1. Deal structure
1.1 How are private M&A transactions typically structured in your jurisdiction?
The Companies Act, 2019 (Act 992) provides the two main merger forms. Firstly, “Merger by Absorption” where the business, assets, and liabilities of a transferee company are transferred to another existing company (transferee company); or “Merger by Formation” where a new company is formed to which the business, property, and liabilities of two or more companies are transferred.
There are two principal structures of private M&As in Ghana; Asset Purchase and Share Purchase. Asset Purchase involves one company acquiring assets, undertaking and sometimes certain liabilities of the target company whereas Share Purchase involves the acquisition of the shares of the target company.
1.2 What are the key differences and potential advantages and disadvantages of the various structures?
Share Purchase
In a Share Purchase, it is not necessary to identify each asset and liability of the target company that is included or excluded. This makes the process potentially less complex. There is also no
need to register a change in title to assets such as land because the target company would maintain ownership.
The buyer acquires the company with the benefits of existing agreements of the company. It is however important that the agreements and licences of the company are reviewed for change in ownership clauses.
Under the Stamp Duty Act, 2005 (Act 689), Sch.1, p. 17, Share Transfer Agreements are exempt from stamp duty. However, stamp duty is payable on a Conveyancing Agreement under an asset purchase transaction (Section 12).
Despite the advantages, share purchase transactions have some disadvantages. For example, if the target company’s liabilities are extensive, or there is a risk that it will be exposed to significant undisclosed or unknown liabilities, this would be disadvantageous to the buyer.
The buyer also needs a significant number of the target company’s shareholders to agree to sell their shares. This may protract the acquisition process.
Asset Purchase
The process gives the buyer control over which assets and liabilities are acquired.
The principal disadvantage is the complexity involved in identifying the individual assets, rights and liabilities in the target business, to be transferred to the buyer.
The legal formalities to transfer title to the buyer may be extensive. It would also be necessary to review the agreements affecting these assets and liabilities in respect of assignments of interests.
1.3 What factors commonly influence the choice of transaction structure?
Various concerns such as tax, commercial and legal considerations are factored in choosing the right structure. In some situations, an asset purchase may be the ideal option. For example, where:
a. The target business is a sole proprietorship or partnership.
b. The target business is a division or business unit of a company’s larger business but is not a subsidiary.
c. The target company is financially distressed or insolvent.
1.4 What specific considerations should be borne in mind where the sale is structured as an auction process?
In Ghana, an official liquidator of an insolvent target company is permitted to sell the property and assets of the company by public auction. Auctioning of the properties of a business shall be done in accordance with the Auction Sales Act, 1989 (P.N.D.C.L. 230) (as amended). The law requires the auctioneer to give at least seven days’ notice to the District Chief Executive of the District of Sale. The notice should state the location, time of the auction, and the catalogue of sale items. It must also be circulated in the District ahead of the auction.
2. Initial steps
2.1 What agreements are typically entered into during the initial preparatory stage of a private M&A transaction?
a. Confidentiality Agreement: To safeguard the information obtained through this process.
b. Letter of Intent: This sets out the terms of an acquisition agreed in principle between the parties. It is intended to be non-binding, except for specifically identified provisions relating to exclusivity of negotiations, transaction costs, and governing law.
c. Exclusivity arrangements: As prospective buyers usually need to invest a substantial amount of time and money in pursuing an acquisition, they may seek protection from rival buyers by seeking an exclusivity commitment from the seller.
2.2 Which advisers and stakeholders are typically involved in the initial preparatory stage of a private M&A transaction?
At the preparatory stage of the transaction, legal advisers, accountants, financial advisers and compliance analysts work with buyers and sellers. Directors and shareholders are crucial in kick-starting the process.
2.3 Can the seller pay adviser costs or is this limited by rules against financial assistance or similar?
Yes, the Seller can pay the adviser cost.
3. Due diligence
3.1 What due diligence is typically conducted in private M&A transactions in your jurisdiction and how is it typically conducted?
a. Commercial (or business) due diligence: Commercial due diligence looks at broader issues such as the market in which the target business operates; its competitors; the target business’ strengths and weaknesses; key industry-specific issues affecting the target business; operational matters such as production, sales and marketing, and research and development.
The commercial due diligence aims to test the assumptions already made in the buyer’s acquisition plan and to identify the management action required by the buyer to take effective control of and reduce risk in the business once the deal has closed.
b. Financial due diligence: Financial due diligence focuses on areas of the target’s financial affairs that are material to the buyer’s decision so that the buyer can assess the financial risks and opportunities of the deal and whether, given these risks and opportunities, the target company will fit well into the buyer’s strategy. Financial due diligence may also help quantify: potential synergies; the best acquisition and financing structure; and the impact of the acquisition on the buyer’s performance metrics.
c. Legal due diligence: Legal due diligence focuses on establishing the key legal issues affecting the target business, including the legal obligations and liabilities that the buyer will potentially be acquiring, and any legal risks inherent in the transaction.
The key areas typically addressed in a legal due diligence review include the Corporate structure of the target group; the capacity of the seller, historic corporate actions and transactions, legal compliance and anti-bribery and corruption matters, material litigation affecting the target business, title to the assets being acquired, intellectual property rights and information technology issues, employment and pensions matters and data protection.
