ISSUE 8.3
Investing in power Projects shed new light
Private equity in China Finding a silver lining
IPBA 2008 What’s hot in LA
n DEALS ROUNDUP n LATERAL MOVES n JOB VACANCIES n UK, US REPORTS n REGION-WIDE UPDATES
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asian legal business ISSUE 8.3
ALB ASIAN LEGAL BUSINESS
Since when does size really matter? Above all, the new challengers are offering clients more choice, a choice clients are becoming willing to accept
W
hen it comes to law firms, small, mid-sized and boutique firms are increasingly flexing their muscles in local jurisdictions, and are succeeding in luring clients away from traditional top-tier law firms on the back of the growing strength of their offering. The trend is being forced by Asia’s boom. As economies and crossborder business flows grow and legislative regimes develop, there has never before been a greater need for sound local legal advice. Entrepreneurial lawyers have seen their chance. Having a bigger pie has left plenty of space for newer players to enter the market and grow their businesses where, in some cases, there just aren’t enough firms to cope. Many of these fast-growing firms are being formed by breakaway groups of highly experienced practitioners with established practices and networks. Top-tier Indian firm Amarchand & Mangaldas & Suresh A Shroff & Co recently fell victim to such a move, when two lawyers from its close circle of equity partners left to start a competing firm. So what is the new generation of challengers offering clients? Many of them have trained in international law firms or have international exposure, and are striving to modernise their practices and techniques in line with global standards. Stereotypically, they are often labelled as being younger, more energetic, innovative and responsive. They often promise partner attention on every deal. And, of course, they are purporting to offer clients value for money when it comes to their fee scales. Above all, they are offering clients more choice, a choice clients are becoming willing to accept. Either attracted to new firms by the partners that have left their old firms, or having become increasingly educated about the choices they have available in Asian markets, clients are beginning to test these firms with work, and are finding them to their liking. The top tier need not be too worried. The pie is large and growing, and firms’ wealth of experience and bench strength is in high demand. However, they will need to continue to strive to reward their talent and adapt to the growing demands of sophisticated clients.
IN THE FIRST PERSON “There is always a risk that the Chinese authorities could clamp down on this structure, but by now probably too much water has gone under the bridge for the government to want to take action” Basil Hwang, partner, Dechert/Hwang & Co, on the structures used for private equity in China (p44)
“We are too too busy. Our practice is multiplying in leaps and bounds. We’ve had to take on many more juniors as the work flow has increased dramatically…” Preeti Mehta, partner, Kanga & Co, comments on the spike in demand for legal services in India (p26)
“It is very rare to find loans of this structure … However, it exemplifies the increasing interest of commercial banks in financing the work of the microfinance sector” Ting Ting Tan, partner in Clifford Chance’s Singapore office, on micro-finance (p8)
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asian legal business ISSUE 8.3
inside
ALB issue 8.3
Cover story
26 ALB Special Report: India India’s legal services market is booming, leaving firms to wrestle with the enormous influx of work and navigate the country’s legal landscape. ALB investigates the challenges facing firms
Features 40 IPBA The annual Inter-Pacific Bar Association (IPBA) will be meeting in April. This year, the conference will be held in Los Angeles, US 44 Private equity in China Despite recent PRC regulatory measures, investors are still active in China, using direct onshore investment to get around the regulations
40
26 Commentary 16 IP WTO moves closer to Protocol amendments Alban Tay Mahtani & de Silva 17 Financial Advice on protecting your assets Horwath Financial
6 Regulars 6 • • • • •
Deals Analysis: Lights shine brighter on regional power plays Micro-finance loans in Bangladesh China Railway Group in dual listing Telefónica boosts stake in China Netcom Chinalco and Alcoa to share stake in Rio Tinto
12 News • Analysis: Antitrust and competition advice in China • Singapore legal sevices reform on track • London welcomes FoxMandal Little with open arms • First Asia member joins Eurojuris International • Yulchon forms strategic IP alliance 20 • • •
Appointments Allens strengthens Vietnam finance team Holman Fenwick moves Singapore partner to Shanghai Gilchrist trades JSM for Clifford Chance
56 sign off
18 19
International tax UK on the verge of OECD signing Azure Tax Cross-border structuring Singapore Government reveals annual budget and projects Amicorp
Regional updates 22 China Paul Weiss Philippines SyCip Salazar Hernandez & Gatmaitan Malaysia Tay & Partners Singapore Loo & Partners India Singh & A ssociates
Profiles 29 30 32 35 36 39
Paras KuhaD & Associates Crawford Bayley & Co Economic Laws Practice Kanga & Co Singh & Associates FoxMandal Little
ALB
Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Asian ASIAN LEGAL BUSINESS Legal Business can accept no responsibility for loss.
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deals >>
asian legal business ISSUE 8.3
Market analysis
Lights shine brighter on regional power plays I
n downtown Jakarta, residents are often left wondering who turned out the lights. In February, commercial and residential districts were hit by scheduled power cuts on one Saturday as part of desperate attempts by Indonesia’s state electricity firm, PT Perusahaan Listrik Negara (PLN), to save dwindling energy supplies. Residents on the islands of Java and Bali were not as fortunate – there was no warning when bad weather caused severe power outages which hampered coal delivery in Java. Such is life in developing Indonesia, where demand for power is rapidly outpacing the capacity of existing infrastructure. However, there is light at the end of the blackout. In Indonesia, in addition to the Southeast Asian region
as a whole, there has been a resurgence of activity in the power sector in the past 18 months, as governments attempt to redress capacity shortfall and investors gain more appetite for power projects. A highly competitive sector for law firms, the about-face in fortunes is good news. "Increasingly, lawyers are tur ning down deals and refer r ing them to other firms so the deals can get done," Joseph Bevash, said upbeat Joseph Latham & Watkins Bevash, Latham & Watkins’ Hong Kong managing partner, who has seen his own practice triple during 2006/07. Singapore-based Baker
& McKenzie.Wong & Leow principal Michael McNeill also gives a sound bill of health to the sector. “There has been a lot of interest. The work is steadily ramping up in the region, and people are quite clearly starting to do more deals,” McNeill said. The work is falling broadly into two categories – M&A deals and greenfield projects. Lawyers have been garnering work, acting for buyers and sellers in M&A transactions, advising governments, or acting for the assortment of regional and global bidders active in tendering for the power projects governments have planned across the region. Firms are also seeing a range of project finance work flow from more projects. Bevash was involved in one of the key M&A deals in the sector in 2007,
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Your month at a glance
when he acted for the TEPCO/Marubeni Consortium in its bid to acquire the Philippines’ largest independent power producer (IPP), Mirant Asia Pacific Limited, which was successful and ended in a sizable US$3.7bn acquisition of Mirant’s power assets. Latham & Watkins is also active in a number of greenfield projects across the region, including some in Indonesia and Laos. Likewise, Baker & McKenzie was active across Indonesia, Thailand and the Philippines in 2007, acting on a range of greenf ield projects that included working for J-POWER in Thailand and OneEnergy Limited in Indonesia, and handling power-related financing work for Standard Chartered Bank and PT TJK Power in Indonesia, and Ashmore Energy International Ser vices LLC (among others) in the Philippines. But lawyers argue that the best is yet to come. Thailand is in the midst of an IPP solicitation process, having recently shortlisted four candidates from a bidding process for the rights to develop new IPP projects. Linked to Thailand is Laos, with a number of greenfield projects there designed to supply energy to the Thai grid. Indonesia is moving closer to getting more projects underway after the implementation of a fast-track program. While lawyers are still waiting for PLN to put a series of new projects out to tender, expectations are that this will not be far away. Vietnam, though taking a more cautious approach to growing its power capacity, is expected to be a growing market. Singapore has also thrown up a whole new round of power-related M&A work for firms, as it plans to sell off its three state-owned power generators by June 2009. The bids for the first of these, Tuas Power, have only just been submitted, with a range of Japanese, Indian and Hong Kong-based bidders involved. When the momentum from these varying jurisdictions is taken into account, firms are expecting the next 18 months to two years to hold a lot of promise. With the inflow of power work, firms are also starting to increase their profit margins in the sector, and are doing well from clients that are characteristically fee sensitive. “As more deals get done and people get busier, the fee levels increase and discount levels decrease, so generally speaking we’re seeing the market improve,” Baker & McKenzie’s McNeill said. ALB
Firm
Jurisdiction
Deal name
Ali Budiardjo Nugroho Reksodiputro
Indonesia
Enercoal-Bumi CB issue
US$m
Practice
Singapore
Government of the Republic of Indonesia bond issue
2,000 Debt market
Allen & Gledhill
Singapore
The Cairns Pte Ltd Voluntary Conditional Share Sell-Off
1,300 Debt market
Singapore
BTHL MTN establishment
247 Debt market
Taiwan/ Singapore
ASE Test
788 M&A
150 Debt market
Allen & Overy LLP
Hong Kong
Gemdale Corporation & UBS AG JV
Amarchand Mangaldas
India
ICICI Bank bond offering
Est 300 M&A 2,000 Debt
India
Reliance Power IPO
3,000 Equity
Anderson Mori & Tomotsune
Japan
JBIC Telemar loan facility
Baker & McKenzie
China
Bain Capital Partners LLC Acquisition of Bath & Kitchen business of AS Inc
China
Medtronic Investment in and JV with Shandong Weigao Group Medical Polymer Co Limited
221 M&A
Thailand
Mermaid Maritime Public Company Limited IPO
170 Equity
China
Weight Watchers International Inc & Groupe DANONE JV
n/a M&A
Taiwan/ Singapore
ASE Test
788 M&A
Baker & McKenzie.Wong & Leow
Indonesia
BNI equity offering
Caguioa & Gatmaytan Law Firm
Philippines
PNOC-EDC stake acquisition
360 Banking 1,745 M&A
880 Equity 1,360 M&A
Chang See Hiang & Partners
Singapore
Wilmar International Limited bond offering
600 Equity
Cleary Gottlieb
Philippines
The Government of the Philippines bond offering
500 Debt market
India
Reliance Power IPO
2,930 Equity
Clifford Chance
China
Chinalco & Alcoa share acquisition in Rio Tinto
1,200 M&A
Commerce & Finance
Davis Polk & Wardwell
Deacons
Thailand
TMB Bank ING stake sale
674 M&A
Singapore
Wilmar International Limited bond offering
600 Equity
China
Telefonica Internacional purchase of stake in China Netcom
454 M&A
Japan
JBIC Telemar loan facility
360 Banking
Indonesia
Export-Import Bank of China Financing for PT Perusahaan Listrik Negara
615 Project finance
India
Geodesic Information Systems bond issue
125 Debt market
Bangladesh
Loan to BRAC
Saudi Arabia
Mobile Telecommunications Company of Saudi Arabia (Zain) IPO
1,900 Equity
China
SOHO China IPO
1,900 Equity
China
Giant IPO
1,020 Equity
China
Dongxiang IPO
Indonesia
PT Jasa Marga (persero) Tbk IPO
371 Equity
Hong Kong
Agria Corporation IPO
283 Equity
55 Banking
705 Equity
India
GMR Infrastructure follow-on offering
1,000 Equity
India
ICICI Bank bond offering
2,000 Debt market
Taiwan/ Singapore
ASE Test
China
MNC/Linktone tender offer
Hong Kong
Beijing Enterprise Holdings Limited share placement
DLA Piper
China
China Railway Group IPO
Drew & Napier LLC
Hong Kong
CIT Financing package
Hong Kong
CIT acquisition and leaseback of 21B Senoko Loop Singapore 758171
Fox Mandal Little
India
Teesta Urja Power project financing
Freshfields
Hong Kong
Criteria Caixa Corp acquisition of stake in Bank of East Asia
788 M&A 85 M&A 475 Finance 5,500 Finance 570 Debt market 15 M&A/equity 1,150 Project finance 508 M&A
China
Increase Air China stake in Air China cargo
Japan
Baring Private Equity Asia Holdings K K acquisition of LADVIK from Kuramoto
Undisc M&A
118 M&A
Japan
Baring Private Equity Asia Holdings K K acquisition of ADP Pasona Payroll Inc
25 M&A
Japan
Marubeni acquisition of stake in Shanghao Christine Group
Undisc M&A
Vietnam
Morgan Stanley & Gateway Securities JV
Undisc M&A
Hong Kong
Playmates Toys Limited listing
Undisc Equity
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deals >>
asian legal business ISSUE 8.3
| Bangladesh |
| China |
►► Micro-finance loans in Bangladesh
►► SEB TOB for SUPOR
Consortium loan of US$55m to BRAC, Bangladesh’s largest microfinance institution
The first direct acquisition by a foreign company of a majority stake in the capital of a Chinese A-share listed company
US$55m
Firm: Clifford Chance Lead lawyer: Ting Ting Tan Client: Consortia Financiers on Bangladeshi law • Consortia Financiers formed by FMO, Norfund and Standard Chartered Bangladesh • BRAC is one of the largest South Asian development organisations. Founded in 1972, its microfinance projects allow the poor to borrow, save and invest in productive activities and small businesses
Firm: Gide Loyrette Nouel Lead lawyer: Hubert Bazin Client: Acquirer on Chinese law • US$485m takeover
Ting Ting Tan, Clifford Chance
“It’s very rare to find loans of this structure – an unsecured loan over seven years in Bangladesh. However, it exemplifies the increasing interest of commercial banks in financing the work of the microfinance sector” Ting Ting Tan, Clifford Chance
| China/Hong Kong | ►► China Railway Group Listing The largest A+H listing in 2007 Firm: DLA Piper Lead lawyers: Dr Liu Wei, Esther Leung and Jeffrey Mak Clients: Joint sponsors and underwriters on Chinese and Hong Kong law
Rupert Li, Clifford Chance
Firm: Sullivan Cromwell Lead lawyers: Robert Osgood and Juan Rodriguez Client: Rio Tinto (on failed bid by BHP Billiton) on US law
• SEB International is the world’s leading culinary goods and small household electrical appliances manufacturer
• This is the second BRAC financing deal on which Clifford Chance has advised; in September 2006, the firm advised Citigroup, FMO and KfW on the world’s first Triple A-rated local currency securitisation of micro credit receivables for BRAC
• China Railway Group is the largest construction company in Asia and the third largest construction contractor in the world
US$485m
Firm: Simpson Thacher Lead lawyers: Douglas Markel, Shaolin Luo, Liang Wang, Casey Cogut, Alan Klein, Sebastian Tiller, Yueting Liang, Euan Gorrie, Stephen Short, Antti Personen, Aurelian Jolly, Peter Thomas and Brijesh Dave Client: Parent Company on Chinese and English law
• This deal represents several significant Hubert Bazin, GLN firsts for mergers and acquisitions in China such as the first partial tender offer on a Chinese Stock Exchange • The first anti-monopoly investigation conducted by the Ministry of Commerce of the PRC (MOFCOM)
►► Telefónica increases stake in China Netcom US$454m Involves share purchase from four separate Chinese state-owned enterprises
• Chinalco, together with Alcoa Inc, purchased approximately 12% of the outstanding ordinary shares (including American Depositary Shares) of Rio Tinto plc, the UK entity, in the open market for over $14bn • This is the largest foreign investment ever by a Chinese entity • Chinalco is the largest alumina and primary aluminium producer in China and has operations across 21 provinces in China and subsidiaries or offices in 9 countries across 5 continents • Shares were purchased from a number of large investors in Rio Tinto at £60 ($118) per share, around a 20% premium to Rio Tinto’s closing price on Thursday, 31 January
Firm: Clifford Chance Lead lawyers: Cherry Chan, Allison Lindsay and Rupert Li Clients: Acquirer on Chinese law • Deal will involve Telefónica Internacional SAU, a wholly-owned subsidiary of Telefónica SA acquiring an additional 2.22% stake in China Netcom
Allison Lindsay, Clifford Chance
• The deal is believed to be worth US$454m in total and, when regulatory approvals are complete, will increase Telefónica’s stake in China Netcom to approximately 7.22%
►► Chinalco & Alcoa share Acquisition in Rio Tinto US$14bn Chinalco and Alcoa snare 14% stake in mining giant Rio Tinto
Mabel Lui, DLA Piper
• It was the largest A+H listing (dual listing in Shanghai and Hong Kong) in 2007 and pioneered the ‘first A then H’ listing model in the history of the Hong Kong Stock Exchange
Firm: Clifford Chance Lead lawyers: Kathy Honeywood, Rupert Li, Nigel Wellings, Douglas French, Andrew Woolmer, Greg Olsen, Simon Baxter and Tim Wang Clients: Acquirers Subsidiary on Chinese, Hong Kong and British law
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| Hong Kong | ►► Criteria Caixa Corporation Acquisition US$508m Criteria Caixa Corp increases stake in Bank of Asia Firm: Freshfields Lead lawyer: Robert Ashworth Client: Criteria Caixa Corporation on Hong Kong law • Criteria Caixa Corporation has increased its stake in the Bank of East Asia from 4.55% to 8.89%
Your month at a glance (cONt) Firm
Jurisdiction
Deal name
Freshfields Bruckhaus Deringer
China
SOHO China IPO
China
Dongxiang IPO
Gide Loyrette Nouel
China
Air Liquide JV with Tianjin Soda Plant
118 M&A
China
SEB TOB for SUPOR
485 M&A
Grandall Legal Group
China
Giant IPO
Hadiputranto Hadinoto & Partners
Indonesia
BNI equity offering
Haiwen & Partners Harry Elias Partnership
China
SOHO China IPO
China
Dongxiang IPO
China
ST Aerospace & Xiamen Aviation Industry Company Ltd JV
US$m
Practice
1,900 Equity 705 Equity
1,020 Equity 880 Equity 1,900 Equity 705 Equity 78 M&A
Heller Ehrman
Pan-Asia
Bezurk.com Series A financing
Hogan & Hartson
China
ChinaEdu Corporation IPO
68 Equity
►► Gemdale Corporation & UBS AG JV
Huen Wong & Co/Fried Frank
Hong Kong
Xinjiang Xinxin Mining IPO
503 Equity
Hwang Mok Park P.C.
