1. Post

   Building Contracts: Is the Alliance Model Best for Construction Projects?

   Alliance projects are often million-euro investments and require years to complete, such as rail, tram and hospital projects. They naturally interest the public because of the impact they have on society and so get a great deal of media attention. The ‘best for project’ principle developed in alliances is now trending in other implementation models, particularly because the quality of construction is currently a subject of heated debate. The general terms and conditions for alliance projects drafted by the Building Information Foundation RTS have also been in force for some time now. Is the alliance model a good fit for all kinds of construction and is it always for the good of a project? The Alliance Model and the ‘Best for Project’ Principle Support Enhanced Cooperation An alliance is an organisation formed by the client, designers and contractors responsible for the design, implementation and other tasks in a construction project. All of the parties are responsible for the development and implementation of, and are subsequently liable for, the project together. The alliance members share the financial risks and benefits of the project and work closely together following principles of transparency. The ‘best for project’ principle sets out that all of the actions taken within the alliance, such as tasks, organisation, resourcing, procurement and decisions, are aimed at achieving the common goals set for the project. The goals and actions of the parties to the alliance cannot be in conflict with the shared goals set for the project. Cooperation during Design Phase a Clear Benefit, but Unfamiliarity with the Model is a Challenge The alliance model may seem difficult and maybe even confusing to some operators in the contract chain. This can particularly be the case for subcontractors operating outside the core of the alliance, who are more used to ordinary projects run under the Finnish General Conditions for Building Contracts YSE 1998. Alliance methodology may also be unfamiliar to parties joining the alliance, which can lead to the costs and efforts of the alliance being spent in the development phase on things that are not vital to the actual design. The contractual relationships and liabilities between the parties may also get mixed up along the way. Continuous communication and transparency between all of the parties throughout the project is vital, as parties outside the core alliance are often tied to the alliance’s internal processes. On the other hand, the alliance model has been found to work well in the project planning phase, as the various contractors can have their say alongside the client and main contractor before the implementation phase starts. The best features of the alliance model shine in challenging and complex projects involving numerous parties. When properly applied, more traditional models, like total and turnkey contracts, are better suited to typical housebuilding or civil works than the alliance model.  The upcoming  reform of the Land Use and Building Act  could also have a major impact on the use of the alliance model.  According to current information, the reform is intended to enact a variety of liability periods for the parties involved in building projects, which is a poor fit for the joint liability for the project and any defects that is the hallmark of the alliance model.  What Is Best for a Project? The amount of attention that construction problems receive in the media can easily drive the conversation towards using the alliance contracting in projects that the model is not a good fit for. The alliance model is very front-loaded with respect to resources and costs. The advantages of the model are also wasted if the design stage is already well under way when the alliance is formed or if extensive cooperation is not necessary in the project. It is important to keep an old wisdom in mind here: choosing the right implementation model for a project between and with help of the developers and consultants right from the start will promote good building— and that is what is best for any construction project.