3.2 What key concerns and considerations should participants in private M&A transactions bear in mind in relation to due diligence?
It is important to consider key areas such as the financial history and position of the company, disputes, tax position, general compliance and licencing, corporate compliance, labour-related considerations of the company, material contracts, property title, and intellectual property. It is also important to recognise peculiar sector-related issues that may vary depending on the operations of the target company.
3.3 What kind of scope in relation to environmental, social and governance (ESG) matters is typical in private M&A transactions?
ESG diligence in transactions is a comparatively recent development and it is an area that continues to evolve as new approaches, best practices and technologies emerge.
There are three, often overlapping, approaches to ESG diligence in private equity transactions context:
a. Assessments undertaken by the internal team within the private equity house. These assessments often use one of the various standardised methodologies to help integrate ESG into investment decisions and to ensure that investor criteria are met by any proposals.
b. Dedicated ESG reports produced by external consultants, based on direct engagement with the target investment company. These reports are more often provided by technical consultants who have expanded their traditional review of safety and environment matters to also consider the wider risk management of the business and how, for example, issues such as employee welfare rather than just safety are managed by the company and its supply chain.
c. Data-focused reports produced by search providers or analytics specialists based on publicly available information.
4. Corporate and regulatory approvals
4.1 What kinds of corporate and regulatory approvals must be obtained for a private M&A transaction in your jurisdiction?
Generally, an M&A must be filed with the Office of the Registrar of Companies (ORC). Additionally, if the target company is in a regulated industry, the relevant regulators may need to approve a change of control, or at least be notified of it.
Key industry regulators include the Bank of Ghana (BoG), the National Insurance Commission (NIC), the National Communications Authority (NCA), the Minerals Commission, the Petroleum Commission and the National Petroleum Authority.
4.2 Do any foreign ownership restrictions apply in your jurisdiction?
Foreign-owned companies must comply with minimum capital requirements to do business in Ghana. Where the sector of the existing company is regulated, the approval of the Regulator may be required.
Furthermore, some sector-specific laws restrict the level of foreign ownership in companies.
a. Banking Sector - The Bank of Ghana (BOG) has to approve any agreement or arrangement that would result in a change in the control of a bank or its holding company. Consequently, the sale, disposal or transfer of 10% or more of the capital or voting rights of the business of a bank, an amalgamation or merger of a bank with another bank or institution or restructuring of the bank requires the approval of BOG.
b. Petroleum Sector: The Petroleum (Exploration and Production) Act, 2016 (Act 919) provides for notification to the sector minister where a merger or acquisition would result in the creation of a new company. A petroleum agreement cannot be assigned without the consent of the sector Minister. The consent of the Minister is required for the transfer of control of at least 5% of the shares in a petroleum company. If the M&A leads to the company ceasing operations, the Ghana National Petroleum Corporation (GNPC) has the first option in the purchase of its assets.
c. Mining Sector: The acquisition of a stake in a mining company which vests in a person (alone or with an associate(s) ) control of more than 20% of the voting power in a mining company/its holding company needs the approval of the sector Minister.
d. Fisheries Sector: Fishing crafts operating in Ghana’s coastal waters and rivers in connection with any fishing activity have to procure a license for their activities. These licenses are not transferable to another person without the permission of the Fisheries Commission. Consequently, where a merger or an acquisition leads to the formation of a new company, a license granted to a fishing vessel cannot be transferred to the new company unless permission has been obtained.
e. Telecommunication: The Electronic Communications Act, 2008 (Act 775) states that the National Communications Authority (NCA) must approve the transfer of shares in a licensee company if the transfer would result in a change of control of that company and cause it to breach licence terms relating to its ownership structure.
f. Insurance: In the insurance sector, the acquisition or sale of a Significant Interest in an insurance company requires the prior written approval of the National Insurance Commission.
4.3 What other key concerns and considerations should participants in private M&A transactions bear in mind in relation to consents and approvals?
Some of the key regulatory issues relevant to private M&A transactions include minimum capital requirements; tax rules regarding the realization of assets; thin capitalization rules; local participation rules; local content requirements; and prohibition on equity investments in some sectors for example retail pharmaceutical and segments of the downstream oil and gas sector.
5. Transaction documents
5.1 What documents are typically prepared for a private M&A transaction and who generally drafts them?
Some of the main documents in a share purchase may be a share purchase agreement, shareholders and board resolutions, share transfer forms, and share certificates.
In an asset sale, the main document may be the sale and purchase agreement. Where the asset is a landed property, conveyance agreements are necessary.
The relevant documents are usually prepared by legal advisers for the transaction.
5.2 What key matters are covered in these documents?
The key issues in the documents are standard terms, the consideration payable, shares or assets being transferred, and the nature of the interest, rights, restrictions and obligations of the parties.
5.3 On what basis is it decided which law will govern the relevant transaction documents?
Factors affecting the choice of governing law may include:
a. Non-legal factors: A party may choose a particular governing law for a variety of non-legal reasons. These may include familiarity with the market, in which the transaction is being carried out with the governing law, the availability of specialist lawyers within the relevant jurisdiction able to advise on the transaction, and the convenience of choosing a governing law with which a party is familiar among other factors.
b. Certainty and predictability of interpretation of the contract: Factors that may be taken into account in assessing certainty and predictability of interpretation include: the stability of the jurisdiction of the governing law, the ability of the governing law to address complex concepts and structures that may be features of certain finance transactions, the selection of the courts of the same jurisdiction as the governing law, as those courts are likely to be the best interpreters of that law, the familiarity of the governing law with established financial market practices and commercial requirements.
c. Consistency between governing law clause and jurisdiction clause.