Korea
Shinhan Capital Co term loan facility
JV will facilitate major residential developments in Mainland China
Latham & Watkins
India
ICICI Bank bond offering
2,000 Debt market
Philippines
PNOC-EDC stake acquisition
1,360 M&A
Asia
GigaMedia license agreement
US$300m
Firm: Allen & Overy Lead lawyer: Simon Berry Client: JV Partner (Gemdale) on Hong Kong law • Shenzhen-based Gemdale Corporation, a property developer listed on the Shanghai Stock Exchange entered into a joint venture with UBS AG-Hong Kong branch • The major aim of the JV is to establish an offshore investment platform that will focus on residential developments in major and second-tier cities in the PRC, with expected total capital commitments to be up to US$300m
Undisc Debt market
100 Equity
n/a License agreement
China
MNC/Linktone tender offer
Makes & Partners
Indonesia
BNI equity offering
85 M&A
Millbank, Tweed, Hadley & McCloy LLP
India
Tata Steel Limited rights offering and share issuance
2,300 Equity 2,400 M&A
880 Equity
Mori Hamada & Matsumoto
Japan
Tokyo Star Bank takeover proposal
Nagashima Ohno & Tsunematsu
Japan
JBIC Telemar loan facility
O’Melveny & Myers
China
Giant IPO
China
ATA Inc IPO
Paul Weiss Rifkind Wharton & Garrison
China
Weight Watchers International Inc & Groupe DANONE JV
n/a M&A
Rajah & Tann
Hong Kong
Somerset Capital Pte Ltd Acquisition of Ascott Group shares
678 M&A
Singapore
Proposed Knowledge Two Investment Pte Ltd share purchase in The Straits Trading Company
1,310 M&A
360 Banking 1,020 Equity 46 Equity
Singapore
Yongmao Holdings limited listing and IPO
Raslan Loong
Malaysia
Primus Pacific Partners 1 L P share acquisition in EON Capital Bhd
28 Equity
Shearman & Sterling
China
Giant IPO
Indonesia
BNI equity offering
Simpson Thacher
China
Chinalco & Alcoa Purchase 12pc share of Rio Tinto
Skadden
China
SOHO China IPO
1,900 Equity
WongPartnership
China
Bain Capital Partners LLC Acquisition of Bath & Kitchen business of AS Inc
1,745 M&A
Singapore
Somerset Capital Pte Ltd Acquisition of Ascott Group shares
687 M&A
Singapore
Wilmar International Limited bond offering
Pan-Asia
Asia Real estate prime development fund
Taiwan/ Singapore
ASE Test
435 Equity 1,020 Equity 880 Equity 14,000 M&A
600 Equity Est 600 Banking & finance 788 M&A
Yuan Tai Law Offices
China
China Southern Fund
1,990 Investment
Zhong Lun
China
SOHO China IPO
1,900 Equity
Does your firm’s deal information appear in this table?
Please contact Josh Scott
joshua.scott@keymedia.com.au
61 2 8437 4738
ALB deals correction The section entitled ‘Your month at a glance’ in Issue 8.2 contained the following error: Shearman & Sterling was listed as PRC advisor to Mercator on the Mercator Lines IPO. That should have read: ‘Shearman & Sterling was US and international counsel to Mercator on the Mercator Lines IPO’. ALB regrets this error.
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deals >> | INDIA | ►► Tata Steel Limited rights offering US$2.3bn
The transaction was one of the largest Indian rights offerings to date Firm: Milbank, Tweed, Hadley & McCloy LLP Lead lawyers: Not supplied Client: International counsel for lead managers
asian legal business ISSUE 8.3
• Preparing the company for the IPO, structuring the deal, disclosures about the same, and ensuring compliance with regulatory requirements was a challenge • Further, an unusually large syndicate (10 lead managers) presented its own set of complexities
| INDONESIA |
| Japan | ►► Proposed Tokyo Star Bank TOB US$2.4bn
Proposed TOB for one of Japan’s largest banks Firm: Mori Hamada & Matsumoto Lead lawyer: Toru Ishiguro Client: Target on Japanese law
• US$2.3bn rights offering and cumulative compulsory convertible preference share issuance
►► Export Import bank of China financing
• Total bid price of US$2.4bn if 100% shares (including potential shares) are successfully tendered in the TOB
• Lead managers in the offering were JM Financial, DSP Merrill Lynch and Citigroup
The Export Import bank of China will provide project financing to PT Perusahaan Listrik Negara (PLN)
• Consortia of bidders include Japan Blue Sky Capital Partners, LP, Japan Banking Investment Partners, LP, Tokyo Capital Management Partners, LP and Cayman Strategic Partners, LP
• The transaction needed to be carefully structured to deal with overlapping Indian and US securities regulations
►► Reliance Power Limited IPO US$3bn
The largest ever Indian public offering Firm: Amarchand Mangaldas Advocates and Solicitors Lead lawyers: Not supplied Client: Issuer on Indian law • IPO valued at Rs.115,632 million, approximately US$3bn • Reliance Power was a dormant company and had no business until very recently, prior to the IPO
US$615m
Firm: Clifford Chance Lead lawyer: Ting Ting Tan Client: Financier on Indonesian law
| Taiwan/Hong Kong/Macau |
• The loan to PLN, Indonesia’s state electricity company, will build two new power plants in Java that will greatly increase PLN’s power generation capacity
►► GigaMedia license agreement
• The Indonesian government guaranteed the 15-year loans
Firm: Latham & Watkins Lead lawyer: Roxanne Christ Clients: Licensee on Asian law
• These are the first Indonesian governmentguaranteed loans to be signed in the country • The government had previously issued support letters for PLN’s purchase obligations under its power purchase agreement
GigaMedia secures an exclusive license to operate a new game in Taiwan, Hong Kong and Macau
• Warhammer® Online: Age of Reckoning™ is one of the most highly anticipated games of 2008 • The deal, which could reap GigaMedia hundreds-ofmillions of dollars revenue, demonstrates the global reach and popularity of online role-playing games
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YS DA LY 5 2 n 72 O $ S U
Business Law Asia 2008 Asia’s number one legal event 19 & 20 jUNE 2008
hILTON hOTEL, sINGAPORE
Asia’s most respected monthly legal magazine Asian Legal Business (ALB) - is proud to present Business Law Asia 2008 on 19 & 20 June 2008 in Singapore. This special two day legal event brings together leading private practice lawyers and inhouse legal counsel from Singapore and around the region. Business Law Asia 2008 will address the key topical issues facing legal practitioners today via a series of focused practice area workshops, plenary sessions and interactive panel discussions.
GREAT REASONS TO ATTEND:
pIn-depth workshops focusing on the latest legal issues presented by top law firms pOpportunities to network and meet leading legal experts and colleagues pInteractive panel discussions and debates by some of Asia’s most distinguished legal speakers FOCUSED PRACTICE AREA WORKSHOPS INCLUDE: Managing IP in a Digital World
Legal Protection, Privileges and Immunities for In-house Counsel
Sheena Jacob Partner and Head (Intellectual Property & Technology)
Alban Tay Mahtani & de Silva
Herman Jeremiah
Managing Partner
Partner
Lovells
Rodyk & Davidson LPP
Fair Competition Law & Policies in Emerging Markets
Lim Chong Kin Director and Co-Head (Competition Practice)
Drew & Napier LLC Employment Law: Reforms across Asia
Alex Wong Of Counsel
Lawrence Teh
Lovells
Partner
Rodyk & Davidson LPP Developments in International Arbitration: Asia’s Perspective
Paul Wong
George Cooper Practice Leader, Workplace Law & Advisory - Asia
Justyn Jagger
Partner
Partner
Freehills
Rodyk & Davidson LPP
Insolvency & Debt Restructuring in Asia
Latest Developments in Corporate Governance
Patrick Ang
DLA Piper Singapore
Tan Chong Huat
Partner
The Legal Framework behind Mergers & Aquisitions
Karen Wee
Managing Partner
Rajah & Tann
Assessing and Managing Risk in Project Financing
James Harris
Partner
WongPartnership
KhattarWong
For further information and registration, please contact Christopher, christopher@keymedia.com.sg or tel: (65) 6423 4631, fax: (65) 6423 4632 For Sponsorship opportunities, please contact Evelyn or Lilian, evelyn@keymedia.com.sg or lilian@keymedia.com.sg or tel: (65) 6423 4631, fax: (65) 64234 632 ALB enjoys alliances with the following organisations
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Indian Corporate Counsel Association
www.asianlegalonline.com/icca
Shanghai Inhouse Counsel Forum
ALB is a sponsor of the International Bar Association Annual Conference Buenos Aires 2008 www.ibanet.org
Corporate Lawyers Association of New Zealand
www.beijinginhouse.com
Presenters Australasian Professional Services Marketing Association www.apsma.com.au Inter-Pacific Bar Association Corporate Counsel Forum www.ipba.org
ALB is the Asia-Pacific Legal Media Partner of the IPBA Annual Conference Los Angeles 2008
Official Media Partner
ALB ASIAN LEGAL BUSINESS
Another event organised by
news >>
asian legal business ISSUE 8.3
ANALYSIS
Firms put trust in competition practices After more than a decade of debate and consultation, China’s Anti-Monopoly Law (AML) will come into force on 1 August 2008. The new era of unified antitrust and competition policy in the PRC sees law firms gearing up for growth in this practice area as clients attempt to steer through the changes. Jonathan Gadir reports
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awyers giving antitrust and competition advice in China are facing a period of uncertainty as they wait for regulations that will flesh out the upcoming AML and the establishment of the agencies that will enforce it. “What we’re lacking is the detail in the implementing of rules. That’s the biggest difficulty that we have at the moment in terms of being able to give detailed answers,” said Andrew McGinty, partner at Lovells in Shanghai, who has handled most AML preparation for the firm. Although the legislation is broadly in line with the EU competition regime, the front page of Lovells’ recent AML corporate bulletin reveals some of the worries surrounding the new law. It displays a mischievous cartoon of a Monopoly board
where state-owned enterprises (SOEs) are cheering, while another square on the board reads: “Report competitor – advance to free parking.” The cartoon is referring to the law’s various exemptions for SOEs, and the requirement that an investigation must be made into any written complaint, without there being penalties for those who make a false report. The sensitivity of antitrust issues means lawyers are generally reticent to talk specifics about current or recent work. But initial uncertainty has not held back some firms from moving assertively to meet the growth in demand. Alex Potter, antitrust practice partner with Freshfields Bruckhaus Deringer, is a new arrival in Beijing. His second-
ment from London is the latest step by the firm to increase its focus on antitrust in China. “We had a team here which started working on the merger control provisions which came into force a few years ago, and they’ve been very busy,” said Potter. “So we thought now was the right time to send a practitioner from a jurisdiction where antitrust enforcement is a highly developed area, to be here for a transitional period. Clients are looking at August and thinking, ‘Up to now we haven’t had to comply with similar rules as exist in other parts of the world.’ So there’s a surge of interest in training for legal staff and business staff.” For Lovells, the AML has transformed what was an ancillary activity for the firm into a distinct practice area.
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news in brief
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Asia
Hiring up, but so is staff turnover and salaries
Andrew McGinty, Lovells
Lui Chun Fai, Baker & McKenzie
The firm already has a specialist associate in China and is now seconding senior competition lawyer Kirstie Nicholson from the Brussels office. “It’s a serious ramp-up because we’re seeing a huge increase in demand for this kind of advice,” said McGinty. “We see the period prior to the AML coming into force as a window of opportunity where companies can come to us and we can retool their businesses.” When it comes to local firms, PRC legal powerhouse King & Wood now has five practitioners in the area and is planning to add to that number, according to Susan Ning, partner with the firm in Beijing. Ning said established business practices may become illegal after August and clients are asking for compliance reviews. “Our existing clients are coming to us and we’re also targeting [other] companies.” More cautious approaches are also to be found, especially from larger firms which are already well covered and active in the M&A field in China. Clifford Chance added a dedicated antitrust lawyer to its Beijing office in 2007 and says it may consider hiring a permanent senior associate or partner depending on the release of the AML’s implementing rules and how business develops over the next six months. Similarly, Linklaters’ partner in Beijing, Thomas Ng, says his firm is watching to see how much extra work will flow from the introduction of the AML. “There will be growth. The question is how big the growth is going to be and how quickly it will come about,” said Ng. “We’re considering all possibilities, including two-way secondments [Brussels to China and vice-versa]. There will be a role for foreign law firms, but exactly how big that role is remains to be seen.” Campbell Davidson, partner with Allens Arthur Robinson in Shanghai
Thomas Ng, Linklaters
– who wrote the firm’s summary note on the AML – also agrees work will grow, but says he does not believe antitrust will be a standalone practice area in most firms for at least a couple of years.
Changing the work balance The consensus is that the AML is expected to change the nature of the legal workload. Until now, work in the area has been largely in the context of M&A transactions. However, under the new law, price fixing and issues surrounding abuse of dominant market position are likely to emerge as key concerns requiring free standing compliance advice. Indeed, the AML comes at a time when the PRC government is increasingly worried about inflation and the potential for social unrest it entails. Pricing could therefore be an area of focus for the regulators, according to Lui Chun Fai, Shanghai-based associate with Baker & McKenzie’s global competition practice. Lui therefore expects that initially much work will involve carrying out compliance audits. As for what will happen after the dust has settled from the initial flurry of compliance reviews, many in the field believe it may take some time for antitrust work in China to become comparable to other major legal markets. “I suspect it’s not really the Chinese way to go straight for litigation in the same way that perhaps some other competition regulators in western jurisdictions might be inclined to,” said Allens’ Davidson. “Pressure will be brought to bear, but it may not necessarily be litigation – certainly not in the first instance.” Nonetheless, the AML will deliver new agencies with new powers and will have a significant impact on all aspects of doing business. Companies will need to start applying the same disciplines they do in western markets to China. ALB
Hiring expectations in the legal sector in Asia are increasing rapidly, though employers are also facing rising pressure on salaries and high turnover, according to the latest Hudson Report for 2008. Sixty five per cent of respondents from the legal sector in Hong Kong are planning to increase their hiring in the first quarter of 2008. However, the legal sector in Hong Kong also reports the steepest rise in turnover, with 41% of legal employers experiencing a turnover of more than 10%, up from 30% a year earlier.
Mid-market M&A proves popular Acquisitions made by Asia-Pacific (excluding Japan and Australia) companies in the mid-market sector (below US$500m) experienced greater growth than acquisitions above US$500m and overall Asia acquisitions in 2007. These acquisitions amounted to US$136.2bn in 2007, increasing 73.4% from 2006. This growth is out in front of the 60% growth in Asia acquisitions above US$500m (valued at US$341.9bn) and in the overall Asia M&A market which rose by 65.1%. In 2007, Thompson Financial figures showed that Asia mid-market acquisitions made up roughly 40% of total Asia acquisitions.
OffshoRE
KhattarWong launches Beijing scholarship Singapore’s KhattarWong has created the KhattarWong-Peking University Law Scholarship Fund. The first legal scholarship and internship program between a Singapore law firm and a Chinese university comes with a bonus – undergraduates participating in the scholarship program need not serve bond with KhattarWong. The scholarship fund will support 20 Chinese students over the next five years. One fellowship per year, shared between two students, will be given out over this period and is valued at S$20,000. The firm has also set up an internship program valued at S$130,000 over the same period.
