Key Considerations in Mergers and Acquisitions Litigation

Mergers and acquisitions (M&A) litigation has become a significant aspect of corporate law, where disputes arise during or after M&A transactions. Whether it’s due to contract breaches, shareholder disagreements, or regulatory challenges, M&A litigation plays a crucial role in determining the success or failure of these complex deals.

Common Causes of M&A Litigation

M&A litigation typically arises from various aspects of the transaction, and companies involved in such deals need to be aware of the legal risks that can surface. Some common causes include:

• Breach of Contract

In many M&A deals, parties may breach the terms of the purchase agreement, leading to litigation. For example, one party may fail to meet contractual obligations or misrepresent material facts about the business.

• Shareholder Disputes

Shareholders, particularly minority shareholders, may initiate lawsuits if they believe the deal undervalues their shares or is not in the company’s best interests. This aspect of M&A litigation often revolves around allegations of mismanagement, lack of transparency, or unfair treatment.

• Regulatory Compliance Issues

Regulatory bodies, such as the Securities and Exchange Board of India (SEBI), closely monitor M&A deals to ensure they comply with antitrust laws and other regulations. Failure to meet these requirements can result in legal action and delays in the deal.

• Post-Merger Integration Problems

Post-merger integration is another critical phase that can spark legal battles. If the integration fails to deliver the expected synergies or results in operational inefficiencies, it can lead to disputes among the parties involved.

Recent Trends in M&A Litigation

The landscape of M&A litigation has evolved over the years, with recent trends highlighting new areas of focus:

• Increased Focus on Due Diligence

With the complexity of modern business transactions, courts now place greater emphasis on the due diligence process. Parties are expected to thoroughly assess all aspects of the deal, from financial health to regulatory compliance. Inadequate due diligence can lead to legal action for fraud or misrepresentation.

• Rise in Shareholder Activism

Shareholder activism has increased, leading to more lawsuits challenging M&A deals. Shareholders are demanding greater accountability from management teams, and they often use litigation to block deals they perceive as unfair or detrimental to the company.

• Cross-Border M&A Litigation

As global business becomes more interconnected, cross-border M&A deals are becoming more common. This has resulted in a rise in mergers and acquisitions litigation involving international legal frameworks, adding a layer of complexity to the litigation process.

Legal Considerations in M&A Litigation

• Material Adverse Effect (MAE) Clauses

A Material Adverse Effect clause is often a point of contention in M&A litigation. This clause allows the buyer to back out of the deal if unforeseen negative events occur, significantly affecting the target company’s value. Determining what qualifies as an MAE can lead to prolonged litigation.

• Fiduciary Duties

Board members have fiduciary duties to act in the best interests of the shareholders during an M&A transaction. Breaches of these duties, such as acting in bad faith or failing to maximise shareholder value, often result in lawsuits. Directors and officers are frequently defendants in such cases.

• Jurisdictional Issues

In cross-border M&A litigation, jurisdictional issues arise, particularly when the transaction involves multiple countries. Determining which country’s laws apply and which courts have jurisdiction can prolong the legal battle, making it crucial for companies to have a well-rounded legal strategy.

Key Legal Frameworks for M&A Litigation in India

M&A litigation in India is governed by several legal frameworks:

1. The Companies Act, 2013: This Act regulates the formation, functioning, and winding up of companies, and it plays a significant role in mergers and acquisitions litigation. Provisions under Sections 230 to 234 deal with compromises, arrangements, and amalgamations.
2. Competition Act, 2002: This law ensures that M&A transactions do not result in anti-competitive practices. The Competition Commission of India (CCI) plays a vital role in overseeing and regulating large M&A deals.
3. SEBI Regulations: SEBI’s Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011 governs the acquisition of substantial shares in a company, ensuring transparency and protecting shareholders’ interests.

Recent Developments in M&A Litigation

Several high-profile cases have highlighted the evolving nature of M&A litigation:

1. Reliance-Future Group Dispute: A major legal battle ensued between Amazon, Reliance, and Future Group over the proposed merger between Reliance and Future Retail. Amazon, citing its investment in Future Coupons, claimed that the merger violated its rights under a shareholder agreement. This case reflects the growing complexity of legal disputes in large corporate deals.
2. Bharti Airtel and Tata Teleservices: The acquisition of Tata Teleservices by Bharti Airtel faced legal scrutiny due to allegations of unfair pricing. Shareholder groups filed lawsuits, highlighting concerns about the valuation and fairness of the deal.

These cases demonstrate that M&A litigation is not only common but also potentially costly and time-consuming for businesses.

The Role of M&A Lawyers

M&A litigation requires experienced attorneys who understand the complexities of corporate transactions and the associated legal challenges. Mergers acquisitions attorneys specialise in identifying risks, negotiating settlements, and representing clients in court if necessary.

Having the right legal team in place is essential for navigating the intricate web of legal obligations that come with M&A deals. From conducting thorough due diligence to resolving disputes, M&A law firms provide critical services that ensure deals are successful.

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LawCrust Legal Consulting Services. As a subsidiary of LawCrust Global Consulting Ltd, provides M&A legal services in Mumbai, Navi Mumbai, Delhi, Kolkata, Bangalore, and across India for corporates and SMEs. We specialise in SME M&A in India. If you’re seeking the best M&A deals or legal procedures, LawCrust is the leading service provider. LawCrust specialises in mergers and acquisitions, litigation management, Litigation Finance, Legal Protect, and much more. For end-to-end M&A services, LawCrust is one of the most prominent legal consulting firms that can assist you. Call now at +91 8097842911 or email bo@lawcrust.com