Ultimately, the parties enjoy the common law right of party autonomy and choice of law with the power to choose the law that they intend to govern their transaction.
6. Representations and warranties
6.1 What representations and warranties are typically included in the transaction documents and what do they typically cover?
In M&A transactions, parties provide representations and warranties which typically cover the following areas:
- Authority to sell.
- Accuracy of financial records and accounts and confirmation that they have been prepared in accordance with the applicable laws or international standards.
- Solvency of the Seller.
- Compliance with legal requirements and governmental authorisations and consents in entering the transaction.
- Ownership of intellectual property rights.
- Assignable contracts.
- No litigation/legal proceedings.
- Fulfilment of all tax liabilities.
- No material adverse changes.
6.2 What are the typical circumstances in which the buyer may seek a specific indemnity in the transaction documentation?
Buyers may seek specific indemnities for representations made on matters that could potentially affect the operation, running or value of the transaction. Indemnities in M&A transactions are typically backed by the promoter. Specific indemnities are most appropriate to cover specific risks which are of particular concern to the buyer. The indemnities may cover matters such as:
· The existence of any assets or liabilities.
· The title to any assets.
· The accuracy of any financial information.
· The legality of the transaction.
· Any restrictions on the transfer of ownership.
6.3 What remedies are available in case of breach and what is the statutory timeframe for bringing a claim? How do these timeframes differ from the market standard position in your jurisdiction?
In practice, the main remedy for a breach of a warranty in an acquisition agreement is damages. However, other remedies can be explicitly made provision for in the contract and can include the replacement of a defective asset, specific performance or refund. Additionally, a warranty can limit or exclude certain types of damage claims, or a schedule of liquidated damages may be specified.
Normally, the acquisition agreement will expressly state the survival period for a warranty. In the absence of an express provision, the applicable sections of the relevant statute will apply to any claim made by either party.
In Ghana, the statutory period for bringing an action relating to contracts, and torts is within 6 years of the cause of action accruing. This is stated in section 4 of the Limitations Act, 1972 (NRCD 54). In practice, the time frame for obtaining a court order for such matters is 18-24 months.
6.4 What limitations to liability under the transaction documents (including for representations, warranties and specific indemnities) typically apply?
Some of the limitations on liabilities that may be typically provided for include:
- De Minimis Amount: The de minimis amount specifies the minimum threshold a single claim must exceed in order to become eligible for indemnification.
- Tipping Basket: A tipping basket specifies the threshold that the aggregate amount of all claims must exceed before a party can bring any claim for indemnification. Once the threshold is exceeded, the indemnifying party will be liable for the entire amount of losses. Like the de minimis amount, baskets eliminate redress for relatively small claims.
- Deductible Basket: A deductible basket specifies the threshold that the aggregate amount of all claims must exceed before a party can bring any claim for indemnification. However, once the threshold is exceeded, the indemnifying party will only be liable for losses that exceed the threshold amount. For example, if there is a GHS1 million deductible, and a party brings a claim for GHS3 million, the indemnifying party will only be responsible for the portion of the claim exceeding the GHS million deductible; i.e., GHS2 million.
- Indemnity Cap: An indemnity cap limits the amount an indemnifying party may be required to pay. The cap amount is generally calculated as a percentage of the purchase price, but may also be a specified amount.
- Liability Cap: The liability cap clause defines an upper limit to the amount, referred to as the maximum liability limit or cap, to which the vendor is liable. In cases of deliberate intent, the cap does not apply, and the damage must be repaid in full.
6.5 What are the trends observed in respect of buyers seeking to obtain warranty and indemnity insurance in your jurisdiction?
Insurance companies do not typically provide warranty and indemnity insurance with respect to M&A transactions. There are no widespread incidents about its use within the jurisdiction, however, it is possible for parties to see their preferred insurer to develop such products since this is not expressly prohibited by law.
6.6 What is the usual approach taken in your jurisdiction to ensure that a seller has sufficient substance to meet any claims by a buyer?
A thorough due diligence investigation carried out on the seller may reveal the capacity of the seller to meet claims. However, some buyers may require the seller to take out indemnity insurance.
6.7 Do sellers in your jurisdiction often include restrictive covenants in the transaction documents? What timeframes are generally thought to be enforceable?
Non-competition covenants, also known as Restraint of trade in Ghana usually have a limit that falls between two and five years. The courts in Ghana will deem unconscionable, any agreement that seeks to perpetually restrain a person or entity from trade.
6.8 Where there is a gap between signing and closing, is it common to include conditions to closing, such as no material adverse change (MAC) and bring-down of warranties?
Yes, it is typical to include such clauses to protect the interest of the buyer. In such cases, the agreement will include certain pre-closing covenants which may be in the interest of either party.
The seller may insist on certain clauses. For example, the buyer agrees to obtain all applicable governmental and third-party approvals and consent. They may also include requirements for the buyer to secure financing for the purchase price.