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news >> The UK report Sidley Austin’s UK revenue rise Sidley Austin’s UK revenue recently surpassed the £60m mark – a 12.4% increase in turnover for the London office – from £55.03m at the end of 2006 up to £61.87m at the end of 2007. The Chicago-based firm grew its London revenue on the back of its capital markets and corporate teams, as well as the firm’s new insurance group, which launched in the capital in May 2006 with the hire of DLA Piper’s former insurance restructuring and insolvency partner Nigel Montgomery. Promotions all round for DLA Piper DLA Piper’s London office recently topped its 2007 partner promotion number, with a total of 12 partners being made up in the City this January compared to last year’s 10. Regional UK also fared well in the latest list of promotions with Manchester receiving six new partners, the second highest number worldwide. Leeds and Sheffield have gained one new partner apiece. Magic Circle top of their game on debt deals According to Thomson Financial’s capital markets survey for 2007, Magic Circle firms beat US rivals in last year’s debt capital markets. Allen & Overy, Linklaters and Clifford Chance topped the ranks in first, second and third places with 651 and 512 deals in the DCM category respectively, and Clifford Chance gaining its spot with 278 transactions over the year. US firm Sidley Austin and German firm Hengeler Mueller ranked fourth and fifth with 127 and 194 deals respectively. The tables were turned when it came to issuer debt rankings, with US firms surpassing the Magic Circle by taking a market share of 5.4% with 318 deals. Slaughter and May selects new senior partner Management at Slaughter and May will experience a minor shakeup come April, when Chris Saul is due to take over as senior partner at the Magic Circle firm, replacing Tim Clark. Saul – Slaughter’s former head of corporate – was elected following a two-month process, and is only the first appointment in a series of management elections which will take place at the firm this year. Current practice partner David Frank is retiring this year, leaving his role up for grabs. Roundup Freshfields corporate head Tim Jones recently revealed that the firm has plans to relocate London lawyers in the near future. Destinations high on the list are Dubai and Moscow. Andrew Clark stepped down as head of global litigation at Allen & Overy to take up the position of general counsel at the Magic Circle firm as part of a management reshuffle earlier this year. The arrival of energy partner Jonathan Martin from Watson Farley & Williams and Peter Bowring, a cross-border project and acquisition finance specialist, boosts the headcount at Atlantabased King & Spalding’s London office to 27. Clifford Chance will soon follow in the footsteps of rivals Allen & Overy and Freshfields by boosting its Middle East presence with the launch of an office in Abu Dhabi.
asian legal business ISSUE 8.3
Singapore
Singapore legal sector reform plan on target
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hree committees have now been formed by the Singapore government to work through the details of the reform to the jurisdiction’s legal services sector, after recommendations for change were accepted in principle by the government in December last year. A Legal Education Committee, a Liberalisation Committee and a Legal Profession Committee are all set to examine aspects of the proposed liberalisation. The qualifying foreign law firm (QFLF) scheme, which will see five foreign law firms granted the right to practise Singapore law after a licence application process, is expected to be implemented within 12 months. Both the enhanced joint law venture (EJLV) scheme and QFLF scheme will be reviewed 18 to 24 months thereafter, with a view to fine-tuning the schemes before liberalising the legal services sector further. “We expect to amend the Legal Profession Act to effect some of these changes in the second half of this year,” a spokesperson from the Ministry of Law told ALB. “Our timeline for the implementation of the EJLV and QFLF schemes remains on target. We’ll provide updates when we’re ready to announce the details of implementation.” ALB
India
FoxMandal Little welcomed to London
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ndia’s largest law firm, FoxMandal Little, has been welcomed in London, after opening the first Indian commercial law firm office in the UK capital. The Law Society of England hosted a ‘welcome to London’ reception for the firm. Bridget Prentice, MP and Parliamentary Under Secretary of State, Ministry of Justice, was the special guest for the evening. FoxMandal is targeting UK, US and other multinationals in the European Union, and aims to provide them with real-time advice on the Indian law requirements of their investments into India. The firm will also assist Indian companies to set up in the UK, US and other EU countries, and work jointly with local law firms on these matters. FoxMandal Little managing partner Som Mandal is to head the practice in London, with partner Vineet Aneja and senior associates Anurag Sharma and Prem Sharma to rotate through the office as required. The firm has also retained partner Ajit Mishra, a UK-qualified lawyer who will be based permanently in London and practise only Indian law. “The purpose of the office is really to get close to our clients,” Vineet Aneja told ALB. “With the time difference, clients are sometimes unable to get advice on an Vineet Aneja, urgent basis, and this allows access to FoxMandal Little real advice in real time,” he said. ALB
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Europe
Asia sees first Eurojuris member
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ingapore law firm Tan Peng Chin has become Asia’s first member of Eurojuris International, a network of law firms covering 610 cities in over 30 countries. As well as law firms from the European Union’s 27 member countries, the Europe-focused network also cooperates with firms in Argentina, Brazil, Ecuador, Israel, Mexico, Serbia and Montenegro, Turkey, Ukraine and the US. Tan Peng Chin said in a statement that it joined the network in order to offer clients better international coverage in a world increasingly without borders. ALB
india
Amarchand Mangaldas loses Barucha duo
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eading Indian law firm Amarchand & Mangaldas & Suresh A Shroff & Co has lost two of its key equity partners, husband- and-wife pair MP and Alka Barucha, who have led a team of 13 lawyers out the door to start up a competing firm in Mumbai. Reports put the defecting partners’ share of equity at around 15%. The departure of the star couple leaves the remaining equity of the 375-lawyer firm in the hands of just four members of the Shroff family. MP Barucha is renowned for litigation and arbitration work, while Alka Barucha specialises in corporate and commercial advice. ALB
South Korea
Yulchon signs IP alliance
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outh Korea’s Yulchon has formed a strategic alliance with domestic patent law firm YP Lee, Mock & Partners, as it seeks to build on its IP capabilities. Yulchon’s IP practice has experienced success in complex litigation and other dispute resolution arenas in recent years. The alliance aims to build the practice by adding corporate patent strength through the partnership with Y P Lee, Mock & Partners. A statement from Yulchon said: “Clients will continue to receive the highest quality intellectual property legal services along with the broader scope and the additional resources that Lee, Mock patent law firm brings.” ALB
The US report US firms reveal recordbreaking revenues The two largest US firms Latham & Watkins and Skadden Arps are currently head-to-head in a revenue showdown, following recordbreaking 2007 figures from both firms. Both generated total revenue for last year in excess of US$2bn, becoming the first US firms ever to do so. Other US firms following in their footsteps include New York firm White & Case, which overtook Jones Day with a revenue rise of 15.9% to US$1.37bn last year, and equity per partner figure increasing by 11.3% to US$1.67m; and Baker & McKenzie, which enjoyed a revenue figure of US$1.52bn in 2007. Jones Day’s revenue on the other hand stood still at US$1.3bn, and Cadwalader revealed that although total revenue rose 5.5% to US$587m, net profit dropped 6% from US$220.5m, making it the only US firm so far to report a decrease in bottom line figures.
Cadwalader cuts 35 Cadwalader, Wickersham & Taft made 35 lawyers across its US offices redundant last month, declaring “unexpected and persistent volatility” in sectors of the financial markets affecting capital markets, clients and certain practice groups within the firm the reason for the layoffs. Cadwalader is not the first firm to resort to redundancy in the wake of last year’s credit crunch. Late last year, Wall Street firm Thacher Proffitt & Wood warned 50 of its associates they faced redundancy, while Clifford Chance laid off six lawyers in its structured finance group in New York.
Roundup Recently merged mid-west firm Husch Blackwell Sanders will open an office in Chicago in the first quarter of this year, with plans to expand existing relationships with clients in banking, insurance and other industries. The 630-attorney firm expects to have a small group of attorneys in Chicago at first, including lateral hires and existing firm lawyers, and hopes to increase the head count to about 20 lawyers within two years. Cadwalader, Wickersham & Taft scooped Latham & Watkins global head of private equity, Ronald Hopkinson in early February in a spectacular raid on the firm’s New York office. US firm Howrey opened an office in Pune, western India, in February – becoming the first major US firm with a clienthandling office in the country. The Pune base currently houses 15 staff, who handle document management in litigation, IP and arbitration matters, but do not practise, due to laws that prohibit foreign law firms from practising in India. The firm hopes to hire recent graduates from Indian universities and top Indian students out of US colleges and graduate programs to train at the firm’s Virginia facility. New York-based Curtis, Mallet-Prevost, Colt & Mosle opened an office in Kazakhstan. It will concentrate on international transactions and arbitration relating to Kazakhstan and the region. It will be headed by Askar Moukhitdinov.
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news >>
asian legal business ISSUE 8.3
China
IP UPDATE
Skadden steps into Shanghai
Acceptance of Protocol amending the TRIPS Agreement
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ingapore had announced in September 2007 that she would accept the Protocol amending the agreement on trade-related aspects of intellectual property rights (TRIPS). As such, amendments to the Singapore Patents Act have been proposed by the Intellectual Property Office of Singapore (IPOS) to give effect to the Protocol. The proposed amendments to the Patents Act in Singapore are directed towards using the Protocol as an eligible importing Member. In particular, the proposal allows the Government of Singapore to use the Protocol as an importer of pharmaceutical products as defined in the Protocol in situations such as national emergencies or other circumstances of extreme urgency, provided notice is given to the Council for TRIPS. The right to use such imported products, however, does not include a right to export. Section 56(1) of the Singapore Patents Act already allows the Government of Singapore to use a patented invention without the consent of the patent owner for a public non-commercial purpose or for a national emergency or other circumstance of extreme urgency. However, should the Government of Singapore intend to import pharmaceutical products as defined in the Protocol, the proposed amendment would require the Government to notify the Council for TRIPS of, inter alia, the names and expected quantities of the product(s) required, confirmation that Singapore has insufficient or lacks the manufacturing capacity for the product(s) in question and, confirmation that where a pharmaceutical product is patented in Singapore, the Government has granted or intends to exercise its right to a compulsory licence. The Government of Singapore will be required to pay the patentee the necessary remuneration as may be agreed upon, or as may be determined by a method agreed upon, between the Government and the patentee having regard to the economic value of the patent invention. However, such remuneration would not apply if the patentee has already received remuneration in respect of the products imported. The proposed amendments when finalised are scheduled to be submitted to Parliament later this year.
Edmund Kok Patent Attorney Intellectual Property and Technology Group Alban Tay Mahtani & de Silva LLP Phone +65 6534 5266 Email: EdmundKok@atmdlaw.com.sg
kadden, Arps, Slate, Meagher & Flom has opened its second Mainland China office in Shanghai, adding to a longestablished Beijing presence that commenced in 1991. The Shanghai office, set up to focus on the practice areas of M&A, corporate finance and real estate, will be headed by Skadden corporate partner Gregory Miao. Miao is the current head of the firm’s China practice, and previously divided his time between Hong Kong and Beijing. He has represented clients in China-related transactions since 1985, and speaks fluent Mandarin and Shanghainese. Miao will be supported by real estate partner Ed Sheremeta, who will relocate from the firm’s Tokyo office during the second quarter of the year. The move brings Skadden’s office total in the Asia-Pacific region to six. In Greater China, the firm has a presence in Hong Kong in addition to Beijing and Shanghai, with its other regional offices being located in Tokyo, Singapore and Sydney. ALB Gregory Miao, Skadden
india
Howrey says howdy to India
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S law firm Howrey has opened a client-handling office in India’s growing industrial and IT centre Pune, to handle document management tasks for clients at low cost. The office will handle litigation, IP and arbitration-related document management, and will not practise law – still off-limits to foreign firms in India. Clients will be given a choice of having their documentation work done in India, to take advantage of the lower cost base, or having it completed by staff in the firm’s US offices. The office will be staffed with graduates from Indian universities and top Indian students out of the US, and will start with around 15 members in total. Howrey is a 600-lawyer firm that focuses on litigation, arbitration and antitrust and IP work. ALB
Edmund Kok, ATMD
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Financial UPDATE Protect your most valuable assets
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ften the loss of a valued Partner, Director or Employee can be disastrous to a business. Although most businesses insure their ‘property’, many overlook their most valuable assets – their people!
What is Keyman Assurance?
Singapore
Allen & Gledhill makes pro bono promise
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ingapore’s largest law firm, Allen & Gledhill, has launched a formal pro bono program in the jurisdiction, as it seeks to give back to the local community. The program aims to leverage the firm’s expertise and resources, and commit them in a structured way to various charities and causes in Singapore. “We would like to give back to the community, and having a structured and formal pro bono program ensures this will be a sustained effort,” Allen & Gledhill managing partner Lucien Wong said. Lucien Wong, The firm has implemented several chariAllen & Gledhill table and corporate social responsibility initiatives in the past, including donation, sponsorship, fund-raising and volunteer programs, as well as undertaking legal matters on a pro bono basis. ALB
Vietnam
KhattarWong granted licence to practise in Vietnam
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ingapore law firm KhattarWong has obtained a licence to operate a law firm in Vietnam, giving it immediate permission to establish itself as a foreign law firm in the jurisdiction and issue Vietnamese legal advice signed off by its own Vietnamese lawyers. The granting of the Vietnam licence follows a cooperation agreement entered into with Vietnamese law f irm PBC Tan Chong Huat, Partners in September 2007 with a view KhattarWong to a joint venture. “We’re very excited about our new practice and look forward to carving out a niche for our Vietnamese practice,” said Tan Chong Huat, managing partner of KhattarWong. The licence approval process was reportedly the fastest of any foreign firm in Vietnam to date, taking less than a month in the December to January new year period. ALB
Very simply, it is an insurance policy effected by a business on the life of a key person whose death or long term critical illness would cause the business to suffer financial loss.
Who is a keyman? Working Partners, Employees or Directors who may also be shareholders in a business will usually be keymen. The financial loss suffered as a result of their death or critical illness could be substantial.
Why is keyman cover needed? Loss to a business arising from the death or permanent disability of a keyman can arise for one of several reasons:• decline in turnover, profitability or goodwill. • the cost of recruiting and possibly training of a suitable replacement. • investment and expansion plans may have to be rescheduled or abandoned. • labour relations may be prejudiced. • liabilities to the family of the deceased keyman may arise; this will be particularly relevant if the deceased was also a director with an outstanding loan account. If any of the above losses are likely to occur on the death or critical illness of a key person, then suitable life assurance and/or critical illness cover should be effected.
What level of cover is required? The necessary level of cover should be determined by assessing the potential financial loss to the business on the death or critical illness of the keyman.
Which policy? Once the level of cover has been decided, the next consideration is which type of policy should be effected. There are many different types of policy which can be used to provide keyman cover. The decision process will include the following questions:• is there a need for both life assurance and critical illness cover? • how long will the cover be required? • how much will the different policies cost? • can the premiums and level of cover be varied to meet changes in the company’s circumstances? The answer to these questions will help the business (and its financial adviser) to select the required type of policy. It is essential that independent advice is taken. Horwath Financial Services would be pleased to assess your requirements and recommend appropriate policies. For further information please contact: David R. Bojan Managing Director Horwath Financial Services Ltd. Tel: (852) 2511 8337 Fax: (852) 2802 7613 Email: drb@hfs.com.hk
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asian legal business ISSUE 8.3
International Tax update
Insight
OECD - Mutual Administrative Assistance in Tax Matters
Oh-Ebashi and the great ALB takes a closer look at the somewhat enigmatic Osaka firm, Oh-Ebashi, the first Japanese firm to open an office in China
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he UK is close to ratifying the Council of Europe CoE/ OECD Convention on Mutual Administrative Assistance in Tax Matters. This allows for cross-border exchange of tax information, cross-border service of documents in tax matters and obliges countries to collect tax on behalf of each other. The UK signed the Treaty on 24 May 2007 and was the 15th country to do so, the others being Azerbaijan, Belgium, Canada, Denmark, Finland, France, Iceland, Italy, the Netherlands, Norway, Poland, Sweden, Ukraine and the United States. The UK Statutory Instrument giving effect to the Treaty is SI 2007/2126. The SI was considered by the UK Parliament Delegated Legislation Committee on 10 July 2007. Some of the main safeguards that have been mentioned by Government Ministers during the Parliamentary debates are: • Taxpayer information will only be supplied to another state when HMRC are satisfied that it will be kept confidential to the same extent as it would be in the UK. • Taxpayer information will not be provided where doing so would endanger the human rights of an individual. • The requesting state must have gone through all necessary legal processes to prove that the tax debt exists before the UK will assist in recovery. • The request for information or assistance must be in relation to a tax that is comparable with UK tax, otherwise the UK will not enforce it. • Compliance will not be made with requests for information or assistance from other states which are contrary to generally accepted taxation principles. • Compliance will not be made with requests for information or assistance where HMRC feels that the costs would be disproportionate.
OEDC consultation on tax treaty treatment of services The OECD Discussion Draft proposed an extension of the taxing rights of some countries (source based countries) in respect of services provided in those countries by non resident service providers when the level of provision does not constitute a permanent establishment in the country, by reference to the current definition of permanent establishment. Many tax advisers are opposed to such a suggestion as they believe the proposal should be based on the concept of permanent establishment which is well understood. Debbie Annells, Managing Director, AzureTax Ltd, Chartered Tax Advisers Suite 4708, The Center, 99 Queen’s Road, Central, Hong Kong www.azuretax.com, a member of AzureTax Group (Tel) +852 2123 9339 (direct line), (Main Line) +852 2123 9370, (Fax) +852 2122 9209 Registered with the Chartered Institute of Taxation for purposes of anti money laundering legislation.
Debbie Annell
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t is in a 27-year-old office building in the Dojima area of downtown Osaka that Oh-Ebashi quietly goes about its business. The flash and polish of the big Tokyo firms is conspicuous by its absence. Oh-Ebashi is low-profile, and conservative, almost to a fault. The quietly spoken Michiko Kanai, a partner with the firm, explains. “We’re a mid-sized firm. We know we don’t act on the same scale as the big Tokyo firms. However, we want to differentiate ourselves with quality of service and personal attention. We want to provide our clients with the best service.” And therein perhaps lies the secret of Oh-Ebashi’s success. For whereas the uninformed foreigner may view the Japanese market as a single proposition, the reality is that Kanto (Tokyo environs) and Kansai (Osaka environs) are significant and, in various respects, separate markets in their own right. History has much to do with it. So do regional accents and even personality types, according to some. Kanto people are aloof and feel superior, say Kansai people; Kansai, or at least Osaka, people are down-to-earth, humorous and charismatic, say Kanto people. On some level, at least, each prefers to deal with his or her own people. For Oh-Ebashi, that means servicing their local clients – the huge manufacturers of the Osaka-Kyoto-Kobe conurbation, the local governments and courts, and even individuals – rather than the financial institutions that are the mainstays of the Big Four Tokyo-based Japanese firms. Kanai names general corporate work – including M&As and reorganisations – as her firm’s biggest single practice area, with attendant work in litigation, intellectual property, taxation, financial services and anti-trust.
Kanto • Literally means ‘east of the barrier’ • Covers seven prefectures: Gunma, Tochigi, Ibaraki, Saitama, Tokyo, Chiba, Kanagawa • Heartland of feudal power during Kamakura period (12th–14th centuries) and Edo period (17th–19th centuries) • Population approx 40 million
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Kanto-Kansai divide
Cross border Structuring UPDATE Singapore Government holds back its cards in 2008 Budget
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ingapore announced its annual budget on Friday, February 15 after recording a surplus of SGD6.4 billion and an economic growth rate of 7.7% for 2007. Given that the 2007 inflation rate was 4.4% in December, there was widespread expectation of tax relief for individuals with a reduction of the tax rates from 20%. Overall, the Budget adopted a longer term perspective by enhancing existing tax incentives for the financial and maritime sectors as well as expanding tax concessions for Small and Medium Sized Enterprises and Start-Up businesses. The immediate concerns of inflation were addressed by allowing a tax rebate of up to SGD2,000 for the year of assessment 2008 as well as a variety of subsidies in the areas of education, health and for the less well-to-do.
