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International business and law in cross-border transactions: a European perspective.

SATURDAY, JULY 17, 2010

EOTVOS LORAND UNIVERSITY, BUDAPEST, HUNGARY

In July 2010, the International LL.M program in Global Law and Business, held annually at Eotvos Lorand Law Faculty (ELTE), Budapest, Hungary, hosted an innovative academic program on cross-border corporate transactions. The lecture panel featured Professor Menyhard of ELTE, who spoke about "Policy Goals in Harmonizing European Union and Hungarian Company Law" and two other prominent international business lawyers; Richard Thomas of Salans, London, discussed "Mergers and Acquisitions and Emerging Global Norms," and David Dederick, from the local Hungarian office of Weil, Gotshal and Manges, spoke about "Private Equity in Central European Economies."

The event was generously sponsored by LexisNexis[R], Suffolk University Law School's partner in an Intellectual Property Law lecture series every semester held at the Law School in Boston. LexisNexis[R] is a prominent global provider of information and service solutions to the legal and academic markets, and a member of Reed Elsevier, a world leader in online and print publishing in science, technology, medicine and business.

Over 50 international lawyers attended the panel; some of them alumni of the LL.M degree program, and also in attendance were the Ambassador to Hungary for the State of Ecuador and the Public Affairs Counselor from the Embassy of the United States to Hungary, among a number of other dignitaries. A luncheon speaker Peter Rona, a frequent and outspoken Hungarian political commentator, gave a stimulating critique of governmental control of money in the European Union. After the program, the speakers, faculty teaching in the summer degree program, and the participants enjoyed a wine-tasting at a local restaurant, featuring some of the best Hungarian wines, also courtesy of LexisNexis[R].

The event was organized by the Associate Dean for Graduate Law Programs, Professor Stephen Hicks, and the Director of International and Graduate Programs, Bridgett Halay, with the assistance of Professor Joseph Franco, as part of the Office of Graduate and International Programs' global outreach to attorneys, firms, and corporations so as to create opportunities for students through internships and contacts for networking career opportunities generally.

PART I: POLICY GOALS AND BUSINESS RAMIFICATIONS IN HARMONIZING HUNGARIAN AND E.U. BUSINESS LAW

Attila Menyhard, Ph.D *

I. INTRODUCTION

Harmonizing Hungarian and European Union business law presents certain complexities derived from both competing policy goals and practical business ramifications. In order to provide an overview of the harmonization process, I will briefly discuss the content and development of Hungarian company law regulation.

In 1988, the Hungarian legislature was tasked with drafting the first company act. (1) The Act incorporated pre-World War II Hungarian business law, including the Hungarian Commercial Code (HCC), which is based on the German Commercial Code known as the Allgemeines deutsches Handelsgestezbuch of 1861. (2) As such, present Hungarian law follows the structural pattern of German companies and regulations.

II. WHY COMPANY LAW SHOULD BE REGULATED AT THE EUROPEAN LEVEL

The goal of the Regulation Generale, in trying to reduce agency situations in companies, is to align the goal of regulating company law under European legislation to goals of regulating company law in various countries. From a policy standpoint, two justifications support the regulation of company law on a European level:

1. An explicit provision under the Treaty establishing the European Communities facilitates the freedom of establishment, (3) and 2. The promotion of legal certainty in intercommunity legal relations. (4)

However, preventing the Netherlands from becoming the European Delaware is the real aim of European legislation. The flexible regulation of company law in the Netherlands provides comfort for investors. (5) This presented a great danger that all investors would establish a company in the Netherlands and then establish branches and agencies in other parts of Europe.

III. COMPANY REGULATION IN THE EUROPEAN CONTEXT

The structure of company regulation consists of two levels in the European Union. On the first level is European law, which contains eleven directives that harmonize national laws concerning company law, and regulations that provide core rules for supplemental types of companies. The more important second level consists of directives implemented under national laws. On this level, however, national legislatures have discretion to deal with open questions that remain unaddressed under European legislation.

A. First Level: The Directives Under European Company Law

The directives under European company law provide rules that regulate four specific areas:

1. The formation of companies and structural changes in organization,

2. The capital stock of companies,

3. The protection of third parties, primarily creditors and employees, and

4. The capital markets including takeovers. (6)

The directives and regulations limit their application to particular types of companies.

Although the directives cover private limited liability companies (LLCs) and partnerships limited by shares (LLPs), the public LLC is the centerpiece of European legislation. (7) It is quite problematic that the directives do not consistently apply to various companies and partnerships. The inconsistencies between regulating various companies and partnerships under European legislation result in a break of the internal logic of regulating different types of companies on the European and national levels.

For example, assume Hungarian company law may govern public and private LLCs while European company law may only govern public LLCs. If the Hungarian legislature decides to implement European legislation applicable only to public LLCs, an inconsistency would arise because available Hungarian law would apply to both public and private LLCs. Similar scenarios lead to difficulties in understanding the different legal treatment of public and private LLCs, and they reveal a tension between maintaining such internal inconsistencies and extending harmonized rules to other companies.

B. Second Level: Problematic Implementation of European Directives Under National Law

Hungarian company law follows the three basic values of European company law. The first basic value is to ensure that investors and other stakeholders of a company find themselves in an informed situation, the second is to protect creditors, and the third is to protect minority shareholders. (8) Harmonization is complete with regard to the protection of minority shareholders under Hungarian company law and European company law. Harmonization has limits, however, where the law prescribes conformity with obligations and requirements but does not address the instances of failure to observe the rules.

The existence of such rules without a remedy is a great limitation for Hungarian lawyers. Article 17 of the second directive is a practical illustration of this limitation. (9) Article 17 requires management to hold a general meeting of shareholders when the company suffered a serious loss. Article 17 is silent, however, on the obligations of management regarding the process of calling the meeting as well as the consequences of not calling a meeting. (10) Instead, Article 17 defers to national law for such determinations. (11)

IV. CONCLUSION

In Wienard Meilicke v. ADV/ORGA FA Meyer AG, (12) the German Landgericht of Hannover submitted to the European Court of Justice (ECJ) for preliminary ruling no less than thirty-five questions concerning four articles of the second directive on the formation of public limited companies and the maintenance and alteration of capital. The ECJ decided that Landgericht Hannover posed hypothetical questions and cited the limits of the Treaty in refusing to answer any of the questions. (13) The availability of the questions, however, is more important than the ECJ declining to answer them. The fact that a German court raised thirty-five questions relevant to a single directive shows that great uncertainty remains in understanding European legislation in the context of national law.

Perhaps the confusion begins where European company law falls short of dealing with many issues that manifest under national law. As one example, legal protection is extended to a good faith injured third party under Article 9 of the first directive. European legislation, however, neither provides a broad power of representation nor addresses the abuse of the power of representation. Article 9 lacks a substantive remedy for dealing with an injured party in a conflict of interest situation in which he should have been aware. In Cooperatieve Rabobank "Vecht en Plassengebied" BA v. Minderhoud, (14) the ECJ acknowledged the open question of whether such parties are protected or should be protected under European law. Yet, rather than resolve the issue, the ECJ stated that a lacuna is present in this area of law.