There are other common positive and restrictive covenants for the seller such as:
- The seller will continue to operate the business in the ordinary course: No significant actions will be taken without the buyer’s prior consent.
- The seller promises to notify the buyer if any events might cause a Material Adverse Change (“MAC”) on the company, its business, or its assets.
- The seller agrees to provide the buyer with reasonable access to the business. This may include the seller’s premises, personnel, and assets to assist the Buyer in conducting due diligence on the company.
6.9 What other conditions precedent are typically included in the transaction documents?
Conditions precedent typically included in M&A transaction documents are:
a. Obtaining internal approvals for the M&A transaction: Parties may be required to provide evidence of approvals authorizing the execution, delivery and performance of the sale and purchase agreement. Where the transaction constitutes a major transaction under the Companies Act, 2019 (Act 992), a special resolution may be required.
b. Approval in writing by competent authorities: Regulated industries including the mining, petroleum, banking and insurance industries may require the prior notification/ consent of their relevant regulators for such M&A transactions. For any M&A transaction where the buyer is a foreign investor, a company may be obliged to register with the Ghana Investment Promotion Center in order to operate the business with foreign participation.
c. Tax clearance with the Ghana Revenue Authority, and confirmation that there exists no financial obligations to any third parties: The seller commits that the seller hides no tax obligation and/ or financial obligation besides what is included in the sale and purchase agreement, and as the case may be, the seller shall pay any pending tax obligation and/ or financial obligation before the buyer makes payment.
d. Social Security and National Insurance Trust (SSNIT) clearance.
7. Financing
7.1 What types of consideration are typically offered in private M&A transactions in your jurisdiction?
1. Cash- This is the most common type of consideration offered in M&A transactions.
2. Otherwise, than cash
· Shares
· Capital Equipment
· Landed Property
7.2 What are the key differences and potential advantages and disadvantages of the various types of consideration?
The first advantage of cash consideration is that the purchase price is certain. Additionally, the seller disposes of the company in exchange for cash and does not concern itself with anything else that affects the combined company after the sale or whether or not the company achieves its synergy.
Preference for cash consideration may also cause purchasers to take on additional liability by borrowing in order to fund the deal. There may also be reduced earnings as a result of tax deductions. Furthermore, cash consideration leads to a decrease in a company’s liquid assets or cash reserves as a result of financing the transaction.
Equity considerations remove the burden of loan repayment. Under equity consideration, the seller continues to hold shares in the company thereby assuming all risks as well as potential rewards of the post-acquisition company.
7.3 What factors commonly influence the choice of consideration?
Some factors that influence the choice of consideration include tax implications, regulatory requirements, prevailing market conditions, and business strategy.
7.4 How is the price mechanism typically agreed between the seller and the buyer? Is a locked-box structure or completion accounts structure more common?
The Locked-box structure is more commonly resorted to in practice. This is largely due to the filing process and pre-merger approvals required. There are however instances in which the completion accounts structure may be resorted to. This structure is particularly useful in transactions with strict timelines.
7.5 Is the price typically paid in full on closing or are deferred payment arrangements common?
Deferred consideration may be desirable from the buyer’s perspective. This is so because the buyer need not have the full purchase amount ready to be paid upon completion. This arrangement eases the buyer’s cash flow position.
Payment arrangements however vary from case to case as it is contingent on the parties’ agreement.
7.6 Where a deferred payment/earn-out payment is used, what typical protections are sought by sellers (e.g., post-completion veto rights)?
A potential solution or protection is for the seller to secure the deferred consideration against an asset of the company or obtain a guarantee from a third party who may have the capacity to make the payments required.
7.7 Do any rules on financial assistance apply in your jurisdiction, and what are their implications for private M&A transactions?
A company is generally prohibited from providing financial assistance, whether directly or indirectly, for the subscription or purchase of its own shares or the shares of its holding company.
Additionally, the provision of financial assistance is generally restricted in specific industries including the Banking and Insurance industries.
In the Banking industry, a bank or specialised deposit-taking institution shall not issue shares that are paid for by funds borrowed from that bank or specialised deposit-taking institution. Thus, such an institution is unable to provide financial assistance for the purpose of the purchase of its shares or for the financing of an M&A transaction in which it is a party.
Additionally, in the insurance industry, there are restrictions imposed on the purchase of shares and the advancement of loans which may have an impact on the provision of financial assistance in M&A transactions. Hence, the mandatory requirement of prior approval of the regulator when entering into such a transaction.
With respect to a company conducting business within a regulated industry, there may be an outright prohibition of financial assistance to a party in M&A transactions, and in other cases, approval may be required to be given by the industry-specific Regulator. Such approvals or consents are usually at the discretion of the said regulator(s).
7.8 What other key concerns and considerations should participants in private M&A transactions bear in mind from a financing perspective?
a. Selecting a source of financing. Parties may need to consider carefully, their sources of financing i.e. debt or equity.
b. The risks associated with the financing. There are a number of risks associated with M&A financing, including the risk of default of payment of consideration, the risk of changes in interest rates, decrease in valuation of the target company, and the risk of changes in the target company's financial performance.
c. The terms of the financing for the M&A transaction. This includes the interest rate, the repayment schedule, and any covenants or restrictions that the lender may impose.
d. The impact of the transaction on the buyer’s financials. The acquisition may increase the buyer’s debt load and debt-to-equity ratio. This will make it more difficult for the buyer to borrow money in the future and could also impact its credit rating. The buyer therefore needs to carefully consider the impact of the acquisition on its financial health before making a decision to proceed.
e. The valuation of the target company. The buyer needs to make sure that it is paying a fair price for the target company by conducting due diligence and performing a valuation of the shares being offered by the Seller.
f. The tax implications of the preferred financing structure. The type of financing chosen will have tax implications for both the acquiring company and the target company.
