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   CRD 6 has been published: New requirements for M&A transactions and other reorganisations in the banking sector

   In this post, we will break down key elements of these new rules, their background, and what they mean for credit institutions involved in M&A and corporate finance activities. Current regulatory approval requirements for banking sector M&A Under the current general EU-wide ownership control rules, anyone intending to acquire a ‘qualifying holding’ (that is, a direct or indirect holding representing 10% or more of the capital or voting rights, or any holding that allows significant influence over management) in a credit institution, or further increase such qualifying holding, must notify the competent supervisory authority in advance. The acquisition can only be completed once the authority has approved it (or the applicable assessment period has expired without the authority objecting the transaction). Moreover, M&A transactions in the banking sector are subject to general merger control and foreign direct investment (FDI) regulatory framework as well as the new EU Foreign Subsidies Regulation (FSR) addressing distortions caused by foreign subsidies. Depending on the turnover and ownership structures of and the foreign subsidies received by the parties involved in the transaction, this may involve a regulatory notification or clearance obligation. Additionally, EU Member States may have national rules applicable to certain types of transactions in the financial sector. For example, in Finland, mergers, demergers and business transfers involving a credit institution established in the form of a limited liability company are governed by the Finnish Act on Commercial Banks and Other Credit Institutions in the Form of a Limited Company (2001/1501, the ‘Act on Commercial Banks’). These processes are based on the general Finnish merger and demerger rules applicable under the Finnish Limited Liability Companies Act (2006/624, the ‘Companies Act’), however, with the addition that such processes take into account the special characteristics of the credit institution, such as regulated capital structure and depositors as a specific type of creditors. The processes also engage the Finnish Financial Supervisory Authority (‘FIN-FSA’), which can oppose the transactions that may endanger a credit institution’s ability to meet regulatory requirements. Expansion of supervisory powers under CRD 6 EU legislators seek to expand the supervisory and control powers of the EU financial supervisory authorities, enabling intervention in transactions that may raise prudential or money laundering concerns. CRD6 extends these powers to cover transactions such as acquisitions of material holdings in financial or non-financial sector entities, material transfers of assets and liabilities, and mergers and divisions. Going forward, these transactions must be pre-notified to and pre-cleared by the competent supervisory authority before completion. The aim is to allow authorities to perform prudential assessments and, if necessary, oppose transactions that could harm prudential profiles of the supervised entities. Transactions subject to the new pre-notification rules The following transactions of credit institutions and certain other entities subject to the new rules will require a notification to the competent financial supervisory authorities before completion: Acquisition or divesture of a material holding: Applies to both regulated and non-regulated holdings (i.e. holdings in non-financial sector entities) exceeding 15% of the eligible capital of the entity intending to carry out such acquisition or disposal. Material transfers of assets and liabilities: Transfers representing at least 1o% (or 15% for intragroup transactions) of the entity’s total assets or liabilities. Certain asset transfers are excluded from the scope of the concept of material transfers, including non-performing assets, cover pool assets within the meaning of the EU Covered Bond Directive (2019/2162) and assets to be securitised. Furthermore, assets or liabilities transferred in the context of the use of resolution tools, powers and mechanisms under the EU Bank Recovery and Resolution Directive (2014/59) (‘BRRD’) are excluded. Mergers and divisions: A ‘merger’ or ‘division’ as further defined in CRD6, excluding those resulting from the application of the BRRD. Authority approval process The authority approval process set out in CRD6 only applies to acquisitions of material holdings and mergers and divisions, meaning that disposals of material holdings and material transfers of assets and liabilities would only be subject to the notification obligation referred to above. Furthermore, the following types of acquisitions of material holdings and mergers and divisions are exempted from the scope of the approval process: Intra-group acquisitions of a material holding under 0% risk-weighting regime in accordance with Article 113(6) of Regulation 575/2013 (‘CRR’) Acquisitions