JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
7.4 Transaction Documents Disclosure of transaction documents in full is not required for a tender offer. If there are any agreements between the bidder and a target company or its offic - ers in relation to the tender offer itself or a disposal of material assets after the tender offer, the material terms of such agreements must be described in the tender offer registration statement. For a business combination, the Companies Act requires parties to the business combination to pre - pare an agreement providing for statutorily required matters. A statutorily required agreement such as a merger agreement, share exchange agreement or company split agreement must be disclosed in full. However, in practice, such an agreement only addresses the matters required by law and is thus very short. In many cases, the parties to a business combination enter into another agreement to provide in detail the terms of the business combination, in which case only the material terms of such an agreement need to be disclosed in the security registration statement (if the filing of the security registration statement is required as previously discussed) and the press release pursu - ant to the stock exchange regulations (if the party is a listed company). Under the Companies Act, as a general principle, directors owe a duty of care as a good manager, and a duty of loyalty to the company and, indirectly, to the shareholders of the company. Except for violations of law or situations involving a conflict of interest, the business judgement rule gen - erally applies in determining whether directors have breached their duties. Under the business judgement rule in Japan, directors are not held accountable for their decisions unless the directors were careless and failed to recognise relevant facts in making their deci - sions or the process of the decision-making or the substance of the decisions was particularly unreason - able or inappropriate. 8. Duties of Directors 8.1 Principal Directors’ Duties
There have not been many judicial precedents addressing directors’ duties in M&A transactions. However, as far as M&A transactions without any conflicts of interest are concerned, it is understood by M&A practitioners that the business judgement rule generally applies to directors in M&A transactions and there are a few judicial precedents confirming such understanding. 8.2 Special or Ad Hoc Committees Use of an independent ad hoc special committee in M&A transactions involving conflicts of interest has become common in Japan. In all recent going-private transactions, regardless of whether conducted by a controlling shareholder or the management of the company as a management buyout, boards of direc - tors of the target company have established an ad hoc special committee to review the transaction due to inherent risk of management conflicts. In recognition of the importance of ensuring fair pro - cedures in M&A transactions, the Fair M&A Guidelines emphasise the role of special committees and provide detailed guidelines including the composition of the special committees. The Fair M&A Guidelines explicit - ly state that outside directors who owe fiduciary duties to the company are the most suitable persons to serve as members of the special committees. In practice, outside directors as members of special committees have been seen more frequently. While the involvement of special committees in nego - tiations of transaction terms was limited in the past, the Fair M&A Guidelines state that it is desirable that special committees should be actively involved in negotiations on transaction terms, either directly or indirectly, through expressing their views to the project team members who are in charge of the negotiations rather than simply reviewing the transaction terms when they are agreed. As such, special committees are expected to play a more active role in negotiations. In line with recent practices, the Takeover Guidelines reiterated the value of special committees. While the guidelines suggest that the usefulness of special com - mittees depends on the circumstances of each case, including the degree of management conflicts and the independence of the board, the Takeover Guidelines
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