The Oh-Ebashi way is to allow lawyers to enjoy better lives; have pride in providing high quality service; to give associates variety and discretion in the work they do; to do pro bono work, to act for society rather than just profit. “We try to maximise our position, balancing the size and quality,” says Kanai. Of course, given that Tokyo and Osaka are only two hours or so apart by half-hourly shinkansen, the split market only goes so far. Japan bar rules force firms to incorporate before they can open an office in a second city; and while Tokyo firms, inundated with work, value the advantages of partnerships more highly than having greater national reach, for large Osaka firms incorporation was the better option. Oh-Ebashi has a growing and busy Tokyo office (established in September 2002), staffed with 20 lawyers servicing the Tokyo operations of Kansai clients as well as Tokyo-based clients. And Oh-Ebashi is by no means parochial in its outlook. In 1995, it was the first Japanese firm, and one of the first international firms, to open an office in China. That office grew quickly, helping Kansai manufacturing clients in their quest for cheap land and labour in China, and it also won Kanto clients by the backdoor route. The office has a strong connection with leading Chinese firms, and hopes to pick up more Japan-bound Chinese clients as the northeast Asia balance of economic power swings. Currently, it employs five lawyers in China. So, for the time being, the lawyers and staff of Oh-Ebashi are quite happy. And if you are not too impressed with the 27year-old office building in Osaka, you are free to go back on the shinkansen to Tokyo. ALB
Kansai • Literally means ‘west of the barrier’ • Covers seven prefectures: Hyogo, Kyoto, Osaka, Nara, Wakayama, Mie and Shiga • Nara became first permanent capital, in the 8th century • Population approx 24 million
Financial Sector The present tax exemptions for income derived by non-residents from qualifying debt securities (including Islamic instruments) and the concessionary tax regime for participants in the Financial Sector has been extended for another five years until 31 December 2013. The Financial Sector Incentive (FSI) scheme provides for concessionary tax rates of 5% or 10% for income derived by Singapore fund managers, dealers in qualifying derivatives and debt securities, credit facility syndicators as well as financial service headquarters. In addition, the FSI scheme is now extended to cover businesses performing Shariah compliant activities.
Wealth Management The most notable Budget announcement is directed to the burgeoning wealth management area and abolishes the Estate Duty regime as well as expanding the tax exemption of foreign sourced income derived by family investment companies. Estate duty has long been a planning issue for Singapore domiciliaries and for non-residents with Singapore real property. This has led to complicated arrangements for estate management and wealth transition. The unconditional tax exemption for all foreign sourced income derived by Singapore individuals is to be extended to family owned investment companies. Presently, the scope of tax exemption for such income derived by companies is limited to dividends, branch profits and service income subjected to tax at 15% outside Singapore. The broadening of the scope of exemption for foreign income for family companies will enhance the appeal of such vehicles by permitting the involvement of family members in different capacities whilst limiting their liabilities. The conditions for a qualifying company will be released in May 2008. David Stone Director - Marketing and Product Development, Asia Amicorp Singapore Pte Ltd 55 Market Street, #09-02 Singapore 048941 Tel +65 6532 2902 Email: d.stone@amicorp.com
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asian legal business ISSUE 8.3
Further West, the firm has also recruited commercial property specialist Christian Taylor, who has joined the firm’s partnership in Dubai.
APPOINTMENTS INDUSTRY MOVES Name
Leaving
Going to
Role
Location
Matthias Schemuth
White & Case
Ashurst
Partner (project finance)
Tokyo
Ai-Leen Lim
Colin Ng & Partners
Bird & Bird
IP portfolio management practice head
Hong Kong, Beijing
Brian Gilchrist
Mayer Brown JSM
Clifford Chance
Partner (litigation/ disputes)
Hong Kong
Bruce Ewen
Maritime Claims and Services
Clyde & Co
Master Mariner
Singapore
Ronel Snyman
Clyde & Co
Singapore
Jai Pathak
Jones Day
Gibson, Dunn & Crutcher
Partner (corporate)
Los Angeles
Mamoru Toba
Japanese Ministry of Finance
Nagashima Ohno & Tsunematsu
Special counsel (taxation)
Tokyo
Tomoyuki Yokota
Supreme Public Prosecutors Office
Nagashima Ohno & Tsunematsu
Adviser
Tokyo
Name
Firm
Leaving
Going to
Title
Thomas Miller
Allens Arthur Robinson
Bangkok
Ho Chi Minh
Partner
David Hinchey
Allens Arthur Robinson
Sydney
Ho Chi Minh
Senior associate
Paul Aston
Holman Fenwick & Willan
Singapore
Shanghai
Managing partner, Shanghai
Matthew Hibbins
Minter Ellison
Melbourne
Hong Kong
Partner
RELOCATIONS
Allens Arthur Robinson
Allens boosts Vietnam finance team Allens Arthur Robinson has relocated two experienced finance lawyers to the firm’s Ho Chi Minh office as it continues its aggressive Vietnam growth push. Project finance Thomas Miller partner Thomas Miller and senior associate David Hinchey have shifted from the Bangkok and Sydney offices respectively in preparation for an expected growth in finance work in Asia, particularly Vietnam, over the next 12 months. Miller has worked out of Allens’ Thailand joint venture office with Siam Premier for 10 years, with work spanning Australia, China, Indonesia, Laos, Papua New Guinea and Thailand. He was recently involved in the Pan Australian mine financing in Laos. Hinchey has broad experience across a range of areas of practice relevant to banking and financial services, including commercial lending, consumer lending and asset financing. Allens’ head of the project finance Phillip Cornwell said Vietnam’s admission to the World Trade Organization (WTO) in 2006
has escalated foreign investor interest in the jurisdiction. In 2007, foreign direct investment commitments for new and existing projects reached US$20.3bn, up from US$12bn in 2006. As a result, commercial law firms in Vietnam have recently been inundated with work, and have found it difficult to recruit mid-level to senior lawyers to cope with the influx. Holman Fenwick & Willian
Holman Fenwick shuffles legal talent Holman Fenwick & Willan has moved Singapore partner Paul Aston up to Shanghai to take on the role of head of office in the budding Mainland Chinese financial hub. Aston headed the firm’s Singapore office for many years before returning to London in 2000. After a four-and-a-half year spell there, he returned to Singapore. Aston has an extensive maritime, offshore and commodity practice across the AsiaPacific region, and has been charged with spearheading growth for the firm in China. In addition, Shanghai-based consultant to the firm, Peter Rees Smith, who formerly headed the firm’s Hong Kong office before retiring in 2003, has decided to reduce his role from a full-time commitment to a part-time role.
various
Clyde & Co
Clyde & Co hooks two maritime masters Clyde & Co has made two key maritime appointments to its Southeast Asia marine group in Singapore, as it seeks to strengthen its regional marine capabilities. Maritime veteran Captain Bruce Ewen has joined the firm as a Master Mariner, leaving his former role with Maritime Claims and Services. He has broad marine casualties experience, having worked for BW Shipping, Mobil Oil and other major shipowners. Ronel Snyman also recently joined the firm in Singapore. Ronel qualified as a lawyer in 2001, and has four years’ inhouse experience as a legal manager for a major shipping group in Europe, dealing with all legal aspects of shipowning, management and operations. JSM
Clifford Chance
Gilchrist leaves JSM for Clifford Chance Leading Hong Kong litigator Brian Gilchrist will join Clifford Chance in May, leaving Mayer Brown JSM after more than a decade with the Hong Kong law firm. News of Gilchrist’s departure comes only a month after Mayer Brown JSM was formed through the merger of Johnson Stokes & Master (JSM) and global firm Mayer Brown. Clifford Chance has four litigation partners based in Hong Kong, including high profile practitioner Martin Rogers, and 40 litigation lawyers working across Asia. “Brian’s courtroom and advisory record in Hong Kong speaks for itself, and he brings with him a wealth of contacts in, and a deep understanding of, the city’s corporate and commercial world,” Martin Rogers said. Gilchrist will add another element to Clifford Chance’s litigation team in Hong Kong, particularly in the area of tax-related disputes, on which he is an expert. Colin Ng & Partners
Bird & Bird
Bird & Bird recruits IP star from Colin Ng & Partners Singapore law firm Colin Ng & Partners has lost the co-head of its regional IP group, Ai-Leen Lim, to Bird & Bird, which
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has brought Lim on board in Hong Kong as a partner. Lim was the chief representative of Colin Ng & Partners’ Beijing office and the resident partner of its Hong Kong office. Her Ai-Leen Lim new role at Bird & Bird will see her head the firm’s IP portfolio management practice in Asia out of both Hong Kong and Beijing. Lim was previously an assistant registrar of trademarks and patents at the Intellectual Property Office of Singapore and has advised during her career on all aspects of contentious and noncontentious intellectual property work. Jones Day
Gibson Dunn
Gibson Dunn takes on Asia M&A partner in LA Gibson, Dunn & Crutcher has recruited Jones Day partner Jai Pathak in Los Angeles in an effort to build on its growing international presence, including in the Asian region. Pathak’s corporate law practice has a particular focus on
Asia, and he has experience working on transactions in Southeast Asia and India, as well as in other global regions. The firm recently opened an office in Dubai as part of its international strategy. Minter Ellison
Minters shifts lateral hire to Asia Minter Ellison has relocated new corporate partner Matthew Hibbins to its Hong Kong office, after his recent move over from Australian firm Gadens in Melbourne. Hibbins’ experience covers private equity transactions, JVs, capital raisings, M&A, and corporations and securities laws across sectors including financial services, mining & resources, technology, and media & telecommunications. He also has experience in turnaround and corporate insolvency transactions. In the Hong Kong office, he will be a part of Minter Ellison’s Greater China Corporate & Commercial practice. White & Case
Ashurst
Ashurst adds one to Tokyo team Ashurst has poached project finance
partner Matthias Schemuth from the Hong Kong office of White & Case, and appointed him as a partner in the firm’s Tokyo office. Schemuth spent seven years at White & Case, where he was a partner in the Hong Kong energy, infrastructure, project finance and asset finance group. Schemuth is the third partner in Ashurst’s Tokyo-based finance group. Schemuth’s clients include banks, lending agencies and export credit agencies, with a particular focus on the energy, mining and metals sectors. various
Nagashima Ohno
NO&T snares top advisers Nagashima Ohno & Tsunematsu has started 2008 with the appointment of high-level legal advisers in the areas of tax and litigation. The former regional commissioner of the Tokyo Regional Taxation Bureau, Mamoru Toba, has joined the firm as a special counsel, while Tomoyuki Yokota, the former deputy prosecutor-general of the Supreme Public Prosecutors Office, has joined as an adviser.
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Regional updates
>> news >> Each month, ALB draws on its panel of country editors to bring readers up to date with regulatory developments across the region
asian legal business ISSUE 8.3
CHINA
CHINA
Paul Weiss
Philippines
SyCip Salazar Hernandez & Gatmaitan
MALAYSIA
Tay & Partners
SINGAPORE
Loo & Partners
INDIA
Singh & Associates
For more information about ALB regional updates and how to participate, contact Peter Chau (+852 2815 5988)
China Issues Implementing Rules of New Enterprise Income Tax Law The long awaited Implementing Rules of the Enterprise Income Tax Law (the “Rules”) were finally promulgated on December 6, 2007. They are meant to supplement and clarify the Enterprise Income Tax Law (the “ITL”) when the ITL became effective on January 1, 2008. Even though the Rules have successfully explained and expanded on certain aspects of the ITL, there are still many areas that are unclear and need further clarification by the law makers. The Rules provide clearer guidance on certain tax issues that are important to foreign investors under this new unified tax treatment. Ten percent withholding tax now applies to all dividends distributed to its foreign investors by Chinese enterprise with foreign investments. Since Hong Kong, Singapore and Mauritius have entered into arrangements with China reducing the withholding tax rate to 5%, these jurisdictions are now the popular choice for foreign investors to use for their investments into China. The Rules also establish a broad definition for the concept of “establishment” for both non-resident enterprises and resident enterprises. The appointment of any business agent in China to store and deliver goods constitutes an “establishment” of a non-resident enterprise. However, the establishment of a presence in China which has substantial and overall control over an enterprise which is incorporated and registered overseas would render such foreign enterprise taxable within China. The new tax regime continues to encourage investments in high tech areas. The Rules stipulate the criteria of “new and high-tech enterprises” that qualify for the preferential 15% tax rate. These criteria
include independent ownership of “core IP rights” and required percentages of R&D expenditures, R&D personnel and income derived from high-tech products, etc. Furthermore, any investments in private, small or medium-sized new and high-tech enterprises, for longer than two years would entitle an investor to a deduction of 70% of the investment amount from the taxable income of such an enterprise in the third year following the investment. However, the Rules still leave a lot of important questions unanswered. For instance, even though the Rules set forth the criteria for “new and hightech enterprises”, they are silent on the required percentages in order for these enterprises to qualify for the special tax treatment. Towards the end of 2007, the State Council issued a circular detailing the five-year transitional arrangements for those enterprises currently enjoying preferential treatments. This is a good indication that more circulars and guidelines will be issued to supplement and implement the ITL and the Rules. Written by: Jeanette Chan, partner Sue Yang, paralegal Paul, Weiss, Rifkind, Wharton & Garrison For more information please contact: Paul, Weiss Rifkind, Wharton & Garrison Unit 3601, Fortune Plaza Office Tower A No. 7 Dong Sanhuan Zhonglu Chao Yang District, Beijing 100020 PRC Jeanette K. Chan, partner Email: jchan@paulweiss.com Ph: (8621) 5828-6300 or (852) 2536-9933
Jeanette K. Chan
Philippines
Bureau of Internal Revenue Amends Tax Regulations on Securities Borrowing and Lending In an effort to improve existing regulations on securities borrowing and
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lending (“SBL”), the Philippine Bureau of Internal Revenue (“BIR”) issued Revenue Regulation No. 01-2008 on February 1, 2008, amending Sections 2 to 9 and 12(a) of Revenue Regulation No. 10-2006. Both regulations grant conditional tax-free status to SBL transactions, exempting the borrowing and lending of securities and the return or receipt of collateral from taxes paid in connection with the transfer of shares or securities, such as the stock transaction tax, documentary stamp tax and capital gains tax. However, the amended regulations clarified and introduced several changes to the existing regime.
Amendments relating to Collateral In respect of collateral, letters of credit guaranteed by a bank are no longer considered eligible collateral under the new regulations. Aside from cash, government securities and equity securities, standby letters of credit issued by a bank are eligible as collateral for SBL transactions. As regards the return of collateral, the new regulations clarified that the return of the lender or lending agent of the collateral or equivalent stock or securities is not subject to stock transaction tax, capital gains tax and documentary stamp tax. Normally, the failure of the borrower to return the borrowed shares or securities at the end of the borrowing period would give rise to an SBL deemed sale, which is a taxable transaction. The new regulations now allow the securities lender or lending agent to purchase securities through the Philippine Stock Exchange using the collateral of the borrower in the event that the borrower fails to return the securities at the end of the borrowing period. The purchase is subject to the payment of stock transaction tax, and the shares or securities so purchased are considered by the BIR to be equivalent stock or securities. By giving the lender the option to purchase equivalent stock or securities, the regulations imply that the purchase would prevent the transaction from being classified as an SBL deemed sale. This treatment is more equitable to the lender, who may not have contributed in the borrower’s failure to return the borrowed stock or securities, but would otherwise be made liable for taxes on the deemed sale.
Streamlining and Rationalization Efforts Consistent with the regulations issued by
the Securities and Exchange Commission (“SEC”), a natural person is not qualified to enter into an SBL transaction as a lending agent. Only juridical persons that have complied with the registration requirements imposed under SEC Memorandum Circular No. 07-2006 are eligible to act as lending agents. Still in connection with SEC Memorandum Circular No. 07-2006, the new regulations do not consider the return of the stock or securities borrowed to the lender or lending agent as the only means to return the stock or securities. The return of the borrowed shares or securities in accordance with the lender or lending agent’s instructions also qualifies as a return of the stock or securities. In terms of procedure, the pre-clearance and endorsement of all MSLAs by the Philippine Stock Exchange is now a pre-requisite to the registration process imposed by the BIR. In addition, the BIR no longer requires the borrower to register a separate Master Securities Lending Agreement (“MSLA”) for each lender. Three or more parties may enter into multilateral MSLAs instead of separate agreements. Accordingly, the filing fee of 5,000 Philippine pesos per agreement has been adjusted in the case of multilateral MSLAs to 5,000 Philippine pesos per party. Jennifer I. Lim Associate SyCip Salazar Hernandez & Gatmaitan 105 Paseo de Roxas, Makati City 1226 Philippines + 632 817 9811 www.syciplaw.com jilim@syciplaw.com
Malaysia
Securities Commission (SC) introduced new guidelines that were specially designed to make Malaysia a preferred listing destination and to raise the standard of advisory and due diligence conduct by market participants. New guidelines were introduced to liberalise the offer of equity and equity linked securities in the Main and Second Board of Bursa Malaysia and MESDAQ. The new guidelines brought swift and significant changes to past regulatory policies and practices. Just to cite a couple - from this year onwards, applicants in the real property development sector are no longer subject to the requirement to possess a minimum land bank of 500 acres. Also, the erstwhile mandatory requirement to obtain SC’s prior approval to carry out a material acquisition of assets by a listed company for purposes its core business is otiose, unless, however, consideration for such acquisition involves the issuance of securities. The new guidelines also introduced sound measures to enhance investors’ protection. Essentially, the new guidelines prescribe the qualification and competency levels of parties who act as principal advisers. The new guidelines also reinforce the expectations of the SC on issuers, advisers and experts in their underlying obligation to ensure that all information furnished to investors is true, accurate and contains no material nondisclosure so that reliance can be safely placed by investors on such information in their decision making. Detailed mandatory obligations of issuers, advisers and experts in corporate proposals and a reminder of their statutory accountability to SC and investors are included in the new guidelines. The latest action by SC underpins its serious commitment towards shaping the Malaysian capital market into one that boasts of size, quality and high competitive environment.
