Newsletter
Amended Business Mergers and Acquisitions Act to Take Effect on December 15, 2022
The latest of amendments to the Business Mergers and Acquisitions Act ("Amended BMAA") were promulgated by the President on June 15, 2022 and will come into force six months thereafter (i.e., on December 15, 2022) pursuant to Article 54 of the BMAA. The key changes under the Amended BMAA aim to strengthen the protection of shareholders' rights and interests, expand the defined scope of whale-minnow mergers, and increase the flexibility of the relevant tax arrangements, as detailed below:
1. Strengthened protection of shareholders' rights and interests
In order to strengthen the protection on shareholders' rights and interests and to ensure the information transparency of M&A transactions, Article 5 of the Amended BMAA stipulates that, where a director has a conflict of interest in a proposed merger/acquisition ("M&A") transaction, the company must disclose the material information of said conflict and the rationale for approving/opposing such transaction in the notice for the shareholder meeting convened therefor.
Further, Article 12 of the Amended BMAA expands the scope of application for dissenting shareholders' appraisal rights to allow the shareholders who have not abstained from voting (i.e., have voted against the proposed M&A transaction) at the shareholder meeting to exercise the appraisal rights so that such shareholders can also enjoy the exit mechanism.
2. Expanded scope of whale-minnow M&A
Under the prevailing BMAA, a whale-minnow M&A can only be waived from seeking the approval of the shareholder meeting when it meets the following criteria: (i) the new shares issued by the acquiring company for the purpose of the merger do not exceed 20% of its total number of its outstanding voting shares; and (ii) the total value of the shares, cash and other properties paid by the acquiring company for the M&A does not exceed 2% of the net value of the acquiring company. However, in order to increase the flexibility and efficiency of M&A transactions, the Amended BMAA expands the scope of such waiver by increasing the limit on the total value of the shares, cash and other properties paid by the acquiring company for the M&A to a percentage of 20%. Also, for the avoidance of doubt, the Amended BMAA clear states that a whale-minnow M&A that meet either one of such two criteria to enjoy such waiver. To implement a whale-minnow M&A, a company only needs the approval of its board of directors and not that of the shareholder meeting.
3. Increased flexibility of the relevant tax arrangements
The newly added Article 40-1 under the Amended BMAA stipulates that the types of assets that may be recognized as intangible assets, in terms of an M&A transaction, are limited to business rights, copyrights, trademark rights, patent rights, integrated circuit layout rights, plant variety rights, fishing rights, mineral rights, water rights, trade secrets, computer software and various concessions. Also, under the Amended BMAA, the period of amortization for intangible assets acquired through an M&A is expanded to the remaining period of the legal entitlement thereof or ten years, which rectifies the current conundrum that some M&A costs cannot be deducted from taxable income.
Furthermore, Article 44-1 of the Amended BMAA provides that, upon a corporation's dissolution due to a merger/spin-off, for individual shareholders who acquire the shares of the surviving company, the newly incorporated company or the foreign corporation as a result of a merger/spin-off, the tax assessment of the dividend income under the Income Tax Act may be deferred until the third year following the year of acquisition and taxed in equal installments over three years with an aim to promote a friendly regulatory environment for the M&A of startups.