of material holdings between entities within the same institutional protection scheme (provided that such scheme fulfils the requirements set out in Article 113(7) of the CRR); Mergers or divisions requiring a new authorisation under the CRD regime (such as a new credit institution license) Intra-group mergers Assessment period and approval mechanism The applicable assessment period and the approval mechanism varies depending on the transaction type: Acquisitions of material holdings: The regular assessment period will be 60 working days, with a possible 20-30 workday suspension in case additional information is required for completing the assessment. Acquisitions may be completed based on a prior approval by the competent supervisory authority or pursuant to the authority not objecting the transaction prior to the expiry of the assessment period (i.e. based on a ‘tacit approval’). Mergers and divisions: Require explicit prior approval (referred to in CRD6 as ‘positive opinion’) of the authorities, except for intra-group transactions, which may use the above-described tacit approval process or be exempt. Authorities’ assessment criteria The scope of the matters to be investigated by the authorities in connection with a contemplated transaction depends on the transaction type. The main focus is on whether the credit institution(s) undertaking the transactions (or, where applicable, the resulting new entity) would be able to comply and continue to comply with the prudential requirements laid down in the CRD/CRR regime and with other relevant EU law. For mergers and divisions, considerations include, inter alia, the reputation and financial soundness (in particular in relation to the type of business pursued and envisaged for the entity resulting from the proposed transaction) of the entities involved in the proposed transaction, whether the implementation plan of the transaction is realistic and sound from a prudential perspective (which plan shall also be subject to monitoring by the competent supervisory authority until the completion of the proposed transaction), and whether there are any concerns from the perspective applicable anti-money laundering legislation. Impact on Finnish credit institutions As noted above, in Finland, mergers, demergers and business transfers involving a credit institution follow specific legal processes regulated by the Act on Commercial Banks, in which the FIN-FSA is vested with powers to intervene in transactions that could harm the prudential profiles of the supervised entities. While CRD6 introduces broader and more detailed EU processes, the underlying concept is similar to the existing regime. However, CRD6’s broader scope and the more detailed (directly applicable) EU regulatory technical standards which will supplement CRD6 may add complexity and increase transaction costs, particularly in cross-border contexts. Such standards will not necessarily be aligned with the company laws of any individual Member State, as opposed to, for example, the Act on Commercial Banks, which is aligned with the merger and demerger processes set out in the Companies Act. Certain ambiguities in CRD6, such as the scope of ‘material transfer of assets or liabilities’, need clarification to avoid complicating banks’ routine business activities. Under the current Act on Commercial Banks, a transaction only qualifies as a regulated business transfer if the transaction includes both assets and liabilities. In the ordinary course of their business activities, credit institutions execute, for example, various funding transactions which may be significantly more cumbersome to execute if they are made subject to a complex authority approval process. EU member states should pay special attention to clarifying the ambiguities in connection with implementation of CRD6 into the national laws to prevent undue complications. Implementation timeline CRD6 was published in the Official Journal on 19 June 2024 and will enter into force 20 days following the publication. Member States must adopt and publish provisions transposing CRD6 into national legislation by 10 January 2026, to be applied from the following day. Considerations for credit institutions While it will still take some time before the new rules set out in CRD6 are implemented into the Finnish law, Finnish banks planning M&A or corporate transaction activities in the near future should be aware of the new rules and their potential implication on the transaction process and closing conditions. This applies in particular to transactions where the closing may take place after the new rules have taken effect. It is advisable to ensure that the closing conditions of the transaction agreement account for the new processes and allow sufficient time for their completion. Once CRD6 has been implemented, a broader range of transactions will require regulatory approval, necessitating more extensive internal processes to comply with notification and clearance requirements and to avoid inadvertent triggering of clearance requirements. 