Written by David Lee Tay & Partners 6th Floor, Plaza See Hoy Chan, Jalan Raja Chulan 50200 Kuala Lumpur, Malaysia Phone: +603-2050 1888
New Beginnings
Fax: +603-2031 8618
David Lee
The New Year brought new beginnings to the Malaysian capital market when the
E-mail: david.lee@taypartners.com.my Website: www.taypartners.com.my
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singapore
Establishment of Audit Committee Guidance Committee (“ACGC”) The Monetary Authority of Singapore (“MAS”) and Singapore Exchange Ltd (“SGX”) had on 27 June 2007 released the findings from a study they had commissioned on the then state of corporate governance of SGX-listed companies in Singapore. Among the findings from the study was recommendation of measures to improve the effectiveness of the Audit Committee (“AC”). The study recommended that “(a) Board of directors should ensure that there is adequate accounting or financial expertise and experience on the AC. Shareholders should query companies as to whether there is the necessary expertise or experience on the AC. (b) Regulators should work with other professional bodies and seek the assistance of experienced AC members to share practical insights into the work of the AC with less experienced AC members and to allow for the exchange of ideas from forums and roundtables. (c) Regulators should encourage, and work with, professional bodies and other market players to develop and disseminate best practice guidance relating to the AC, such as critical financial reporting issues, external audit, internal audit, internal control and risk management.” MAS and SGX examined the recommendation, explored immediate initiatives and discussed the initiatives with various stakeholders, including Accounting and Corporate Regulatory Authority (“ACRA”) and professional associations such as the Institute of Certified Public Accountants of Singapore (“ICP”) and the Singapore Institute of Directors (“SID”). On 15 January 2008, MAS, SGX and ACRA established the ACGC in order to strengthen the corporate governance practices of
asian legal business ISSUE 8.3
SGX-listed companies in Singapore. ACGC will develop guidance to assist the AC that will focus on the practical aspects and considerations of the work of the AC, including the implications of (i) the requirements of the Singapore Companies Act (Cap. 50); (ii) the principles and guidance of the Code of Corporate Governance; and identify and describe best practices of effective AC. Its members are drawn from the business community and stakeholders groups such as the ICP, SID, the Law Society of Singapore and the Singapore Association of the Institute of Chartered Secretaries and Administrators. Written by Mr Gerald Cheong & Cecilia Law Mr Gerald Cheong Corporate Finance Manager Ph: (65) 6322-2232 Fax: (65) 6534-0833 E-mail: geraldcheong@loopartners.com.sg
Ms Cecilia Law Corporate Practice, Senior Legal Associate Ph: (65) 6322-2283 Fax: (65) 6534-0833 E-mail: cecilialaw@loopartners.com.sg
Loo & Partners 88 Amoy Street, Level Three Singapore 069907
India
adequate infrastructures for a market based economy to function. The legal system must be in conformity of the global norms. The Information & Communication Technology (ICT) plays a very important role in the social, economic and intellectual development of a nation. The fundamental principle behind justifying the existence of a sound judicial system is to ensure dispensation of justice at the earliest opportunity. It has been established that with the help of Information Technology, the process of dispensation of justice can be made easier, fast, less expensive involving lesser manual labour. The courts in India have started making use of techniques of information technology to a greater extent.
Delay in disposal of cases India is said to possess one of the fairest legal systems in the word. One of the shortcomings that have been noticed in Indian Judicial System is the delay in the disposal of cases in courts primarily due to lack of adequate infrastructure. Inadequate administrative and logistic support system for the courts with huge work load brings down the administration of justice to a halt. The large number of vacancies of judicial officers in courts further aggravates the problems. Judiciary in India is caught in a vicious cycle of delays and backlogs. The effectiveness of a Judicial System is measured by its capacity to provide a timely and apposite justice to the parties to the dispute. It was felt to increase the speed of disposal of cases and reduce pendency.
Use of ICT
Role of Information & Communication Technology in Justice Delivery System While India has introduced significant economic reforms since 1991, it still faces institutional constraints in higher growth. These include legal and judicial systems that do not provide
Technology offers solution to some of our problems. Putting in place a modern and efficient justice delivery mechanism with the help of computerized and online systems spanning the entire judicial infrastructure will help increase the disposal of cases. In order to enhance judicial productivity, the Government had set up an e-committee to formulate a plan for computerization of the justice delivery system in the year 2004. The Government of India launched its ‘ICT Enablement for Indian Judiciary’ programme in the year 2005 on the recommendations of e-committee which prepared and submitted its report ‘National Policy
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and Action Plan’ which is now under implementation. It will provide computer rooms in all court complexes, laptops to judicial officers, and technology training to judicial officers and court staff. It will also provide a database of new and pending cases, automatic registries and digitization of law libraries and court archives. It promises video-conferencing in the Supreme Court and all High Courts; digital production of under trial prisoners so that they do not have to be brought to court for extension of remand; and distant examination of witnesses through video-conferencing. In Supreme Court, e-filing is available in the registry. Additional documents can be filed through internet. Most of the judgment and orders are put on the website. The process of providing digital connectivity to all the judicial officers has already commenced.
Positive sign visible Efforts put in by the e-committee have already started showing positive results. In Supreme Court and some High Courts’ judgments and orders are
available on Internet. In most of the High Courts, generation of cause lists and posting of cases to various courts are done by the computer system without human intervention. The impact of the computerization process and information Technology in court management has streamlined and modernized Registries’ day-to-day work. The process of computerization has started in the subordinate courts in India. Some of the District Courts are now able to generate cause lists, store judgments, generate certified copies, monitor case flow and help litigants get case status information from query counters.
Manoj K. Singh Managing Partner, Singh & Associates manoj@singhassociates.in. Singh & Associates N-30, Malviya Nagar New Delhi-110017 INDIA Phone: +91-11-26680927, +91-1126687993, +91-11-26680331 Fax: +91-11-26682883 website: www.singhassociates.in
Conclusion We can trust that Information Technology will surely find a solution to get rid of the scourge of laws delay. The speed and accuracy in the legal system is bound to radically change the future of the civilization and will give India a legal system in conformity with the global norms.
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special ALB report
asian legal business ISSUE 8.3
ASIAN LEGAL BUSINESS
INDIA
Opportunity heralds India’s growth is inundating its increasingly diverse legal market with new and more sophisticated legal business; but with rapid growth comes change and a raft of challenges that all law firms must face – sooner rather than later
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special ALB report
www.asianlegalonline.com
ASIAN LEGAL BUSINESS
INDIA
change and challenge “W
e’re too too busy,” says Indian lawyer Preeti Mehta with a chuckle. And chuckle she might. A partner at long-established but fast-growing local law firm Kanga & Co., Mehta and her 12 fellow partners have been on the receiving end of the exponential spike in demand for legal services in India – Asia’s hottest market bar China. “Our practice is multiplying in leaps and bounds,” Mehta says. “We’ve had to take on many more juniors as the work flow has increased dramatically – we’re interviewing 10 more today even as we speak.” The firm is not alone. Across India, in a triangle stretching from New Delhi in the north to Mumbai in the west and Bangalore in the south, law firms are swamped with the incoming tide, and are stretching to cope. The situation, say India’s lawyers, is not a bad one to be in. After all, it is much better to be turning work away than fighting for scraps to come in the door. But there are added challenges that the fast-evolving legal market is throwing at existing firms. Whether it is ramped up competition from a growing number of smaller, mid-sized and boutique firms; possible legal market liberalisation (which lawyers continue to attest is just around the corner); disagreements about a successful modern business model; or the frustrating restrictions on partnership growth and marketing that is holding firms back, the Indian market is in flux, and firms are having to think on their feet to position themselves for the future.
London calling
The Law Society of England recently held a ‘welcome to London’ reception for Indian law firm FoxMandal Little, which expanded its office network to the English capital in February. With special guest for the evening Bridget Prentice, MP and Parliamentary Under-Secretary of State, Ministry of Justice, it was obvious the Law Society saw reason to celebrate the establishment of the first Indian legal Vineet Aneja, office in the city. FoxMandal Little FoxMandal is targeting the UK, US and other multinationals in the European Union, aiming to provide them with real-time advice on the Indian law requirements of their investments into India. The firm also aims to assist Indian companies to set up in the UK, US and other EU countries and work jointly with local law firms on these matters. FoxMandal Little managing partner Som Mandal will head the practice
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special ALB report
asian legal business ISSUE 8.3
ASIAN LEGAL BUSINESS
INDIA Variety the spice of life at Bharti Enterprises As group counsel and company secretary at India’s Bharti Enterprises Limited, Vijaya Sampath certainly has her hands full. The firm has grown 10 times in size during Sampath’s five-year tenure, leaving her to manage the rapid growth of the in-house legal team from 12 lawyers to 45, as well as an ever-widening range of legal issues as the company has broadened its business across a range of sectors. The Bharti group’s primary business is telecommunications, with this accounting for 75–80% of its US$10bn revenue. The group is also active in other markets, including manufacturing, insurance, retail, exports and mobile tower production. It is the firm’s aggressive approach to growth that has thrust the in-house legal team into a variety of complex corporate and commercial deals in the past 12 months. Its work has included negotiating complex joint venture agreements with US retail giant Wal-Mart in the retail space, AXA in the insurance sector, and Vodafone in the tower production and maintenance business. Taking up 70% of Sampath’s time, other corporate work has included M&A deals, divestments, de-mergers and restructuring. The in-house team is also active in regulatory advocacy/litigation and taxation practices. The variety and scope of Bharti’s business is a drawcard for Sampath. “The most important thing for me is working on these real cutting-edge deals. Many of these are very complex transactions, done in an absolutely unique manner,” she says. The group also chooses to handle the majority of its legal work in-house. For example, both the time-intensive WalMart partnership (nine months) and AXA joint venture (four months) were handled completely in-house. This decision, says Sampath, is because of the team’s deep knowledge of the business, and the need to balance legal aspects with business sense. If Sampath does outsource legal work, it is to partners or firms that understand the business and regulatory aspects of the relevant sector thoroughly, and offer practical and commercial solutions as well as sound legal advice. She also demands fast turnaround times – sometimes overnight – for legal work when required. Sampath says she has been impressed by the rise of smaller boutique firms, and has had positive experiences with these newer players, though this can depend on the firm and lawyer. “They [smaller firms] meet all the requirements, in terms of turnaround times and depth of knowledge, and have great commitment and enthusiasm levels. “I’m an advocate of foreign firms coming into India, which may be a controversial view,” she says, adding that it would increase the size of the pie available and push up the standards of local Indian law firms.
“The most important thing for me is working on these real cuttingedge deals”
Vijaya Sampath, Bharti Enterprises Ltd
in London, with partner Vineet Aneja and senior associates Anurag Sharma and Prem Sharma to rotate through the office as required. The firm has also retained partner Ajit Mishra, a UK qualified lawyer who will be based permanently in London and practise only Indian law. “The purpose of the office is really to get close to our clients,” Aneja told ALB. “With the time difference, clients are sometimes unable to get advice on an urgent basis, and this allows access to real advice in real time,” he says. The firm’s move into London is an example of the growing maturity of the Indian legal market, which is fast adapting to the implications and demands of globalisation. “The London office is certainly a step to gear up the firm for the entry of foreign law firms in India and also to create an international Indian law firm,” Som Mandal says. “When Indian companies are all going international, why can’t Indian firms do the same?” In line with this vision, FoxMandal Little has been in pursuit of scale and broader reach in recent years. In mid-2006, the firm emerged as India’s number one law firm by pure numbers, after the merger of Fox Mandal and Little & Co. The new conglomerate has since grown its legal headcount from 245 to 335, as well as its office network. But in a changing, competitive market, is such a business model the ideal model for success?
A new model
By nature, India is a large and diverse legal jurisdiction. Many international transactions can involve elements of both national and state law, and firms that are pursuing larger office networks are arguing that this gives them an advantage over their competitors. Traditionally, Indian commercial firms with a cross-border focus have operated out of New Delhi and Mumbai, and have not seen the need for national networks. FoxMandal Little currently has 14 offices in total, including offices in London and Bangladesh. “We have the largest covFoxMandal Little House erage in India – we’re a truly pan-India law firm,” FoxMandal’s Aneja says. “We have more flexibility in being able to get advice from our own offices across different Indian states. It also keeps down costs,” he says. Sumita Singh from Singh & Associates is another firm believer in the strength of growing an office network. The firm has only recently opened an office in Kolkata, due to existing client business. “An office network helps,” Singh says. “We’re in the midst of expanding and are working to open new offices. We’re looking internationally, and in another six months will likely open overseas to manage our corporate practice there for some clients.” At present, Singh will not divulge the location of the Cont p34 planned new office.
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INDIA Some of India’s leading law firms Firm
Managing partner/s
Amarchand & Shardul S Shroff; Mangaldas & Suresh Cyrill Shroff A. Shroff & Co.
Fee earners
Partners
Associates/ attorneys
Total lawyers
381
34
347
381
20
Dave & Girish & Co
Girish M Dave
24
2
18
DSK Legal
Anand Desai
55
9
46
Economic Laws Practice
Rohan Shah
51
6
45
51
Offices
Top practice areas
Fastest growing practice area
Delhi; Mumbai; Kolkata; Hyderabad; Bangalore
M&A; banking, finance and capital markets; infrastructure
Corporate; capital markets
Mumbai; Bangalore. Associate office: Delhi
Banking; corporate law; structured finance
Banking & finance (derivatives, securitisation, structured finance); M&A/corporate
Mumbai; Delhi
Corporate (private equity; real estate; financial services)
Private equity
Mumbai; Delhi; Ahmedabad
Tax; infrastructure & projects; private equity & venture capital
Infrastructure & projects; private equity & venture capital
Banking and finance; capital markets; M&A; private equity and funds; real estate; dispute resolution
Real estate funds; capital markets; M&A
Corporate M&A, Capital Markets, Project Finance
Corporate; M&A
FoxMandal Little (FML)
Som Mandal
365
50
285
Bangalore; Bhubaneswar; Chandigarh; Chennai; Hyderabad; Kolkata; Mumbai; Noida; Delhi; 335 Pune; Dhaka (Bangladesh); London (UK). Associate offices: Cochin; Trivandrum.
J. Sagar Associates
Jyoti Sagar (founding partner); Berjis Desai (managing partner)
180
14
146
160
Kanga & Co
ML Bhakta
26
13
13
Khaitan & Co.
Haigreve Khaitan
170
28
142
160
194
12
150
162 Delhi; Mumbai; Bangalore
Luthra & Luthra Law Rajiv K Luthra Offices
Delhi; Gurgaon; Mumbai; Bangalore; Hyderabad
Corporate (M&A, private equity, joint ventures), real Private equity estate and litigation
26 Mumbai
Corporate and M&A; Direct tax; funds capital markets; real estate
Mumbai; Delhi; Bangalore; Kolkata
Seth Dua & Associates
Atul Dua; Sunil Seth
25
4
21
Delhi; India; Guragon; 25 Haryana; India
Singh & Associates
Manoj K Singh
21
6
15
21 Delhi (2); Kolkata
Capital markets, M&A and private equity; real estate; project finance
Capital markets
Telecom, media and technology; Infrastructure projects, construction, real estate and hospitality; cross-border investments (M&A and joint ventures)
Infrastructure projects, construction, real estate and hospitality
Corporate law, intellectual property law, litigation
Corporate (M&A; due diligence; company incorporation; joint ventures)
Note: Information was supplied by the firms listed, accurate to February 2008. Firms are listed alphabetically; table is not exhaustive; only firms who supplied details are included
From p28
Khaitan & Co. has flagged an aggressive office growth plan. “We’re proposing to open two new offices in cities in which the firm doesn’t have a presence to increase our headcount further,” leading partner Rabindra Jhunjhunwala says. The firm already has four offices located in Mumbai, New Delhi, Kolkata and Bangalore. Headcount growth targets are also ambitious. “By the end of 2008, Khaitan & Co. aims to have more than 250 professionals across its offices.” This would add a significant chunk to its existing 170 fee-earners. The firm is targeting graduates, specialised professionals and lateral hires. However, network expansion is not on everybody’s agenda. “We only have an office in Mumbai,” Kanga & Co.’s Preeta Mehta says. She argues that a network of “postboxes” in different locations would not be an effective strategy for the growing firm. “Having a network of offices would only work if the branch offices have sufficient depth in each location,” Mehta says. “But senior partners by nature want to come to the major metro locations of New Delhi, Mumbai and Bangalore. For the purposes of networking and marketing, regional offices may be useful, but I’m not convinced it’s always a viable method for servicing clients’ needs,” she says. Which is not to say, of course, that Kanga & Co. is not pursuing rapid growth in its existing Mumbai head office.
“For the purposes of networking and marketing, regional offices may be useful, but I’m not convinced it’s always a viable method for servicing clients’ needs” Preeta Mehta, Kanga & Co.