   Published: 21.7.2021

2. Post

   The Olympics Are a Tempting Target for Ambush Marketing

   The Olympics are one of the most effective international marketing environments: they reach a billion people in over 200 countries around the globe. Extensive recognition and the attention of a global audience make the event a particularly attractive marketing environment for companies. This also means that the event’s official sponsors aren't the only ones interested in leveraging the event’s reputation in their marketing. The Olympic Partners (TOP) global sponsorship programme was established by the International Olympic Committee (IOC) in 1985 to create long-term beneficial corporate partnerships for the Olympic movement.  The TOP programme offers each global partner exclusive marketing rights for a specific product or service category. This means that the IOC must be able to protect the exclusive rights it grants to its partners, and as a result, ambush marketing has been a concern of the sponsorship programme from the very start. Ambush Marketing Is Nothing New The 1984 Los Angeles Olympics were the first games that were not dependent on public funding. The primary sources of income for the games were the sale of television rights and tickets as well as sponsorships. As sponsorship rights were only granted to a limited group, other companies had to come up with new ways to boost their visibility. One of the first ambush marketing events in Olympic history was when a competing photography equipment manufacturer, which had lost the sponsorship deal to Fuji, managed to get the attention of the Olympic audience by purchasing advertising time in ABC’s broadcasts of the games. In addition, this competing company got so much attention by sponsoring the Olympic trials for track and field that many people assumed they were an official sponsor. In the earliest forms of ambush marketing, companies tried to get exposure at the Olympic venues, a strategy that is no longer viable. For example, Reebok was one of the main sponsors of the 1996 Summer Olympics in Atlanta, but many people ended up seeing the logos of competing sporting goods manufacturers in connection with the games. In order to increase their visibility, a competing sporting goods manufacturer offered sprinter Michael Johnson golden track shoes emblazoned with their logo, which ended up on the cover of Time magazine after Johnson won. The same company built a large shopping centre that it named after itself next to the Olympic village. These moves caused the IOC to pay more attention to the protection of its brand and the exclusive rights of its sponsors. What Is Ambush Marketing? The owner of a trademark generally has the right to prohibit other parties from commercially using the same or a similar trademark in a way that could create a false impression of cooperation between the parties. Because the official Olympic Partners pay significant sums to support the games, the IOC has protected its trademarks and drafted strict marketing rules for the games. It also actively monitors and prevents unauthorised references to the Olympics. Ambush marketing often aims to carry out marketing campaigns that are carefully designed to not directly violate trademarks, but that nevertheless understandably leave official sponsors unhappy. Though ambush marketing has an obvious connection to the Olympics, it is often very difficult to prohibit entirely, unless the ambush campaign directly violates the rights of an official sponsor. When Usain Bolt won the gold in Rio in 2016, he took off his personal sponsor’s golden shoes and carried them around the stadium, which led to them being in every photograph. Bolt’s sponsor also flooded social media with posts linking Bolt’s gold medal to the company, despite the fact that they weren’t an official sponsor. Situations in which an unregistered trademark is used have to be assessed on a case by case basis. Though companies have come up with ways to get around marketing rules or legislation, a great deal of this kind of marketing can be prohibited. For example, during the PyeongChang 2018 Winter Games, a telecommunications operator created three advertisements using two South Korean Olympic athletes and the sentences ‘See you in PyeongChang’ and ‘See you in 5G Korea’. Though the ads did not create a direct link between the operator’s services and the Olympics, the Korean Intellectual Property Office found that the campaign violated the rights of the official sponsor, KT Corporation. Invest in Sponsorship Activation In ambush marketing, companies that are not official partners of the Olympics seek to benefit from the reputation of the Olympics. This kind of marketing creates a false, unauthorised, or misleading commercial connection between the Olympic movement or the Olympics. Unauthorised use of Olympic symbols undermines the IOC’s ability to generate income. This is particularly detrimental to the companies supporting the Olympics and the athletes participating the games, as the IOC distributes over 90% of its income to organisations in the Olympic movement in order to support the organisation of the games and to promote the global development of sports. Securing the exclusive rights of sponsors is vital to the continuation of the Olympic movement. Becoming an official sponsor of a major sporting event is a significant investment. Sponsors are entitled to assume that their investment will be protected and that the event organisers will intervene in and be able to stop marketing abuses of the event. The partners themselves can also have an impact on the success of their sponsorship, as the best defence is often efficient and active marketing of their own. Ambush marketing will not succeed if the official partners have effective marketing strategies in place: if everyone’s attention is on the official sponsors, there is no room for others to unjustly benefit from the event. Official partners get the most out of sponsorship when using it as part of other marketing. Activations built around the sponsorship and logo visibility ensure that the campaigns remain in the minds of the target group. Extensive activation of the sponsorship in marketing in numerous different channels will prevent or at least hinder efforts by ambush marketers. Shared Values the Foundation for Successful Sponsorship When official sponsors invest in their marketing strategies and in activation, the result can be an unforgettable ad campaign that is remembered by the audience, increases the company’s sales and recognition, and creates a unique link to the values of the Olympics. Procter & Gamble’s ‘Thank You, Mom’ campaign, in which Olympic athletes thanked their mothers for supporting their dreams, is often highlighted as an excellent example of creating a bond between a brand and the event. The emotional campaign and slogan aimed at P&G’s largest target group, ‘Proud Sponsor of Moms’ made it the most successful ad campaign in P&G's 175-year history and increased sales by 200 million dollars. Long-term Olympic sponsor Coca-Cola launched the #thatsgold campaign, which showcased the moments when gold medals were won as part of the general Taste the Feeling product campaign. The goal was to link drinking Coca-Cola to positive moments, and this successful campaign got over 500 million social media views. As these examples show, Olympic sponsorship is much more than just an investment, it is carefully planned diversely implemented collaboration that benefits both parties over the long term. Official and responsible cooperation promotes the values of the Olympics which also develops the sponsor’s brand and deepens the public’s trust in the brand.  