   Published: 28.6.2024

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   Strong momentum in life sciences and health tech industry: Castrén & Snellman sees a significant uptick in deal-making 

   Despite initial setbacks due to the pandemic, the sector has witnessed a resurgence in mergers and acquisitions, and investments from both private equity and venture capital firms. Notably, landmark transactions like Novo Nordisk’s USD 16.5 billion acquisition of Catalent and Pfizer’s USD 43 billion merger with Seagen underscore the magnitude and momentum of deal activity within the industry. Castrén & Snellman’s recent transactional work vividly reflects this heightened industry activity. In 2023 and 2024, our firm has been deeply immersed in facilitating mergers and acquisitions, securing funding and refinancing and supporting manufacturing projects for innovative companies, investors and entrepreneurs in the health tech and life sciences sphere. Our recent cases showcase Castrén & Snellman’s expertise in navigating complex legal matters within the life sciences and health tech industry: Advising Mérieux Equity Partners’ leveraged buyout of Labquality , a Nordic player specialised in EQA, CRO activities and regulatory affairs, with a strong local presence in Central and Eastern Europe Advising BYG4Lab and Keensight Capital on BYG4Lab’s acquisition of Finbiosoft , an innovative software company founded in 2011 with a mission to help laboratories reach higher quality and better efficiency Advising Keensight Capital, a leading growth buyout investor, on the Finnish legal aspects of the combination of Biovian and 3P Biopharmaceuticals , two leading biologics contract development and manufacturing organisations (CDMOs) backed by Keensight Capital, to establish 3PBIOVIAN, a new pan-European leader in its field Advising DigiTx Partners, a venture capital firm specialised in the digital health space, on the USD 10 million series A funding round of CardioSignal, the developer of the first technology to detect major heart diseases without specialised medical hardware Advising Inventure, Tesi and Presidio Ventures on the EUR 13.7 million series A funding round of Algorithmiq , a growth company developing quantum computing algorithms and solutions for drug development and discovery Advising Biovian, a globally operating GMP (Good Manufacturing Practice) contract development and manufacturing organisation (CDMO) of biopharmaceuticals, on its EUR 50 million manufacturing facility project in Turku, Finland Advising Biovian on the debt refinancing initiative and new funding package with Eurazeo to support organic growth and GeneCity facility expansion Advising Voisin Consulting Life Sciences on the acquisition of MedEngine , a leading medical science agency in the Nordics. With favourable economic conditions driving acquisitions, continued interest from private equity and venture capital firms, and the strategic importance of acquisitions for fostering growth, we anticipate continued vibrancy in the industry through the remainder of 2024. In addition, advancements in technology and innovation within the industry are expected to fuel further investment and transactional activity.

   Published: 2.5.2024

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   Landmark judgment of European Court on Human Rights paves the way for climate change litigation in Europe – potential impacts on European businesses