8. Deal process
8.1 How does the deal process typically unfold? What are the key milestones?
To summarize, the deal process starts with a special resolution by the involved companies. Following this, the Merger Proposal is prepared for approval. The Merger Agreement is also to be prepared and signed. This will lay out the binding terms for the transaction.
It is important for the companies to procure approvals from sector regulators where required and file the relevant documents with the ORC.
Upon completion of the process, a merger certificate will be issued to the merged entity.
8.2 What documents are typically signed on closing? How does this typically take place?
The following documents are required by the ORC to procure the Merger Certificate:
· The Merger Proposal;
· A certificate signed by the directors of each transferor company stating that the merger has been approved in accordance with Act 992 and the constitution of the company;
· A certificate signed by the directors, or proposed directors of the transferee company. This certificate should state that no creditor will be prejudiced if the creditor claims to asset value ratio of the transferee company is greater than the creditor claims to asset value ratio of the transferor company.
· Consent letters of the new directors and secretary of the merged entity; and
· A report regarding the fairness of the merger and issued by an insolvency practitioner.
8.3 In case of a share deal, what is the process for transferring title to shares to the buyer?
In the case of a share purchase transaction, it is primarily important to confirm that there are no restrictions on the transfer of shares provided in the constitution of the company. Resolutions must be passed approving the transaction. Following this, the value of the shares must be determined by the parties, the share purchase agreement or deed of transfer should be prepared, the share certificate must be issued and the relevant changes must be filed.
8.4 Post-closing, can the seller and/or its advisers be held liable for misleading statements, misrepresentation, omissions or similar?
Yes, in the event that misleading statements, misrepresentation or omissions are made by the seller in the course of the transaction and the buyer relies on these statements to their detriment, the buyer may seek remedies pursuant to the Merger Agreement.
8.5 What are the typical post-closing steps that need to be taken into consideration?
Post-closing, it is imperative that the required notices are provided to the relevant regulatory and governmental agencies of the change in structure and particulars.
9. Competition
9.1 What competition rules apply to private M&A transactions in your jurisdiction?
Ghana does not have a comprehensive piece of competition legislation but rather a number of laws that have been passed which have an impact on competition, or sector-specific laws that contain provisions akin to competition laws.
An example is the Protection Against Unfair Competition Act, 2000 (Act 589). Under this Act, activities that cause confusion with respect to another person’s enterprise or its activities, damage another person’s goodwill or reputation and mislead the public, are prohibited.
Act 589 does not extend far enough, in so far as there are no provisions made for the Prohibition of Anti-Competitive Agreements, Abuse of Dominant Position, Merger Control, Cartels and Price Fixing and Protection of Consumer Interests.
In the absence of a competition legal framework, there is no competition authority to regulate competition in compliance with competition laws in Ghana. Thus, there are no mandatory requirements for relevant approvals and notifications from the sector regulator for private M&A transactions in Ghana.
9.2 What key concerns and considerations should participants in private M&A transactions bear in mind from a competition perspective?
Although Act 589 may not entirely speak to issues relating to private M&A transactions, participants must pay attention to sector-specific laws that contain provisions akin to competition laws in Ghana.
For example, the National Petroleum Authority Act prohibits an agreement between or combination of companies in the downstream petroleum industry if it leads to establishing a monopoly over a particular product or market in the downstream petroleum industry.
Section 52 of the Insurance Act, 2021 (Act 1061) provides that a party cannot become a significant owner in an insurance company without prior written approval from the National Insurance Commission. An application for approval is to be made by the licensed insurer or reinsurer concerned on behalf of the person who intends to acquire the shares. An insurer cannot, without prior written approval from the National Insurance Commission, issue or allot any shares or acquiesce in any other reorganisation of its share capital if it results in a person acquiring a significant interest in the insurance business or a person increasing or decreasing the size of its interest. Other examples include section 34 of the Banking Act, 2004, where a person cannot acquire, directly or indirectly, shares in a bank that, together with that person’s existing direct or indirect holdings, constitute a significant shareholding. Furthermore, a person with a significant shareholding in a bank cannot sell or dispose of shares in that bank to any other person (by sale or disposal) that causes them to cease having a significant shareholding unless the Bank of Ghana is notified within three months of acquisition or disposal and the bank obtains prior approval in writing from the Bank of Ghana.
10. Employment
10.1 What employee consultation rules apply to private M&A transactions in your jurisdiction?
The Labour Act, 2003 (Act 651) and its accompanying Regulations govern employment-related matters in Ghana. Under the said Act, employees have the freedom to form or join a trade union of their choice to promote and protect their economic and social interests. This is a constitutional right guaranteed by Article 21(1)(e) of the 1992 Constitution.
