Global Dealmaking & the Supply Chain

The Hong Kong Stock Exchange concluded its consultation to create a listing regime for special purpose acquisition companies in Hong Kong. The approved new listing regime will come into effect on January 1, 2022 with certain amendments to the original proposals.

Welcome to ETF Roundup, our guide to the latest legal and regulatory developments affecting the exchange-traded fund (ETF) industry.

In Energy Central, partner Daniel Skees and associate Arjun Ramadevanahalli write that the US Department of Energy’s notice of Request for Information seeking public input on energy supply-chain issues and related technologies will be significant to the nation’s efforts at meeting emissions goals—including the licensing and deployment of advanced nuclear reactors.

The UK Law Commission has announced that it will carry out a review of the Arbitration Act 1996, the principal legislation governing arbitrations in England, Wales, and Northern Ireland. The Law Commission has stated that its aim is to ensure that the Arbitration Act remains clear, modern, and efficient in order to maintain the United Kingdom’s attractiveness as a destination for dispute resolution.

So far in 2021, we have seen more than 500 Special Purpose Acquisition Companies (SPACs) go public and raise more than $123 billion, and more than 160 of these “blank check firms” complete mergers with or acquisitions of private companies in “de-SPAC” transactions. With the continued popularity of SPACs, however, come litigation risks and a need for market participants contemplating SPAC transactions to be aware of noteworthy private litigation trends—from assertions of breach of duty based upon conflicts of interest to securities law violations arising from alleged deficient disclosures—as well as recent Securities and Exchange Commission (SEC) guidance and the potential for increased regulatory enforcement activity around SPACs.

A group of hospitality policyholders failed in their attempt to obtain cover under a business interruption policy as it was determined, in an ad hoc arbitration, that the UK central government did not constitute “a competent local authority.”

A settlement has been reached in Shergill v. Mayorkas, a federal lawsuit seeking to compel US Citizenship and Immigration Services to follow its regulations by automatically granting work permit extensions to L-2 and H-4 nonimmigrant visa holders. Under the settlement agreement, the agency has agreed to change its policies regarding employment authorization documents for certain H-4 and L-2 nonimmigrant visa holders.

The Division of Examinations staff of the US Securities and Exchange Commission (SEC) published a risk alert on October 26, 2021, titled “Observations from Examinations in the Registered Investment Company Initiatives,” which summarized the observations of the staff coming out of a series of examinations from 2018 and 2019 that focused on mutual funds and exchange-traded funds (ETFs) and, specifically, on certain compliance areas that may impact retail investors.

A recent BASF jury verdict highlights the breadth of the Sherman and Clayton Acts—particularly the remedies available to plaintiffs involved in the manufacturing of goods—if supply agreements are found to hinder marketplace competition. The verdict serves as an important reminder for automotive and other stakeholders to take care in drafting supply agreements to ensure that these contracts do not implicate—or violate—federal antitrust laws.

The Biden-Harris administration plans to lift travel restrictions on visitors from most European countries, including the United Kingdom and Ireland, and other countries that have been in place since the start of the coronavirus pandemic.

Severe weather events are causing catastrophic damage and business interruption losses to businesses each year around the world. The energy industry is particularly vulnerable, including entities in the exploration, development, transportation, generation, and/or distribution business. Leveraging all available insurance coverage and pursuing claims are critical first steps in recovery.

The Singapore Exchange has launched special purpose acquisition company (SPAC) listings in Singapore with a new framework on governing SPACs.

The European Commission and the European External Action Service issued Guidance on Due Diligence for EU Businesses to Address the Risk of Forced Labour in Their Operations and Supply Chains (Guidance) on 12 July as a guide for European companies to implement effective human rights due diligence practices.

The UK government announced on 20 July that the National Security and Investment Act will enter into force on 4 January 2022. This act introduces mandatory filings for certain investments raising national security concerns, grants the UK government extensive call-in powers for up to five years for completed transactions, and has retrospective application for transactions closing between 12 November 2020 and 3 January 2022.  

The Federal Trade Commission (FTC) recently issued a final rule that marks a major shift in the regulatory landscape for labeling that has already begun to impact other regulatory bodies—namely, the US Department of Agriculture (USDA). The FTC’s new rule adds teeth to its longtime policy to prevent deceptive “Made in USA” (MUSA) claims, codifies its informal 1997 Enforcement Policy Statement on U.S. Origin Claims, and enables it to seek civil penalties of up to $43,280 for each violation of the rule.

With reports of a continued increase in the volume of mergers and acquisitions—a growth of nearly 160% in just the first half of 2021 alone—and no signs of a slowdown, it remains important for companies and investors to consider the scope of IP diligence appropriate for their targets, and how representation and warranty insurance (RWI) may affect the diligence effort.