   Although the Court declared the complaints lodged by individuals inadmissible, most importantly, in the case of Verein KlimaSeniorinnen Schweiz and Others v. Switzerland (application no. 53600/20) the Court recognised environmental organisations’ right to lodge complaints and that the right to respect for private and family life guaranteed in Article 8 of the Convention encompasses a right to effective protection by the state authorities from the serious adverse effects of climate change on lives, health, well-being and quality of life. The Court found that Switzerland had failed to comply with its duties to mitigate climate change under the Convention. There were critical gaps in the process of putting in place the relevant domestic regulatory framework, including a failure by the Swiss authorities to quantify greenhouse gas emissions limitations. The judgment sets a precedent and has significant implications for future climate change litigation in Europe, reinforcing the responsibility of contracting states to take effective measures against climate change. The case also affirms the link between human rights and climate change thus establishing that climate change mitigation falls within state’s duty to protect human rights. Eventually, the implementation of the mitigating measures in the case will require investments in green technology and cutting the emissions of European businesses. Environmental organisations are entitled to sue authorities for insufficient climate change mitigation measures In the case of Verein KlimaSeniorinnen Schweiz and Others v. Switzerland, the Court found that the environmental organisation lodging the complaint had been deprived of any effective legal remedies by the Swiss courts. The Swiss courts had not provided convincing reasons as to why they had considered it unnecessary to examine the merits of the association’s complaints and failed to take into consideration the compelling scientific evidence concerning climate change when not taking the complaints seriously. Consequently, the association’s right to a fair trial under Article 6 of the Convention had been breached.  Only the environmental organisation’s complaint was declared admissible as the Court took an approach emphasising the necessity of environmental organisations as the guardians of mitigating climate change as the common concern of humankind and the need to promote intergenerational burden-sharing. Thus, the Court set a low threshold for environmental organisations to lodge complaints. Conversely, the individual applicants’ complaints of which the other cases in the series of judgments consisted were all dismissed as the Court set a high threshold for individuals to obtain a status of victim under the Convention. Instead, the Court stressed the role of collective action in combatting climate change. (Carême v. France, Duarte Agostinho and Others v. Portugal and 32 Others, and the individual applicants in Verein KlimaSeniorinnen Schweiz and Others v. Switzerland.) As a result, the Court gave environmental organisations the role of a watchdog for European authorities’ climate change mitigation measures. Thus, European environmental organisations now have extensive possibilities to push national authorities by legal means to adopt proper measures to combat climate change, even by court proceedings if necessary. The implications may be far-reaching as several organisations may see new value in impact litigation as a way to fight climate change and will add to the growing amount of climate related litigation proceedings globally. States need to set sufficient and effective measures to mitigate climate change In the case of Verein KlimaSeniorinnen Schweiz and Others v. Switzerland, the Court ruled that the right to respect for private and family life guaranteed under Article 8 of the Convention includes a right to effective protection by the state authorities from the serious adverse effects of climate change on lives, health, well-being and quality of life. The right includes a positive obligation of the contracting states to adopt sufficient measures to mitigate climate change. More precisely, the Court stressed that the effective protection of the right to respect for private and family life requires the undertaking of measures for the substantial and progressive reduction of greenhouse gas emission to reach net neutrality within the next three decades, including setting science-based targets and pathways to reach the goals as well as properly following up on the results. When it comes to the Swiss measures to combat climate change, the Court found that Switzerland had not put in place a satisfactory regulatory framework to combat climate change as it had for example failed to quantify any greenhouse gas emissions limitations as well as failed to meet its past greenhouse gas emission reduction targets. Thus, Switzerland had not acted timely nor in an appropriate way to mitigate climate change and therefore breached Article 8 of the Convention and had not proactively protect fundamental rights. Consequently, Article 8 of the Convention requires European authorities to adopt proper and scientifically acceptable measures to mitigate climate change and ensure the effective implementation of the measures to reach carbon neutrality within the next three decades. It is, however, up to national authorities to choose the appropriate means for reaching the targets, thus leaving room for national solutions and innovations to reach carbon neutrality. Primarily, it is for environmental organisations and national courts to monitor the setting of proper targets and the timely reaching of those targets, but in the end the states are responsible to the European Court of Human Rights for insufficient combatting of climate change. According to the ruling, states needed to put in place the necessary regulations and measures aimed at preventing an increase in greenhouse gas concentrations in the atmosphere and irreversible adverse effects on human rights under Article 8. Specific attention was paid to the United Nations Framework Convention on Climate Change and the Paris Climate Agreement. Effective respect for human rights requires states to undertake measures to reduce their greenhouse gas emission levels, with a view to reaching net neutrality within, in principle, the next three decades. States need to act in good time and in an appropriate and consistent manner when devising and implementing the relevant legislation and measures. The case does not directly tackle corporate activities, but if states are required to ensure that they appropriately tackle emission, all economic activity will be indirectly covered. Future outlook The Court’s ruling opens new pathways for climate impact litigation. The Court noted that, in its role as a judicial body tasked with the enforcement of human rights, it could not ignore compelling present‑day conditions, confirmed by scientific knowledge. States have an obligation to ensure that they combat climate change, but they have a wide margin of appreciation as to the choice of means designed to achieve those objectives.  As noted, there is a number of climate disputes occurring globally and with the European Court of Human Rights’ judgment irrevocably considering the link between climate change and human rights legally, there may be a new wave of climate litigation to be expected in Europe. 