   Published: 13.7.2021

3. Post

   Back to the Future

   These are not the only big changes in the air. The crisis of the pandemic highlighted the role of business owners and boards of directors, but that role has been changing for other reasons, too. The way that companies create value is changing rapidly. Steering the value of a company can no longer be successfully done using short-term financial metrics, but requires owners to have more extensive expertise, vision and an understanding of the times. Companies are expected to act sustainably, and success is more and more linked to how well a company pays attention to its stakeholders. Stakeholder thinking is nothing new, but combined with sustainability, it forms a new kind of attitude to the basic purpose of a company: if society as a whole is considered a stakeholder, this can lead to a sustainable and responsible business. Good profits alone are no longer enough, as investors, customers, legislators and even courts demand that business owners act sustainably. If a company does not act itself in time, it might be forced to act in a way dictated by outside forces. The market economy is once again shedding its skin and guiding companies towards change. It is important for companies to better understand their internal and external stakeholders and seek to meet their needs. As things stand, few companies are able to identify and anticipate the impacts of sustainability requirements and create added value for new stakeholder groups. One thing remains unchanged, however. The most important task of business owners is to secure the positive development of company value. When it comes to how that value is created, however, there is no turning back. The future will call for more dialogue, new skills, vision, and above all, courage.

   Published: 5.7.2021

4. Post

   Pride Reminds Us of the Need to Promote Equality for Rainbow Minorities

   Laws Change, Working Life Lags Behind Equality is a statutory right in Finland, but the customs and culture of working life are slower to change. The European Union Agency for Fundamental Rights conducted an LGBTI survey two years ago. According to the survey, as many as 92% of Finnish LGBTI people are in the closet at the workplace to some extent with respect to their sexual or gender identity. Lawyers Aren’t an Exception as a Work Community Based on the survey, Finland is not a model student when it comes to equality. Though we have no research data on our industry, we think it is safe to say that the legal community is no model student either. It is worrying to hear that a large number of young LGBTI people return to the closet after their studies when moving into working life in our field. It is sad that this is the case in 2021. Though there is no industry-wide research data, we have examined the situation in our own firm. In our work satisfaction survey conducted in 2020, 96% of our personnel said that they could be themselves at the workplace. This is not a bad place to start. However, the picture looked different when we asked how people felt the workplace supported them in bringing out a minority identity. In an equality survey that we carried out in 2021, 76% of respondents somewhat or fully agreed that our work community is supportive of employees expressing their membership in various minorities if they wish. Correspondingly, a quarter of respondents felt that this is not the case. One quarter is a significant number of people in a 260-person community that values sustainability, a good working atmosphere and the wellbeing of personnel. The comments indicated that, though people felt there was no obstacle to expressing a minority identity at the workplace, the general heteronormativity of the field in general does not encourage such expression. What are we doing about it? We have launched a diversity project in which we discuss and educate ourselves as a community, because we want to better understand minorities and work to mitigate heteronormativity in our workplace. We consult outside experts in this work. We are happy to work with the Bar Association and other law firms to improve the situation. Role models and encouragement to be oneself are also needed.  When we ask our personnel the same questions in our equality survey next year, we hope the answer will show that we have succeeded in making things better. Improving our Culture is an Investment in Wellbeing and Business It is up to each individual to decide how much they want to open up about their private lives at the workplace. However, in a tolerant and open workplace, employees should be able to share their personal news without hiding the name of their partner, for example, and also be able to look like themselves. Many LGBTI athletes and artists have talked about how their performance improved significantly after coming out. A person can unlock their full potential when they no longer have to use energy to hide their identity. Genuine equality is important on a human level and can even indirectly benefit business. In our demanding field, we need the best talents and courageous individuals.

