LIECHTENSTEIN: An Introduction to Corporate/Commercial
Chambers Global 2022:
Practice Area Overview – Corporate/Commercial Liechtenstein
1. Liechtenstein Economy: Current Conditions
As one of the smallest states in the world, Liechtenstein has built up a highly industrialised, traditionally export-oriented and competitive economy. Liechtenstein's economy has continued to grow steadily in the past years. It seems that 2022 however will still be affected by the COVID-19 pandemic.
They number of M&A transactions is clearly on the rise again. In Q3 and Q4 of 2021, M&A activity strongly resumed both in the regulated financial services sector and in private equity. Companies domiciled in Liechtenstein are still actively involved in M&A transactions with a cross-border dimension. Furthermore, industrial Liechtenstein companies maintain successful subsidiaries abroad and are therefore regularly involved in both intragroup and extragroup M&A transactions.
Despite the pandemic, Liechtenstein was still able to keep its triple-A rating and remains debt free. Inflation is significantly lower than in the EU.
Although Liechtenstein has a very small domestic market there is a comparatively very high number of companies that are world leaders in their fields, which is a result of the legal certainty and liberal economic framework that the Liechtenstein legislature has been providing over decades. In addition, the small size of the country allows the governmental institutions to support companies in an unbureaucratic manner.
2. New Legislation and other recent Legal Developments
2.1 Persons and Companies Act (Personen- und Gesellschaftsrecht)
The Liechtenstein legislature is preparing for a fundamental revision in relation to shareholder meetings and meetings of similar supreme bodies of Liechtenstein companies. One of the lessons learned from the COVID-19 pandemic is that strict formalities (which include the requirement for shareholders to be physically present at a shareholders meeting) can prove cumbersome in times of the various restrictions triggered by COVID-19. By way of a temporary legislative measure in 2020, the legislature introduced rules which allow for shareholders meetings to be held by video or telephone conference or by circular resolution/voting. As a consequence of the pandemic, the legislature decided to implement these more flexible rules on a permanent basis into Liechtenstein company law. The draft bill is currently under consultation. It is expected that it will be submitted to Parliament in early 2022 with the aim to enter into force in Q2 or Q3 of 2022.
2.2 M&A
Traditionally M&A transactions in Liechtenstein are private equity-based. Only a very small percentage of the M&A transactions concern listed or public Liechtenstein companies. In addition, the number of listed/public companies in Liechtenstein is very small, since the country does not have a traditional stock exchange of its own. As a consequence, there are no comprehensive public figures on the number of M&A transactions so that neither the number of the transactions nor the transaction volumes involved can be allocated to various industries. In contrast to other, larger markets, the Liechtenstein transaction market has traditionally been dominated by cross-border transactions (both inbound and outbound). The key industries are the financial services sector (insurers and private banks), the manufacturing industry and fintech companies as well as other start-up companies. Many international groups of companies have used the COVID-19 crisis to reorganise their structures which include Liechtenstein subsidiaries and/or holding companies. Such reorganisations frequently include intragroup corporate transactions such as mergers or de-mergers, re-domiciliations, and asset transfers as well as the creation of new intragroup companies.
Similar to its neighbouring jurisdictions, Liechtenstein has not been spared from the implications of the COVID-19 crisis. However, deal frequency has picked up again in 2021. Legal advisors have become more aware of the need to draft specific material adverse change (MAC) clauses in order to cover the risks of material changes between the signing and closing of transaction documents. In practice one could note an increased demand from the transaction parties to stipulate in the transaction documents fairly generous long stop-dates and break-up fees allowing a party to prematurely withdraw from the transaction.
In relation to shareholder agreements for Liechtenstein fintech and start-up companies, international investors increasingly requested the negation of specific exit possibilities which are tailored in view of the COVID-19 pandemic. Experience shows that mere force majeure clauses can lead to complications in an exit scenario. Therefore, investors are interested in more specific termination clauses in order to avoid discussions and potential litigation or arbitration in the event of an exit.
The first practical experience with the Notary Act, which entered into force in 2020, shows that Liechtenstein Public Notaries can help in accelerating the completion of M&A transactions. This also applies if transactions have a cross-border link since the Notary Act permits Liechtenstein Public Notaries to act also in foreign languages and, under certain circumstances, also in relation to documents governed by foreign law.
2.3 Insolvency Law
During the COVID-19 crisis Liechtenstein enacted an entirely revised Insolvency Code which entered into force on 1st January 2021. This new piece of legislation also provides for various possibilities to save financially distressed companies entirely or partly and for a more varied scope of transactions within the insolvency proceedings that an insolvency receiver can consider (not only in order to protect the insolvent entity's employees but also to increase the financial compensation for the creditors). The range of such transactions encompasses private asset sales as well as spin-offs and mergers. It goes without saying that the new Insolvency Code can lead to attractive investment opportunities for venturesome investors during the COVID-19 pandemic. The new law constitutes a significant improvement in comparison to the former legislation which immensely limited an insolvency receiver's options during an insolvency proceeding.
2.4 Anti-Money Laundering Measures
By implementing the fourth Anti-Money Laundering Directive (EU Directive 2015/849) Liechtenstein has had some years of enacting the legal basis for the Register for Beneficial Owners of Liechtenstein legal entities (Gesetz über das Verzeichnis wirtschaftlicher Eigentümer). In the meantime, all legal entities domiciled in Liechtenstein as well as their beneficial owners must be registered. On 1st April 2021 the afore-mentioned register was re-named to be referred to as the Register of beneficially entitled persons (Verzeichnis wirtschaftlicher Berechtigter) under the new law (VwbPG).
For corporate transactions, the consequence is that any resulting change in the identity of the ultimate beneficial owner(s) (who ultimately own or control the entity) must be registered within 30 days (following the date on which the change becomes effective). It is the target entity's obligation to timely arrange for such registration. For closing purposes, it is useful to stipulate the timely registration in the transaction documents by way of a post-closing obligation.
2.5 Blockchain Act
In 2019 Liechtenstein had passed a legal framework regulating distributed ledger technology services within the so-called "Blockchain Act" (Token und VT-Dienstleistergesetz; TVTG). It entered into force in the beginning of the year 2020. The Liechtenstein legislation proved to be noteworthy in the EU's preparation for regulation in the blockchain sector. As Liechtenstein had developed a sophisticated practice in the distributed ledger technology community even before the implementation of the Blockchain Act, several service providers settled in or migrated to Liechtenstein. In particular start-ups with digital business backgrounds tried to finance their business by issuing self-generated tokens (financing via Initial Coin Offerings). Issued tokens regularly represented certain rights towards the company (pre-emptive rights on products of the concrete start-up or pre-emptive rights towards shares or separate non-voting shares). It became clear that many legal questions in connection with this new form of corporate financing would need to be solved by way of specific legislation (e.g. whether a concrete token is a regulated financial product or not). With the enactment of the Blockchain Act most questions could be solved. Thus, Liechtenstein created a very startup-friendly environment for fintech and blockchain service providing companies. Service providers under the laws of Liechtenstein now find a well-suited and modern legal framework to provide their services.
3. Forecast
Despite the COVID-19-pandemic, the country still manages to establish itself as an attractive and reliable hub for corporate transactions with cross-border elements. The country's regulatory framework is in line with modern European and international standards, which also ensures a harmonised approach by the Liechtenstein regulators towards corporate M&A transactions in regulated sectors.