Under section 65(1) of the Labour Act, where an employer contemplates the introduction of major changes in production, programme, organization, structure or technology of a business that are likely to entail terminations of employment of workers, the employer must consult the trade union concerned on measures to be taken to avert or minimize the termination as well as measures to mitigate the adverse effects of any terminations on the workers concerned such as finding alternative employment.
In practice, mergers and acquisitions are most likely to introduce major changes in the structure, organization or program of an entity. Where an employer anticipates that these major changes may result in some employees losing their jobs, the employer must consult the trade union. The consultation however does not deal with the substance of the M&A transaction but rather on measures to be taken to minimize the termination and measures to mitigate the adverse effects of any terminations on the workers concerned.
It is worth noting however that, where a transaction involves a sale or transfer of shares and some of the employees act in a dual capacity as shareholders or directors, they would necessarily be consulted during the transaction process. As shareholders, they can exercise the right of first refusal which can have an impact on the M&A transaction. As directors, their vote on a matter counts by the passing of a Resolution.
10.2 What transfer rules apply to private M&A transactions in your jurisdiction?
Although not cast in stone that the employees of an acquired entity would automatically be transferred to the acquiring entity or in the case of a merger, the employees of the parties to the transaction could be retained as employees of the merged entity. This can be deduced from section 65(1) of the Labour Act which contemplates that during a merger or acquisition, employees may lose their job.
Whether or not an employee would be transferred or retained depends on the terms of the existing employment contract as well as the terms of the transaction. To uphold the concept of party autonomy, the new entity which is the product of the M&A transaction must enter into new employment contracts with the employees of the transacting entities. These new employment contracts must spell out the terms and conditions that would govern the new employment relationship that will exist following an agreement between the parties.
Where there is an assignment of an employment contract as a result of a private M&A transaction, the consent of the employee or worker is required for such an agreement to be effective pursuant to Regulation 30(1) of the Labour Regulations, 2007 (LI.1833).
Where there is no retention or where the employees do not consent, the employees would be entitled to receive compensation in the form of a redundancy pay under section 65(2) of the Labour Act.
10.3 What other protections do employees enjoy in the case of a private M&A transaction in your jurisdiction?
The Labour Act protects employees and their rights during private M&A transactions.
Firstly, under section 65(2) of the Labour Act, employees are to be paid compensation known as “redundancy pay” if the company closes down or undergoes an arrangement or amalgamation and the said closedown, arrangement or amalgamation causes a severance of the legal employment relationship that existed immediately before the closedown, arrangement or amalgamation; and as a result of and in addition to the severance, that employee becomes unemployed or suffers any diminution in the terms and conditions of employment.
Also, employees are entitled to enjoy their leave entitlement with full pay in any calendar year of continuous service. Any change of ownership or management of the business cannot be a basis for the interruption of continuous service and the employees can continue to enjoy their leave benefits pursuant to section 21 of the Labour Act.
The rights of the employees to have their contracts of employment assigned is subject to their consent pursuant to Regulation 30(1) of the Labour Regulations, 2007 (LI.1833).
10.4 What is the impact of a private M&A transaction on any pension scheme of the seller?
Pension schemes in Ghana are governed by the National Pensions Act, 2008 (Act 766). They consist of a three-tier contributory scheme;
a) mandatory basic national social security scheme
b) a mandatory fully funded and privately managed occupational pension scheme, and
c) a voluntary fully funded and privately managed provident fund and personal pension scheme.
In the case of an outright acquisition of an entity by the buyer, the seller’s obligation to make regular contributions to SSNIT on behalf of its employees under Act 766 would be relinquished after the employment relationship between the employees and the seller is terminated. Act 766 defines an employer as the owner of an establishment or the person who has the ultimate control over the affairs of an establishment and with whom the worker entered into a contract of service or apprenticeship and who is responsible for the payment of his salary. Therefore, where the buyer has acquired the seller, the seller is no longer an employer of the employees.
Where the buyer retains the employees of the seller with their consent, the buyer as the new employer is required by law to have a pension scheme for its employees. As such, the buyer may choose to either maintain the exact scheme of the seller or adopt it with slight variations. Regardless of this, an employer, per the pension scheme is to ensure all employees are registered under the Scheme as well as make regular contributions on behalf of the workers to SSNIT. An employer is required to submit contribution reports by the end of the month whether contributions are remitted to the Trust or not, failure of which a penalty of 3% per month shall be imposed on unpaid contributions.
10.5 What considerations should be made to ensure there are no concerns over the potential misclassification of employee status for any employee, worker, director, contractor or consultant of the target?
The primary duty of the buyer is to ensure that there are no concerns over the potential misclassification of employee status for any employee, worker, director, contractor or consultant of the target is to conduct due diligence on the target company. This will involve a review of all employment contracts and company policies and manuals vis a vis the applicable labour laws of Ghana. This will help to ensure that the classifications (employee, independent contractor, consultant, etc.) are appropriate based on the nature of the work and the definitions within the applicable laws.
Considerations as to the length of continuous employment as well as the nature of instruction and control the employer has over the employee are extremely relevant irrespective of whatever classification was given to the employee in the employment contract. For example, per section 75 of the Labour Act, a temporary worker who is employed by the same employer for a continuous period of six months or more must be treated as a permanent worker.
