Structure and process, legal regulation and consents
How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?
Private acquisitions in Myanmar are typically undertaken by way of:
- acquisition of shares in the target; or
- acquisition by way of transfer of business or assets.
As with other jurisdictions, the process would typically include the following steps:
- preliminary documentation such as a term sheet or memorandum of understanding;
- a due diligence process (including legal, financial and tax due diligence);
- negotiation and execution of transaction documents (such as a share purchase agreement, asset or business acquisition agreement);
- closing of the transaction through satisfaction of conditions precedent (such as obtaining required regulatory approvals); and
- regulatory filings.
The time to complete acquisitions and disposals will vary depending on the necessary governmental approvals and the sector of the target company or business. In some sectors, the need to obtain governmental approvals and liaise with applicable authorities has the potential to cause significant delay to complete a transaction.
Structure of transactionShare acquisition
A significant corporate reform was undertaken through the 2017 enactment of the Myanmar Companies Law (Law No. 29/2017) (which entered into force on 1 August 2018) (the MCL). The MCL replaced the 1914 Myanmar Companies Act (the Former MCA) and provides a framework for foreign investment by way of share acquisition.
Companies are classified under the MCL (as was the case under the Former MCA) as either a ‘Myanmar company’ or ‘foreign company’. The classification of a company as a ‘Myanmar company’ or ‘foreign company’ is important because ‘foreign companies’ are subject to various legal and practical restrictions that restrict foreign investment, although reforms such as the Myanmar Investment Law (Law No. 40/2016) (MIL) have significantly expanded the scope for foreign investment.
Under the MCL, unlike the Former MCA, companies are permitted to have foreign ownership up to 35 per cent while still being classified as a Myanmar company. It is also possible to have foreign ownership exceeding 35 per cent under the MCL; however, in this case, the company will be classified under the MCL as a foreign company and will be subject to additional restrictions on investments (under the MIL), as well as restrictions on rights to transfer and hold land as compared with a Myanmar company.
Business (asset) transfers
Given the historical difficulties associated with acquiring shares in Myanmar companies under the Former MCA, the most common method for private M&A transactions had been a transfer of the business or assets (which continues to be available under the MCL). As is common in other jurisdictions, this would be undertaken by way of execution of a business or asset sale agreement, which would provide for the transfer of the applicable assets to the acquirer.
Schemes of arrangement
Schemes of arrangement are also possible under the MCL and permit the acquisition of a company subject to court supervision where 75 per cent of the shareholders’ vote has been obtained, however, this is not a common method for undertaking acquisition transactions. While schemes of arrangement may theoretically also have been possible under the Former MCA, they have not historically been used in Myanmar, and there is some uncertainty regarding their operation.
Due diligence for acquisitions continues to be challenging in Myanmar, including as a result of poor record keeping and compliance by Myanmar companies, lack of familiarity with due diligence processes and sensitivity to disclosing company information. Prospective acquirers are advised to engage early with potential target companies to explain the purpose and nature of due diligence procedures and build the relationships required to ensure an appropriate quality of disclosure.
The main regulatory approval for an acquisition in Myanmar is likely to be under the MIL. Approvals by the Myanmar Investment Commission (MIC) for the transfer of shares or a business where the target has a permit or endorsement issued by MIC may typically take around two weeks to one month to process.
Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?
Key Myanmar laws applicable to acquisitions and disposals
Myanmar has been rapidly updating its laws relating to private M&A transactions as it has opened up to foreign investment, and the legal environment for businesses more broadly is also changing rapidly. Many of these laws have been only recently implemented or have only recently begun to apply. In general, Myanmar’s legal system lacks clear precedents to confirm the current legal position. The answers given to these questions must be understood in this context.
The main laws governing acquisitions and disposals of privately owned companies, businesses or assets are:
See further details on each below.
The MIL, which came into effect on 30 March 2017, simplified the investment regime in Myanmar and provides a more comprehensive and supportive framework for foreign and local investment in Myanmar. It combines the previous local and foreign investment laws into one law and provides for a streamlined investment approval process.
The MIC has issued the Myanmar Investment Rules (Notification No. 35/2017) (MIR) on 30 March 2017 which sets out the process for obtaining an MIC permit or MIC endorsement as required.
The MCL replaced the Former MCA and provides a modern corporate law framework ̶ for example, it improves companies’ ability to manage their capital structure and removes some barriers to foreign investment.
In particular, it broadens the definition of a Myanmar company to include companies with foreign investment of up to 35 per cent, and abolishes the requirement for foreign companies to obtain a Form of Permit, being a required permit to trade (which, in practice, was only very rarely given for foreign companies intending to engage in trading activities).