   Published: 29.4.2024

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   First demand guarantees are excellent securities, but using them requires diligence

   Well-prepared securities are necessary during economic downturns During the current economic uncertainty and any economic recession there are, however, differing views of the situations in which first demand guarantees are binding on the guarantor and whether the guarantee is actually a commitment ancillary to the main agreement. History clearly repeats itself in this respect, because during the international bank crisis in the beginning of the 1990’s and the perhaps most difficult years of recession in Finnish history, people unfamiliar with guarantees gave the strangest assessments on the interpretation of first demand guarantees and how the rights under such guarantees are related to the main agreement. Some even suggested that a first demand guarantee was an unreasonable commitment in itself and should automatically be adjusted. In 1993, when I was writing a book on this matter, I heard constantly that first demand guarantees would be guarantees ancillary to the main agreement and the payment demands made based on a first demand guarantee would practically always constitute abuse of right. Fortunately, such claims are not made so often anymore. When the economic cycle is good, actions concerning first demand guarantees are usually not instituted in courts or arbitral tribunals. However, if there is any lack of confidence or if a transaction forms a significant part of a party’s business operations, securities should be used in the transaction to safeguard the party’s position. Particularly during economic uncertainty, it is important that all security commitments used in business operations are prepared carefully and that the users know the basic issues in relation to using them. Well-prepared securities are sorely needed expressly during economic downturns. Clear wording makes it easier to use and interpret security commitments It is often forgotten that first demand guarantee arrangements are based on a binding offer and reply. Guarantee commitments are in practice given for what is agreed in the main agreement, even though a first demand guarantee is a commitment given by a third party to the creditor as a personal security commitment. If first demand guarantors could easily be released from their security commitments, it would immediately result in significant uncertainty in the market. During economic downturns, uncertainty regarding the operation of securities would lead to even bigger problems in business operations. The starting point should be that first demand guarantees – like any other security commitment used in business operations – should be interpreted in accordance with the wording of each commitment. The less a security commitment leaves room for guessing the correct interpretation of its content and purpose, the clearer the use of the security commitment is. The wordings used in first demand guarantees have become established so that all terms and conditions deviating from established practice should be prepared carefully. In such a case, it should be noted that the terms and conditions of first demand guarantees are strict to start with, and they should not be unnecessarily mitigated. Both parties need to be diligent when using securities First demand guarantees are excellent securities in business operations, but the parties to the arrangement must be careful and diligent when preparing and drafting them. First demand guarantees are excellent collateral instruments because they are not ancillary to the main agreement, and the debtor (who is asking a third party to provide a first demand guarantee) cannot invoke the main agreement. The independence of a first demand guarantee is only severed in exceptional situations by the collateral taker’s fraudulent action. If the collateral taker in accordance with the main agreement or the first demand guarantee commitment acts fraudulently, the first demand guarantee or its independence are not given legal protection. In addition, the operation of first demand guarantees is closely connected to the fact that the payment demand must be exactly in accordance with the guarantee. This principle, known as strict compliance, means that the first demand guarantor only pays the amount of guarantee if the payment demand under the guarantee has been made during the validity period of the guarantee and exactly in accordance with the terms and conditions of the guarantee. Otherwise, the first demand guarantor is not only entitled but also obligated to refuse to make the payment. For this reason, the creditor must carefully ensure when making the payment demand that the payment demand has been made correctly and in a timely manner.

   Published: 25.3.2024

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   Can a construction company be restructured?