In fact, it would be hard for any commercial law firm in India at present to resist the opportunity for rapid growth presented by India’s growth story. But some are being held back. Cont p38
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Photo: Jasvipul Chawla
INDIA
Cuffe Parade, Mumbai
From p34 The biggest barrier in the way of pursuit of growth in both office locations and numbers is the current limit on partnerships. At present, legislation permits local law firms to have a maximum of 20 partners, leaving many heavily laden with associates. “Unfortunately, because of the restrictions on partnership, firms aren’t able to grow as they would like,” Mehta says. FoxMandal Little gets around this restriction by structuring four different partnerships (north, south, east and west), with some overlapping partners. This gives the firm flexibility up to a maximum of 70 partners. “This is a model a lot of the accounting firms are using, and now a lot of the other law firms are catching on,” Aneja says. But this model is not ideal. “Some firms have associate firms, but that doesn’t give partners as much comfort as being in the main firm itself,” Mehta says. But firms are anticipating change within months. A Limited Liability Partnership (LLP) Bill is currently under consideration by the Indian parliament, the passage of which would allow law firms to make use of LLP structures. As part of the proposed changes, they would also be able to boost their partnership numbers to 50. Aneja says FoxMandal would look at the potential for restructuring after the Bill is passed. But some argue that the Bill does not go far enough. “If we’re talking about opening the market, we need a much larger limit,” Mehta says. “For us, 50 will be enough, but for those firms with multiple locations, they would exhaust that limit in a few years,” she says.
Spoilt for choice
Market-leading firm Amarchand & Mangaldas & Suresh A Shroff & Co recently lost two of its equity partners – Mumbaibased husband-and-wife pair MP and Alka Barucha – who led a walk-out of an additional 11 lawyers, including their son and principal associate Justin Barucha, two senior associates and eight assistants. The 13-strong breakaway group, who formed a new law firm, caused big news in a market where equity part-
nerships are guarded very closely. Reports put the defecting partners’ equity at around 15%. The departure of the couple leaves the majority of the remaining equity in the 375-lawyer firm held by just four members of the Shroff family. The breakaway group is indicative of a trend in India. The market is seeing increasing numbers of quality mid-tier and boutique players, usually started by partners or lawyers that have gained their experience with the larger, more well-established firms. Some of this is due to the tightly held equity partnerships – such as Amarchand’s – that are out of reach for ambitious, highly educated and dynamic younger lawyers. Clients are also becoming more familiar with the Indian market as their business activities increase, and are more educated about the choices that now abound in the market. “We charge at the partner level less than an associate might be charging at a larger firm,” Mehta says. “We may not get the bigger fee, but we’re fully occupied with what we have. We also give partner attention to every deal. We’ve had a situation where a client has suffered because a partner couldn’t attend to them in a larger firm – obviously there aren’t enough partners there, and the partners can’t do everything,” she says. “It’s more competitive now,” says Sumita Singh. “For the first time, clients are surveying for information and rates from a minimum of five law firms. They’ll often test out the smaller firms with small value projects to begin with, and only then give them something of real value,” Singh says. “That’s good, frankly speaking, because it ensure the quality of service they receive is better, and the benchmark has been set higher.” FoxMandal’s Aneja agrees that competition is increasing, but he is confident of the firm’s strategy. “Smaller boutique firms have come up – there have been some IP firms and capital markets firms. There have been more offshoots coming out of the bigger firms,” Aneja says. “From a fee perspective, clients have a choice of any number of firms and rates, but where clients often compromise for lower fees is on quality.” ALB
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Private equity in India
Regulatory Framework In India domestic PE funds are regulated
by the Securities Exchange Board of India (SEBI) (Venture Capital Funds) Regulations, 1996 (“VCF Regs”) and offshore PE funds by the SEBI (Foreign Venture Capital Investor) Regulations, 2000 (“FVCI Regs”). Under VCF Regs, a fund can be organized either as a trust or a company. VCFs can only invest in Venture Capital Undertakings (“VCU”) which have to be an unlisted domestic company.
FVCI Regulations Foreign PE investors can either invest directly under Foreign Direct Investment (“FDI”) route or invest under FVCI regime. The SEBI and the Reserve Bank of India (“RBI”) provide a number of important benefits to SEBI registered FVCIs, which makes it beneficial to register with the SEBI. While granting FVCI Regs, SEBI considers inter alia, the applicants track record, professional competence, financial soundness, experience, whether applicant is regulated by an appropriate foreign regulatory authority, etc.
Structuring PE Funds Offshore funds participating in Indian PE Investment can do so in two ways: i) Offshore Structure An offshore fund may either be a LLC or a LLP organized outside India with an offshore fund manager and a fund advisor in India ii) Unified Structure A company or trust is setup in India (“India entity”) and the domestic investors contribute to the India entity whereas the overseas investors pool their investment in an offshore investment vehicle and this offshore vehicle invests in the India entity which in turn makes the portfolio investments.
PE Transaction in India Investor either subscribes to equity shares of the company (alternatively purchases shares from the promoters) or any instrument convertible into equity shares, convertible preference shares being the most popular instrument of PE investment in India. Convertible instruments
issued to foreign residents must be compulsorily convertible. Optionally and partly convertible instruments issued to foreign investors are treated as debt. Foreign investors Saurabh Misra, must also comply Paras Kuhad & Associates, with FDI sectoral Advocates caps. Typically there is a lock-in of promoter shares. To safeguard their stake in the company, the investors usually insist on a number of rights including anti dilution, right of first refusal, tag along/drag along rights, board affirmative rights, transfer restrictions, liquidation preference, etc subject to applicable Indian laws including corporate, taxation, foreign exchange and securities laws.
Exit Strategies The preferred exit route of most PE investors is a qualified IPO, under which, certain rights may be held by the investor. For example, ‘Piggyback Rights’ give the investor the right to have its shares included in a registration. ‘Demand Rights’ give the investor the option to force management to put up the company’s shares for a public offering. Other preferred exit strategies include sale to a strategic partner (“strategic Sale”) and ‘Buy Back’ of investor shares by promoters. It must be noted however that Strategic Sale and Buy-Back of shares of an unlisted company attracts pricing guidelines of the RBI when shares are transferred by a non-resident.
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ndia has emerged as the new frontier of Private Equity (“PE”) investment and has led all Asian markets in recording the largest value of deals in 2007. Warburg Pincus’s PE investment in Bharti during 1999-2001, could be said to have heralded the advent of PE investments in India. A recent study suggests that PE inflows in India have surged from $1.1 billion in 2004 to $19.03 billion in 2007. Reports for January 2008 suggest that India got PE investments worth $2.05 billion surpassing China and Japan. Considering recent trends, India’s PE inflows in 2008 are expected to cross $25 billion. With such rapid spurt in PE investments in India, it is important to understand the nature of PE investment, its benefits and flip sides. Global experiences suggest that there are two sides to PE, one that spurts growth, helps achieve scale and enhances valuations and also the negative side aimed at maximizing profits at the cost of organization’s long term interests. India has so far experienced PE in the form of benign growth capital. Leveraged buyouts (“LBO”) of Indian companies and asset stripping by PE funds are not common in India. The first LBO in India happened only in 2006 when New York based PE Fund Kohlberg Kravis Roberts bought out Flextronics Software Systems for $900 million. The greater ease with which PE capital may be raised as compared to traditional sources such as listing and/or raising loans, the enhancement of valuations and business expertise and networking contacts which the PE firms bring to the table have popularized PE in India. We now have nearly 160 PE firms operating in India of which about 120 are either outside India or are subsidiaries of non-Indian VC/PE firms. As a result of substantial PE investment, Indian entrepreneurial activity is on the rise especially in SME segment and IT/ITES sector. Additionally, sectors such as manufacturing, logistics, financial services, realty, healthcare and infrastructure have in recent times successfully tapped into the PE goldmine.
Mr. Saurabh Misra is Associate Partner with Paras Kuhad & Associates, Advocates, a full service law firm having 7 offices in India. Saurabh specializes in Corporate and Commercial laws and is reachable at saurabh@paraskuhad.com and over phone at +91-226669-5959. Attreyi Mukharjee, Associate, assisted Saurabh with this article.
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30 30-31 Firm Profile-Crawford Bayley.indd 30
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CRAWFORD BAYLEY & COMPANY Advocates, Solicitors and Notaries State Bank of India Buildings NGN Vaidya Marg Mumbai 400 023 India Telephone: + 91 22 22663353 Facsimile: 91 22 22663978 Email: mail@crawfordbayley.com
The Firm: Crawford Bayley & Co. is one of the oldest and largest law firms in Mumbai. Established in 1830, the firm currently has a team of 150 members, including 15 partners, over 50 associates, 15 paralegal personnel and a supporting staff of over 75 individuals. Corporate and Commercial, Mergers and Acquisitions, Capital Markets, Joint Ventures and Foreign Collaboration, Privitisation and Disinvestment, Banking and Corporate Finance, Intellectual Property Law, Litigation and Dispute Resolution, Real Estate and Property Law, Indirect Taxation, Labour and Employment, Admiralty and Shipping Law and Information Technology. Our Firm presently comprises 15 partners. The partners of our firm represent several multinationals, large bodies corporate on the Board of Directors of Indian Companies in which such corporations have equity participation. Over the years, our firm has advised the majority of multinationals, large corporations and banks that have a presence in India. The extensive experience and expertise available within our firm enables us to provide our clients with comprehensive and dedicated service.
Partners Shantaram Yeshwant Rege Rajendra Ambalal Shah Ardeshar Ruttonji Wadia Dadi Bejonji Engineer Hemraj Chaturbhuj Asher Chaitan Manbhai Maniar Suresh Narsappa Talwar Darius Cavasji Shroff Sanjay Khatau Asher Zarine Minocher Talaty Marco Philippus Ardeshir Wadia Saumil Shantaram Rege Kumar Shirish Trivedi Sanjay Ramakant Buch Prashant Khatau Asher
Total number of partners: Asia 15 Total number of associates: Asia 50+ Established: Mumbai (Bombay) (1830) Languages spoken: English, Hindi, Gujarati, Marathia
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Our individual partners specialise in the following practice areas:
Sanjay Khatau Asher, Crawford Bayley & Company
CRAWFORD BAYLEY & COMPANY Advocates, Solicitors and Notaries State Bank of India Buildings NGN Vaidya Marg Mumbai 400 023, India Telephone: + 91 22 22663353 Facsimile: 91 22 22663978 Email: mail@crawfordbayley.com
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Tax proposals in Budget 2008 - an Analysis
U
nlike most other countries the presentation of the Indian Budget generates an uncommonly high level of anxiety and expectations within Indian industry. The reason for this can historically be attributed to the fact that in India there are multiple taxes at high rates which deeply impact all nature of commercial activities in India. As more foreign direct investment has been made in India, the interest in the Indian budget has spread to every Multi- national corporation or fund with business interests in India. Budget 2008 was as expected, a balancing act between good economics and good politics with a general sense that political ambition edged ahead of economic needs. This article analyses the Direct tax (Income tax, Securities transaction tax and Fringe Benefit Tax) and Indirect tax (Service tax, Customs, Excise and Cenvat Credit) proposals in Budget 2008.
Key Direct tax proposals (i) In order to mitigate the cascading effect of Dividend Distribution Tax (‘DDT’), it has been proposed to allow set-off of dividend received from a subsidiary company against the dividend to be declared by the holding company for the payment of DDT subject to dividend distribution tax having been paid by the subsidiary and the parent not being a subsidiary of another company. (ii) The outsourcing and the IT Sector was expecting a 1 year extension of the sunset clause for the Income tax benefit. No such exemption has been granted and this has been a reason for wide spread disappointment. There is however an option to migrate such units to a Special Economic Zone (‘SEZ’) to continue to avail of the Income tax benefit. One impediment for this earlier was that the transfer of second hand capital goods was not permissible, which at present has become permissible. (iii) One of the major procedural changes which may have far reaching ramifications is the enlargement of the scope of who may be treated as an “assessee in default”. The
proposed amendment seeks to treat any person who is required to deduct tax at source and who fails to either deduct the tax or after deducting fails to pay the tax so deducted as an assessee in default. The proposed amendment is to have retrospective effect from 1st June, 2002 and will have an impact on various cases pending before the Indian Courts including the Vodafone case. The core issue which needs to be tested on the principle is that the Indian Income tax law does not have any extra-territorial application and it cannot be extended to cover those transactions which have been entered outside India and do not have any economic nexus with any income in India. (iv) On the corporate front, though the corporate tax rates remain unchanged, tax on Short Term Capital Gains (”STCG”) has been raised from 10% to 15%. The raise in STCG will have an impact on the securities market and especially on retail traders. (v) The other important change has been to provide for the Securities Transaction Tax (“STT”) paid in respect of taxable securities transactions as a permissible deduction if the income arising thereon is considered as business income and extending of the benefit of amortization of post commencement preliminary expenses to the Services sector also. (vi) There has also been some concession to corporates from the applicability of the Fringe Benefit tax and certain facilities such as crèche facilities, prepaid electronic meal cards, payment for encouragement to sports and guest houses expenses provided to the employees, will no longer fall within the purview of the Fringe Benefit Tax. (vii) The impact of the proposed Commodities Transaction tax (“CTT”) on the lines of STT is yet to be ascertained as the guidelines on the CTT is awaited. (viii) On the individual front, there has been a change in the minimum
tax slab for individuals, and the threshold limit for exemption for all Income Tax assesses has been raised from Rs. 1,10,000 to Rs. 1,50,000, ensuring a minimum relief of Rs. 4000 to all assesses. While there has been a rationalization of the income tax rates for individuals, there is no rationalization of the corporate tax rates for domestic and foreign companies which was anticipated and the lack of any rationalization has disappointed the Industry.
Indirect tax The Budget was critical from the perspective of re-affirming the move to a GST by 2010. The Budget has in fact reaffirmed the Government’s commitment to introduce GST by 2010 by reducing the general rate of Excise duty from 16% to 14%, Central Sales Tax from 3% to 2% and brining more services into the Service tax net.
Service tax There has been no change in the rate of Service tax and services continue to be taxed at 12.36% (including education cess). However, it has been proposed to introduce six new services and amend certain existing entries. The new taxing entries which are proposed to be introduced, includes an entry titled ‘Information Technology Software Services’ which seeks to comprehensively tax all software services provided in relation to business or commerce. ‘Packaged Software’ was already being subjected to an Excise duty of 8% which has now been increased to 12%. Thus it appears that the intent of the Legislature is to tax all Packaged software to a duty of Excise and to tax Customized Software to a Service tax. The said entry will have a far reaching impact on the Indian Software Industry, which now will be comprehensively covered by the Indirect tax regime.. At the same time, the domestic industry which is predominantly engaged in the export of customized software will be benefited as it will be able to utilize/avail refund of accumulated tax credits in terms of the Cenvat Credit Scheme. The description of the said taxing entry includes the
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Customs The expectation was that the peak rate of Basic Customs duty for non agricultural goods would come down, however there has been no change in the rate and the same continues to remain at 10%. There has been a reduction in the rate of Basic Customs duty on Project Imports from 7.5% to 5%.
of Industry and International investors, it has also disappointed on various critical expectations. By Mr. Rohan Shah, Managing Partner, Economic Laws Practice
Rohan Shah, Economic Laws Practice
Excise The concept of deemed marketability of Excisable goods has been introduced. The rate of duty on Packaged software has been increased from 8% to 12%, on small cars and motorcycles has been reduced from 16% to 12%, and the duty on cement cleared in bulk and on cement clinkers has been revised/increased.
Cenvat Credit Scheme Far reaching changes have been made in the Cenvat Credit Rules and a system of availment of credit on a proportional basis has been introduced, which can be adopted by an assessee who is engaged in the rendition of taxable and exempted services and/or the manufacture of dutiable and exempted goods as an option. This is a welcome move which will restrict accumulation of unutilized Cenvat Credit in the books of a provider of exempted and taxable output services, arising due to restriction of utilization of credit upto 20% of the Service tax payable on taxable output services. A formula has been introduced in relation to the option of reversal of proportionate Cenvat Credit attributable to exempted goods or exempted services as the case may be. However, there are certain issues as regards whether activities like trading or the export of services would be treated as an ‘exempted service’.
Move towards GST While the rate of Central Sales Tax has reduced, several other things that needed to happen such as a constitutional amendment, formulation of a revenue sharing model between the Centre and the State, consolidated legislation and a comprehensive credit mechanism have not happened. In conclusion, while the Budget has delivered on some of the expectations
ELP Firm profile ELP from the perspective of International Clients Economic Laws Practice ELP’s networking with leading international law firms in the United Kingdom, Far-East and the Americas ensures that ELP’s systems, infrastructure, response time and response quality are all benchmarked to global standards. ELP services several Fortune 500 Companies in terms of their India related businesses and/or India related transactions. All of ELP’s Partners have either qualified, trained or worked in international jurisdictions which has helped create a work ethic at ELP, which fully addresses the qualitative and response time issues of International clients.
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acquisition of the right to use IT software for commercial exploitation and this will particularly impact software and media companies. Internet downloads of IT Software are also sought to be taxed though the Geneva Ministerial Declaration on Global Electronic Commerce specifically provides that there shall be no levy of any indirect tax on internet downloads of software. The services rendered by Stock Exchanges and Commodity Exchanges have also been brought within the Service tax net. Further a new taxing entry of ‘Supply of taxable good for use’ has been introduced, which specifically seeks to levy Service tax on the supply of tangible goods in cases where the effective possession and control continues to vest with the supplier of tangible goods and where there is no levy of Value Added Tax (‘VAT’), which is a State level tax. This might have a big impact on the shipping, leasing and engineering industry and especially in the case of engineering equipment for large projects. This fortifies the view that in the run up to the GST, the intention of the Legislature is to bring to tax all activities/transactions within the purview of either Service tax or a Sales tax/VAT. There has been an amendment to the taxing entry of ‘Renting of Immovable Property Services’ with a view to clarify that even in cases where there is no transfer of right of possession or control of immovable property, like in cases where immovable property is used for placing of vending machines/dispensing machines in malls or for the erection of communication towers, then even in such cases, there will be a liability to Service tax. There has also been an increase in the rate of tax payable under the Works Contract Composition Scheme from 2% to 4%. This will result in a higher tax outflow for various EPC contractors and this in addition to the increase in the rate of Excise duty on cement and cement clinkers will effectively result in a substantial rise in the cost of projects. However it is important to note at this stage that construction of infrastructure projects such as airports, ports and railways are excluded from the levy of Service tax.
