EC Recommends Limiting Auditors’ Liability

Excerpt from EuroWatch
published by WorldTrade Executive, Inc.

by Andrea Hamilton
McDermott Will & Emery

The European Commission has issued a Recommendation to limit auditors’ civil liability with the objective of promoting the market entry of auditing firms that would otherwise be deterred by the threat of unlimited liability.

By encouraging new market entries, the Commission hopes that its Recommendation will protect European capital markets by ensuring that sufficient auditing capacity exists to perform statutory audits of EU-listed companies. This Recommendation is based on a mandate contained in the 2006 Directive on Statutory Audit, and reportedly also on an increasing trend of litigation and issues concerning insurance coverage in the auditing sector.

Member States are free to decide on the appropriate method for limiting liability and set caps for liability if they wish.

To find out more about EuroWatch

To receive your free International Corporate Counsel electronic briefing

Is Comparative Advertising Going to Become Easier in Europe?

Excerpt from EuroWatch
published by WorldTrade Executive, Inc.

By Sahira Khwaja (Lovells LLP)

In answer to a reference to the European Court of Justice (ECJ) from the English Court of Appeal, Advocate General Mengozzi has issued an opinion which may make it more difficult for brand owners to stop comparative advertising by competitors.

The questions arose in a dispute in the mobile phone market between O2 and Hutchison 3G. In 2004 Hutchison ran a TV advertising campaign comparing its new pay-as-you-go service with that of O2 and other operators, implying it was cheaper.

If the ECJ agrees with the Advocate General’s reasoning that use of a competitor’s trademark in a comparative advertisement should be controlled under the Advertising Directive and not the TradeMark Directive, this will affect brand owners’ ability to enforce their rights, in some countries at least. A brand owner will not be able to sue for trademark infringement but will have to take whatever action it can under the national law implementing the Advertising Directive.

In the UK, for example, this would have a major impact as enforcement of those implementing regulations is by public bodies (the Office of Fair Trading and local authority Trading Standard Services). These have limited resources and objections of this type would be low priority (unless there was likely to be serious damage to consumers). There is no private right of action under the regulations, and complaints must be made to the public bodies. These usually only act if the complainant has first followed the complaints procedure run by the Advertising Standards Authority (the voluntary industry body), which may take two or three months.

To find out more about EuroWatch

To receive your free International Corporate Counsel electronic briefing

EC Adopts New Merger Guidelines

By Yannis Virvilis
of McDermott Will & Emery/Stanbrook LLP
published in 12/15/07 EuroWatch p. 3

The European Commission has adopted the final text of the long awaited Non-Horizontal Merger Guidelines. The Commission had previously launched a public consultation with the publication of the draft guidelines at the beginning of the year. The Guidelines apply to vertical mergers between firms that can have a supplier-customer relationship, and also apply to conglomerate mergers where firms are active on closely related markets. The text describes the market conditions that might lead the Commission to have concerns in non-horizontal mergers. In an attempt to increase legal certainty, the text provides a rather low "safe-harbour" of market share (30 per cent) and market concentration (postmerger HHI of 2000), below which it is unlikely that any concerns will arise.

Several articles on this topic appear in the most recent EuroWatch.

To sign up for our free international corporate counsel alerts go here

Pensions Issues in European Mergers and Acquisitions

Excerpt from a recent issue of International Finance & Treasury
By Rosalind J. Connor, Daniel C. Hagen, Emmanuelle Rivez-Domont, Georg Mikes, Friederike Göbbels, Carla Calcagnile, and Chantal Biernaux, of Jones Day

Pensions-related issues have long been a major concern in M&A transactions in the United States. Issues relating to funding can color the attractiveness of a transaction, and liabilities relating to multi-employer plans and to postretirement medical expenses can have a significant effect on the economic viability of the transaction.

Pension obligations continue to cause problems, particularly given growing longevity, which gives rise to significantly increased costs. The growing global trend towards more disclosure of pension liabilities in company accounts has also moved pensions further up the agenda in corporate transactions.

These matters are of growing concern across Europe, which is experiencing both increased longevity and enhanced disclosure requirements. However, the particular issues are very much country-specific, and it is important to be aware of what particular issues may arise in any specified jurisdiction on an international M&A transaction. The latest issue of International Finance & Treasury, published by WorldTrade Executive, reviews the pension provisions in a number of European jurisdictions and the issues to be alert to in a transaction involving pensions plans. Among the findings:

United Kingdom. The United Kingdom is most like the United States in terms of benefit provision. As in the U.S., businesses in the U.K. that provide pensions usually do so through a trust held separate from the company's assets and, as in the U.S., the company has obligations to ensure the pension plan is properly funded following regular plan valuations, which in the U.K. are carried out every three years.

The U.K. Parliament has closely followed ERISA in its recent reform of pension funding and, in particular, established a Pensions Regulator and a Pension Protection Fund, which have between them powers very similar to those of the Pension Benefit Guaranty Corporation. However, some of the powers are significantly more expansive, as the U.K. is eager to avoid the deficits that the PBGC is presently facing.

Any acquisition of a U.K. company with a defined-benefit pension plan may raise significant issues. It is worth obtaining local actuarial advice as to the funding level of the plan, as the plan valuations may not be accurate. This is not only because the valuation is triennial and therefore may be very out of date, but because the basis for agreeing valuations changed in 2005 and is significantly more onerous and less predictable as a result.

In addition, the U.K. Pensions Regulator has the power in a number of circumstances, including where it believes the plan sponsor is insufficiently resourced to meet its pension liabilities, to bring a direction against any group company requiring it to fund the pension plan. Group companies and shareholders that may be subject to this requirement include non-U.K. companies and, in fact, the Pensions Regulator is in the process of issuing one such direction against Sea Containers Ltd., a Bermudan company that is presently in chapter 11 bankruptcy proceedings in the United States.

In order to limit the risks from the Pensions Regulator, it is common practice for the purchaser to seek clearance from the Pensions Regulator as a condition of closing.

France. In France, most pension contributions are made by way of mandatory contribution to a national social security system that also covers health care and welfare benefits. The contributions are very significant but are a standard cost of employing staff in France and should be reflected in cash flow. Due diligence is important to ensure these costs are understood.

The major concern in France will relate to senior employees, who are often provided with a top-up pension. These benefits can be very generous, although they are tax-advantageous. Appropriate due diligence is necessary to understand the extent of these liabilities and costs.
More