An interesting development called "indirect convergence" fills in where the directives are silent. (15) This is a trend by which countries that implement the European directives would turn to law from international legal systems for solutions in gray areas. For example, Hungarian investors and lawyers are unclear about how a Hungarian court would deal with a situation where a member of the company makes a cash contribution to the company and subsequently engages in a sales transaction with the company. This is economically similar to a contribution in kind, an issue unaddressed in Hungarian court practice but covered by the German doctrine of hidden contributions in kind. Yet, because the Hungarian commercial code is modeled after the German one, the only solution appears to be to seek the German doctrine for guidance. (16) This is problematic because issues presented in European company law should be addressed uniformly on an international level; yet the European legislature defers to national law. (17) This does not square with the goal of harmonization.

* Dr. Menyhard is a Professor of Civil Law at Eotvos Lorand University in Budapest, Hungary where he also received his law and Ph.D degrees. He has been a consultant to Freshfields Bruckhaus Deringer LLP, and currently serves as Of Counsel to Oppenheim in Budapest and a member of the European Center of Tort and Insurance Law. He is the author of "Tort and Regulatory Law in Hungary" and "European Tort Law" and numerous articles on topics concerning Constitutional Rights, EU Directives on Protected funds, Mandatory Rules in Contract Law, Hungarian Bankruptcy Law, and Chinese Direct Investment in Eastern Europe.

PART II: EUROPEAN NORMS IN CROSS-BORDER MERGER AND ACQUISITION TRANSACTIONS AND THE PROSPECTS FOR GENUINELY GLOBAL NORMS

Richard Thomas, Esq.

I. INTRODUCTION

Today I will share some experience that I have had in determining whether European company law, in regard to cross-border merger and acquisition deals, is harmonized and whether any opportunities exist to spread harmonization throughout the rest of the world. (18) I will conclude that, although efforts have been made to harmonize, little harmonization has actually occurred in the public company sector. The private company sector, however, has seen significant harmonization resulting more from the efforts of the legal profession than the actions of regulators.

II. PUBLIC COMPANY ACQUISITIONS VERSUS PRIVATE COMPANY ACQUISITIONS

Generally speaking, the public takeover arena is much more regulated than the private one. Merger and acquisition (M&A) deals around the world are a major factor in the world economy. The following statistics demonstrate the significant amounts of cross-border M&A activity, in terms of volume or the amount of deals: $120 billion in 2005, peaking at $160 billion in 2007, and falling to $100 billion in 2009. (19) Most of those deals were in the public company arena. The majority, however, consists of the mid-market private company sector or, in other words, acquisitions of private companies worth between $100-250 million.

The European Union has attempted to regulate the public M&A market. The driving factors include the regulation of industries such as banking and insurance, the protection of shareholders through transparent transactions, the protection of the market from market abuse and insider trading, and the protection of the economy through antitrust or anti-competition rules. At the end of the day, most public company deals are determined by price. Public company deals do not rely on due diligence and negotiation; it is how much you are prepared to pay that controls the deal. Compare this with the private sector where deals, as a result of due diligence, are meticulously investigated and carefully negotiated. Private sector deals are much more opportunistic in terms of businesses reaching out to find opportunities to buy and sell companies. (20)

III. REGULATION OF CROSS-BORDER PUBLIC M&A IN EUROPE

Cross-border public company M&A regulation in Europe falls under three principal areas. First, public and private companies are subject to the merger regulation, Europe's primary antitrust law. (21) The merger regulation applies principally to public company deals because the transaction size triggers thresholds that make the merger regulation applicable. (22) Second, the less controversial disclosure and transparency directives require providing information to shareholders and disclosing interests of publicly listed shares. (23) Third, the takeover directive took over twenty years of negotiations between various E.U. member-states before it came into operation. (24)

The European Commission's tedious negotiations in forming regulations to harmonize European corporate law remind me of a recent article on the discovery of governmentium (Gv), a new element in the periodic table. (25)
   Governmentium is the heaviest element yet known to science. It has
   an atomic mass of 312 and is comprised of 1 neutron, 25 assistant
   neutrons, 88 deputy assistant neutrons, and 198 assistant deputy
   assistant neutrons. These particles are held together by forces
   called morons, which are surrounded by vast quantities of
   lepton-type particles called peons. Governmentium is inert with no
   electrons; however, it can be detected as it impedes every reaction
   with which it comes into contact. A minute amount of governmentium
   can cause a reaction that would normally take a millisecond to take
   between four days to four years to complete. Governmentium has a
   half-life of two to six years and it does not decay because it
   continually reorganizes itself into assistant neutrons and deputy
   assistant neutrons. In fact, governmentium's mass actually
   increases over time, which is rare in the periodic table, because
   every reorganization causes more morons to become neutrons, known
   as isodopes. Governmentium, when catalyzed with money, becomes
   administratium, an element which radiates equal energy as it has
   half as many peons but twice as many morons. (26)


It is this element in the periodic table that causes things such as the takeover directive to take so long to come into effect.

Despite cross-border regulation, European member-states have frequently stepped in to favor their national champions. (27) In one instance, Spain tried to block the takeover of its energy giant, ENDESA, by the German energy company, EON. (28) More recently, Portugal attempted to use a "golden share" to block the sale of Portugal Telecomm's interest in Vivo, the Brazilian cellular phone company, to Spain's Telefonica. (29)

A. The European Union Merger Regulation

The E.U. merger regulation applies to "concentrations" with a "community dimension." (30) A concentration includes an outright takeover, a pure merger, or an acquisition of joint control between entities. (31) The community dimension aspect is present where the combined turnover of all the undertakings exceed 5 billion [euro] and the community-wide turnover of at least two undertakings involved exceed 250 million [euro]. This is the case unless each of the undertakings concerned achieves more than two-thirds of its E.U. turnover in one and the same member state. (32) A concentration with a community dimension must be referred in advance to the European Commission for clearance. A member-state may only bypass the merger regulation and apply national competition provisions where it invokes a legitimate interest of national security. (33) Notwithstanding the merger regulation, member-states continue to bypass E.U. competition rules to protect national champions. (34)

B. The Takeover Directive

1. Six key principles

The takeover directive, which took so long to implement, tries to harmonize the laws relating to takeovers of public companies listed on E.U. stock exchanges. There are several key principles, most of which have been adopted by the member-states. First, shareholders must be treated equally. Second, the shareholders must be provided adequate time and information to enable them to evaluate the bid. The information and the period of time for which the bid could become unconditional must be in the bid document.

