchase as ways to reduce risk and give itself more options.
Risks: Different transaction patterns may be harder to understand and require more talks. Also, you
may need to make more financial and management obligations.
Advantages: Using different transaction models can help Company A reduce risk, share costs and
resources, and make sure its goals are better aligned. They can also make it easier to handle changing
market situations and adapt to them.
Signing a conditional agreement: Company A may choose to sign a conditional agreement that
requires certain conditions to be met before the deal is complete. These conditions may have to do
with fixing mistakes, getting permission from the government, or other things that are important.
Risks: If a contract has conditions, it can take a long time to negotiate and cause delays. There is a
chance that problems won't be fixed in the time frame expected or that other terms of the deal won't
be met.
Advantages: When Company A signs a conditional agreement, it is more likely that any problems will
be fixed or other important conditions will be met before the deal is finalized. It protects Company A
and helps to reduce danger.
25.Restructuring of Company "B": Instead of buying Company B as it is now, Company A might think
about reorganizing it in some way, like by changing the management, making business processes
better, or putting in place new ethical standards and controls.
Risks: Restructuring could be met with opposition from Company B's staff or require more money.
Also, the process may take a long time and be hard to carry out.
Advantages: The reorganization of Company B can improve management, make operations more
efficient, and reduce the risk of more wrongdoing. This helps bring back the trust of stakeholders and
can lead to long-term success.
26.Moving to a different transaction target: Company A could give up on buying Company B and
instead look for and investigate other possible transaction targets that fit its business goals better and
have less risk.
Risks: Trying to find new possibilities can take a lot of time and money. There is a chance that
alternative deal targets won't live up to Company A's hopes or may come with their own problems
and risks.
Advantages: If Company A moves to a different transaction goal, it can find a better business partner
that meets its needs and reduces risk. This lets it put its efforts on a project that has a better chance
of working out.
Here are some other options that Company A might think about if it wants to buy Company B in an
M&A transaction:
27.Transition to partial acquisition: Instead of buying all of Company B's shares, Company A may
choose to buy only some of them or a few of its properties. With this option, Company A can reduce
the risks and liabilities that come with it.
Risks: A partial acquisition can make it hard to integrate and handle, especially if the shareholding or
asset structure is still broken up. There is also a chance that a full acquisition will mean losing any
possible benefits.
A partial purchase gives Company A the chance to focus on Company B's most valuable assets or
business areas. This lowers the risk and lets it focus on the transaction's long-term goals.
28.Renegotiation of the acquisition agreement: Company A may try to rewrite the acquisition
agreement, taking into account any problems or irregularities that have been found. The goal is to get
better deal terms or to add more safety measures.
Risks: The Seller may not agree to renegotiating the acquisition deal, which could make talks hard.
There is also a chance that the parties won't be able to agree on anything, which could cause the deal
to fall through.
Advantage: Company A can protect its own interests and reduce its risks by renegotiating the
acquisition deal. It could also lead to the Seller offering better financial terms or more promises.
29.Dissolving Company B and Buying Its Assets: Company A could decide to end Company B because
of problems and then focus on buying its assets and continuing to run them.
Risks: The breakup of Company "B" could lead to legal and organizational problems and hurt the
company's reputation. There is also a chance that the goods that were bought could be tainted in
some way.
Advantages: When Company "B" goes out of business, its assets can be taken over by Company "A."
This lets Company "A" avoid problems and focus on its useful assets. This can help reach strategic
goals without having to take over Company "B" in its entirety.
30.Inclusion of non-compete and non-solicitation clauses: Company A may want the acquisition deal
to include non-compete and non-solicitation clauses. After the deal is done, these clauses make it
hard for the Seller to compete with Company A or try to hire its workers.
31.Include an integration team. Plan and include an integration team that will be in charge of
combining the activities of Company B and Company A in a way that works well. The team should be
in charge of monitoring and managing the integration, getting rid of risks, and improving processes.
Here, I would suggest that the company hire experts in this field who have a good reputation. This
would improve the company's standing with shareholders and possible business partners.
Chapter 9 is a summary and summary of the main points and findings.
The analysis of the M&A deal between Companies A and B in terms of possible liability shows how
important it is to carefully evaluate risks and handle them in the right way. Among the most
important parts of this process are the study of Company B's history and the identification of possible
embezzlement risks.
For instance:
When thinking about the deal, Company A found that Company B had stolen money in the past. Even
so, Company A chose to move forward with the transaction, taking the risks and possible outcomes
into account.
Putting the focus on how complicated M&A deals are
M&A deals are complicated and involve many different parts. Not only do they require financial
analysis, but also legal, social, and strategic analysis. Choosing to move forward with a deal even
though there might be risks is an example of weighing different factors.
For instance, Company A had to think about a lot of things, like the possible benefits of buying
Company B and the risks and costs of theft.
-Conclusions in the Real World and More Research Needed
Companies have a hard time with mergers and acquisitions, and the key to success is to keep track of
possible risks. Case studies A and B show that it's important to do full due diligence, be aware of the
law and ethics, and know how to handle risks.