10.6 What other key concerns and considerations should participants in private M&A transactions bear in mind from an employment perspective?
Participants in private M&A transactions should pay attention to the Labour Act and its provisions to ensure that their activities comply with the law.
Again, they should always review their activities to comply with the sector-specific laws related to employment. For example, section 52(1) of the Minerals and Mining Act of 2006 (Act 703) provides that a person cannot become a controller of a mining company (a person who, along with an associate or associates, can exercise or control the exercise of more than 20% of the voting power at any general meeting of the mining company or of another company of which it is a subsidiary) unless they have served notice on the Minister of Mines of their intention to become a controller.
Further, depending on the nationality of the prospective buyers or company being merged, the Ghana Investment Promotion Center Act, 2013 (Act 865), limits foreign participation in certain areas of business with the exception of export trading. Section 27 of the GIPC Act prohibits foreign participation in:
a. the sale of goods or provision of services in a market, petty trading or hawking or selling of goods in a stall at any place;
b. the operation of a taxi or car hire service in an enterprise that has a fleet of less than twenty-five vehicles;
c. the operation of a beauty salon or a barbershop;
d. the printing of recharge scratch cards for the use of subscribers of telecommunication services;
e. the production of exercise books and other basic stationery;
f. the retail of finished pharmaceutical products;
g. the production, supply and retail of sachet water; and
h. all aspects of pool betting business and lotteries, except football pool.
11. Data protection
11.1 What key data protection rules apply to private M&A transactions in your jurisdiction?
In Ghana, the Data Protection Act of 2012 (Act 843) was enacted to protect personal data and privacy by regulating the collection, use, and storage of personal data. It applies to all organizations that process personal data. The Data Protection Commission is the regulatory body responsible for enforcing the Act.
Stakeholders in M&A transactions disclosing any information containing personal data must comply with Act 843. Companies must protect the data of third parties such as suppliers and customers.
In Ghana, businesses must adhere to key elements to protect customer data. These elements relate to; the need for informed consent, data minimality, and data security measures. An important consideration is the need for informed explicit consent from customers to collect and process personal data. Data minimality involves the practice of collecting only the necessary data for a specific purpose, to limit the amount of data that is stored, thereby reducing the risk of a data breach or cyberattack. Data security measures are critical in protecting customer data.
Personal data may only be processed lawfully, in good faith and in a proportionate manner. The relevant test remains whether the other party needs to know the information at a particular stage of the transaction.
Parties can execute Non-disclosure agreements (NDAs), to protect trade secrets, intellectual property rights, and sensitive information which are worth protecting from disclosure.
Under Section 92 of the Evidence Act, 1975 any confidential information can be disclosed pursuant to a court order. Where there is a breach, an injunction can be sought to stop the re-publication. The injunctive relief may be obtained in addition to the award of damages by a court.
11.2 What other key concerns and considerations should participants in private M&A transactions bear in mind from a data protection perspective?
Participants should identify and assess potential data protection risks and liabilities and ensure that the transaction documents include appropriate data protection representation, warranties and indemnities. Additionally, it may be necessary to consider the transfer of personal data between jurisdictions and to implement appropriate data security measures.
12. Environment
12.1 Who bears liability for the clean-up of contaminated sites? How is liability apportioned between the buyer and the seller in case of private M&A transactions?
There is a constitutional duty to protect and safeguard the environment under Article 41(k) of the Constitution of Ghana, 1992.
The primary legislation on the protection of the environment in Ghana is the Environmental Protection Agency (“EPA”) Act,1994 (Act 490) which imposes liabilities for environmental contamination on undertakings or entities, with the EPA as the regulatory body.
Pursuant to section 13(1), EPA shall serve an enforcement notice on the person responsible for a business, where the activities of the business pose a serious threat to the environment or public health. The Notice requires the person responsible to take certain steps to prevent or stop the activities. Non-compliance attracts a fine not exceeding GHS 3,000.00 and in default, a term of imprisonment not exceeding one year, or both the fine and the imprisonment (S.13).
In accordance with the concept of “party autonomy”, parties to the M&A transaction usually spell out each party’s obligations in respect of ensuring that contaminated sites are cleared up, barring the imposition of those duties on either party by any statute. Where there are no expressly stated obligations, it is usually the party who may incur a greater liability for contamination that has a greater burden to clean up the contaminated sites.
For instance, within the upstream petroleum sector, pursuant to sections 83 and 84 of the Petroleum (Exploration and Production) Act of 2016, a licensee or contractor is strictly liable for any pollution damage caused by or resulting from petroleum activities. Further, where the pollution damage was caused by unauthorized activity, the person who conducted the petroleum activity and any other person who took part in the petroleum activity and knew or ought to have known that the activity was conducted without authorization will be strictly liable.
12.2 What other key concerns and considerations should participants in private M&A transactions bear in mind from an environmental perspective?
Where the M&A transaction may have adverse environmental implications, the participants must acquire a permit before they commence their activities per the Environmental Assessment Regulations, 1999 (L.I. 652) as amended.
A person cannot undertake some businesses in sectors like agriculture, mining, manufacturing, wholesale trade, accommodation, food and beverages without an Environmental Permit. A permit can only be issued following an environmental impact assessment.
Consideration should also be given to the potential basis for revocation or suspension of an Environmental Permit and the duties of permit holders. For example, submission of an annual environmental report to EPA after every 12 months.