   Published: 30.6.2021

5. Post

   EU Taxonomy Regulation a Step Towards Achieving Sustainability Objectives

   What is the Taxonomy Regulation? The regulation makes it possible to offer financial products that pursue environmentally sustainable objectives and channel private investments into sustainable activities. In practice, the regulation is an amendment of the rules of the EU’s financial system that links financing to the EU’s climate goals. The Taxonomy Regulation applies to, for example, Member States, listed companies employing over 500 people, financial market operators and insurance companies. The regulation encourages companies to make their businesses more environmentally sustainable. What Kinds of Economic Activity are Considered Sustainable? The regulation has six environmental objectives: The regulation will enter into force at the start of 2022 with respect to the climate change mitigation and adaptation objectives and on 1 January 2023 with respect to the other environmental objectives. According to the regulation, economic activities are sustainable if they make a substantial contribution to one or more of these environmental objectives and do not significantly harm the objectives. The regulation specifies characteristics for each objective for determining when an economic activity is considered to cause significant harm to the objective. For example, an activity is considered to harm the objective of climate change mitigation if it leads to significant greenhouse gas emissions. An economic activity also qualifies as contributing substantially to the environmental objectives if it directly enables other activities to make a substantial contribution to one or more of those objectives. In such cases, life-cycle considerations must also be taken into account. An economic activity is considered environmentally sustainable when carried out in compliance with certain minimum safeguards. It must also comply with technical screening criteria that will be established by the Commission for each objective. How Will the Regulation Impact Notification Obligations? In addition to environmental objectives, the Taxonomy Regulation sets disclosure obligations on companies relating to, among other things, financial products, that are divided into three classes: When offering environmentally sustainable investments or financial products promoting environmental characteristics, companies must disclose information on the environmental objectives to which the investment underlying the financial product contributes, as well as how and to what extent the investments underlying the financial product fund economic activities that are considered environmentally sustainable in accordance with the taxonomy. If a financial product does not fulfil the above criteria, the information disclosed on its must state that the financial product does not take the criteria for environmentally sustainable economic activities into account. How Does the Regulation Benefit Investors The Taxonomy Regulation unifies the definition of environmentally sustainable economic activity throughout the EU. A uniform classification enhances investor confidence and awareness of the environmental impact of financial products and addresses concerns about ‘greenwashing’. Greenwashing is the marketing of products as environmentally friendly despite the claimed environmental requirements not being met. A uniform system also helps investors compare investment opportunities across borders. Taxonomy and Green Financing Frameworks In addition to disclosure obligations, the Taxonomy Regulation also sets a new type of pressure on companies to put environmentally sustainable activities directly into practice in activities that companies engage in through a green finance framework. A green finance framework is designed to support the financing or refinancing sustainable development projects that comply with the framework. The allocation of funds and the environmental impacts of projects funded through a framework are reported annually. Green financing frameworks and their quality must always be confirmed by an external assessment provider (such as CICERO Shades of Green).

   Published: 3.6.2021

6. Post

   Stay Alert in Financing Transactions – Finland’s Digital Residential and Commercial Property Information System is in Transition

   Though the purpose of the new digital system is to clarify the availability and reliability of information on residential properties, the adoption of the system has not been without its problems. The original plan was to obligate housing and real estate companies established before 1 January 2019 to transfer the maintenance of their share registers to the National Land Survey of Finland by the end of 2022, but this transition period has now been extended to 31 December 2023. We are currently in an interim period in which the old and new system are in use side by side. Impact of Pledging Shares The current situation has a particular impact on financing transactions when deciding the measures required to implement and perfect share pledges, i.e. to ensure that pledges are binding on third parties. In particular, the parties must determine whether the company's share register has been transferred into the Residential and Commercial Property Information System and whether the ownership of the shares to be pledged has been registered. Ambiguity is typically caused by incomplete authority processes, failure of the company to disclose share information and failure to register ownership. If a company’s share register has been transferred and the shareholder’s ownership has been registered in the Residential and Commercial Property Information System, the shares are pledged based on an application by the pledgee and the pledge is registered in the system. The registration of the pledge also requires the pledgor’s consent. After registration, the pledge will be visible on the printout of owner apartments for each pledged group of shares. Thus, the share pledge will not be registered in the share register as before. The registration of a share pledge can also be applied for when the shareholder applies for the registration of their ownership of the property. If the share register has not yet been transferred into the Residential and Commercial Property Information System or the transfer is pending, the pledge is implemented by physically transferring share certificates and by a pledge notice to the company whose shares are being pledged. In this case, the pledge is also entered in the share register maintained by the company. In these cases it is necessary to enter the pledge in the Residential and Commercial Property Information System when the company’s share register has been transferred into the system and the ownership registered.    A Tool for Smoother Transactions A public register for shares in housing companies, and to a certain extent real estate companies, is a step towards more modern property transactions. However, at least for the duration of the transition, we will have to put up with uncertainty. This being the case, it is necessary to determine in each case whether the company’s share register has been transferred into the Residential and Commercial Property Information System and whether the shareholders ownership has been registered. Once share information is fully transferred into the new system and the technical features of the system are developed further, the register could be a genuinely useful and reliable tool for the smooth, digital implementation of transactions.   Minna Korhonen Juhana Hyytinen Sampo Korpiola