Third, the target board must act in the interest of the company as a whole. Thus, it must take into the account the interests of shareholders, employees, and possible creditors rather than particularly defined selfish interests of the board. Fourth, false markets must not be created. Often, in advance of a takeover bid, vast quick movements occur in the share price of a company that will become the target of a bid. The goal of the takeover directive is to prevent this from happening by ensuring that all shareholders obtain information about the bid at the same time so that they are on a level playing field. As a result, there are rules to prevent a false market from being created.

Fifth, the bidder must not announce his bid until it has been properly financed. This basic principle of the takeover directive stands to reason that the bidder should not bid if he cannot afford to carry it through. Finally, the target's business must not be unduly hindered by the bid. The target of a bid might spend weeks, months, and even years trying to defend it. This diversion of management's time is unacceptable because it could put the target out of business. Therefore, the target tries to consolidate the bid process into a much shorter period so that it has a chance to get back on its feet and operate properly.

2. Specific provisions, to name a few

Most member-states have adopted these key principles, but there are controversial principles that some member-states have not adopted.

a. Control threshold

The key threshold percentage for acquiring the company's shares is a requirement to make a bid for the balance of the shares. Member-states have almost all adopted a level of thirty-percent as the bid threshold; thirty-percent being regarded as the natural level of negative control. The thirty-percent consists of voting shares in some countries and issued shares in others. There is some discrepancy as to which shares the thirty-percent applies.

b. Squeeze out

Squeeze out is the level at which, having made a bid and having been unsuccessful in relation to a small minority, a bidder can force that small minority to sell their shares. This has been a part of U.K. company law for a long time, but has not been law in other countries. Thus, only a small minority of dissenting shareholders may remain after the bid has taken place. The provision allows the bidder to squeeze out the dissenting shareholders or compel them to sell their shares. In the United Kingdom, the squeeze out level is ninety-percent. Upon achieving ninety-percent, the bidder may buy the remaining ten-percent balance. The squeeze out level in most of the other countries in Europe, however, is ninety-five percent. There exists a big discrepancy between the squeeze out procedure in the United Kingdom and the rest of Europe.

c. Pre-bid frustrating action

Pre-bid frustrating actions, such as poison pills, prevent a bid from occurring or becoming successful. For example, flooding the company with new shares will prevent a bid's success. The takeover directive tried to allow the board of a company to implement these kinds of pre-bid frustrating actions only with approval of the shareholders. Largely speaking, most of the E.U. member-states have adopted that principle. Germany, however, is the notable exception that has not adopted it based on the nature of the format of German public companies, which are often controlled by cross-shareholdings between banks.

d. Post-bid breakthroughs

The post-bid breakthrough is where, after having been successful with the bid, the bidding company can basically ignore any protection mechanisms which have been put in place to frustrate it. Again, different implementations in different countries and, in fact, few countries, including the United Kingdom, have not adopted this provision.

e. Reciprocity

The reciprocity rule states that when a party fails to abide by the rules, then the other party is permitted to do the same. In other words, a company established in a state that has adopted the pre-bid frustrating action rules may refuse to apply the rules when it is subject to a takeover bid from a company in a country that has not adopted those rules. The United Kingdom has not adopted the reciprocity rule and, in failing to do so, reflects the English mentality to get around obstacles. For example, when the United Kingdom is faced with losing at something such as soccer, a sport played by every other European nation and every other nation in the world including the United States, then it falls back on cricket, which nobody else plays except for the English.

C. Disclosure and Transparency

The disclosure and transparency directives typically relate to the amounts of shares a shareholder may own before having to disclose the interest. This signifies that a shareholder undertaking a stake-building exercise, or building a percentage of shares, before eventually making a bid, must notify the market so that the market becomes aware the shareholder is interested in that company. In the United Kingdom, once the shareholder passes three-percent of the voting shares, he must disclose every time he passes a further percentage point or sells shares below a further percentage point. In the rest of Europe, the shareholder must disclose at five-percent increments and the idea is to give advanced notice to the market and, therefore, create a level playing field amongst shareholders. These thresholds are relevant in M&A transactions where stake-building is taking place. (35)

IV. REGULATION OF CROSS-BORDER PRIVATE M&A IN EUROPE

Private M&A deals are by far the biggest market of M&A deals in Europe and the rest of the world. Most negotiated M&A deals are between private companies in the form of trade sales between companies in the same kind of business, auctions of companies, or private equity, which buyout and exit private companies after a number of years by trade sale or floatation. This area of M&A is subject to little regulation. However, the European Union has regulated the protection of employees on the sale of a business as opposed to a private limited company, or selling assets as opposed to shares.

The Acquired Rights Directive provides that, upon selling the business, transfer of the business as a going concern means also the transfer of the employees and their current terms of employment. (36) In other words, the asset sale is replicated as a share sale because buying the shares of the company buys the assets, liabilities, employees, and properties. Before the Acquired Rights Directive, the sale of assets was similar to selling property while leaving the employees behind. Now the Acquired Rights Directive, which has been adopted throughout Europe, provides that the employees automatically come with that business. This directive is the only major piece of governmental regulation that applies across the board to private company M&A.

V. CONCLUSION

A. Private M&A Documentation ("The Rise and Rise of Common Law Norms")

I was fortunately trained as a lawyer under English common law, but spent much of my career working in the Netherlands where I learned the civil law. Common law jurisdictions, such as the United States and the United Kingdom, give way to vast contracts because failure to include a specific contract provision means that the right does not exist. If you do not provide for it, you do not get it. Civil law jurisdictions, in contrast, have many automatic implied terms in the agreement and the principle of good faith, which means a court may consider the reasonable result intended by the parties, even absent a specific contract provision.

The default principle of good faith does not apply in the United States and the United Kingdom. Thus, a good faith provision must be written into the contract. This requirement led to the growth of the Share Purchase Agreement (SPA). Salans's SPAs contains about 250 pages, comprising of technical and logistical provisions needed for a transfer of shares with schedules of warranties, indemnities, covenants, restrictive covenants, and so on. However, during my work in Holland, I learned that the Dutch SPA was about only four pages in length because everything is covered by the civil law principle of good faith. (37) Due to the influence of multinational law firms, Dutch SPAs now may contain anywhere between 150 and 250 pages.

In emerging markets such as Hungary, Russia, and other countries with little confidence in the local courts, M&A deals are documented under English or American law and use arbitration to resolve disputes between parties because these countries do not trust their evolving laws or their courts to properly resolve disputes. These multinational law firms and their SPAs exert an influence even in emerging markets.

Today, virtually any company of any size has check-the-box compliance where a compliance officer would check boxes to ensure the proper manner of actions, ranging from health and safety, to corporate acquisitions. One check-the-box item is 'Are the agreements and clauses compliant?' Thus, private M&A with a common law SPA has become the norm both in civilized and sophisticated jurisdictions as well as in those emerging jurisdictions.

