LIECHTENSTEIN: An Introduction to Corporate/Commercial
An Introduction to CORPORATE/COMMERCIAL LIECHTENSTEIN
1. Liechtenstein Economy: Current Conditions
Despite being one of the smallest states in the world, Liechtenstein has built up a highly industrialised, traditionally export-oriented and competitive economy, which has continued to grow steadily in the past years.
Despite growing recession concerns due to the Russia-Ukraine conflict, Liechtenstein was still able to keep its triple-A rating and remains debt free. Inflation is significantly lower than in the EU and currently at around 3%. Although it is expected that Liechtenstein's economy may cool down slightly due to the increasing impact of the Russia-Ukraine conflict, Liechtenstein still has the necessary flexibility to react to - and to adapt to - challenging economic situations. In this regard, Liechtenstein's broadly diversified economy plays a major role. In addition, the pandemic support provided as well as the planned support measures to mitigate energy price increases should be highlighted. The planned measures are intended to protect low-income households and companies from the most severe effects of increased energy prices. Liechtenstein's stable economic forecast is reflected in its strong fiscal position as well as its high policy effectiveness and prudent regulatory framework.
The number of M&A transactions is on the rise again. In 2022, M&A activity strongly resumed both in the regulated financial services sector and in private equity transactions. 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.
Although Liechtenstein has a very small domestic market there is a comparatively very high and growing 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)
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 and 2021, the legislature introduced rules which allowed 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 after the COVID-19 emergency rules expired. Therefore, Art. 112 para. 4 and Art. 177a of the Persons and Companies Act have introduced the possibility of adopting resolutions using electronic means, so-called virtual or hybrid meetings.
2.2 E-Government Act
The E-Government Act constitutes the legal foundation for dealings with public authorities in Liechtenstein. When drafting the E-Government Act, the previous experience of other European countries in the area of E-Government was taken into account. This was to ensure that the conception of the law corresponds to the latest state of E-Government research and practice.
In particular, the E-Government Act encourages legally binding electronic business transactions with public authorities as well as other electronic administrative measures. It enables public authorities to offer all kinds of services electronically - from simple services to the processing of entire administrative procedures.
From 1 January 2023 on, public authorities are obliged to create the technical and organisational conditions for electronic communication. This means that communication in business transactions amongst public authorities and between public authorities and companies must take place electronically. In addition, public authorities are obliged to communicate electronically with individuals, provided that they have consented to electronic communication.
However, due to the tight schedule, not all official acts will be accessible online as of 1 January 2023. These exceptions will be defined in the E-Government Regulation and, as far as possible, introduced over the next few years. For example, a second transition period will be completed at the end of 2026, by which time authorities and legal entities will not only have to communicate consistently online, but the "once-only principle" will also have to be implemented. This means that citizens or companies will not have to submit data and information over and over again. Once their data have been stored, the offices are obliged to exchange them with each other. This is an enormous advantage that will reduce bureaucracy. One of the government's main goals is that the digital services offered by the administration will make it significantly easier and faster for companies to settle in Liechtenstein. Therefore, it is expected that the E-Government Act will reduce transaction costs for businesses and lead to more efficient handling of their affairs by the public administration.
2.3 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 for listed shares. 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 pandemic 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-domiciliation, 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 considerably again in 2022. Legal advisers 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 latest experiences with the Public Notary Act, which entered into force in 2020, shows that Liechtenstein Public Notaries can help in accelerating the completion of M&A and other business 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.
2.4 Insolvency Law
During the COVID-19 crisis Liechtenstein enacted an entirely revised Insolvency Code which entered into force on 1 January 2021. These rules provide 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 Insolvency Code can lead to attractive investment opportunities for venturesome investors during the COVID-19 pandemic. Recent practice shows that the Insolvency code constitutes a significant improvement in comparison to the former legislation which immensely limited an insolvency receiver's options during an insolvency proceeding.
2.5 Anti-Money Laundering Measures
By implementing the fifth Anti-Money Laundering Directive (EU Directive 2015/849) Liechtenstein adapted the previous Register for Beneficial Owners of Liechtenstein legal entities (Gesetz über das Verzeichnis wirtschaftlicher Eigentümer) to the Register of Beneficially Entitled Persons (Verzeichnis wirtschaftlicher Berechtigter) under the new law (VwbPG). This UBO-register is in line with the standards set forth by the 5th AML-Directive.
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.
2.6 Law against Unfair Competition (UWG)
Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of confidential know-how and business information (business secrets) against unlawful acquisition, use and disclosure (hereinafter referred to as the "Directive") entered into force in the European Union (EU) on 5 July 2016. Based on the decision of the EEA Committee, the Directive was also adopted in the EEA and thus also in Liechtenstein.
The Directive is intended to counteract the fragmented legal situation in the EU, which has a negative impact on cross-border cooperation between companies and research partners. By creating uniform definitions, a common understanding and a uniform scope of application are to be achieved across borders. In addition, the member states must provide for suitable and appropriate measures to enforce the law in the event of violations of trade secrets.
The amended UWG which implements the Directive entered into force on 1 June 2022. The main subject matter of the new rules is the protection of business secrets, which is of particular importance in Liechtenstein. With the implementation of the Directive, a new penal provision for the violation of business secrets was established in the UWG. According to this provision, any person who intentionally acquires, uses or discloses a business secret unlawfully or violates his duty to maintain the confidentiality of business secrets in the course of legal proceedings commits a criminal offence and can be sanctioned with imprisonment of up to one year or a fine of up to 360 daily rates. These new rules intend to strengthen the protection of business secrets in Liechtenstein.
Under the new law the infringed party is entitled to claim to a larger extent than before compensation for damages, which also includes compensation for the loss of profits, profits achieved as a result of the infringement and, if applicable, immaterial damages.
3. Forecast
Despite the COVID-19-pandemic and the ongoing Russia-Ukraine conflict, 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 continues to be 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.
Alexander Appel | Partner
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Hemma Kohlfürst | Junior Associate
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Schurti Partners Attorneys at Law Ltd
+41 44 244 20 00
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www.schurtipartners.com