Under the Former MCA, companies with any foreign shareholding were classified as a ‘foreign company’. The practice of the DICA under the Former MCA to require a Myanmar company to change its registration when it changed from a Myanmar company to a foreign company as a result of a foreign company obtaining an interest in it (and vice versa), and DICA would not permit such changes to its registration, effectively prohibiting foreign investment in Myanmar companies.
The TIRPL provides for restrictions on the transfer of land to, or its acquisition or lease for more than one year by, a foreign-owned company. The definition of ‘foreign-owned companies’ under the TIRPL refers to companies that are not 50 per cent or more owned or controlled by Myanmar citizens. Despite this definition, the Myanmar government previously applied a narrower definition (by reference to the Former MCA), which effectively prohibited such transfer, acquisition or lease by a foreign company.
As a result of the MCL, it is expected that even if a narrow application continues to be given by applicable land authorities, Myanmar companies with up to 35 per cent foreign ownership will be permitted to acquire an interest in land.
The Competition Law entered into force on 24 February 2017. This law prohibits business combinations that:
- have the purpose of ‘extremely raising market dominance’;
- have the purpose of lessening competition in a limited market; or
- would result in a market share above the prescribed amount.
Business combinations prohibited under the Competition Law may be exempt in certain circumstances, including if the acquired business is at risk of insolvency or if it will promote exports, technology transfer or productivity. The Competition Law is a relatively new law and it is not clear how its requirements will be applied in practice. Notifications issued by the Myanmar Ministry of Commerce (MOC) under the Competition Law to date largely address procedural matters (such as Notification No. 50/2017 of the MOC dated 9 October 2017). The Competition Commission was established under the Competition Law on 31 October 2018 (under Notification No. 106/2018 of the Myanmar Government), but is yet to systematically enforce compliance with the Competition Law.
Governing law for Myanmar M&A transactions
Under Myanmar law, parties are free, in principle, to choose the governing law of an agreement. However, in practice, state-owned enterprises and Myanmar government agencies will rarely agree to a choice of foreign governing law, and Myanmar private parties also prefer that Myanmar law applies to the transaction agreements. For agreements that are subject to scrutiny under the MIL (eg, as part of an application for a permit or endorsement), the MIC will generally require that Myanmar law governs such agreements.
What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?
The MCL provides that shares are movable property, for which it is possible to obtain full legal title in Myanmar. Under the MCL, the possession of a share certificate in respect of a share provides prima facie evidence of ownership. The ownership and transfers of a company’s shares should be recorded in its register of members to ensure it is effective.
For an acquisition by way of transfer of assets or business, the ownership rights to the applicable assets being transferred will be undertaken through execution and delivery under an asset agreement. The type of legal title held by asset owners in Myanmar varies between asset categories. For example, land is categorised into various forms of title with the two main categories of land being ‘freehold land’, which is only rarely found in Myanmar, and ‘grant land’, which is leasehold land owned by the state and leased on a long-term (eg, terms of 10, 30 or 90 years) basis to private parties. In addition to these, there are a number of other categories of land owned by the state over which a land use right is granted to private parties for a particular purpose, such as agricultural land, grazing land and vacant, fallow and virgin land.
It is possible for title to shares, businesses or assets to transfer automatically by operation of law, for example, upon the death of the titleholder.
Legally, there is a difference between legal and beneficial title in Myanmar; however, trusts are rarely used in practice.
Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?
It may be possible for a shareholder to require that other shareholders transfer their shares to a common acquirer through a ‘drag along’ mechanism if provided for in company constitution or a shareholders’ agreement.
Another potential legal mechanism for undertaking an acquisition of all shares in a company without the agreement of all shareholders would by way of scheme of arrangement under the MCL. Schemes approved by 75 per cent of shareholders (or creditors) are binding on all shareholders (or creditors) and the MCL provides for a court, either by the order sanctioning such scheme or a subsequent order, to make provision for the transfer of a company’s undertaking or its shares, pursuant to such scheme. However, there is no precedent in Myanmar for schemes of arrangement, and Myanmar’s courts have not yet developed their practice regarding such schemes.
Exclusion of assets or liabilities
Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?
There are no specific restrictions under Myanmar law regarding the exclusion of assets or liabilities from transactions by the parties, and this is generally a matter for agreement of the parties in structuring the transaction.
Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?