   Published: 2.6.2021

7. Post

   Building Contracts: Legislative Reform Will Not Guarantee Better Building Construction, Co-operation Is Key

   Over the last decade, the renewal of the National Building Code of Finland and now the progress of the overall reform of the Land Use and Building Act are giving rise to legal debate, as well. The goal of the overall reform is to submit a bill to Parliament during the spring of 2022. One key incentive for the reform of the Land Use and Building Act is to improve the quality of building construction. This blog takes a look at quality questions through the lens of the traditional building construction industry, in which the employers are professional developers, and the building contract is mainly based on the Finnish General Conditions for Building Contracts YSE 1998. Infrastructure and plant construction deserve their own posts about the coming bill, but for now, suffice to note that extensive and demanding construction projects may use conditions other than YSE 1998, such as the FIDIC contract forms . Will Longer Liability Periods Produce the Desired Results? According to current information, the reform of the Land Use and Building Act will include a variety of liability periods for the parties involved in building projects. In particular, the main contractor responsible, in fact, for the project would have a more extensive overall liability, whereas extensive liability is currently borne by the developer as a main implementing party of the project within the meaning of the current Land Use and Building Act. The reform proposes that the liability period for the main contractor responsible for the project would be five years from the final inspection. This differs from the two-year liability period provided for in the YSE 1998 conditions. Similar mandatory liability periods are being proposed for designers, subsidiary contractors and supervisors. Will new legislation containing mandatory liability periods produce the desired result of improving the quality of building construction? Mandatory liability periods that deviate from current practice may not be the most cost-effective route to better quality. They would also be a significant restriction of the freedom of contract. Limited periods of liability that can be freely agreed have been an essential part of the exchange relating to building construction, and mandatory provisions could change this significantly. More extensive liability would be reflected throughout the subcontracting chain all the way to the suppliers, particularly in large and complex construction projects. The solution proposed by the legislator seems to ignore the professional skills of developers, contractors, designers and other stakeholders in the negotiation and implementation phases. Quality Can Already be Promoted by Agreements Developers already demand quality. For example, provisions on quality and sustainability requirements, separate guarantees, collaterals, supervision and change order procedures and various environmental certification classifications can be included in building contracts in order to promote quality. Developers often already require longer, five- to ten-year separate guarantees, for example, for the waterproofing of roofs, moisture barriers, glass, facades and heat exchangers. These separate guarantees that are longer than the two-year guarantee period provided for in the YSE 1998 conditions are an additional incentive for contractors to make sure that these specified matters are of high quality during the project. Correspondingly, the parties to a building project can be required to post collaterals either in accordance with the YSE conditions or more extensively, which provides security in case of financial problems if quality targets are not met. Cooperation is Key There are many reasons for new legislation, but legislation alone will not solve the quality challenges faced by the building construction industry or eliminate human error. Ultimately, the quality of the end result is determined by the individual project team, the site and the cooperation between the parties operating on the site—now and after the reform. Good project-specific preparation, relevant quality and other requirements and good communication can all have a positive impact on building construction quality. Well implemented coordinated claims management can also improve quality during the building project and prevent disputes after the hand-over. Hopefully, as to quality, the new legislation and the debate surrounding it will help create a consensus concerning the liability of the various parties to a building project and boost the ambition to build more sustainable and higher-quality buildings.