   The Finnish insolvency proceedings system consists of bankruptcy and restructuring proceedings. In both bankruptcy and restructuring proceedings, all monetary debts incurred before a certain date are subject to enforcement. Whereas in bankruptcy the creditors are paid out of the liquidation value of the debtor’s assets, in restructuring proceedings debts are paid out of the free cash flow generated by the debtor’s business. In restructuring proceedings, the debtor retains control of its assets and, with certain exceptions, is allowed to continue to conduct its business as usual. Although restructuring proceedings allow for the restructuring and cutting of the debts – the amount of the debt is adjusted to the debtor’s future imputed free cash flow – it aims at a better outcome for creditors compared to bankruptcy. The positive cash flow generated by the debtor’s business must therefore, within a reasonable period of time (five to six years on average), exceed the liquidation value of its assets. From the perspective of the debtor, the owners and the employees, the benefits of restructuring compared to bankruptcy are obvious. Amendments to the Restructuring of Enterprises Act aim to promote the fulfilment of the purpose of restructuring proceedings In recent years, the Restructuring of Enterprises Act has been amended a few times. An amendment that entered into force in summer 2022 introduced, alongside the original restructuring proceedings (now known as ‘standard restructuring proceedings’), a procedure called ‘preventive restructuring proceedings’ with slightly less stringent commencement criteria as an alternative for companies that are still solvent but facing insolvency.  The most recent amendment, which entered into force in June 2023, introduced in the Act the possibility to prematurely terminate any executory contracts where the debtor’s obligations are non-monetary. Such termination is subject to it being necessary for the fulfilment of the purpose of the restructuring proceedings. The notice period is not fixed: the contract only ends if and when the debtor’s restructuring programme is approved. Any compensation for premature termination is considered restructuring debt and can therefore be subject to debt arrangement. The amendment described above is a significant exception to the general principles of restructuring proceedings. Ever since the concept of restructuring was introduced to Finnish legislation in the early 1990s, sanctity of contracts was adopted as a premiss in restructuring proceedings together with the idea that, with some very specific exceptions, restructuring only applies to the debtor’s monetary debts. Do the amendments to the Restructuring of Enterprises Act affect the restructurability of construction companies? Could bankruptcies of construction companies be avoided, at least in some cases, by means of restructuring proceedings? This seems plausible, at least in theory. Firstly, restructuring proceedings allow for the rearrangement of the company’s liabilities. Restructuring can therefore be used to reduce financing costs that have become unsustainable in relation to the company’s business volume, or to reduce accounts payable, for example. Following the June 2023 amendment to restructuring legislation, restructuring now allows for the premature termination of building contracts and other similar executory contracts that have become unprofitable and for the debt arrangement of any subsequent compensation. On the other hand, the possibility of terminating such contracts may even encourage the counterparty to voluntarily renegotiate the contract. Restructuring could be a way of avoiding the loss of capital invested in a construction company and the loss of business value. However, restructuring proceedings of construction companies have traditionally not been very common, and the prognosis for construction companies pursuing this option has generally not been positive: either the restructuring proceedings have failed before the conclusion of the restructuring programme or the company has not been able to observe said programme. Can we expect this to change as a result of the preventive restructuring proceedings launched in 2022 or the possibility of prematurely terminating executory contracts introduced in the Act in 2023? The amendments have had valid goals. The preventive restructuring proceedings, which are based on the EU Insolvency Directive, aim at helping companies at risk of insolvency to enter the proceedings in good time, when the company’s liquidity situation is not yet critical and the dialogue with key creditors is better. The aim of the right to prematurely terminate executory contracts, which has been in force for a better part of a year, is to make it possible for the debtor company to withdraw from agreements that have become economically unsustainable. The amendment shows that the legislator is aware that non-monetary obligations may also become economically unsustainable and prevent the debtor from rehabilitating its viable business. According to the latest information, however, only three applications for preventive restructuring proceedings were filed during an 18-month observation period. By way of comparison, a total of 306 restructuring proceedings were commenced in 2023, and the number of applications for restructuring proceedings was substantially higher. There is no information on whether the provision on the termination of executory contracts has been applied yet. However, as it only entered into force less than a year ago, it is unlikely that it has been largely applied yet, considering that, pursuant to said provision, the contract only terminates when the restructuring programme is approved. A lower threshold for commencing restructuring proceedings and the possibility to rearrange executory contracts, such as building contracts, could, as such, help construction companies to restructure their operations. These factors do not, however, solve the main challenge related to the restructuring of construction companies – publicity. The main challenge in restructuring a construction company is the publicity related to the proceedings The difficulty with a construction company’s restructuring proceedings is largely related to how the information about the proceedings becoming public affects its ability to win new building contracts and to enter subcontracting agreements. Very few clients are willing to enter into a building works agreement with a company tainted by restructuring proceedings, regardless of whether the company is actually able to fulfil its obligations under such agreement. The drying up of the company’s order book will lead to the failure of the restructuring proceedings, even if these are started in good time when working capital is still available. The termination of unfavourable building contracts is not helpful, either, if the company is unable to win new contracts. The bankruptcy of a construction company may have significant economic consequences for the client, both as regards the completion of the building works and potential guarantee issues. The clients’ sensitivity to risk with regard to construction companies subject to restructuring proceedings is therefore understandable. If we wish to effectively rehabilitate construction companies in financial difficulties instead of driving them to bankruptcy, there may be a need for a framework of voluntary arrangements that would allow to proactively seek a comprehensive arrangement of predetermined debts and contracts quickly, efficiently and without the stigmatised reputational damage of insolvency proceedings. Such a framework could prove useful also for companies in other industries facing financial difficulties, where the publicity received by the restructuring proceedings more or less means that the business activities dry up completely. Among the tools currently in use, the accelerated restructuring proceedings could at least make it possible to avoid the uncertainty generally related to restructuring proceedings as it allows to quickly present to creditors and stakeholders with the contents of the restructuring programme and the measures to rehabilitate the debtor company. In fact, a company that abides by a restructuring programme and whose debt burden is controlled and adjusted to correspond to its business volume is likely to be a more reliable partner than a company that is quietly struggling with serious financial difficulties. When a construction company is being rehabilitated, the significance that potential clients attach to the restructuring proceedings has a large impact. In order to avoid losses of value and unnecessary costs resulting from a bankruptcy, it would be good if the client party also critically assessed the impact that restructuring proceedings have on the actual ability of a construction company to fulfil its obligations under a building contract.