Putting together a good risk management plan for M&A deals that takes into account possible
liabilities may be something that needs more study. The best methods of collateral and contract
arrangements for minimizing risk can be looked into.
-An example from Union law: EU Regulation 596/2014 (MAR) controls inside information and market
abuse. Company A must make sure that any information about embezzlement at Company B is
shared in line with MAR.
-An example from international law: The UN Convention on International Contracts decides whether
an international deal is legal and enforceable. If company A and company B work in different
countries, foreign law may make the effects of the acquisition agreement different.
-It's important to point out what an M&A Specialist Lawyer does:
Due to how complicated the law and finances are in M&A deals, a lawyer who specializes in this area
plays a key part. Their knowledge and experience can help a company find, understand, and deal with
possible liabilities.
Example: Lawyers who specialize in mergers and acquisitions (M&A) can help Company A do
thorough due diligence, write security agreements, and get advice on how to handle liability risk.
Chapter 10: Summary of Arguments and Things to Think About
As Company A gets closer to completing its purchase of Company B, it faces a complicated set of
possible risks. The case study shows that the M&A process involves many legal, financial, and ethical
factors to make sure that the goals of the deal are met and that the risks for the acquiring party are
kept to a minimum.
Company 'A' had to weigh the possible benefits of buying Company B against the costs and risks of
cheating. Through careful due research, Company "A" was able to figure out if the benefits of the deal
were worth the risks.
Example from international law: The Vienna Convention on the Law of Treaties governs the validity
and effectiveness of international agreements. It can be used when a merger or acquisition involves
companies that operate in different countries.
Convention on the Law of Treaties in Vienna. This international convention says how international
laws are made, interpreted, and enforced. Even though it may not seem to have much to do with a
merger between Company A and Company B, it may have something to do with foreign contracts and
agreements between companies. Company A should know how to interpret and enforce international
treaties and, if necessary, get legal help to avoid any misunderstandings with Company B, especially if
the merger agreement has an international aspect.
European Union Law: The EU Merger Regulation 2014 (EU Merger Regulation) is the most important
law in the European Union that controls mergers. I think Company A should pay attention to these
stories.
The 2014 EU Merger Regulation:
Article 1 says what the Regulation is for and what kinds of deals are subject to EU merger control.
Company A needs to know for sure whether or not these rules apply to its merger.
Article 4 says that a merger must be reported to the European Commission if certain things are true.
Company A must pay attention to these factors and let the merger know if they are met.
Article 6 says how the European Commission can review the deal and how long that review might
take. Company A should be ready for this process and add it to the schedule for the merger.
Article 8 talks about how the European Commission and the competition bodies in each country can
work together. Company A needs to know that the merger process can be judged both at the EU level
and in each member state.
Article 10 says that the European Commission might be able to stop a merger if it thinks it goes
against competition rules. Company A needs to get ready for the chance that the merger won't
happen and think of other plans.
Article 22 talks about how member countries might be able to do merger control if it hurts
competition in their own countries. Company A needs to know that the merger process might be
looked at from different angles.
Example from Polish law: M&A deals are governed by the Polish Commercial Companies Code. For
example, Article 492(1) of the CCC says that the management board must show the target company's
financial statements and consolidated financial statements.
Example from EU law: The MAR Regulation says that secret trading and manipulating the market are
illegal. Company "A" must follow MAR in order to stay out of trouble with the law for manipulating
information.
Bringing out the ethical parts of M&A deals
Companies are also expected to follow ethical standards during M&A deals. The most important
things are to act in the right way and pay attention to the needs of owners and other stakeholders.
Example: Company A must take the right steps to make sure the deal is fair, clear, and in line with
what owners expect.
-The M&A Process and Corporate Responsibility
In M&A deals, corporate duty is becoming more and more important. Sustainability and social duty
are things that Company A needs to take into account.
ESG is one example.
Company A can take steps to make sure that buying Company B adds to social expectations and longterm growth.
-Analysis of Possible Alternatives
Company A should think about other options when deciding on an M&A deal, like investing in internal
growth or looking for other partners.
For instance, Company A could see if there are other ways to reach its strategic goals that might be
less risky than an M&A deal.
What will happen now that Company A has bought Company B?
Company A decides to buy Company B after doing a risk analysis and thinking about all the legal and
financial issues. The added value is that the deal is well-thought-out and fair, and any possible risks
are taken into account.
And it can take all the steps it needs to make sure it continues to handle possible liabilities well after
the deal is done, minimizing any bad effects.
Putting the spotlight on how important international law, EU law, and Polish law are
In the case of an M&A transaction, Company A must follow a number of laws, such as foreign, EU,
and national ones.
Company A must carefully figure out which rules apply to the deal so that it doesn't break any laws or
cause legal problems.
Managing Liability in an M&A Transaction in the Context of Enbeselment
Analyzing the case of a merger and acquisition (M&A) between companies A and B in terms of
possible enbeselment and the responsibilities they face shows how complicated the M&A process is.
This task forces company A to make hard choices and find good ways to protect itself from possible
risks. Let's talk about what possible problems Company A could face if the deal goes through and
what it can do to protect itself.