B. Prospects for "Global Norms"?

As a cynic who keeps in mind the idea of elements of governmentium multiplying itself throughout the world, I believe that economic protection in the current markets will be a motivating factor in large-scale public M&A transactions. Despite the lip service paid to harmonization, ultimately it is not perfect. No true harmonization exists in terms of takeover regulation on the public scale. On the private scale, which is by far the largest area for M&A, significant harmonization exists due to the normality of the SPA and the negotiation and due diligence process that comes with private equity acquisitions.

Brazil, Russia, India, and China are now emerging as major economic forces. (38) Economic protection in those countries is rampant. I currently have a deal concerning the acquisition of a Russian soft drinks manufacturer by an American one, and I have been waiting six months for Russian authorities to approve the deal. The Russian authorities have raised the state protection law, in which the original concept was to protect military secrets from escaping Russia. A reference in that law is made to radioactive substances. Apparently, every significant manufacturing business in the world uses radioactive substances to measure or clean products. The soft drink bottling plant contains a radioactive substance and, therefore, allows the Russian authorities to invoke this law as a means to approve the deal or not. This acquisition of a juice company is distinguishable from an acquisition of Sukhoi aircraft from the Russian military. Yet, more of this will occur in the future in places like Russia, China, and India. I have skeptical views about global norms, but at least things have been proved in places like Europe and the United States.

* Mr. Thomas is currently a Partner at Salans LLP, London, where he has been co-chair of the Global Corporate Group since 1999. He is a graduate of Queens' College, University of Cambridge, and was a Senior Associate at Clifford Chance, London and Amsterdam, then worked at Sinclair Roche & Temperley where he founded their Corporate Group, before joining Salans. He is the author of several legal publications, including Butterworth's "Company Law in Europe" and various translations of Dutch Antilles and Belgian corporate and business legislation, such as, most recently, "Company and Business Legislation of the Netherlands" and "The Civil Code of the Netherlands" in 2010.

Part III: the development of the private equity industry in Hungary--1990 to 2010: a legal perspective

David Dederick, Esq. *

I. INTRODUCTION

Having heard about company law from Attila, and M&A from Richard, I will address the practical application in these areas, particularly in the private equity field. Legal practice in private equity basically takes two forms: 1) Fund formation, where lawyers assist fund managers in raising and organizing funds, and 2) Deal execution or M&A work for a particular type of client, in this case as a private equity firm.

I will first say a few words about the private equity business, and then discuss the private equity industry in Hungary and how it has developed over the last two decades. I have divided that time frame into three distinct periods:

1. The pre-accession period from 1990 to 1996;

2. The accession period, which included the accession of Hungary to the Organisation for Economic Co-operation and Development (OECD) in 1996, to the North Atlantic Treaty Organization (NATO) in 1997, and to the European Union in 2004; and,

3. The post-accession period from 2004 to present.

In each of these time periods, I will describe the general market conditions that existed, illustrate an example Hungarian transaction and discuss the typical legal issues that arose at the time.

A. Private Equity 101

Private equity is a fund management business in which private equity firms make investments in companies that are not publicly traded on a stock exchange, as well as buy out publicly traded companies in order to take them private. Private equity firms pursue different types of strategies corresponding to the development stage of the target company. The most common investment strategies include buyouts, venture capital, growth capital, distressed investments, and mezzanine capital. Buyout work tends to focus more on mature developed companies, whereas venture capital may deal with investments in startups. Growth capital comes slightly later to help the company expand and enter new markets, and, following the global financial crisis, distressed investing has become more relevant. Mezzanine capital is a hybrid of lending and equity capital investment. Private equity investments are relatively short-term, typically lasting for three to five years, followed by an exit.

II. THE PRE-ACCESSION PERIOD, 1990 TO 1996

Hungary was referred to as the "Wild East" during the pre-accession period. Capital markets were just beginning to develop and private equity was relatively unknown in the region. Western governments and development banks sponsored assistance programs to help form private equity funds. (39) Funds in this early period were organized on a country basis and investments were often made in privatization transactions, startups and new businesses. (40) Strategies included investments in businesses that exported, thus generating revenues in U.S. dollars or German Marks (DEM), currencies that were less volatile than the Hungarian forint. However, leverage or debt financing for acquisitions was not available and company founders, managers and their legal counsel had little experience with private equity investors. (41)

Despite these challenges, the region was perceived as providing opportunities to start new types of businesses, which actually proved to be the case. The founding of Euronet Worldwide, originally "Bank Access 24," is illustrative of an interesting pre-accession transaction. Most Hungarian shopkeepers and proprietors only accepted cash at the time, so the company developed the business idea of installing automatic teller machines (ATMs) around the country. While ATMs were commonplace in the United States at the time, few could be found in Hungary and many businesses did not accept credit cards.

Private equity investors such as the Hungarian-American Enterprise Fund, Euroventures, and Innova Capital provided growth capital allowing Euronet to expand into Poland and the former East Germany by 1996. Euronet was able to launch an initial public offering (IPO) on the National Association of Securities Dealers Automated Quotations (NASDAQ) in 1997 as one of the first companies from the region to be listed in the United States. Such private equity investors did reasonably well by exiting at the IPO and achieving cash multiples of five to ten times their invested capital. Euronet has continued to grow since 1998 through acquisitions, and most ATM or bankomat machines in Budapest presently use some kind of Euronet product or service. The company is truly a success story based here in Hungary. With over $1 billion in revenue today, it has become a global player in processing secure electronic financial transactions, a broader line of business.

Legal practice during this time was challenging due to a rapidly evolving legal environment. Lawyers needed to be vigilant in keeping up with the latest developments as the Hungarian government passed hundreds of new laws to create legal infrastructure and investment incentives. (42) The government successfully attracted foreign and inward investment in this pre-accession period. Hungary was the "darling" for investors and by far the leader in the region on a per capita basis in terms of inward investment. The lack of a domestic private equity business meant that investments came from outside the country and almost all the private equity transactions had a cross-border or international element.

Investors were uneasy with the local laws and forms of dispute resolution. (43) As a result, the selection of foreign law and foreign jurisdictions for dispute resolution, particularly the United States or England, was common. This began a process of foreign legal concepts being imported into Hungary and the region. Lawyers faced a complex challenge in translating legal concepts known in the private equity business so that they could be understood by investee company managers and owners who spoke a different language and had no experience of private equity. (44)

Inflexibility of local laws as well as the differences between common law and civil law systems further presented challenges for practitioners. For example, because the Hungarian civil law system already provided a set of rights, designations, and preferences for corporate interests, uncertainty existed as to the ability to structure and enforce complex equity and debt instruments widely used in the private equity business and originating from common law legal systems. The contrast led to a view that some common law-type corporate interests could not be implemented in Hungarian companies. Lastly, lawyers such as those representing Euronet and its investors faced difficulties in obtaining legal remedies. One of the largest banks in Hungary viewed Euronet as a potential threat and was determined to put it out of business. The bank engaged in unfair business practices and created a difficult operating environment for Euronet in its early days, but no effective redress existed for the company during this period.