Overall investment framework
The main regulatory approval for an acquisition in Myanmar is likely to be under the MIL. Generally, a permit will be required from the MIC under the MIL for investments:
- that are strategically important;
- capital intensive;
- have a large potential impact on the environment or local community;
- use state owned land; and
- other designated investments.
Even if a permit is not required, foreign investors will require an endorsement from the MIC under the MIL to have the right to enter into a long-term lease of land or to obtain certain tax incentives.
If a target company has an MIC permit or endorsement, under the MIL then approval of the MIC will also be required for an acquisition of a majority of shares or controlling interest in the company. The MIC has advised recently that indirect transfers of shares in companies with MIC permits or endorsements that occur because of a transfer of shares in an entity located offshore do not need to be notified to it; however, a prudent approach would be to seek a view from the MIC on a matter-by-matter basis (as indirect interests are within the scope of the approval requirement under the MIL).
There also continue to be practical restrictions on investing in Myanmar. For example, in many sensitive sectors, investment is possible only through a concession from, or a joint venture with, the Myanmar government, reflecting the continuing role of the government and government agencies in Myanmar’s economy.
Further details on foreign investment restrictions
On 10 April 2017, the MIC issued Notification No. 15/2017 (List of Restricted Investment Activities), which is made in relation to section 42 of the MIL (the MIL Notification) ̶ this sets out the types of investments:
- in which foreign investment is not permitted;
- which require approval of a Myanmar government ministry; or
- which may only be made through a joint venture with a Myanmar company (under the MIR, a Myanmar company is required to have at least a 20 per cent shareholding in such a joint venture).
While the MIL Notification is intended to be a comprehensive list of all such restrictions, this is subject to the government keeping the MIL Notification up to date. On 9 April 2018, the criteria for approvalsfrom the Ministry of Electricity and Energy for energy sector projects were updated. Investors are advised to obtain advice on the particular approvals applicable at the time of their investment.
Under the MIL Notification, up to 100 per cent foreign investment is permitted in, for example, the establishment and operation of offices or commercial buildings. Foreign investors can also invest through a joint venture with a local partner in a number of sectors, including the development, sale and lease of residential apartments and condominiums.
On the other hand, only Myanmar companies may undertake certain investments that are of a local character (such as printing local language periodicals) or relate to certain businesses, including artisanal oil wells and mini-markets. (The MCL permits up to 35 per cent foreign ownership in Myanmar companies.)
The MIL Notification also lists sector approvals required prior to investment. Myanmar government ministries have continued to refine and update the sector approvals for which they are responsible since the implementation of the MIL Notification. See examples of requirements for various sectors below.
The approval of the Ministry of Health and Sports is required for investments in businesses for the supply of health services.
Retail and wholesale distributors
The List of Restricted Investment Activities provides that the approval of MOC is required for investment in businesses providing retailing and wholesale services (noting that mini-markets and convenience stores are separately listed as sectors in which foreign investment is not permitted).
On 9 May 2018, MOC issued Notification No. 25/2018 setting out the criteria for foreign and local companies and foreign and local joint ventures to engage in retail or wholesale distribution in Myanmar. This clarifies the rights of foreign businesses to invest in, and liberalises restrictions on, trading activities in Myanmar. On 26 July 2018, it issued News Bulletins 2/2018 and 3/2018 setting out, respectively, its standard operating procedure for registering retail and wholesale distributors in Myanmar, and the list of priority goods permitted to be distributed by foreign companies and foreign-local joint ventures. To date, 51 companies have registered as wholesalers, five as retailers and 19 as both wholesalers and retailers.
The MOC continues to revise its approach to licensing in this sector. On 21 May 2019, MOC issued Notification No. 23/2019 requiring companies that were previously permitted (on an exception basis) to import and sell certain types of products (such as fertilisers, seeds, pesticides, and hospital, construction and agricultural equipment) to apply for approval under, and conform to, Notification No. 25/2018.
Significant liberalisation of the insurance sector occurred in 2019. Prior to 2019, no foreign insurer had been awarded a licence under the Insurance Business Law of 1996 to undertake an insurance business in Myanmar (outside of special economic zones under Notification 2/2017 of the Insurance Business Regulatory Board of Myanmar). On 2 January 2019, the Ministry of Planning, Finance and Industry issued Announcement No. 1/2019 stating it would liberalise foreign investment restrictions in this sector. On 28 November 2019, licences were issued to five foreign life insurers and three life and three non-life foreign-local joint ventures to conduct insurance businesses in Myanmar.