   Published: 20.3.2024

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   The trend of global carve-out transactions remains active

   We have witnessed a significant increase in complex multi-jurisdictional carve-outs in recent years, and the trend of strategic reviews and divestment of non-core assets seems to continue also in the current market. Carve-out transactions involve the separation of a business unit or division from its parent entity, often resulting in the creation of a standalone entity distinct from its parent entity or the integration of the divested business directly into another organisation. As complex legal undertakings, carve-out transactions require careful planning, structured project management and a deep understanding of the underlying legal questions. We have compiled below some of the key legal considerations that should be taken into account when planning and implementing a carve-out transaction in multiple jurisdictions. Identifying the business to be separated Separating a business unit or division requires identifying which assets, employees, commercial agreements, intellectual property rights, and premises belong to the business to be separated and are to be transferred with it. Each category of assets and agreements requires thorough legal analysis as regards transferability. It is common that the business to be separated and the parent entity have shared assets that both entities are using. This often leads to detailed considerations regarding separation issues, such as the renegotiation of shared agreements, employee and union negotiations, and the negotiation of licensing arrangements with respect to shared intellectual property rights. Structuring the separation Structuring is an important first step of the planning phase whereby different structural alternatives for the transaction are analysed and ultimately decided on. These include cost and timeline aspects, regulatory requirements, and the overall complexity of implementing the final structure, among other things. Need for transitional services and negotiating a transitional services agreement The business to be separated is typically dependent on certain services provided by the parent entity and may require transitional services for a specific period after the completion of the carve-out. Identifying the services that can be offered after the consummation of the transaction is critical, and the detailed terms for offering such services are captured in a transitional services agreement. It is key to carefully consider the underlying service and supply agreements when scoping out the terms and conditions for the transitional services. Regulatory framework and potential approvals from third parties The need for any approvals under foreign direct investment regimes and the filing of merger control notifications should be assessed early on in the process, as these aspects may have a significant impact on the overall timeline. Depending on the line of business of the company, industry-specific approvals from or notifications to local authorities in different jurisdictions may also be required to validly consummate the transaction. The transfer of employees may also trigger the obligation to carry out cooperation negotiations or to inform or consult with employee representatives or unions. If the business to be separated requires permits or licenses for its operations, the possibility to assign these in connection with the carve-out should be assessed. The same applies to any required actions for such permits or licenses to remain in force after the completion of the transaction. Carve-out transactions typically include the assignment of agreements from one entity to another which, as a main rule, requires the counterparty’s consent. In large transactions, the identification of the most material counterparties and the careful planning of the process to obtain consent play a key role in mitigating the risk that key agreements would be terminated by the counterparty. Drafting and negotiating transaction documents Understanding the interrelation between different transaction documents and how they are linked together as well as ensuring alignment across these documents is crucial for a successful carve-out transaction. In addition to the main transaction agreement, local share or asset transfer agreements and transitional services agreements are typically required. Licensing agreements, service agreements, new employment agreements or other ancillary agreements may also need to be prepared. C&S track record in cross-border carve-out transactions We have extensive experience in advising clients throughout the entire lifecycle of a carve-out project, and we have been involved in some of the largest and most prominent carve-out transactions in the Finnish market. Our team’s solution-oriented approach provides tailored legal solutions to guide clients through all the legal aspects of cross-border carve-out transactions, ensuring seamless execution and achieving the best possible outcome to the client. We frequently provide advice on both sell and buy-side carve-out transactions. Our team of legal experts has valuable insights in cooperating with legal advisors from multiple jurisdictions to combine legal knowledge into the best possible practical solutions for our clients.