III. THE ACCESSION PERIOD, 1996 TO 2004

The accession period includes Hungary joining OECD in 1996, NATO in 1997, and the European Union in 2004.45 These developments had an unquestionably positive influence on investor perception of risk. Regional funds began to be organized as private equity rapidly gained acceptance in the region and transaction volumes increased. (46) The scope of transactions, once predominantly cross-border, expanded to become multi-jurisdictional. (47) A domestic venture capital business developed, but interestingly, those that started during this period also used offshore vehicles for fund formation. (48) Thus, even Hungarian investments in Hungary were cross-border.

Many investments focused on achieving regional exposure, an emphasis and reflection of the funds formed at that time. Investors believed that, although Hungary was experiencing high growth, it would be better to invest in a company with a business in Poland, the Czech Republic or elsewhere in the region. Favored sectors included media, telecommunications, technology, infrastructure and consumer-oriented businesses. The Czech Online transaction, which occurred during the dot-com boom, was perhaps one of the legendary private equity deals in Central Europe from this period. (49) DBG, a Deutsche Bank-sponsored private equity group, bought the business in 1998 for 6 million [euro] and sold it for 200 million [euro] less than two years later. (50) Through training and experience, local company managers, founders and legal counsel became increasingly sophisticated and effective in their ability to carry out transactions. Debt financing for acquisitions started to become available for the first time in 2004. (51) By using debt financing, private equity firms could greatly increase the returns on their investments.

A representative transaction is Euromedic International, founded in Hungary in 1995 by Hungarian and Israeli investors. (52) Euromedic operated diagnostic and dialysis care centers to support the outsourcing of state healthcare systems--sometimes referred to as the public-private partnership (PPP) model. (53) For example, if a French hospital buys a magnetic resonance imaging (MRI) machine, a single MRI test--after taking into account the capital expenditure, training of staff, and so forth--could cost as much as 1000 [euro]. However, a Euromedic private MRI center that has the ability to run the machine much more frequently can deliver the same MRI for approximately 100 [euro], only one-tenth of the cost. This type of cost-effective service was very attractive to state insurance funds and quickly became a success.

Between 1998 and 2005, a series of private equity investors (54) provided Euromedic with growth capital. The first to invest was General Electric's GE Equity with approximately $10 million, giving Euromedic an enterprise value at the time of approximately $30 million. (55) The private equity funds paved the way for Euromedic's expansion into other countries throughout the region. (56) Warburg Pincus bought the company in 2005 and subsequently exited three years later at a sale price of 800 million [euro], a purported return of three times its invested capital. (57) Leveraged financing for the buyer was used in both the Warburg Pincus and earlier exit transactions. Private equity helped the company rapidly grow and develop. It eventually expanded into Western Europe and now operates in twenty countries.

The legal environment of the time was typified by the ongoing harmonization of Hungarian law with E.U. directives. Investor confidence in local law and jurisdiction increased, unlike in the early 1990s when investors hesitated due to the state of Hungarian law and dispute resolution. (58) The English language was used extensively for documentation, but the use of U.S. law declined with the passage of Sarbanes-Oxley following the collapse of Enron and Arthur Anderson in 2002. A perception of the U.S. legal system as litigious and expensive resulted in a diminished use of U.S. law for transaction documents.

English law emerged as the preeminent choice for cross-border transactions. Regional business targets required multijurisdictional legal teams to handle the more complex due diligence and execution processes. The structuring of transactions, often through Western European special purpose vehicles (SPVs), for tax planning and exit scenarios was common. (59) European policymakers were perhaps unable to prevent The Netherlands from becoming a "European Delaware" because, certainly in the private equity business, both it and Luxembourg were primary jurisdictions for structuring purposes, as SPVs were commonly used. (60) Leveraged financing became available at this time but certain legal rules had to be taken into consideration in structuring acquisition loans. Hungary implemented important rules on financial assistance that restricted a company's ability to provide loans or security for the purchase of its own shares. Structural solutions had to be found for those types of issues.

IV. THE POST-ACCESSION PERIOD, 2004 TO PRESENT

The post-accession period witnessed considerable change from boom to bust. (61) Investors began to question the competitiveness of Hungary as the successful accession of the first wave of countries fueled investor interest in the next wave of countries. (62) Global M&A transaction volumes, including private equity transactions, peaked during this period, particularly in 2007. (63) Global private equity players began to seek opportunities in Central Europe for the first time, hoping to invest in large deals. (64) However, opportunities to invest in transactions with an equity component over 100 million were absent and firms in the region remained active but did not engage in many deals. (65)

As with previous periods, investments continued to be cross-border and focused on regional exposure. (66) The global financial crisis and Hungary's rescue by the International Monetary Fund and the European Union have cooled potential investment in the last couple of years. Investors' unfavorable opinion of Hungary may begin to abate if the new government implements certain measures to make Hungary more attractive to foreign and inward investment. (67) Following the crisis, private equity players were involved in the distressed investment business, and buyout firms struggled to manage the over-indebted portfolio companies they had acquired. (68)

Invitel, established as Vivendi Telecom Hungary, is a recent illustration of a transaction of the period. The company, originally put together by the French utility and media conglomerate Vivendi, started in Hungary as a rollup of local fixed-line telecommunication operations. The company's business, at the time of the acquisition last year, included local fixed-line telecommunication and internet as well as alternative and wholesale operations in Austria, Hungary, Romania, and Turkey. (69) Emerging Market Partners and GMT Communications Partners acquired, and subsequently consolidated, the company in 2003. (70) In 2007, the company merged with the Hungarian Telephone & Cable Company, a publicly-traded fixed-line company and subsidiary of Tele Danmark Communications (TDC), and became the second largest telecommunications company in Hungary, taking the name Invitel. (71)

In 2008, TDC decided to divest Invitel in an auction process. The process, however, was cancelled because of the financial crisis and, among other things, the difficulty of obtaining leverage financing. Mid Europa, an interested and fairly established private equity firm specializing in Central European investments, realized that the crisis had greatly reduced the price for the company's debt. As a result, Mid Europa began planning and negotiating an acquisition of the company's publicly traded debt at a discount. The equity price of the publicly traded company also dropped considerably. In 2009, Mid Europa assumed Invitel's debt, paid a nominal price for its equity and acquired the company. The transaction carried a 700 million [euro] enterprise value, which Mid Europa perceived as a fraction of the price of the company before the crisis. Thus, Mid Europa strategically took advantage of the weak market caused by the crisis to execute a better deal.

An extraordinary sellers' market existed in the pre-crisis period where asset prices were high and private equity investors agreed on favorable terms from the sellers' perspectives. Companies were auctioned with relatively limited warranty cover or even with cover that expired on closing. (72) Firms were remarkably willing to accept these terms, and bought warranty insurance as a response. Insurance companies extended the time periods and scope of warranties given by sellers in transactions, which allowed investors to manage the risks in a seller-friendly market.

