CHINA Law and Practice Contributed by: Bing Zhai, Commerce & Finance Law Offices
10. Litigation 10.1 Frequency of Litigation
regarding the target company’s financial resil - ience and operational continuity. • Regulatory risks: Delays in regulatory approv - als due to pandemic-related disruptions underscored the importance of factoring in potential regulatory uncertainties when draft - ing transaction timelines. • Dispute resolution mechanisms: The pan - demic reinforced the value of including robust dispute resolution mechanisms, such as arbi - tration, to expedite the resolution of conflicts. Shareholder activism is growing in importance in China, though it is not as prominent as in some Western jurisdictions. Activists in China primarily focus on: • corporate governance – advocating for better board oversight, transparency and account - ability; • ESG issues – pushing for improved climate change disclosures, diversity initiatives and sustainable practices; and 11. Activism 11.1 Shareholder Activism • financial performance – encouraging compa - nies to enhance shareholder value through better capital allocation, cost management Activists in China sometimes advocate for M&A transactions, spin-offs or divestitures to unlock shareholder value. For example, activists may push for spin-offs of non-core assets to stream - line operations and focus on high-growth areas, and they may encourage M&A transactions to achieve synergies or enter new markets. In some cases, activists advocate for divestitures and strategic initiatives. 11.2 Aims of Activists
Litigation in connection with M&A deals is not especially common in China, but it does occur, particularly in cases involving disputes over val - uation, breach of contract or regulatory compli - ance. The prevalence of litigation is lower com - pared to some jurisdictions, as parties often prefer to resolve disputes through negotiation or arbitration due to the lengthy and complex nature of court proceedings. 10.2 Stage of Deal Litigation is most commonly brought after the deal has been signed, but before its completion, especially when: • one party alleges a breach of contract, such as failure to meet pre-closing conditions or misrepresentation of financial or operational information; • regulatory approvals are delayed or denied, leading to disputes over contractual obliga - tions; or • shareholders challenge the fairness of the transaction, particularly in cases involving The COVID-19 pandemic in early 2020 led to several M&A disputes, offering key lessons for parties involved in pending transactions. • Force majeure and MAC clauses: Many disputes centred on whether the pandemic constituted a force majeure event or triggered MAC clauses. Courts and arbitral tribunals emphasised the importance of clear contrac - tual language to define such terms. • Due diligence: The pandemic highlighted the need for thorough due diligence, particularly minority shareholders or SOEs. 10.3 “Broken-Deal” Disputes
470 CHAMBERS.COM
Powered by FlippingBook