Area of Work • Tax • Projects and infrastructure • Venture capital and private equity • Corporate/M&A • Real estate and construction • Dispute resolution • WTO and international trade • Media and Entertainment
The Firm Economic Laws Practice was founded in 2001 by lawyers from diverse fields. Clients include several Fortune 500 companies, leading Indian and international companies, industry associations and the Government of India. The firm is well known as a provider of practical solutions. ELP has offices in Mumbai, Delhi & Ahmedabad and services clients across India, the US, Europe, the Middle East and the Far East.
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Real Estate Investment Trusts
REITs in India: SEBI Regulation: An Analysis In a strategic move and to keep pace with the global practices in the real estate sector, SEBI, has recently published the draft Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2008 (“Regulations”). The Regulations are expected to come into force soon. • REIT means a trust registered under the Indian Trusts Act, 1882 and registered with the SEBI under these regulations, whose object is to organize, operate and manage real estate collective investment. • Real Estate Investment Management Company (“REIMC”) means a company incorporated under the Companies Act, 1956 and registered with the Board under these Regulations, whose object is to organise, operate and manage a real estate investment scheme (“Scheme”);
Application Procedure A REIT and a REIMC shall make separate applications to the Board for the grant of certificate of registration.
Eligibility Regulations provide for the eligibility criteria for the grant of a certificate of registration to a REIT or a REIMC. These inter alia include: • A net worth of not less than Rs. 50
million (At the time of the application minimum net worth of Rs. 30 million which shall be increased to Rs. 50 million within three years from the date of grant of registration) • At least 50% of the trustees of REIT and directors of REIMC shall consist of independent persons; • The management of REIT and REIMC shall be independent of each other.
Scheme The Regulations provide that the Scheme offered by a REIT shall be close-ended. The Scheme is required to obtain rating from the credit rating agency. A Scheme shall be launched only upon appraisal by an appraising agency. Units of every Scheme are required to be listed on the stock exchanges. The Regulations stipulate that no Scheme can guarantee or assure any returns to the unit holders but should only provide for indicative return assessed by an appraising agency.
REIMC Like mutual funds where there is an Asset Management Company, the Schemes under the Regulations are to be managed by a REIMC. REIMC is required to be registered with SEBI. The eligibility criteria, application and registration fees and criteria for independence for REIMC are the same as for a REIT. Following are some of the key functions of the REIMC. • responsible for managing the funds or properties of the Scheme; • prepare quarterly reports and submit the same to the trustees; • calculate the Net Asset Value of the Schemes of the REIT and disclose the same to the unit holders.
Investment Limitations The Regulations inter alia provide for the following investment limitations for the Schemes: • Only invest in real estate. • The real estate shall generally be income-generating. • Acquire uncompleted units in a building which is unoccupied and non-income producing or in the course of substantial development, redevelopment or refurbishment, but the aggregate contract value of such real estate shall not exceed 20% of the
total net asset value of the Scheme at the time of acquisition. • No exposure to more than 15% of any single real estate project. • No exposure to more than 25% of all the real estate projects developed, marketed, owned or financed by a group of companies. • Not to invest in vacant land or engaging or participating in property development activities. • Not acquire any asset which involves the assumption of any liability that is unlimited.
Borrowing Restrictions A Scheme can borrow for funding investments and operating expenses but it cannot borrow more than one-fifth of the value of the Scheme’s total gross assets.
Distribution to Unit holders The Scheme is required to distribute to unit holders at least 90% of its annual net profit after tax as dividends every year.
Valuation Report Every Scheme shall be required to appoint an independent property valuer who will submit valuation report on properties to be acquired or sold by the Scheme or where new units are offered by the Scheme.
FIRM PROFILE
I
n the recent times, owing to urbanization, industrialization, growth in BPO and IT sector, retail boom and increase in per capital income, demand for commercial as well as residential real estate has increased. The gap in demand and supply has widened and realty prices has seen sharp rise. A major development that was awaited by all is the draft proposal by the Securities and Exchange Board of India (“SEBI”) on REAL ESTATE INVESTMENT TRUSTS (“REITs”). As we all know REIT is essentially a corporation or business trust that combines the capital of many investors to acquire or provide financing for all forms of real estate. So by buying the units of a REIT, investors can invest in real estate without owning the physical property.
Conclusion The Regulations are seen as a welcome move, both by the real estate industry and investor class, since the same are going to pave way for their mutual benefits. REITs will be beneficial for retail investors by allowing them a risk free tool and exposure to real estate investment without the hassles of identifying, Preeti Mehta, acquiring and selling Kanga & Company properties.
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special ALB report
asian legal business ISSUE 8.3
ASIAN LEGAL BUSINESS
INDIA
Singh & Associates: Full service law
Photo: Asif Akbar
S
INGH & ASSOCIATES is one of the fastest growing ‘full-service’ law firms of India. The firm has been providing excellent client service by emphasizing on proactive problem solving, excellent communications, timely and responsive services, and a high value, quality product for a reasonable and competitive price. Under the head of ‘Corporate Services’ the firm offers legal services and consultancy in establishment and organizing companies including the incorporation and formation of companies, partnerships, joint ventures, association, formation of subsidiaries, corporate governance, merger and acquisitions, financing transactions, dealership and franchise litigation, licensing, sales and lease contracts, maintaining company records and filing with different statutory authorities including Registrar of Companies, Securities and Exchange Board of India (SEBI), Reserve Bank of India, etc. The Firm handles full range of civil and contractual litigation claims, from torts and white collar crimes to multi-million dollars commercial and shareholder disputes. The firm also provides specialized service under foreign exchange law. With a dedicated team to look into the matters of foreign investments in India the firm serves with customized updates on investment opportunities in Indian subcontinent. It offers whole range of legal, consulting and procedural services for foreign investment through financial and technical collaborations, jointventures, capital market and private/ preferential placement which comprises negotiations with Indian counterpart, drafting of instruments, getting required approvals from Governmental Agencies in establishing and organizing whollyowned subsidiaries, Joints-ventures and/or Branch/Project/Liaison Offices on behalf of foreign investors under exchange and corporate laws in India. IP department of the Firm is committed to protecting, marketing and promoting
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www.asianlegalonline.com
ASIAN LEGAL BUSINESS
INDIA
firm from India - A feature in-depth analysis of Avoidance of Double Taxation Treaties and selecting the most beneficial in terms of taxation of dividends, capital gains, royalties and technical fees. The firm’s tax practice also includes advice on indirect taxation such as Custom duty, Sales Tax/VAT, Excise and/ or Service Tax. The firm has prominent presence as market leader in the consultancy relating to real estate and infrastructure laws. Real Estate services include title investigation; advise on purchase, sale, lease and Renting and Development of real estate, financing. The firm also handles commercial and residential evictions, as well as transfers of residential real estate. Firm’s team of experienced lawyers handles both contentious and non-contentious work, representing all types of parties in real estate transactions, from banks and institutional lenders, to owners and operators, developers, lessor, lessor, lessees and individual or corporate partners in any kind of disputes in court of law. To overcome the communication hurdle the law firm follows the innovative ‘onetouch’ direct communication structure, whereby every client is assigned a single contact person, preferably a senior associate or a partner, who is kept in loop for the entire work of client at the firm. This unique mode of communication greatly helps the client to have a tab on all its cases at one point and the client need not juggle between different departments within the firm for different areas of service. The firm exercises strict confidentiality in regard to client information and datasheets. The clientele catered is virtually from all aspects of the industry, comprising of big conglomerates, infrastructure giants, famous pharmaceutical corporations, software companies, transportation service providers, financial experts, telecommunications, agro industry and e-commerce providers. The firm is especially known to keep abreast with emerging technologies with vibrant ease in developing strategies to counter
threats to potential violations with proactive measures undertaken on behalf of clients. In addition to standard package of legal and consultancy services to its clients, the firm takes an extra-effort to keep the clients well-informed by providing customized updates on the changes in law, policies, regulations and/ or procedures.
SINGH & ASSOCIATES ADVOCATES AND SOLICITORS N-30 GROUND FLOOR, MALVIYA NAGAR, NEW DELHI 110017 INDIA Ph: 91-11-26680927, 26687993, 26680331 Fax: 91-11-26682883 E-mail: newdelhi@singhassociates.in Website: www.singhassociates.in
FIRM PROFILE
intellectual property that facilitates businesses around the world. The Firm’s robust ‘knowledge management system’ is utilized to economically and efficiently service its clients. The firm’s practice covers the complete spectrum of intellectual property services in the fields of trademark, copyright, domain names, trade dress, patents, design, geographical indications, etc. The services offered are searches, watch service, registration applications, investigation, litigation, interferences, alternative dispute resolution, negotiations, licensing, portfolio management, corporate transactions, assignments, registered user agreements, transfer agreements and IP due diligences. The Firm has outstanding Litigation and Arbitration Practice. The firm provides services for all types of litigation in all Courts, Tribunals, Commissions, Forums and other Authorities throughout India. The experience in litigation extends to all types of litigations instituted and prosecuted within the country and abroad, including Recovery Suits, Property Disputes, Commercial Disputes, Product Liability, Infringement of Intellectual Property Rights, Constitutional Matters, Matrimonial Disputes, Custody Claims, Service Matters, Banking Claims, Insolvency, Criminal matters and other disputes. Under the Alternative Dispute Resolution practice the firm conducts commercial and maritime arbitrations under Indian, ICC and UNCITRAL rules and structures dispute resolution clauses for inclusion in contracts to ensure effective resolutions. The firm has one of the strongest team of Tax Counsels consisting of in-house Tax Consultants, Chartered Accountants and Company Secretaries. The Tax team has the right balance of experience and agility so as to dig out the best advice in accordance with the established taxquotient and the latest developments in India and abroad. We assist our international clients in achieving the most favorable tax position by providing
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special ALB report
www.asianlegalonline.com
ASIAN LEGAL BUSINESS
INDIA
Indian Giant FoxMandal Little in London For US clients too London is a better time zone to discuss over phone or even coming over". FoxMandal Little in London is purely an Indian Law firm practicing only Indian Law. Having a base in London will allow us, “To keep cost down, without losing quality” rightly says Mandal. Som, 46, is the fourth generation in his family to work for the firm. The founder was a “leading and distinguished solicitor of his times”. The Law Society of England hosted a “welcome to London” reception for FoxMandal Little. The special guest for the evening was Bridget Prentice, MP, Parliamentary Under-Secretary of State, Ministry of Justice. The London office is certainly a step to gear up the firm for entry of foreign Law firms in India and also to create an International Indian Law firm, when Indian companies are all going International why can’t an Indian Law firm go International. FoxMandal Little is already geared up to compete with Foreign Law firms and is one of the very few firms in India which supports the entry of Foreign Law firm. The firm has offices in India, UK and Bangladesh
including Bangalore, Bhubaneswar, Chandigarh, Chennai, Dhaka, Hyderabad, Kolkata, Mumbai, Noida, New Delhi, London and Pune with associate offices at Cochin, Trivandrum and other important cities in India. FML is a well-reputed full service law firm presenting an appropriate mix of the necessary legal expertise, industry specialization and commercial acumen. This firm of advocates, solicitors and notaries, comprises of 365 lawyers with close to 50 partners and over 175 para-legal staff. With offices situated in all the important regions in India FML ensures that its clients receive cost-effective, value added and fully integrated services.
FIRM PROFILE
F
oxMandal Little (FML), India’s oldest and largest law firm made legal history when it formally opened a permanent office in London with a gala launch party on February 19, 2008 at Kings Street, London. The guest list included lawyers from the topmost law firms in London such as Clifford Chance and Freshfields FML has opened its first overseas office to practice Indian law. Mr. Som Mandal, the Managing Partner, will head the practice at London. The office will comprise of two partners, one consultant and three associates for a start. Its timing is explained by the rapid globalisation of the Indian economy and the need to provide expert legal advice both to NRIs and British and European Union companies wanting to do business with India. Primarily, the law firm will be assisting UK, US and other multinationals in the European Union regarding their investments into India and provide real time advice relating to their Indian law requirements. It would also be assisting Indian companies to set up in UK, US and other EU countries and work jointly with a local law firm for the concerned matters. Further, one of the partners, Ajit Mishra, is a UK qualified lawyer but would be practicing only Indian law. The rest of the team at London consists of Vineet Aneja, Partner, Anurag Sharma, Senior Associate and Prem Sharma, Senior Associate, as part of the firm’s corporate practice. In 2006, Fox Mandal, the firm set up in 1896, merged with what is believed to be the oldest legal practice in India established in 1856 — Little & Co — which had been adviser to the East India Company and successive governments of the Presidency of Bombay. The establishment is opportune from an Indian viewpoint as the company’s Managing Partner, Mr. Som Mandal, says, “We feel there's a huge market for international and UK-based companies in need of advice in India. Clients will feel comfortable walking across and getting advice in real time, not waiting for a call back the next day due to time zone issues.
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EVENTS
asian legal business ISSUE 8.3
IPBA set to impress 40 40-43 Events FINAL.indd 40
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EVENTS
www.asianlegalonline.com
“Participation in IPBA activities is an unsurpassed way for an [individual business] lawyer to establish and develop professional relationships with likeminded colleagues in the region” Gerold Libby, IPBA conference
I
n 2006, it was the sunny, sandy shores of Sydney, Australia. A year later, it was off to the heart of Asia’s fastest growing economy, Beijing. This year, however, the Inter-Pacific Bar Association (IPBA) has given Asia a break and opted for downtown Los Angeles. The choice of venue is fitting. As Asia has emerged with such promise, the interest and activities of US corporations, investment banks, funds and private investors in the region have snowballed, driving demand for Asia-focused legal services. Never before has the imperative for legal k nowledge, exper tise and relationships among Asia-interested lawyers in the US and elsewhere been more critical. The US is also the source of the hottest economic discussion topic of the year, and while these domestic sub-prime woes and their effects may well dominate conversation during the coffee breaks at this year’s IPBA conference, there is no doubt the Asian growth story will lighten the mood. Delegates are in for an impressive event. “The highlight of any IPBA annual conference is the plenary session on the morning of the first day of the conference, and the LA conference will be no exception,” conference chair Gerold Libby says. Speakers at the plenary session will include Robert Eckert, chairman of the board and CEO of US toy giant Mattel, and William Overholt, director of the RAND Center for Asia Pacific Policy. The incumbent US trade representative, Ambassador Susan Schwab, has also been
in LA 40-43 Events FINAL.indd 41
Past and future host cities 1991
Tokyo
1992
Sydney
1993
Taipei
1994
Singapore
1995
San Francisco
1996
Manila
1997
Kuala Lumpur
1998
Auckland
1999
Bangkok
2000
Vancouver
2001
Tokyo
2002
Hong Kong
2003
New Delhi
2004
Seoul
2005
Bali
2006
Sydney
2007
Beijing
2008
Los Angeles
2009
Manila
invited to give the keynote address on the opening day of the conference. The 2008 conference is being held on a somewhat larger scale than recent IPBA annual conferences. While the format will be similar, it will offer 39 educational programs sponsored by IPBA committees, featuring around 225 speakers – more than any other recent IPBA conference.
Fast facts: Los Angeles Los Angeles is the largest city in the state of California and the secondlargest city in the US. The city of LA has an estimated population of 3.8 million, and the five-county area around LA has an estimated population of 16.4 million. The LA area is one of the world’s focal points of culture, technology, international trade and higher education, and is also home to world-renowned institutions across a broad range of cultural and professional fields. The city leads the world in entertainment production, including motion pictures, television and recorded music.
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EVENTS
asian legal business ISSUE 8.3
What is the IPBA? The Inter-Pacific Bar Association (IPBA) is an international association of business and commercial lawyers with a focus on the Asia-Pacific region. Members are either Asia-Pacific residents or have a strong interest in this part of the world. The IPBA was founded in April 1991 at an organising conference held in Tokyo attended by more than 500 lawyers from throughout Asia and the Pacific. Since that time, it has grown to become a preeminent organisation in the area of Asia law and business, with a membership of more than 1,800 lawyers from over 67 jurisdictions around the world. The growth of the IPBA has been spurred by the tremendous growth of Asian economies. As companies throughout the region become part of the global economy, they require additional assistance from lawyers in their home country and from throughout the region. One goal of the IPBA is to help lawyers stay abreast of developments that affect their clients. Another is to provide an opportunity for business and commercial lawyers throughout the region to network with lawyers of similar interests and fields of practice. Supported by major bar associations, law societies and other organisations throughout Asia and the Pacific, the IPBA is playing a significant role in fostering ties among members of the legal profession with an interest in the Asia-Pacific region. Source: IPBA
“The 39 committee programs cover a very broad range of topics, many of which are likely to be of great interest to our members,” Libby says. “ They include programs on doing business in China, Islamic f inance, and the collapsing boundaries between technology, communications and entertainment delivery, among others. We’ll also be holding a corporate counsel forum to be presented in cooperation with the Association of Corporate Counsel.” T here a re c u r rently 1, 8 0 0 I PBA members, and virtually all of these are business lawyers in a private law practice involving the Asia-Pacific region to a significant extent. As a result, the IPBA aims to be a resource for individual business lawyers interested in the AsiaPacific region, as they try to keep abreast of the changing legal landscape. “In
addition, participation in IPBA activities is an unsurpassed way for such a lawyer to establish and develop professional relationships with like-minded colleagues in the region,” Libby says. The IPBA’s membership has not grown significantly in recent years. Libby suggests
this is “probably because most of our [IPBA’s] members have been well aware of the dynamic growth of Asian economies, and the evolution of legal systems in the Asia-Pacific region, for some time”. However, he calls growth for the IPBA in the next few years “inevitable”. ALB
IPBA Annual Conference When?
27–30 April 2008
Where?