This period also experienced an interesting trend away from the granting of representations in transaction documents. As I mentioned, English law has emerged as the preeminent choice of law in cross-border transactions. Under English law, a remedy for misrepresentation is rescission of the contract. In effect, a party that received substantial representations and warranties in a transaction document could rescind the contract and escape the deal by later proving misrepresentations in the process. Representations and warranties were standard maybe a decade or more ago. However, in the seller-friendly market, sellers did not wish to face the risk of rescission and, therefore, only agreed to give warranties. A breach of warranty provided for other remedies.

Transactions have become increasingly complex in the current environment. Regulatory notices, approval requirements, management of complex due diligence processes, and documents in many languages make the execution of a transaction much more challenging. The same is true of Invitel-type transactions where publicly traded debt is purchased at fluctuating price levels and coordinated with an equity acquisition. The restructuring of target debt is an important but difficult aspect of these transactions. Banks are tougher on terms and are sometimes unwilling to renew lines of credit, especially those involving buyout assets. These distressed transactions must be structured to avoid problems with rules regarding equitable subordination. (73)

* Mr. Dederick is the Managing Partner of Weil, Gotshal & Manges LLP, Budapest, where he specializes in mergers and acquisitions, private equity and real estate transactions. He is a graduate of Cornell University and earned his J.D. from George Washington University. He has worked on transactions involving the privatization of Budapest Airport, and of the Croatian Steel Industry, the acquisition of radio/telecom businesses in Slovakia, Bulgaria, and Poland, and debt and equity restructurings of organizations in the areas of energy, transportation, and technology. He has been named a leading Corporate/M&A and Private Equity lawyer in Hungary by prestigious law firm ratings guides.

(1.) KLARA OPPENHEIM & JENNY POWER, HUNGARIAN BUSINESS LAW 3-4 (1998). Act No. VI of 1988 was the Hungarian law on which a free market economy was based. Id. at 4. According to its legislative history, the act was intended to account for the nation's prior German and communist corporate forms. Id. As such, it provided legal forms for two companies with limited liability and two different kinds of partnerships. Id. Act No. VI signified a comprehensive change in Hungarian company law, ushering in a free market economy. Id.

(2.) CENTRE FOR ECONOMIC POLICY RESEARCH, HUNGARY: AN ECONOMY IN TRANSITION 239 (Istvan Szekely & David Newbery eds., 1993). The code had a strong German influence and provided for a system similar to the existing German system. Jozef Maly, Transport Law in Hungary, 10 INT'L BUS. L. J. 18, 18 (1982); see also Handelsgesetzbuch [HGB] [Commercial Code], May 10, 1897. For an English translation, see The German Commercial Code (Simon Goren trans., 1998).

(3.) Treaty Establishing the European Community, arts. 43-44, Mar. 25, 1957, 1 C.M.L.R. 573, amended by Treaty on European Union, Feb. 7, 1992, O.J.C. 224/1, 1 C.M.L.R. 719.

(4.) Id. art. 44(2).

(5.) Van Benthem, Corporate Law in the Netherlands (Sept. 22, 2009), available at www.uba.ua/documents/text/van.pdf.

(6.) ATTILA MENYHARD, PROFESSOR, EOTVOS LORAND UNIVERSITY, BUDAPEST LECTURE SERIES AT EOTVOS LORAND UNIVERSITY: INTERNATIONAL BUSINESS AND LAW IN CROSS-BORDER TRANSACTIONS: A EUROPEAN PERSPECTIVE (July 17, 2010) (slides on file with author).

(7.) See Attila Menyhard, Policy Goals and Business Ramifications in Harmonizing Hungarian and E.U. Business Law 6-7 (July 17, 2010) (on file with author). Interestingly, neither national nor European laws provide or distinguish between legal concepts of "company." Id.

(8.) Council Directive 68/151, art. 2, 1968 O.J. (L 65) 8 (EC). The European legislature assumes that investors in an informed situation are able to voluntarily make decisions. Disclosure itself is problematic, however, because accounting, business secrets, and shareholder structure must sometimes be disclosed. See id.

(9.) Menyhard, supra note 7 (highlighting Article 17 of Second Directive).

(10.) Id.

(11.) Id.

(12.) Case C-83/91, Wienard Meilicke v. ADV/ORGA FA Meyer AG, 1992 E.C.R. I-4871; see also Note by Denis Batta, Legal Affairs, European Parliament, on The Relation Between National Courts and the European Court of Justice in the European Union Judicial System 10-11 (Feb. 2007), available at http://www.pedz.uni-mannheim.de/daten/edz-ma/ep/07/pe378.291- en.pdf.

(13.) Case C-83/91, Wienard Meilicke v. ADV/ORGA FA Meyer AG, 1992 E.C.R. I-4871.

(14.) Case C-104/96, Cooperatieve Rabobank "Vecht en Plassengebied" BA v. Erik Aarnoud Minderhand, 1997 E.C.R. I-7211.

(15.) Cf. Ingalill Montanari & Kenneth Nelson, Towards a European Social Model?, 10(5) EUROPEAN SOCIETIES 787, 792-93 (2008) (Fr.).

(16.) See Menyhard, supra note 7 (outlining influence of German Model and English Company Law).

(17.) See supra notes 7-8 and accompanying text (discussing Article 17).

(18.) Protectionism is alive in both public and private deals, but there is an increasing trend toward global norms, particularly in the unregulated and negotiated deal market. See generally Alan O. Sykes, Regulatory Protectionism and the Law of International Trade, 66 U. CHI. L. REV. 1 (1999); Doris Estelle Long, "Democratizing" Globalization: Practicing the Policies of Cultural Inclusion, 10 CARDOZO J. INT'L & COMP. L. 217 (2002).

(19.) Mergermarket, http://www.mergermarket.com. One possible cause for this contrast is that private sector companies tend to be organized such that the focus is on goal achievement (MBOs) or improvement overall via correction (MBEs), whereas the public sector places no special importance on strategic organization.

(20.) See PETER G. NORTHOUSE, LEADERSHIP: THEORY AND PRACTICE 185 (2007) (defining MBE Model); R.K. SINGLA, BUSINESS MANAGEMENT 121-126 (2009) (defining MBOs); cf. MALCOLM PROWLE, THE CHANGING PUBLIC SECTOR 31 (2000) (describing public sector skepticism toward private sector emphasis on strategic organization).

(21.) Council Regulation 139/2004, art. 1, 2004 O.J. (L24) 1, 6 (EC).

(22.) Richard Thomas, Budapest Lecture Series at Eotvos Lorand University: European Norms in Cross-Border M&A Transactions and the Prospects for Genuinely Global Norms (July 17, 2010) (slides on file with author).

(23.) See Council Regulation, supra note 21, at 3 (noting information enabling shareholders to evaluate a bid and company value).