A recent judgment by the High Court of England and Wales in the case of Jamp Pharma Corp v. Unichem Laboratories Limited has held that agreements reached as part of contract negotiations for contracts governed by English law may be impliedly “subject to contract” without the need to expressly state that the discussions and documents are “subject to contract” prior to a formal executed agreement.

The UK’s Financial Conduct Authority (FCA) published its 2021/22 Business Plan on July 15, setting out its future role, priorities, and how it intends to deliver them. The FCA’s website contains a summary and full copy of the business plan.

Changes to complex commercial contracts are inevitable. These contracts, such as large outsourcing agreements, typically include a master services agreement (MSA) and a high number of exhibits and attachments describing the scope, performance standards, financials, and other contractual requirements in detail. Some deals can end up containing over 50–75 documents (or more!) in total. Given their strategic importance, these agreements often require numerous amendments as the relationship evolves over time and changes need to be formally documented.

The still evolving US sanctions (as well as the EU and now also separate UK sanctions) continue to challenge Russia-related business. The sanctions frameworks are complex, changing, and, at times, inconsistent as well as overlapping. Navigating this complex global framework is made even more difficult by the ongoing unpredictable and reactionary geopolitical environment as the Biden Administration gets underway.

Congress has enacted and President Joseph Biden has signed a joint resolution of disapproval under the Congressional Review Act (CRA) of the Office of the Comptroller of the Currency’s (OCC’s) “true lender” rule, which, as we previously discussed, had provided that a national bank is as a matter of law the lender on any loan for which it is the named lender or for which it provides the loan funding.

After a sluggish year in 2020 for mergers and acquisitions among hospitals and health systems, 2021 has shown renewed vigor and is poised for considerable transactional activity.

The new executive order continues the policy of prohibiting US persons’ transactions in the publicly traded securities of select Chinese companies, but expands the scope to include both Chinese companies that operate or have operated in the defense and related materiel sector and those in the surveillance technology sector of the economy of the People's Republic of China.

The State of New York has enacted a new law that should ease the transition away from US dollar LIBOR for legacy financial contracts that are governed by New York law but do not contain modern benchmark fallback provisions. A similar federal law is in the works, which if passed would apply nationwide.

The UK Prudential Regulation Authority (PRA) published a policy statement (PS7/21) and a supervisory statement (SS2/21) on clarifying and modernizing regulatory expectations of outsourcing and third-party risk management on March 29. The expectations in PS7/21 and SS2/21 are relevant to banks, PRA-designated investment firms, insurers, and branches of overseas banks and insurers and apply not just to “outsourcing” but also non-outsourcing material or high-risk service arrangements. The expectations apply at a legal entity level rather than at a group level (save for expectations on intragroup arrangements).

China recently amended its primary regulation governing medical devices, the Regulation on Supervision and Administration of Medical Devices (2021 RSAMD), which will replace its previous 2014 version and become effective on June 1, 2021. While the 2021 RSAMD largely follows the structure of the 2014 version, it does introduce a few important changes of which medtech companies interested in marketing in China should be aware.

With special purpose acquisition companies increasingly being used in initial public offerings and the commercial insurance market continuing to harden, captive insurance could be a solution for offering directors and officers protection against increased shareholder scrutiny and resulting derivative lawsuits.

France’s highest Court (Cour de Cassation) recently ruled that an acquiring entity, in this case Iron Mountain, could be found criminally liable for violations committed by the target, here Recall France, before the transaction. The November 25, 2020 decision, which reversed French case law, foreshadows serious concerns for future acquirers in M&A transactions.

All initial public offerings (IPOs) must be paperless from July 5, 2021 and documents put on display by issuers to support listings and transactions must be made available online from October 4, 2021.

The Biden administration has vowed to invoke the Defense Production Act (DPA) to increase domestic production of essential supplies needed to respond to the COVID-19 pandemic. In this Insight, we address key features of the DPA, guidance for companies that may receive a rated order, financing incentives offered by the DPA, and how we anticipate the Biden administration will use the DPA over the next year.

The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) published final rules on January 15, 2021, implementing the sanctions put in place by Executive Order 13936 (EO 13936) and the Hong Kong Autonomy Act of 2020 (the Act or HKAA). In EO 13936, then President Donald Trump found that Hong Kong was no longer sufficiently autonomous to justify differential treatment in relation to the People’s Republic of China (PRC), largely in response to the imposition of China’s national security legislation on Hong Kong by the PRC government. This finding and the HKAA authorize the Department of the Treasury to issue new regulations to implement the change in status.

When negotiating a service agreement there are many terms and conditions to be mindful of, but it’s important to review and consider the acceptance requirements.

Recent proposed changes to the Singapore Electronic Transactions Act would allow for the digitalization of cross-border trade documents and other important legal documents.