   Published: 5.3.2024

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   Green Claims Directive calls for verified and specified environmental claims in B2C commercial practices

   In addition to proposing a new Green Claims Directive, the Commission has also proposed amending certain other directives, such as the Directive 2005/29 concerning unfair B2C commercial practices. Through the proposed amendments, the Commission would ban generic environmental claims, such as ‘green’, ‘environmentally friendly’ and ‘ecological’, if a company cannot substantiate them with recognised excellent environmental performance. Directive 2005/29 is intended to act as general legislation that applies to environmental claims, whereas the Green Claims Directive would apply to explicit environmental claims and the substantiating, verifying and communicating thereof. Substantiation and communication requirements specified and increased Pursuant to the proposed directive, a maker of environmental claims must carry out an assessment to substantiate such claims. The assessment must include certain components. For example, the company must specify whether the environmental claim is related to the product as a whole or only a part thereof. The company must also substantiate the claim by supporting it with widely recognised scientific evidence. Furthermore, the company must demonstrate that the environmental claim does not concern a regulatory requirement that the product must fulfil in any case. What’s more, the proposed directive lays down requirements on how environmental claims must be communicated. When making a claim that concerns the future, the company would have to include a time-bound commitment for improvements inside its own operations and value chains. The proposed directive also lays down disclosure obligations, according to which the company would have to communicate to the consumer how the improvements that are subject to the environmental claim are achieved. Companies that offset their emissions would have to provide consumers with more detailed information on the offsetting, such as information on the nature of the offsets and whether these relate to emissions reductions or removals. Third-party verification before using environmental claims in commercial communication The proposed directive states that an independent third party, i.e. a conformity assessment body, must verify the substantiation and communication of an environmental claim. The current task of conformity assessment bodies is to assess the conformity of various devices, for example, so this would mean a major change. It should also be noted that the environmental claim must be verified by the third party before the claim is used in commercial communication. Another major aspect of the proposed directive is that the research data used for assessing the environmental claim should be reviewed and updated whenever the circumstances so require, in any case within five years from when the data was made public. The updated claims are subject to assessment by the conformity assessment bodies as well. Financial and other consequences for making unfounded environmental claims Pursuant to the proposed directive, Member States would be required to lay down effective and proportionate penalties for infringing the directive’s provisions. These penalties could take the form of fines imposed by a supervisory authority. The proposed fines would likely be significant as their goal is to prevent any economic benefits derived from making unfounded environmental claims. Under the proposed directive, a company could also be excluded from access to public funding for up to 12 months as penalty for making environmental claims that infringe on the proposed directive. The proposal would also make it possible to confiscate any revenues gained from products that are the subject of infringing claims. Under the proposed directive, non-governmental organisations, among others, would have the right to submit complaints concerning infringing claims. Non-governmental organisations with an interest in the environmental marketing of companies are likely to make active use of this opportunity. Recognise environmental claims and substantiate them with evidence While the contents of the directive proposals might still change and the national implementation of the directives will take some time, companies should already take action. An important first step is that everyone in the organisation is made aware of what constitutes an environmental claim in marketing or company communications. Companies should also assess how consumers are likely to understand their environmental claims and whether these claims are sufficiently substantiated. It is worth noting that current legislation already requires that companies are able to prove an environmental claim when it is made.

   Published: 3.5.2023