(24.) See id. Published in 2006 and eventually implemented by most E.U. member-states in 2006.

(25.) Mike Adams, Scientists Discover New Element, the Heaviest Yet Known to Science: Governmentium (satire), NATURALNEWS.COM (Dec. 18, 2008), http://www. naturalnews.com/News_000624_atomic_physics_government_bureaucratic_waste. html (commenting on bureaucratic government functioning through satire).

(26.) Id.

(27.) See European Energy Security, EUROPEAN UNION CENTER OF NORTH CAROLINA EU BRIEFINGS, [hereinafter European Energy], available at http://www.unc.edu/ depts/Europe/business_media/mediabriefs/Brief11_Energy_Security_Web.pdf (addressing efforts to liberalize electric and gas markets); see also Ben Shore, Protectionist Forces Bedevil EU, BBC NEWS, Feb. 19, 2009, 4T available at http://news.bbc.co.uk/ 2/hi/Europe/7897342.stm (discussing tension between national priorities and EU's goal of single market).

(28.) See European Energy, supra note 27 (discussing Spain's actions and European Union's reversal of those actions).

(29.) Jeffrey T. Lewis et al., Lisbon Puts a Lock on Telco's Brazil Stake, THE AUSTRALIAN, July 2, 2010, at 25. The phrase "golden share" suggests a state's right to intervene in the affairs of a company whose business implicates a state interest. Id. The golden share could even include the right to veto company decisions. See Ivan Kuznetsov, The Legality of Golden Shares Under EC Law, 1 HANSE L. REV. 22, 22-23 (2005). The European Court of Justice, however, rejected Portugal's attempt to block as an illegal restriction. Case C-171/08, EC v. Port. Repub., 2009, available at http:// curia.europa.eu/jurisp/cgi-bin/form.pl?lang=en&newform=newform&Submit= Submit&alljur=alljur&jurcdj=jurcdj&jurtpi=Jurtpi&jurtfp=jurtfp&alldocrec= alldocrec&docj=docj&docor=docor&docop=docop&docppoag=docppoag&docav= docav&docsom=docsom&docinf=docinf&alldocnorec=alldocnorec&docnoj=docnoj& docnoor=docnoor&radtypeord=on&typeord=A1L&docnodecision=docnodecision& allcommjo=allcommjo&affint=affint&=affclose=affclose=&numaff=C-171%2F08& ddatefs=&mdatefs=&ydatefs=&ddatefe=&mdatefe=&ydatefe=&nomusuel=& domaine=&mots=&resmax=100 (July 8, 2010). Golden shares were typically introduced in the privatization process in many countries in both Western and Eastern Europe and allowed governments to block certain transactions. To a large extent, golden shares have been outlawed in European legislation. Even today, however, one is clearly being used by Portugal and that use is currently being fought out before the European Commission.

(30.) See Control of Concentrations Between Undertakings, EUROPA (Feb. 21, 2007), http://europa.eu/legislation_summaries/competition/firms/126096_en.htm (last visited Mar. 13, 2011).

(31.) Id. Acquisitions of joint control includes the establishment of a "full function" joint venture. See e.g., Press Releases Rapid, Mergers: Commission Approves Acquisition of Joint Control over Dailycer Group and DVG by OEP and MSP Stiftuncy, EUROPA (Oct. 31, 2007), http://europa.eu/rapid/pressReleasesAction.do?reference=IP/07/1641 (last visited Mar. 13, 2011.

(32.) Thomas, supra note 22. Note that if these thresholds are not satisfied, the transaction may be caught on the basis of a further set of lower thresholds. Member States may also refer a transaction to be investigated under the EU Merger Regulation. Id.

(33.) Examples of legitimate interests of national security are public security, plurality of the media, and certain prudential controls in the banking and insurance sector.

(34.) See, e.g., Michael Grenfel, Up for Grabs: ENDESA, E.ON, Economic Nationalism and EU Law, OXERA AGENDA, February 2007 (discussing Spanish protectionism of utility ENDESA); id. (noting similar issues arising out of French, Spanish, and Luxembourg Steel Producers). Examples of such companies are Olympic Airways, British Airports Authority, and Air France. Id.

(35.) The '80s and '90s saw a dramatic increase in "activist" shareholders determined to wake up sleepy companies and challenge traditional institutional investment in listed companies. These regulatory developments (albeit rather late in the making during the mid-2000s) were a response to the pressure from such activists for greater transparency and disclosure in listed companies and the dealings in their shares. See Bob Calandra, Shareholder Activism Around the World, CBS MONEY WATCH (Sept. 1, 2001), available at http://findarticles.com/P/articles/mi_mobjk/is 11 12/ai_78432 798/.

(36.) See Council Directive 77/187, 1977 O.J. (L061) 26 (EC) (also known as Acquired Rights Directive, aimed at safeguarding employees' rights in transfers and undertakings).

(37.) See DANNY BUSCH, THE PRINCIPLES OF EUROPEAN CONTRACT LAW AND DUTCH LAW: A COMMENTARY 48 (Kluwer Law Int'l, 2002) (detailing principle of good faith in Dutch law).

(38.) See Jim O'Neill, Goldman Sachs, Building Better Global Economic BRICs, Global Economics Paper No: 66 (Nov. 30, 2001), http://www2.goldmansachs.com/ ideas/brics/building-better-doc.pdf (providing data of BRIC countries in Tables 1 and 3).

(39.) See EUROPEAN BANK VOR RECONSTRUCTION AND DEVELOPMENT, available at http://www.ebrd.com/pages/about/history.shtml (last visited Mar. 13, 2011).

(40.) Id. Examples of these private equity funds include the Hungarian Venture Capital Association, Hungarian American Enterprise Fund, First Hungary Fund, which was managed by Peter Rona, the luncheon speaker, and Hungarian Investment Company Limited. Nowadays, funds are organized on a regional basis to invest in regions comprised of new European Union member-states.

(41.) Leverage or debt financing is an important tool for private equity investors in making an acquisition.

(42.) For example, ten year tax holidays. See Why Invest in Hungary, IPD EUROPE, http://www.ipd-europe.com/links.html (last visited Mar. 13, 2011) (discussing tax holidays, grants, and loans all intended to increase investment).

(43.) Arbitration Court of the Hungarian Chamber of Commerce & Industry, http:// www.mkik.hu/index.php?id=64 (last visited Mar. 13, 2011) (noting Chamber's history).

(44.) For example, tag-along rights negotiated into a term sheet.

(45.) See David Dederick, The Development of the Private Equity Industry in Hungary 1990-2010: A Legal Perspective 8 (July 17, 2010) (on file with author). See generally Istvan Czajlik & Janos Vinczc, Corporate Law and Corporate Governance: the Hungarian Experience (Institute of Economics, Hungarian Institute of Sciences, Working Paper No. 2004/II, 2004) (discussing history of corporate civil law in Hungary).