Dangers and risks:
1. Financial Risk: The chance that enbeselment and other financial problems at Company B will come
to light after the deal, which could cause Company A to lose a lot of money.
2. Legal Risk: The chance that Company A will be sued for not doing enough Due Diligence and not
having enough security against encumbrances.
3.Reputational risk: Fraud and other problems at Company B can hurt Company A's image and make
customers and investors less likely to trust it.
4.Regulatory Risk: Noncompliance with regulations in the energy industry that is found out after a
deal has been made can lead to sanctions and other expensive problems.
5.Competitive Risks: If a company in the renewables field becomes the market leader, it could lead to
suspicions of monopolistic behavior.
6. Ethical Risk: If Company "A" doesn't protect itself well enough against enbeselment, the public
might think less of it.
7.Funding Risk: If financial problems are found at Company B after the deal, it could make it harder
for Company A to get funding.
8. Risk of Damage to the Environment: Problems with how the wind farms and solar power plant have
been run that haven't been found yet could cause damage to the environment for which company
"A" could be responsible.
Strategies for Safety:
Effective Due Diligence: Do thorough financial, legal, and ethical due diligence, including using
Forensic Due Diligence in situations where enbeselment is suspected.
2.Contractual control: Putting clauses in the contract that promise compensation if more liability is
found after the transaction.
3.Implementation of Control processes: After the transaction, Company B should have good
management, audit, and control processes in place.
4.Working with Experts: Throughout the deal process, use legal, financial, and ethical experts.
5.Reporting and Monitoring: Company B's operations are always being watched and reports are sent
out about the company's actions and how well they follow the rules.
6.Maintaining Transparency: Being open and talking to clients and the market about possible
problems when they are found.
7.Staff Education: Training and education for workers of both Company A and Company B about
ethics and following the rules.
8.Understanding the Business Environment: Learn about the energy industry and the risks that come
with wind farms and a solar power plant.
When companies A and B do a merger and acquisition (M&A), company A faces a lot of risks,
especially if it buys stock in company B. With careful analysis, preventive measures, and the help of
experts, Company A can greatly reduce its risk, protect its reputation and market place in the new
business environment, and keep its costs down. In these and other situations, it is clear that doing
things in an ethical and responsible way is essential to the long-term success of an M&A deal.
Bibliography, -(full bibliography ) :
Books:
- ,,Research Handbook on Mergers and Acquisitions" -Claire A. Hill - Steven Davidoff Solomon
-,, Merger and Acquisition Strategies: How to Create Value"-Angelo Dringoli
European Bibliography
- Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on mergers
of limited liability companies as regards the limitation of liability for the liabilities of acquired
companies. eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019L2121&from=EN
- European Commission. (2021). Mergers and Acquisitions. Mergers (europa.eu)
- European Company Law Action Plan. (2020). European Commission. EUR-Lex - 52012DC0740 - EN EUR-Lex (europa.eu).
- European Commission. (2021). Clean Energy for All Europeans. Clean energy for all Europeans
package (europa.eu).
-European Commission. (2014). EU Merger Regulation. EUR-Lex - 32004R0139 - EN - EUR-Lex
(europa.eu).
-United Nations. (1969). Vienna Convention on the Law of Treaties. Vienna Convention on the Law of
Treaties (1969) (un.org).
-2020 year in review and 2021 outlook (deloitte.com)
Polish Bibliography Articles at different points in the work may repeat themselves and refer to
different chapters.
-Commercial Companies Code, Dz.U. 2020 item 1427.
-Criminal Code, Dz.U. 1997 no. 88 item 553.
-Act on Audit, Journal of Laws. 2017 item 1080.
-Act of 23 April 1964. - Civil Code (Journal of Laws 1964 no. 16 item 93).
-Act of 15 September 2000. - Commercial Companies Code (Journal of Laws 2000 no. 94 item 1037).
-Code of Commercial Companies in Poland: Article 492a on the duties of the board of directors when
carrying out a merger or acquisition.
- Act of 27 April 2001. - Environmental Protection Law. Dz.U. 2001 no. 62 item 627.
- Act of 15 September 2000. - Commercial Companies Code. Dz.U. 2000 no. 94 item 1037.
-Art. 299 of the Code of Commercial Companies.
- Regulation of the Minister of Energy of 29 July 2016 on the technical conditions to be met by wind
power plants. Journal of Laws. 2016 item 1183.
- Act of 23 April 1964. - Civil Code. Journal of Laws. 1964 no. 16 item 93.
-Article. 631^1 of the Civil Code (Cc) governs the insurance of transactions.
-Act of 16 September 2011 on the Protection of Competition and Consumers. Dz.U. 2011 No. 220
item 1311.
-Article. 209 of the Companies Act sets out the duty of the board of directors of a limited company to
inform shareholders of material facts concerning the company.-If Company A conceals information
about embezzlement from shareholders, it may be in breach of this provision.
Other Bibliography:
-What is Material Adverse Change? (MACs) | Definition + Examples (wallstreetprep.com)
-Lock-Up Agreement | Practical Law (thomsonreuters.com)
-Study notes 😊