The Japanese government announced on January 13 that it has added seven prefectures—Osaka, Kyoto, Hyogo, Aichi, Gifu, Tochigi, and Fukuoka—as areas subject to the Second Declaration of a State of Emergency (SDSE) from January 14, 2021. The decision expands the number of areas subject to the SDSE to eleven prefectures. In the current plan, this measure will be continued until February 7, 2021.

Despite the challenges of an unprecedented global pandemic, cartel enforcement activity in 2020 increased in many leading enforcement jurisdictions. Corporate fines, for example, more than doubled from 2019 in the United States, Mexico, South Korea, and Taiwan.

In the first of a two-part article, Morgan Lewis partner Joseph Zargari speaks with Private Equity Law Report about the role placement agents play in fundraising; what type of placement agents are used by sponsors; and compliance concerns that sponsors should consider when engaging and working with a placement agent in both the US and non-US jurisdictions.

During the ACA Group’s Fall 2021 Virtual Conference, partner Steven Stone discussed FINRA’s recent issuance of Regulatory Notice 20 21 (RN 20 21). The Notice requires certain internal rates of return for unrealized investments to be calculated in accordance with the CFA Institute’s Global Investment Performance Standards (GIPS).

Partner John Pease spoke with CFO Dive about the Department of Justice’s recently announced Corporate Crime Advisory Group, which will increase resources against corporate crime and focus on recidivism by considering all of a company’s past criminal, civil, or regulatory infractions when looking at a prosecution. John said that while the move appears to target bad corporate cultures, some business could feel like self-reporting will “open a can of worms.”

In the second article of a two-part series, partner Joe Zargari discussed the legal structure of a secondaries fund, noting “an LP Stakes Fund is very diversified, so the risk is spread out across many different assets.” In contrast, he noted that a “GP Led Fund is far more concentrated.”

In the first article of a two-part series, partner Joe Zargari discusses which types of managers are considering expansion into secondaries and why. “Many large PE shops without secondaries teams are exploring, building, or acquiring a secondaries platform. Very large PE shops tend to acquire existing secondaries platforms rather than build internal teams,” Joe said.

Morgan Lewis recently assisted the U.S.-U.A.E. Business council, of which Morgan Lewis is a Founding Member, to update its guide to doing business in the United Arab Emirates (UAE).

Lesli Ligorner discusses China’s Blocking Statute with Lexology PRO. The Blocking Statute authorizes government entities in China to take substantive measures, including issuing prohibition orders declaring foreign sanctions unenforceable, penalizing Chinese persons for violating the prohibition orders, and allowing Chinese persons to seek damages from entities that comply with the foreign sanctions.

Partner Shannon Donnelly and associate Jennifer Connolly authored an article for Law in Sport discussing the UK immigration landscape for the sports industry. With more events taking place within the context of restricted travel, the article provides key considerations for sports professionals and those who work in the industry.

Tsugumichi Watanabe, Mitsuyoshi Saito, and Masaki Ichimura contributed the discussion of attorney-client privilege in Japan in the most recent update of the widely used handbook, International Corporate Practice: A Practitioner’s Guide to Global Success, published by Practicing Law Institute (PLI).

Partner Giovanna Cinelli, who leads the firm’s international trade and national security practice, told World ECR she has seen no slowdown in Chinese investments in US technology companies despite countries’ fortification of investment regulations.

Partners Daniel Nelson, Kate Habershon, and Kathryn Hambrick and associates Meghan McCarthy, Alexios Hadji, and Grace Tan co-authored an article for the Journal of Investment Compliance regarding tax-related issues in the private wealth fund investment area. The article dives into regional tax considerations for sovereign wealth funds that are looking to ramp up investments post-pandemic.

Fund Management 2021, published by Lexology’s Getting The Deal Through (GTDT), gives a high level overview of the key considerations for the fund management industry and predictions for the year ahead.

Partner Tom Cartwright provided insight ahead of the Medtech Investing Europe Forum on the outlook for life sciences industry amid COVID-19.

Morgan Lewis partner Todd Liao authored an article for Medtech Insight about China’s amended regulation governing medical devices. The update of the Regulation on Supervision and Administration of Medical Devices, which came into effect on 1 June 2021, introduces important changes that medtech companies should be aware of.

Morgan Lewis partner Mark Geday authored an article for IFLR looking at current deal making trends and considerations in the context of a challenging market.

Partner Sandra Vrejan spoke with Bloomberg Law about a shift from the Small Business Administration regarding bankrupt companies’ eligibility for Paycheck Protection Program (PPP) loans. In the piece, Sandra noted that the guidance doesn’t address a key issue—whether bankrupt companies are eligible for PPP loans. “At the end of the day, the thumbnail conclusion is that it hasn’t changed all that much,” she said.

Partners Rob Mailer and Oli Rochman and associate Funke Omisore authored a column for Private Equity International which provides practical and commercial considerations for first-time fund managers.