The International Comparative Legal Guide To: Mergers & Acquisitions 2013 - Bosnia & Herzegovina

1 Relevant Authorities and Legislation

1.1 What regulates M&A?

Bosnia and Herzegovina (BiH) is a confederative country, consisting of two entities, the Republic of Srpska (RS) and the Federation of Bosnia and Herzegovina (FBiH), each having separate M&A legislation. While the legislative jurisdiction ism divided, the applicable M&A laws are similar in both jurisdictions, as provided below:

RS: In RS, M&A transactions and all forms of corporate reorganisations (e.g. mergers, de-mergers, transformations, contributions in-kind) are governed by the RS Companies Act (RSCA). Other laws typically triggered in the context of M&A transactions are: (a) the RS Takeover Act (RSTA); (b) the RS Capital Markets Act (RSCMA), the various rules and regulations promulgated by the Securities Exchange Commission (SECRS) (www.secrs.gov.ba) , the Central Securities Register (CSRRS) (www.crhovrs.org) and the Banja Luka Stock Exchange (BLSE) (www.blberza.com); (c) the Law on Obligations (RSLoO) (including other laws that contain rules generally applicable to RS civil and property law); and (d) the Labour Act (RSLA). Acquisitions and reorganisations of socially-owned or state-owned companies are governed by the Privatisation Act (RSPA). Lastly, the Bankruptcy Act (RSBA) applies to acquisitions of shares or assets of companies in insolvency proceedings.

FBiH: In the FBiH, M&A transactions and all forms of corporate reorganisations (e.g. mergers, de-mergers, transformations, contributions in-kind) are governed by the FBiH Companies Act (FBiHCA). Other laws typically triggered in the context of M&A transactions are: (a) the FBiH Takeover Act (FBiHTA); (b) the FBiH Capital Markets Act (FBiHCMA), the various rules and regulations promulgated by the Securities Exchange Commission (SECFBiH) (www.komvp.gov.ba) , the Central Securities Register (CSRFBiH) (www.rvp.ba) and the Sarajevo Stock Exchange (SASE) (www.sase.ba) ; (c) the Law on Obligations (FBiHLoO) (including other laws that contain rules generally applicable to FBiH civil and property law); and (d) the Labour Act (FBiHLA). Acquisitions and reorganisations of socially-owned or state-owned companies are governed by the Privatisation Act (FBiHPA). Lastly, the Bankruptcy Act (FBiHBA) applies to acquisitions of shares or assets of companies in insolvency proceedings.

In addition to the legislation on the entity level, competition aspects are governed by the Competition Act of BiH (CABiH), which is enacted on the country level and applies in both entities.

1.2 Are there different rules for different types of company?

In both Bosnian entities, RSTA, FBiHTA, RSCMA, FBiHCMA, and capital market rules apply to joint stock companies only. All other regulations apply in general to all types of companies, including joint stock companies.

1.3 Are there special rules for foreign buyers?

Special rules for foreign investors exist on both the country and entity level in BiH. They are provided for the most part in the laws dealing with direct foreign investments, the Direct Foreign Investment Policy Act in BiH, Foreign Investment Act of RS and Foreign Investment Act of FBiH. These are not usually of significance in practice, and include only a small number of investor-friendly provisions (i.e. certain customs exemptions). In addition, rules prescribed by the constantly evolving foreign exchange regulations should also be taken into account, primarily the Foreign Exchange Act of RS and Foreign Exchange Act of FBiH. They prescribe a number of cross-border payment restrictions, especially concerning outbound payments. The relevant regulators, Ministry of Finance of RS and Ministry of Finance of FBiH tend to have a rather conservative approach when applying these provisions, and it is common to consult them before structuring more unorthodox cross-border transactions.

1.4 Are there any special sector-related rules?

Acquisitions within regulated sectors (e.g. banking, leasing, insurance, media, telecommunications) are governed by special rules. Usually, a permit from, or notification to, the relevant regulator is required in case of either an acquisition of shares in the regulated companies, or an acquisition of a shareholding by regulated companies. For instance, in the financial sector, the specific thresholds for acquisition are prescribed, when prior approval of the relevant Banking Agency is required (acquiring 5%, 20%, 33%, and above 50% of shares in financial services companies); at the same time, it is not clear from the legislation nor from relevant practice whether indirect acquisitions of shares are subject to these rules.

1.5 Does protectionism operate in favour of local owners?

One of the important principles of corporate legislation in BiH is to attract foreign investment, thus it provides for positive discrimination of foreign investors in certain aspects (e.g. exemptions from some customs and foreign exchange rules). In addition, foreign investors enjoy national treatment in corporate legislation. However, majority local ownership is still required in certain regulated industries (e.g. military industries). In addition, foreign investors continue to face a number of serious obstacles, including a complex legal and regulatory framework, nontransparent business procedures, and weak judicial structures, which in practice may give certain advantages to local owners.

1.6 What are the principal sources of liability?

General contractual liability rules apply to foreign investors, as well as to local owners. However, the most severe fines are prescribed by the legislation on protection of competition. CABiH prescribes fines of up to 10% of the total turnover of the offending party in the year preceding the year when the offence occurred. Thus, it is advisable to consult a competition consultant prior to implementation of any cross border M&A transactions.

2 Mechanics of Acquisition

2.1 What alternative means of acquisition are there?

In addition to straight forward share and asset deals, both RSCA and FBiHCA provide alternative acquisition mechanisms:

Mergers - allowing for the target company to be merged into the purchasing company, or two or more target companies to merge and form a new entity (in each case, merged companies cease to exist, with all rights and obligations transferred to a successor company). Divisions - allowing for the target company to cease to exist and its entire assets to be divided and merged to two or more existing or newly founded companies. Separation (RS jurisdiction only) - RSCA stipulates that only a part of the target company's assets and obligations can be separated and merged into an existing or newly established company. 2.2...