(46.) Capital Markets: AIG Emerging Europe Infrastructure Fund, I, L.P., BLOOMBERG BUSINESSWEEK (Feb.24, 2011), http://investing.businessweek.com/businessweek/ research/stocks/private/snapshot.asp?privcapld=3480610 (last visited Mar. 13, 2011). American International Group (AIG) established an infrastructure fund targeting the region. Emerging Market Partnership, now known as Mid Europa, was formed at this time. Id.; see also Mid Europa: Our History, MID EUROPA, www.mideuropa.com/ourhistory.aspx (last visited Mar. 13, 2011) (giving history of Mid Europa). Raiffeisen Bank from Austria started the E.U. Accession Fund.

(47.) See Dederick, supra note 45.

(48.) See Dederick, supra note 45.

(49.) See Czech On Line, a.s., PRAGUE BUSINESS DIRECTORY, INTERNET PROVIDERS, EXPATS.CZ, http://www.expats.cz/prague/czech/internet-providers/czech-online/ (Czech Online corporate profile) (last visited Mar. 13, 2011).

(50.) ARZ, DBG Fund Sold Czech On Line at Record Price (July 17, 2000), http:// office.arxequity.com/lists/messages/dispform2.aspx?id=20&l=en&p=5.

(51.) See Advent International Pays EUR 30M For Danubius Radio, EUROPE INTELLIGENCE WIRE (May 22, 2003); On the Move, INVESTMENT & PENSIONS EUROPE MAGAZINE (March 1, 2004), www.ipe.com/magazine/on-the-move 16682.php; Hungary: Down but Not Out, IFLR (May 23, 2005), http://www.iflr.com.article/1984893/ channel/193438/Hungary-Down-but-not-out.html; Peter Olin, Zoltan Toth Advent International Hungary KFT, BUDAPEST BUSINESS JOURNAL (April 26, 2004), 2004 WL 151539.

(52.) EUROMEDIC INTERNATIONAL, COMPANY BACKGROUND, http://www. euromedic.com/index.php?contact=background (last visited Mar. 13, 2011).

(53.) See generally IRINA A. NIKOLIC ET AL., WORLD BANK, PUBLIC-PRIVATE PARTNERSHIPS AND COLLABORATION IN THE HEALTH SECTOR 1-21 (2006), http://site resources.worldbank.org/INTECAREGTOPHEANUT/Resources/HNPDiscussion SeriesPPPPaper.pdf

(54.) The private equity investors including General Electric (GE) Equity, Global Environment Fund, and Dresdner Kleinwort Capital were represented by Weil Gotshal.

(55.) ANDREW BURROWS, CTR. FOR MGMT. BUY-OUT RESEARCH, PRIVATE EQUITY IN CENTRAL EUROPE: STRONG GROWTH IN OPPORTUNITIES 25 (2004).

(56.) Dederick, supra note 45, at 9. Poland, Romania, Bosnia, Croatia, the Czech Republic, Russia and Bulgaria. Id.

(57.) Id.

(58.) See MONARCHY CHAMBERS, http://www.monarchychambers.eu/index.php? LANG=eng&NODE=monarchia. "The promotion of economic interests and the influencing of decisions in various professional fields are now--more than ever before--vitally important to the Chamber." Id.

(59.) See TAX CONSULTANTS INTERNATIONAL, http://www.tax-consultants-international.com/read/How to incorporate_a_BV (describing Dutch besloten vennootschaps or BVs); Luxembourg Sarl HT GROUP, http://www.htgroup.lu/Luxembourg %20SARL.html (describing structure of Luxembourg Sarls); see generally Gary B. Norton & Nicholas S. Souleses, Special Purpose Vehicles and Securitization, THE RISKS OF FINANCIAL INSTITUTIONS 549, 555-560 (Mark Carey et al. eds., 2007).

(60.) See Menyhard, supra Part II (discussing the Netherlands as "European Delaware").

(61.) Compare supra Part III (describing improved investment climate during Accession Period), with infra notes 73-75 and accompanying text (noting distinct cooling of investments due to 2008 global financial crisis).

(62.) Dederick, supra note 45, at 11.

(63.) A flood of investments went into Romania and Bulgaria in 2007. The competitiveness of Hungary was questioned.

(64.) For example, the investment of Permira in BorsodChem, a Hungarian petrochemicals company, and the more recent Citibank Venture Capital (CVC) acquisition of StarBev, the beer business of Anheuser Busch InBev).

(65.) Dederick, supra note 45.

(66.) Id.

(67.) Alex Newman, Hungary Announces Flat Tax and Bank Tax, THE NEW AMERICAN, (June 10, 2010), available at http://www.thenewamerican.com/index.php/ world-mainmenu-26/europe-mainmenu-35/3752-hungary-announces-flat-tax-andbank-tax

(68.) Credit conditions became tighter and banks were nervous about the ability of these portfolio companies to repay the debt. See Ambereen Choudry & Patricia Kuo, Warburg Pincus Said to be Considering FiberNet Sale, BLOOMBERG NEWS (May 27, 2009), http://bloomberg.com/apps/news?pid=newsarchive&sid=ahnEuGRGOBkQ (last visited Mar. 13, 2011) (discussing Warburg Pincus-FiberNet transaction); see also Permira Agrees on Debt Restructure for Borsodchem, ALTASSETS (Feb. 8, 2010), http:/ /altassets.com/private-equity-news/article/nz17863.html (last visited Mar. 13, 2011) (reporting on Permira's buyout of Borsodchem).

(69.) See Dederick, supra note 45, at 12.

(70.) Invitel Rt., Formerly Vivendi Telecom Hungary, Announces the Refinancing of Indebtedness (Aug. 9 2004), http://www.mideuropa.com/090804.aspx

(71.) Christopher Condon, TDC Buys Invitel in _470M Deal, FINANCIAL TIMES, (Jan. 10, 2007). As a result of the deal, Invitel became the second largest telecom operator in Hungary behind only Magyar telecom, a subsidiary of DeutscheTelekom. Id.

(72.) A seller would provide a warranty cover or guarantees to an investor upon the sale of a company.

(73.) The principle of equitable subordination is a rule whereby a creditor of a company may lose its priority and security in an insolvency situation. For example, the status of a mezzanine lender working out a loan and acquiring equity might be diminished or subordinated.

Professor Stephen C. Hicks *

* Stephen Hicks is a Professor of Law at Suffolk University Law School in Boston and also an Associate Dean for the Graduate Law Programs, including the LL.M in Global Law and Technology, International Internship Program, and International LL.M degree program in Budapest, Hungary. He has been an advisor to the Suffolk Transnational Law Review since 1978 and written in the areas of modern legal theory; the history of ideas; comparative law; and feminism, gender bias, and the law. Professor Hicks is a law graduate of Cambridge University, England, and the University of Virginia School of Law.
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