Banking businesses are regulated by the Central Bank of Myanmar (CBM) under the Financial Institutions Law (Law No. 20/2016) (FIL). Under the FIL, a foreign bank may only sell its business or acquire a local bank’s business (or a substantial part of either) with the approval of the CBM. In addition, a person must obtain CBM’s approval prior to acquiring (whether directly or indirectly) a ‘substantial interest’ in a bank (defined as 10 per cent or more of the shares in, or the capacity to control the management of, a bank).
On 7 November 2019, CBM announced that it may permit more than 35 per cent foreign investment in local banks on a case-by-case basis. In the same announcement, the CBM explained that it would hold a new round of foreign bank licensing. Two types of licences would be available for foreign banks: a branch licence and a subsidiary licence. Under the subsidiary licence, foreign banks would be entitled to carry out the activities currently permitted for branch licence holders (that is, providing wholesale banking services to foreign-owned companies and Myanmar banks), and the licence would also permit onshore retail banking from 1 January 2021. Existing branch office licences would be permitted to convert to a subsidiary office licence from June 2020 provided the foreign branch has operated in Myanmar for at least three years.
On 9 April 2020, the CBM announced that it had granted preliminary approval for the issue of a branch licence to four foreign banks and a subsidiary licence to three foreign banks, and had also approved the investment by Kasikorn Bank in up to 35 per cent of Ayeyarwaddy Farmers Development Bank Limited.
As background to this, on 31 January 2019, the CBM issued Letter No. (1/2019) to Myanmar banks requesting them to notify the CBM if they wish to accept foreign equity investment, which may be permitted up to 35 per cent. On 17 June 2019, First Myanmar Investment Public Company Limited disclosed that the International Finance Corporation had converted the outstanding balance of a loan to Yoma Bank Limited into a 5 per cent equity stake, the first foreign equity investment in a Myanmar bank.
Timing for MIC consideration
The MIR sets out the process for obtaining an MIC permit or MIC endorsement as required.
The MIC typically takes around two weeks to one month to process transfers of shares or assets of a target company holding a permit under the MIL (or its predecessor legislation, the Foreign Investment Law (Law No. 21/2012)).
In relation to applications for a permit or endorsement under the MIL, the MIC has 15 business days to undertake an initial assessment regarding whether the application is complete and a further 60 business days for a permit or 30 business days for an endorsement, to undertake a substantive assessment of the application and grant the permit or endorsement. The approval is required to be issued within a further 10 business days.
Are any other third-party consents commonly required?
Third-party consents may be required from shareholders under a shareholders’ agreements or constitution for the transfer of shares (for example, if first refusal rights are granted to shareholders), and from counterparties for the transfer of contracts.
Importantly, land used for the business of a company in Myanmar is commonly held in the name of one of the shareholders or directors of the company. The consent of such land owner to transfer the land under an acquisition transaction should be obtained.
Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?
We set out below a summary of key regulatory filings.
Under the MCL, notification of transfer must be filed with DICA within 21 days after a transfer of shares in a company incorporated in Myanmar. Other associated filings with DICA may also be required, for example, for a change in business name.
Under the MIL, a notice must be filed with the MIC for any transfers of shares in, or the business of, a company with an MIC permit or endorsement. The prior approval of the MIC will be required for any transfer of shares in, or the business of, a company that has an MIC permit or endorsement, if it will result in an entity that is not an affiliate of the transferor acquiring majority ownership or control of the shares, or more than 50 per cent of the assets of the business. However, the MIC has advised recently that indirect transfers of shares in companies with MIC permits or endorsements that occur because of a transfer of shares in an entity located offshore do not need to be notified to it; however, a prudent approach would be to seek a view from MIC on a matter-by-matter basis.
In addition, if the transaction involves incorporation of a new company to acquire the business or assets, under the MIL, such new entity requires an MIC permit to undertake certain large investments, or (even if a permit is not required) an MIC endorsement to obtain the right to enter into a long-term lease of land or certain tax incentives.
Certain acquisitions of property may also be registrable under the Registration of Instruments Law. Instruments that, among others, create or assign rights to immovable property valued above around US$70, and leases of immovable property for a term of more than one year, or fixing an annual rent, must be registered, unless they relate to a land grant from the Myanmar government. A failure to register such instruments will affect their validity.
1899 Myanmar Stamp Act
Under the 1899 Myanmar Stamp Act, the amount of stamp duty payable depends on the document. For share transfers, stamp duty of 0.1 per cent of the value of the transfer price applies. For joint venture agreements, stamp duty of about US$110 will generally apply.
Law stated date
Give the date on which the information above is accurate.
17 July 2020.