LIECHTENSTEIN: An Introduction to Corporate/Commercial
Liechtenstein Economy: Current Conditions
Liechtenstein has built up a highly industrialised, export-oriented and competitive economy, which has continued to grow steadily in past years. Despite growing recession concerns, Liechtenstein has been 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 has the necessary flexibility to react and adapt to challenging economic situations: Liechtenstein's broadly diversified economy plays a major role. Liechtenstein's stable economic forecast is reflected in its strong fiscal position and 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 continue to be actively involved in M&A transactions with a cross-border dimension. Industrial companies maintain successful subsidiaries abroad and are therefore regularly involved in 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 governmental institutions to support companies in an unbureaucratic manner.
New Legislation and Other Recent Legal Developments
Persons and Companies Act (Personen- und Gesellschaftsrecht)
One of the lessons learned from the COVID-19 pandemic is that strict formalities (such as the requirement for shareholders to be physically present at a shareholders meeting) can prove cumbersome. As a consequence of the pandemic, the legislature implemented more flexible rules which allow for shareholders' meetings to be held by video or telephone conference or by circular resolution/voting.
E-Government Act
The E-Government Act constitutes the legal foundation for dealings with public authorities in Liechtenstein. The E-Government Act encourages legally binding electronic business transactions with public authorities and 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.
Since 1 January 2023, 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 are accessible online yet. A second transition period will be completed at the end of 2026, by which time authorities and legal entities will have to communicate consistently online.
M&A
Traditionally, M&A transactions in Liechtenstein are private equity-based. Only a very small percentage of 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 transactions nor the transaction volumes involved can be allocated to different 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, fintech companies and 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.
As a result of the COVID-19 crisis, 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.
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, spin-offs and mergers. 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.
Anti-money laundering measures
By implementing the fifth Anti-Money Laundering Directive (EU Directive 2015/849), Liechtenstein adapted the previous Register of Beneficial Owners of Liechtenstein legal entities to the Register of Beneficially Entitled Persons under the new law. This UBO-register is in line with the standards set forth by the fifth 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.
Law against unfair competition
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 (the "Directive") has been 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 co-operation between companies and research partners.
The Directive has been implemented in Liechtenstein with effect as of 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 has been introduced. 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. Under the new law, an infringed party also is entitled to claim to a larger extent than before compensation for damages, which also includes compensation for loss of profits, profits achieved as a result of the infringement and, if applicable, immaterial damages. These new rules intend to strengthen the protection of business secrets in Liechtenstein.
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.