Where the M&A transaction will result in the creation of a new company or the transferor company is the company that acquired all the relevant permits and reports, the EPA should be informed about the changes.
Additionally, participants must take note of the various sector-specific laws of the industries within which they operate to confirm whether there is a need to acquire any specific environmental permits before they commence their activities. For example, for participants in the mining sector, the holder of a mineral right must obtain the necessary approvals and permits from the Forestry Commission and the Environmental Protection Agency for the protection of natural resources, public health, and the environment prior to undertaking an activity or operation under a mineral right in accordance with section 18 of the Minerals and Mining Act, 2006.
Again, participants can also assess the target company’s environmental compliance and liabilities, evaluate the potential environmental risks and liabilities associated with the transaction, and incorporate environmental representations and warranties into the transaction document.
13. Tax
13.1 What taxes are payable on private M&A transactions in your jurisdiction? Do any exemptions apply?
The Income Tax Act, 2015 (Act 896) (as amended) regulates Ghana’s tax regime. Treatment of realization of assets as a result of a change in ownership of an entity through sale, acquisition, merger, amalgamation re-organization of the entity is provided for under sections 38(2), 47 and 62 of Act 896.
For an outright sale or acquisition, any realization that results from the transaction is subject to tax. Where a gain or profit is made, the amount realized will be added to the income and taxed appropriately. However, if there is a loss, the quantum of the loss may be carried forward.
In the case of a merger, a gain on the realization of an asset that accrues to, or is derived by a company is either exempt from or subject to tax depending on the ownership of the asset.
The gain is exempt from tax where there is a continuity of at least 50% of the underlying ownership in the asset and subject to tax where there is a continuity of less than 50% of underlying ownership in the asset.
A realization of assets and liabilities is deemed to have taken place where within three years, there is a change in the share structure of an entity by more than 50% under section 62 of Act 896. Tax laws relating to the disposal of assets and liabilities would then apply.
In a transaction which involves the transfer of shares, the company is exempt from stamp duty. However, Schedule 1 of the Stamp Duty Act imposes specific stamp duty rates on the conveyance or transfer of the sale of property.
Where the chargeable income of an individual includes a gain from the realisation of an investment asset not charged elsewhere, the individual can elect that the gain from the realisation of the investment asset is taxed at 15% as seen in paragraph 3(a) of the First Schedule to the Income Tax Act.
13.2 What other strategies are available to participants in a private M&A transaction to minimise their tax exposure?
At all times in a private M&A transaction, tax consequences will be triggered in the event that the underlying ownership is altered by more than 50%. This is a pointer for structuring deals to avoid paying taxes on the realization event.
13.3 Is tax consolidation of corporate groups permitted in your jurisdiction? Can group companies transfer losses between each other for tax purposes?
Currently, there are no tax consolidation provisions in Ghana’s tax regime. Each company is a separate legal entity under Ghanaian law and as such is categorized and taxed differently.
13.4 What other key concerns and considerations should participants in private M&A transactions bear in mind from a tax perspective?
Under section 47 of the Income Tax Act, the gains on the realisation of an asset accruing to or derived by a company arising out of an amalgamation, reorganisation or merger of a company are exempt from tax where there is continuity of at least 50% of the underlying ownership in the asset. This is a pointer for structuring deals to avoid paying taxes on the realization event.
14. Trends and predictions
14.1 How would you describe the current M&A landscape and prevailing trends in your jurisdiction? What significant deals took place in the last 12 months?
Due to the current economic crisis, it is anticipated that companies may be compelled to restructure to avoid financial distress and meet the existing sector minimum capital requirements.
There is also a growing introduction of local participation requirements in the heavily regulated sectors and the evolving requirements may compel businesses to explore M&As and other forms of strategic structuring.
The establishment of The African Continental Free Trade Area (AfCFTA) may also affect the M&A arena as it opens up local businesses to cross-border partnerships of various forms.
14.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
The IMF, as part of its proposals to revamp the Ghanaian economy, has recommended mergers and acquisitions between banks and Non-Bank Financial Institutions, which may be an indication of potential M&A deals in the future. This proposal is targeted at consolidating the financial sector and aimed at assisting in the recapitalisation of Banks.
15. Tips and traps
15.1 What are your top tips for the smooth closing of private M&A transactions and what potential sticking points would you highlight?
a. In conducting due diligence, it is important that participants in private M&A transactions consider key areas. It is also important to recognise peculiar sector-related issues that may vary depending on the operations of the target company.
b. A foreign company seeking to do business in Ghana may acquire an equity stake in an existing company. They may however need to comply with the minimum capitalization requirements. Where the industry or sector in which the existing company operates is regulated, the approval of the sector Regulator may be required. Furthermore, a number of sector-specific laws restrict the level of foreign ownership in companies engaged in business in those specific sectors.
c. Ghana does not have a comprehensive piece of legislation on competition; nor a centralised competition authority that regulates competition in compliance with competition laws in Ghana. This notwithstanding, there are sector-specific laws that contain provisions akin to competition laws in Ghana.
d. Participants in private M&A transactions should pay attention to the Labour laws to ensure that their activities comply with the law. Further, they should always review their activities to comply with the sector-specific laws on employment.