   Published: 21.5.2021

8. Post

   SAP Ending Support of ERP System in 2030 – Start Migrating to a New System Now

   SAP has announced that it will end support and maintenance of its current ERP system at the end of 2030. Many companies will be facing an update or migration to a new system. New System Enables Streamlining of IT Architecture Before changing to a new system, it is important to map out your company’s current and future needs. System updates are a business-critical change for many companies, but when done right, they can open to door to significant cost savings. Migrating to a new system also gives companies the opportunity to take a look at the company's operations  and re-evaluate the need for customisation. Migrating to a new platform can also help to simplify IT architecture and adopt cloud services. It is often the case that by altering its own operations, a company can adopt standard solutions, which make operations more efficient and create savings. SAP Offering SAP S/4HANA as Replacement As its new ERP system, SAP is offering the SAP S/4HANA system, which uses SAP’s own HANA database. SAP’s previous software solutions have used, e.g. Oracle’s and other suppliers’ databases. This being the case, the system change will also require migrating databases into the new S/4HANA ERP system. This system migration will require a great deal of work and planning from companies. The migration requires the adoption of the new system as well as conversions and data transfers. Given that the common SAP ECC version and S/4HANA have completely different system architectures, updating and conversion could prove to be surprisingly work intensive. This is more than just a version update, it is the adoption of a genuinely new system. New System, New Contracts Migrating to a new system will also require contract negotiations with SAP covering terms of use, prices and potentially support and maintenance. Negotiations always take time and resources.  The customer also needs to understand both its own ambitions with respect to its existing systems as well as the transformation process. Don’t be Caught Shorthanded at Crunch Time There is no overabundance of SAP experts in Finland. If many companies leave this migration to the last minute, they are going to find themselves shorthanded. This could increase costs and the risk of failure. The demand for skilled experts will grow as more customers decide to update their systems. Time to Get Started Even though 2030 still seems a long way off, it would be wise to start planning and preparing now. There is certain to be more room for negotiations with SAP now than closer to the end of support and maintenance for the current system. The key to success is good preparation and planning. You will need to engage in negotiations on two fronts, as in addition to the system project, you will also need a partner to handle the system implementation, conversion and data migrations. The road may be long and rocky, and it is wise to pick partners who will help carry the load to reach the best result.