Hyatt Regency Century Plaza, Los Angeles, California US
Expected attendance
750–800 delegates
IPBA Membership US
Japan
Singapore
India
China
Other
Women
12%
13%
5%
11%
4%
56%
18%
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EVENTS
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PRIVATE EQUITY
asian legal business ISSUE 8.3
China’s direct investment silver lining Recent PRC regulatory measures designed to curb investment inflows from offshore may have discouraged some bigger private equity deals, but private equity lawyers say investors continue to find China attractive as they return to the old days of direct onshore investment
B
ack in September 2006, several PRC regulatory agencies jointly issued M&A rules which have amounted to a near prohibition on the method customarily used for offshore PE investment into China. This ‘round trip’ method involves the creation of an offshore holding company in a jurisdiction such as the Cayman Islands, in which both foreign PE investors and Chinese owners would hold interests. The M&A rules were followed in May 2007 by Implementation Notice 106 from the State Administration of Foreign Exchange (SAFE), which described extensive new requirements to be met for the registration of such transactions. The more restrictive approach seems to have stalled some PE deals. Majority acquisitions are rare these days, but it is not having a major effect on the quantity of work for PE-related law practices. Conyers Dill & Pearman works on the offshore side of PE deals, assisting with the setup and organisation of offshore holding companies. “I think the number of transactions has come down a bit, and a lot of that is due to the need for SAFE approvals,” says Christopher Bickley, partner with the firm’s Hong Kong office. “From what I’ve heard on the grapevine, it’s very difficult to get approval. Perhaps over the last three or four months we’ve seen a bit of a slowdown.” Even so, he says work flow in 2007 was “very strong”. Lawyers who are focused more on the PRC legal issues share a similar view.
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PRIVATE EQUITY “There’s been slightly less deal flow,” says Basil Hwang from Dechert / Hwang & Co. “Investors have become more cautious, partly as a result of the credit crisis in the US and Europe, but we’re very busy nonetheless.” Hwang says there is still a lot of investment in “follow-on rounds” of companies that were restructured before the extra regulatory hurdles came in. Jeanette Chan, partner and head of the China Practice Group with Paul Weiss, likewise observes that those companies that completed their offshore restructuring before the regulations were introduced are very attractive, and provide ongoing work. “There are still a lot of those companies around so they’re very valuable as investment targets,” says Chan. “But you find more and more PE firms actually have come around to the idea of having to make a direct investment into China, and basically localising their investments.”
Back to the future: direct investment Major law firms are reminding their clients via their legal bulletins that in the early days of foreign investment into China, multinational companies invested via onshore joint ventures with local Chinese partners using cooperative joint venture structures or equity joint venture structures. “A lot of those structures are now being revisited by a new audience – the PE community,” says Thomas M. Britt III, partner with Debevoise & Plimpton in Hong Kong. “They’re looking at some of those structures as a means by which an investment can be made into China without having to go through the processes of registration with SAFE or approval of MOFCOM.”
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PRIVATE EQUITY
When it comes to making the return to onshore structures work for clients, Britt says one of the key issues for a PE firm considering using a traditional FDI structure is ensuring some of the same protections they had become accustomed to under offshore companies. Examples of such protections are minority shareholder rights and liquidation preferences, ie who gets their money first if the company is dissolved. “People are utilising some of these structures and getting themselves comfortable that there’s a sufficient level of protection on these issues within the current joint venture regime in China. There was a bit of a holdup in the months immediately following the adoption of the new rules as people figured out how to navigate within the new regime, but I think 18 months after the fact, people have become a bit more comfortable.” Hwang observes there has been a lot of talk about the setting up of local renminbi PE funds, but this has yet to take off in a major way. One structure he has been working with – but which is less commonly adopted for non-technology or media companies – is the China-China-Foreign (CCF) structure already familiar in the Chinese internet sector. “It’s been adopted by companies like Sina, Sohu and Shanda since about 1999–2000, and more recently has been used by a number of companies in traditional industries as well. There’s a very long precedent for this kind of structure with internet companies. Those investors that have been in the technology space for a long time tend to be a bit more comfortable with it,” says Hwang.
asian legal business ISSUE 8.3
Although this approach gives effective foreign control over Chinese companies, Hwang believes that lack of action by Chinese regulators against internet companies, despite high profile listings over the last eight years, means investor nervousness about this structure post-M&A rules could subside with time. “There’s always a risk that the Chinese authorities could clamp down on this structure, but by now probably too much water has gone under the bridge for the government to want to take action. It would just cause too much disruption to companies already listed overseas and their investors.” Jeanette Chan of Paul Weiss believes the PRC government continues to be en-
gaged in a big push to encourage foreign direct investment. “Once China’s stock exchanges and public market become more mature, you’ll see that foreign investors won’t even think about using offshore structures anyway,” she says. Chan cites her firm’s work on last year’s minority stake acquisition by PE giant Kohlberg Kravis Roberts (KKR) of Chinese cement producer Tianrui as an example of onshore deals that will now be more common. Top PRC law firms are also increasingly competing with international firms on the same PE turf. “[In the past], international firms would typically be responsible for the documentation of the transaction, and the role of Chinese counsel was just to help with regulatory issues and due diligence,” says Richard Guo, partner with PRC law firm Fangda Partners in Beijing. “Nowadays more and more PRC firms are capable of doing documentation to international standards,” he says. “With more PE deals moving onshore, PRC practitioners who understand both international norms and local practice and regulatory regimes are getting the momentum.” As for whether more regulatory changes are on the way, nobody really knows. According to Guo, in 2008 MOFCOM might open the door to approvals of offshore “round trip” investments – “but it’s just a rumour, it could go the other way”. So while the policy landscape is a shifting one, the enormous opportunities continue to attract. ALB
Basil Hwang, Dechert / Hwang & Co
Jeanette Chan, Paul Weiss
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PRIVATE EQUITY
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In-house CAPITAL MARKETS LAWYER Dubai/Expat deal
6+ PQE
Our client is expanding its team in Dubai and is searching for a capital markets lawyer with extensive regulatory experience. You will be very proactive with outstanding presentation skills and be a team player. Excellent remuneration is offered with full expatriate benefits in a tax free environment. (ALB 3141)
PRIVATE EQUITY
Singapore/Hong Kong
5+ PQE
US-based private equity fund has created a role to advise the transactions team on various legal and regulatory issues across the Asia region. Candidates should have a minimum of 5 years’ experience in the areas of M&A and private equity with a top international firm and a strong link to the Asia region. Fluent Mandarin required. (ALB 2834)
DERIVATIVES
Hong Kong
5+ PQE
Reporting to the Regional GC for an expanding European banking force, this is an exciting opportunity for a derivatives lawyer with either equity or debt experience to build his/her experience in a supportive team orientated banking environment. Very competitive package on offer. (ALB 2565)
BANKING
Hong Kong
2-5 PQE
A leading private bank has an opportunity for a mid level banking lawyer.This opportunity would be ideal for candidates who are looking to take a first step out of private practice. Chinese language skills would be an advantage. (ALB 3187)
ASSISTANT GENERAL COUNSEL Hong Kong
1-4 PQE
A leading international financial institution is looking to hire a private equity lawyer with experience gained at a leading international firm. You will work on private equity and direct investment transactions in the region from reviewing deal structures and term sheets, NDAs and other investment documentation to managing outside counsel that are providing the primary support for these transactions. (ALB 3067)
Private Practice CORPORATE
Hong Kong
Partner
This highly profitable international firm with a full service offering seeks a corporate partner to head up its commercial practice. Firm offers exciting range of high quality work. Some following will be needed. (ALB 2676)
PRC CORPORATE
Shanghai
Partner
Leading international law firm with one of the largest regional practices seeks for a senior corporate lawyer to join as partner. Candidates should have strong communication, presentation and client development skills and must have worked at an international law firm for at least seven years. Chinese language skills are not essential. (ALB 3186)
INSOLVENCY
Hong Kong
5+ PQE
International firm with an excellent reputation for insolvency work seeks a senior contentious and/or noncontentious insolvency practitioner. Immediate consultancy title will be offered to the right candidate. (ALB 3190)
EMPLOYMENT
Hong Kong
3+ PQE
This leading firm is looking to hire an experienced employment lawyer with HK experience and Chinese language skills. A top tier education and training is important. Mandarin would be an asset. (ALB 3138)
SHIPPING/INSURANCE
Hong Kong
1-8 PQE
Leading international litigation practice is expanding its team and is looking to hire shipping and/ or insurance litigators at all levels for its Hong Kong, Shanghai or Singapore offices. No language requirements. (ALB 2805)
Professional Recruitment Since ALS International was launched in 2002, we have established ourselves as one of the leading legal recruitment specialists covering Asia Pacific. These are a small selection of our current vacancies. If you require further details or wish to have a confidential discussion about your career, market trends, or salary information then please contact one of our consultants: Andrew Skinner, Denvy Lo, Nick Marett or Lucy Li .
Hong Kong Office
Singapore Office
3305, 33/F, The Centrium, 60 Wyndham Street, Central, Hong Kong Phone: (852) 2973 0810 Fax: (852) 2973 0828 Email: als@alsrecruit.com
20 Cecil Street, #20-03 Equity Plaza, 04975 Singapore Phone: (65) 6557 4163 Fax: (65) 6557 0913 Email: singapore@alsrecruit.com
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0 08 Presents
China Law Awards Date: Tuesday 25 April 2008 Venue: The Westin Shanghai Time: 7:00pm Dress code: Black tie
ALB China Law Awards recognises the excellence of China’s lawyers as well as the top deals and dealmakers of 2007 across a range of practice
areas. The evening is an extravagant black tie gala event and the best networking opportunity of the year, bringing together legal professionals from Shanghai, Beijing, Guangzhou, Hong Kong and other mainland cities. Guests will be treated to a welcome cocktail reception, sumptuous gourmet dinner complemented with free flowing drinks, the best live entertainment and the chance to celebrate the very best that the legal industry has to offer.
For sponsorship enquiries contact:
AMANDA HO on (852) 2815 5988 Email: amanda@kmimail.com For general enquiries contact:
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Book your place now at: www.albawards.com Title Sponsor
Best dress male sponsor
Best dress female sponsor
Award Sponsors
Official publication
Another event organised by
8.3_la_alb_hk hi-res.pdf
2/20/08
11:44:38 AM
PRIVATE PRACTICE
C
M
IN-HOUSE
FUNDS – HONG KONG
STRUCTURED FINANCE – HONG KONG
This position involves helping investors to set up funds. A Hong Kong qualified lawyer with a mix of funds formation and general corporate experience is required by a leading international firm that places great emphasis on training and career development. (PT1804) 2-5 YRS PQE
Do you want a role where you work closely with the business? Join the transactional team of this respectable international bank where you can build on your structured products experience and widen your product exposure. Excellent work-life balance. (IS938) 3 YRS+ PQE
M&A – HONG KONG
AVP INVESTMENT BANK – HONG KONG
This is an opportunity to specialize in M&A transactions at a global firm. You should have very strong M&A experience, preferably in the Greater China region, which will allow you to lead and mentor a team of junior lawyers. Mandarin is not required. (PT1814) 4 YRS+ PQE
Enjoy the buzz of transactions? Can you keep a cool head under pressure? Leading bank requires junior derivatives lawyer to assist with Asian structured products. Must have regional equity derivatives experience and excellent communication skills. (IS936) 2 YRS+ PQE
COMMERCIAL LITIGATION – HONG KONG
SENIOR LEGAL COUNSEL – SHANGHAI
This is a chance for an ambitious self-starter to distinguish themselves at a prestigious international firm. This expanding practice offers a range of matters including general commercial, international trade, banking, and insolvency. Competitive salary. (PT1801) 1-3 YRS PQE
Want a leadership role? This industrial giant with rapidly growing Asian presence seeks a seasoned in-house lawyer to lead its PRC legal team. Your strategic and analytical skills will be valued by top management in their decision making process. (IS925) 8 YRS+ PQE
CORPORATE – HONG KONG
CONSTRUCTION – HONG KONG
Are you seeking a challenging corporate law role within a highly regarded US law firm? Excellent opportunity to work on a variety of matters including s144A, funds, private equity and M&A work. Friendly working environment. NY rates on offer. (PT1827) 3-6 YRS PQE
Rare in-house opportunity for construction lawyers. Must have transactional experience, regional exposure preferred, property background a strong plus. Major Fortune 100 company with a highly recognizable brand. Relocation offered. (IS930) 3-7 YRS PQE
REAL ESTATE – SHANGHAI
ASSISTANT GENERAL COUNSEL – HONG KONG
US qualified candidate with on the ground Real Estate experience working at an international firm or top local law firm will be rewarded with market leading remuneration package and a high level of work responsibility. Must be bilingual to qualify. (PT1829) 3 YRS+ PQE
Ready to demonstrate your capabilities as a real estate lawyer with REITs experience? This global funds player requires hands-on mid-level lawyer, preferably with construction experience. Excellent career prospects. (IS935) 2-6 YRS PQE
M&A – SHANGHAI
JUNIOR CORPORATE FINANCE – HONG KONG
Sophisticated cross border M&A lawyer with PRC or common law background and top law firm experience to join this top US law firm’s ever growing Shanghai practice group. Entrepreneurial environment and nimble management for terrific career path. (PT1830) 3 YRS+ PQE
Want to move in-house with a big name in private equity? Make the switch to the business side and add a huge name in corporate finance to your CV, this role is right for you. Must have good academics. Strong preference for Mandarin speakers. (IS934) 1 YR+ PQE
Y
CM
MY
CY
CMY
K
HONG KONG OFFICE Please contact James Garzon at (852) 2521 0306 or email hk@law-alliance.com
SINGAPORE OFFICE Please contact Jeremy Small at (65) 6829 7155 or email sing@law-alliance.com
www.law-alliance.com Visit our website to see the latest in-house and private practice vacancies worldwide.
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asian legal business ISSUE 8.1
www.asianlegalonline.com
asian legal business ISSUE 8.3
Lawyers behaving badly Looks like some lawyers across the globe are starting the new year off with a bout of bad behaviour – misleading their clients, mistreating their employees, even ignoring the very laws of time!
Real estate partner calls it quits after mistakes on deals are revealed
B
erwin Leighton Paisner (BLP) partner Vinay Veneik has closed the curtain on his once flourishing law career following allegations that he concealed mistakes he made on transactions during his career as one of the leading property lawyers in the UK. Once known as a superb dealmaker, Veneik turned in his resignation in January after reports broke out that he had tried to cover up several errors he made on deals, including failure to pay stamp duties and register transfers of property. BLP currently holds an impressive portfolio of clients, including some of the top names in property such as British Land, Canary Wharf Group, Hammerson and Land Securities Trillium. A spokesman for BLP said they would not be looking to replace Veneik as they already have 44 partners in the business. ALB
30-hour days
‘D
on’t stop till you drop’ is still the motto of many an ambitious solicitor, but Canadian lawyer Mobina Jaffer took the concept of working long hours one step too far when she billed her client for 30 hours in a single day. That day’s bill came in at C$13,000 (US$13,250).
Jaffer, who is also a Canadian senator, acted for Catholic missionary order the Oblates of Mary Immaculate against charges of sexual abuse in its schools. The order sued Jaffer after receiving a bill of C$6.7m (US$6.83m) for work done between 2000 and 2004. The matter was settled in December, but the Law Society of British Columbia is now investigating the senator and critics demand her resignation from politics. ‘Like mother, like son’ is also appropriate in this case. Jaffer’s son Azool Jaffer-Jeraj, who also worked for the order, is reported to have broken his mother’s record and billed 32.4 hours in one day. ALB
Lawyer found guilty in slavery case
F
ormer in-house lawyer for Sony Pictures James Jackson and his wife, Elizabeth, have been convicted in a case of abusive treatment of their Filipino maid. Federal prosecutors said the treatment of the maid amounted to ‘modern-day slavery’. T he c ouple’s for mer ma id claimed in a civil lawsuit that Elizabeth Jackson regularly slapped her and pulled her hair. She also said she was forced to sleep on a dog bed and was given three-day-old food. The Jacksons underpaid her and threatened to turn her over t o i m m ig rat ion authorities if she left them, she claimed. Elizabeth pleaded guilty to abuse and was sentenced to three years in prison. James was fined US$5,000 and ordered to perform 200 hours of community ser v ic e for a l ien harbouring. ALB
An anecdotal account of criminal law
J
Life, law and not enough shoes Judith Fordham New Holland, 2008 ISBN 9781741105391
udith Fordham is not your average lawyer. Her résumé does not boast an education at Harvard or Oxford and she certainly does not indulge in an extensive use of Latin phrases. She is a down-to-earth, straight-talking Aussie, with a flair for telling a good story. And her story is compelling. When she enrolled in law school, she was a mother of four who, being recently divorced, had to survive on welfare. She managed to change her stars by sheer determination and long, long hours of hard work to become a well-respected barrister and associate professor of Forensics. Her life’s story, as told in these pages, is in the Australian tradition of battlers’ biographies. Reading the first few chapters brings to mind AB Facey’s A Fortunate Life, but Fordham’s memoirs will not achieve the status of an Australian classic.
Life, Law and Not Enough Shoes disappoints in that it does not emotionally engage the reader. The references to the hardship Fordham has experienced and the battles she has faced, with prejudice against female lawyers, only receive brief mention and leave too much to the imagination. The majority of her book consists of anecdotes strung together in no apparent order. Her diarystyle account is remarkably honest, but frequently descends into chattering and occasionally annoys, especially when she recalls instances of cases being decided over a few drinks in the local pub, which she, without failure, describes as ‘much more fun’ than current procedures. Having said that, Fordham’s account is a good read; it is often funny and at times hilarious. If you are looking for some juicy details on what goes on behind the doors of lawyers and judges involved in criminal law, this is the book to read. ALB
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