LEBANON Law and Practice Contributed by: Joseph Nasrallah, Jad Skaff and Yasmina Ballout, HNS Legal
9. Defensive Measures 9.1 Hostile Tender Offers
Directors rely on these external analyses when prepar - ing their own report and recommendation to share - holders. Rather than basing their position solely on internal evaluation, the board supports its assessment by reference to independent professional verification. In practice, this outside review serves a dual function: it allows shareholders to evaluate the fairness of the transaction, and also demonstrates that the directors acted with diligence and good faith in endorsing the business combination. 8.5 Conflicts of Interest The Code of Commerce establishes a formal approval mechanism designed to manage conflicts of inter - est. Directors, senior managers and any shareholder with more than 5% of voting rights must obtain prior authorisation from the board of directors before enter - ing into any contract or arrangement with the compa - ny. The interested person must disclose the conflict in writing and may not participate in deliberations or vot - ing, and their shares are excluded from quorum and voting calculations. The authorisation must then be reported to and ratified by the general assembly, with a special report prepared by the statutory auditors. These rules are particularly relevant within the context of a business combination because transactions are frequently negotiated by controlling shareholders or directors who may stand on both sides of the deal. Where such a situation exists, the conflicted party cannot vote at either board or shareholder level, which can materially affect approval thresholds and transac - tion timing. Failure to comply may also give rise to liability. Under Article 253-1 of the Code of Commerce, directors and managers who, in bad faith, use company assets or credit for personal purposes or in favour of an entity in which they have an interest may incur criminal penal - ties. In parallel, Article 364 of the Penal Code criminal - ises obtaining personal benefit through one’s position.
Lebanese law does not forbid a hostile tender offer. In theory, a bidder can make a public offer to share - holders even if the target company’s board does not support the transaction. In practice, however, this rarely happens. Most Leba - nese companies are closely held and often family- owned, with control concentrated among a small number of shareholders. Because gaining control usu - ally requires the cooperation of these principal own - ers, an acquirer normally negotiates with them first. Public offers therefore tend to formalise an agreed sale rather than serve as contested takeover attempts. 9.2 Directors’ Use of Defensive Measures Lebanese law does not establish a specific framework authorising takeover defensive measures. In practice, the board of directors has limited ability to resist an acquisition because key corporate actions remain within the powers of the shareholders. In joint-stock companies, measures that could effec - tively block a takeover, such as capital increases, issu - ance of new shares, mergers, or amendments to the articles of association, require approval of the extraor - dinary general meeting. Directors therefore cannot unilaterally adopt structural defences or frustrate a bid if the shareholders are willing to proceed. The board’s role is mainly advisory. Directors may evaluate the offer, issue a recommendation, and inform shareholders of legal or regulatory risks (for example, competition or sectoral approvals). They must also disclose conflicts of interest and abstain from deliberations where applicable. Accordingly, classic defensive tactics are not a feature of Lebanese takeover practice. The outcome of a bid is primarily determined by shareholder approval rather than by defensive action taken by the board. 9.3 Common Defensive Measures This matter is not applicable in this Lebanon.
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