   Published: 5.5.2021

9. Post

   Checklist for Purchasing Private Equity Fund Interests on Secondary Markets

   As trading in fund interests has become more active, investors have had better opportunities to realise their private equity fund investments prior to the expiry of the fund’s term. This has made private equity fund investments easier and quicker to liquidate. Active secondary markets also offer interesting investment opportunities to buyers such as private equity funds specialising in secondary markets (called secondary funds). If you are planning on buying or selling an interest in a private equity fund, it is worth preparing the process and agreements with care. This post is a checklist of a few of the most important legal questions to focus on. 1. What Documentation Do You Need? You should determine what documentation you need for the deal at the very beginning of the process. This will help avoid surprises and delays at the critical closing phase. At least two agreements are usually needed: The sale and purchase agreement deals with the rights and obligations of the parties to the deal that do not relate directly to the target fund. The target fund and its fund manager are rarely parties to the sale and purchase agreement. 2. What Consents or Processes Does the Transfer Require? The fund agreement and other governing documents of a private equity fund often restrict the transfer of fund interests. It is common for the transfer of a fund interest to require at least the consent of the fund manager or the general partner of the fund. In some cases, the transfer must be notified to the other investors in the fund, and sometimes the general partner or other investor has the right to redeem the interests proposed to be transferred. In addition, the transfer may require the consent of the fund’s lender or could involve requirements relating to the creditworthiness or regulatory status of the transferee. It is also important to check the legal form of the fund as the legislation applicable to that form will affect what measures are required for the transfer. In addition, the buyer should keep in mind that the seller may have agreed to supplementary terms to the fund agreement in a ‘side letter’, which is not usually transferrable to the buyer unless expressly agreed. The sale and purchase agreement nearly always  sets forth that the closing of the transfer is conditional on the completion of notification and approval procedures and other procedures required by the fund agreement. All of the terms of the fund agreement that affect the transfer of fund interests and the registrations and other measures required to complete the transfer should be mapped out as early in the process as possible. This is to ensure that any transfer restrictions can be taken into account in the timetable for the process and in the conditions for closing of the sale and purchase agreement. 3. How Is the Purchase Price Determined? Private equity fund investments are usually made as commitments. This means that the investor does not pay the invested capital to fund all at once when joining the fund, but in instalments over several years as the fund manager issues capital calls. The fund uses the called capital to finance its investments and other capital needs. Correspondingly, the fund makes distributions to the investors in instalments as the fund accrues distributable assets. The fund agreement may also include terms according to which some of the assets distributed to investors can be called back into the fund under certain circumstances. Because of this structure, it is important to understand the financial characteristics of the commitment when buying a fund interest: The financial impact of these items must be taken into account when calculating the purchase price and price adjustment mechanism for the fund interest. The foundation for negotiations concerning the purchase price is typically the latest valuation reported by the fund (typically quarterly), and a certain percentage discount (haircut) or increase (premium) may be agreed to that valuation. The purchase price of a fund interest and any agreed haircut or premium to the latest valuation reported by the fund are based on commercial negotiations between the parties. The sale and purchase agreement typically also provides terms for adjusting the purchase price on the closing date if the fund has made distributions or issued capital calls to the investors between the fund’s latest valuation reporting date and the closing date. 4. How Are Obligations Distributed? The main principle is that the buyer gets the right to distributions by the fund and takes on the payment obligations relating to the fund interest. However, it is worth considering the allocation of certain obligations in more detail. These include, for example, obligations relating to any clawback clauses in the fund agreement that may require investors to return amounts distributed by the fund. Clawback clauses are terms of a fund agreement that provide that the general partner of the fund or investors in the fund may be obligated to return amounts distributed by the fund. Investors may be required to return prior distributions to the fund, for example, to cover liabilities realised by the fund. It is in the buyer’s interest to avoid a situation in which proceeds have been distributed to the seller before the deal, but the clawback obligation relating to those proceeds falls on the buyer after the deal. It is also in the buyer's interest to agree on how to handle any tax liabilities of the seller and any breaches of the fund agreement or the representations and warranties included in the subscription documentation prior to the completion of the deal. Limitation of liability is generally one of the key issues when negotiating the sale and purchase agreement. The end result depends on the characteristics of each fund and by the negotiation position of the parties. 5. Is It Possible to Prepare for Changes In Market Conditions In The Closing Terms? No one can know precisely what effects outside factors, such as the knock-on effects of the COVID-19 pandemic, could have on the prospects and yields of private equity funds operating according to different strategies. Particularly when there is a long gap between the signing and closing of the sale and purchase agreement, the buyer may want to mitigate risks through closing conditions in the sale and purchase agreements (also called material adverse change or MAC clauses). These kinds of clauses make it possible to withdraw from the deal if one of the material adverse changes defined in the agreement occurs between the signing and closing of the agreement. Sellers naturally take a dim view of MAC clauses, as they reduce deal certainty. Sellers often argue that changes in market conditions are part of the normal operating environment of private equity funds and that changes balance out over the long terms of funds. Here too, the allocation of risks ultimately comes down to the characteristics of each deal and the parties to it. To date, the pandemic does not seem to have caused a significant increase in the use of MAC clauses in fund interest sale and purchase agreements. 6. Conclusion In addition to the key issues described above, there are a number of other matters that need to be taken into account. The terms of any deal will be affected by the characteristics of the fund in question, such as the fund's structure, the commercial and legal terms of the fund agreements and the tax treatment of the fund investment. The buyer should make sure these are covered in the due diligence review. Not all of the matters that the buyer is interested in may be found in the fund agreements. If so, additional information can be sought in the fund's financial reports, tax memos or directly from the fund manager. In order to ensure an efficient purchase process, it is also important for the seller to carefully review the key fund documentation and understand what boundaries it sets for the process and terms of the deal.

   Published: 4.5.2021

10. Post

    Webstore Operators, Is Consumer Protection on Your Radar?

