ARMENIA Law and Practice Contributed by: Hayk Hovhannisyan and Tachat Voskanyan, HAP
5.4 Standstills or Exclusivity Under Armenian legislation, Standstill or Exclu - sivity agreements are not commonly used. How - ever, the Law “On JSC” allows shareholders to sign agreements that may include obligations to not sell shares until certain conditions are met. These agreements can also require sharehold - ers to take joint actions regarding the company’s management, operations, reorganisation, or liq - uidation. It should be noted that such agreements have been applied to some large companies. 5.5 Definitive Agreements First, the companies involved in a merger or acquisition sign a merger/acquisition agree - ment. Next, each company’s general meeting must approve the reorganisation in the form of a merger or acquisition. During this meeting, the participants will review and approve the merg - er/acquisition agreement, the transfer act, the terms of the merger/acquisition, and the process for converting shares and securities into shares of the new company (in the case of a merger) or the acquiring company (in the case of an acqui - sition). The merger/acquisition agreement is the main document regulating the joint activity between two or more companies until the state registra - tion of the corporate action. According to the provisions of Article 50.6 of the RA Law “On Lim- ited Liability Companies” and Article 24 of the RA Law “On JSC” , the merger (acquisition) agree - ment is concluded between the companies par - ticipating in the merger (acquisition), signed by the head of the company’s executive body and subject to approval by their general meetings. The transfer act should contain provisions on the succession of property of the reorganised com -
Types of due diligence that are most commonly used in the RA are outlined below. • Tax due diligence is a rather important and effective process during company mergers or acquisitions. It allows specialists to obtain reliable information about the company’s potential and current tax risks, which will help make a final decision on acquiring the com - pany. • Financial due diligence, which involves checking financial statements, as well as studying debts and assets. This process often also verifies the quality of accounting, the rel - evance and authenticity of transactions, and reveals the facts of the company’s economic activity. The dynamics of growth (or decline) of key indicators are observed and analysed, and the quality of accounting and financial services, accounting systems, and report preparation is assessed. • Legal due diligence, which involves analysis of current and potential litigation, verification of contracts and rights, as well as compliance checks with current legislation and regulatory requirements. Comprehensive checks by credit agencies are quite common. Using an appropriate scale, the latter assesses credit, liquidity, interest rate, cur - rency, operational, and other risks. They study the bank’s financial statements and require detailed information. They also visit the bank to evaluate its financial condition and banking risks as part of the Due Diligence process to assign a unified rating. Non-financial factors are also con - sidered, such as the quality of corporate govern - ance, share capital structure, the presence of institutional investors among shareholders, and other important aspects.
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