    In Finland, online selling is considered distance selling as defined in the Consumer Protection Act (38/1978). Distance selling involves numerous obligations relating to information and consumer rights that cannot be deviated from to the detriment of consumers. As this subject is particularly important to many consumer webstores in the current situation, I have listed a few things in this post that every online vendor should be aware of. Consumer Authority Has Its Eye on Webstores Webstores are subject to continual supervision by the consumer authority. At that start of the year, the consumer authority reviewed the consumer protection knowledge of webstores and found room for improvement. This is a timely topic, given that the Market Court issued a decision at the beginning of the year in which it found that a webstore had violated the Consumer Protection Act by denying a consumer the right to cancel an online purchase. At the Consumer Ombudsman's demand, the judgment was issued with a conditional fine to reinforce the prohibition. Read more about the Consumer Ombudsman's expanded powers of supervision in our previous post . As a general rule, it is best to behave transparently and in a customer-oriented manner. The key issue from the perspective of the Consumer Protection Act is that consumers cannot be misled and they must be given the opportunity to make considered purchase decisions online. Extensive Disclosure Obligation for Webstores Distance selling involves significant disclosure obligations. The Consumer Protection Act provides that the consumer must be provided with a confirmation of the contract on paper or otherwise in a ‘permanent manner’. The confirmation must include certain mandatory prior information, such as information on the seller, the price of the product including taxes, as well as the other terms of delivery or performance of the contract. If necessary, the consumer must also be provided information on customer complaint procedures as well as a form and instructions for the right of withdrawal, if any. It is also worth making sure you communicate prices and any additional fees to consumers clearly and transparently. Before approving an order, the customer must be clearly notified of the total price of the product including taxes, delivery costs as well as any additional fees that may be charged. Also keep in mind that consumers are under no obligation to pay costs that they have not been informed of prior to making the order. Right of Withdrawal Key Right in Distance Selling Many brick-and-mortar stores offer 14-day exchange and return policies —some even longer. These policies are voluntary for the store, and should not be confused with the mandatory 14-day right of withdrawal that webstores must provide. Webstore customers are entitled to use this statutory right of withdrawal, i.e. withdraw from a purchase at any time within 14 days without providing a reason. The consumer’s right of withdrawal is a key consumer right in distance selling and it applies in nearly all online selling with only a few exceptions defined in law. Such exceptions include custom products made to the customer's specifications, contact lenses, hygiene products and audio or visual recordings once their seal has been broken. The right of withdrawal also, in principle, applies to service contracts made through distance selling. Consumers should be informed of their right of withdrawal clearly and transparently, not least because the withdrawal period only expires 12 months after the end of the normal withdrawal period if the seller has not informed the consumer of the right of withdrawal. If the vendor remedies their omission during this 12-month period, the withdrawal period will end 14 days from when the consumer was informed of the right of withdrawal. Exercising the right of withdrawal has to be made easy for consumers, and the Consumer Protection Act includes provisions on how consumers can notify the seller that they are exercising their right and what then happens: for example, the seller must as a rule return all payments by the consumer without delay. Keep in mind that the right of withdrawal cannot be limited by agreement, because the Market Court has stated that such clauses are unlawful and void and cannot be relied on by sellers. What Language for Your Webstore? Do You Need Customer Service in Finnish? There is no obligation to have a webstore in Finland’s official languages (Finnish and Swedish), and many Finnish online vendors have set their eye on international growth from the very beginning. However, if your webstore and company website are in Finnish and Swedish, it would also be worth considering whether you provide customer service in those languages as well. If you don't, but your webstore is directed at consumers in Finland, you need to clearly inform customers before their purchase that customer support is not available, for example, in Finnish. This is particularly the case if your webstore is in Finnish, because it is likely that consumers will assume that customer service is also available in Finnish. However, if your company and its webstore only operate in English, consumers can be assumed to understand that, for example, terms and conditions and customer service may not be available in Finland’s official languages. The Consumer Protection Act forbids behaviour that is misleading or inappropriate from the point of view of consumers in sales and marketing. Finland has a ‘black list’ decree (601/2008) that defines what behaviour is considered misleading in customer relationships. The decree states that committing to provide customer support in a language other than the official language of the vendor’s country of residence is misleading, unless the consumer is clearly informed prior to entering into the contract that support will not be provided during the contractual relationship in that language. The general rule is that consumers should be able to easily find information relating to the product and exercise their rights, i.e. issue notices of defect or use their right of withdrawal. Polish Up Your Terms and Conditions and Head to New Markets I cannot recommend enough that you draft comprehensive terms and conditions for orders for your webstore. The terms should cover mandatory consumer protection provisions, such as the right of withdrawal, the withdrawal form and alternative consumer dispute resolution—just to name a few. Your website should also have terms of use that set forth the conditions under which you provide your webstore service to your customers. Data protection is also important: make sure that you have a proper privacy policy that informs you customers about what personal data you process and on what grounds as well as how your customer (the data subject , to use data protection parlance) can exercise their data protection rights. Is your next step to jump into new markets? You should begin researching the product liability and consumer protections legislation of the target when a particular market becomes important to you and you have continuous sales into the region. At the latest, you should do more detailed homework on the target country’s national legislation when planning your expansion there. For example, what are the requirements for deliveries, returns and notices of defect? If your target market is outside the EU, you will also have to look into export, customs and taxations issues. As far as taxation is concerned, you will need to look into at least distance selling and value added tax matters. I hope this helps you get started. It’s always good to aim high, so maybe next it will be time to think about expanding your webstore into new markets.  

    Published: 23.4.2021