Global Taxes

Handbook for lawyers: Chapter 1

Chapter 1 - Mergers and acquisitions (M&A) and corporate restructuring

How can corporate and M&A lawyers work in a way that is consistent with the UN Guiding Principles on Business and Human Rights?

This chapter is part of a series of educational resources aimed at raising awareness among legal practitioners about the different ways in which business enterprises can become involved in adverse impacts on human rights and the roles and responsibilities of legal practitioners in helping their corporate clients to:

  • manage those human rights risks effectively; and
  • meet their corporate responsibility to respect human rights

Orientation

In this chapter you will find a series of exercises and resources designed to help you develop your skills as a legal practitioner in identifying and addressing human rights risks.

This means that:

  • if you are acting for a company in relation to an acquisition of a shareholding in another company, you are able to:
    • identify and discuss with your client the salient human rights risks connected with or arising from the activities of the target company;
    • design and implement the due diligence and disclosure processes necessary to enable you and your client to thoroughly investigate and analyse human rights risks;
    • suggest and discuss with your client appropriate ways of managing those risks, including by contractual means; and
    • know when to seek (and/or recommend seeking) advice and assistance from relevant internal and/or external expertise with respect to the identification, prevention, mitigation and addressing of adverse human rights impacts.
  • if you are acting for a company in relation to an acquisition of assets of another person or company, you are able to:
    • identify and discuss with your client the salient human rights risks connected with or arising from the target assets;
    • design and implement the due diligence and disclosure processes necessary to enable you and your client to thoroughly investigate and analyse human rights risks;
    • suggest and discuss with your client appropriate ways of managing those risks, including by contractual means;
    • know when to seek (and/or recommend seeking) advice and assistance from relevant internal and/or external expertise with respect to the identification, prevention, mitigation and addressing of adverse human rights impacts.
  • if you are acting for a company seeking to establish a joint venture with another company or companies, you are able to identify human rights risks connected with or arising from the planned activities of the joint venture and/or the activities of the joint venture partners and you are able to suggest appropriate ways of managing those risks, including by contractual means.
  • if you are acting for a company seeking to divest or restructure certain shareholdings or assets, for example as part of a corporate restructuring or reorganisation, you are able to identify human rights risks (i) arising from or connected with your client’s activities up to the point of transfer and (ii) which may subsist post-transfer, and you are able to suggest appropriate ways of managing those risks, including by contractual means.
  • whatever the nature of the transaction, you are able to identify and suggest appropriate ways of dealing with human rights risks that may arise post-completion, and/or in the course of implementation of legal risk management and/or governance arrangements agreed between companies (e.g. where the transaction involves the establishment of a joint venture), as part of an ongoing lawyer-client relationship and to the full extent of your mandate to do so.

The ‘Getting Started’ section:

  • tells you more about how and why human rights issues can arise in corporate/M&A work; and
  • provides some hypothetical case scenarios, discussion questions and model answers which you can use to develop your skills with respect to
    • identifying human rights risks; and
    • integrating consideration of these issues into how you advise your client in specific transactional contexts.

The ‘Practical Resources’ section:

  • outlines the different due diligence methodologies you could consider using to help you identify human rights risks arising from or connected to
    • your client’s business activities; and/or
    • the business activities of the target company and/or the target assets.
  • shows how human rights risks can be relevant to the negotiation of key contract terms;
  • offers suggestions as to the different ways in which parties to corporate/M&A transactions can respond to human rights risks contractually, including
    • the various ways in which contractual regimes can assist the parties to anticipate, identify, prevent, mitigate, address, remedy and allocate responsibilities with respect to human rights risks; and
    • ways to ensure that parties have appropriate leverage
  • provides ideas as to additional activities and/or services that you could discuss with your corporate clients in the course of and/or following completion of a transaction (depending on the nature and scope of your client’s business activities and your on-going lawyer-client relationships) relevant to the future identification, prevention and mitigation of human rights risks.

The ‘Further reading and resources’ section provides links to further materials, information and resources relating to business and human rights that may be of interest to corporate/M&A lawyers.

Getting started

In this chapter you will find a series of exercises and resources designed to help you develop your skills as a legal practitioner in identifying and addressing human rights risks.

This means that:

If you are acting for a company in relation to an acquisition of a shareholding in another company, you are able to:

  • identify and discuss with your client the salient human rights risks connected with or arising from the activities of the target company;
  • design and implement the due diligence and disclosure processes necessary to enable you and your client to thoroughly investigate and analyse human rights risks;
  • suggest and discuss with your client appropriate ways of managing those risks, including by contractual means; and
  • know when to seek (and/or recommend seeking) advice and assistance from relevant internal and/or external expertise with respect to the identification, prevention, mitigation and addressing of adverse human rights impacts.

If you are acting for a company in relation to an acquisition of assets of another person or company, you are able to:

  • identify and discuss with your client the salient human rights risks connected with or arising from the target assets;
  • design and implement the due diligence and disclosure processes necessary to enable you and your client to thoroughly investigate and analyse human rights risks;
  • suggest and discuss with your client appropriate ways of managing those risks, including by contractual means;
  • know when to seek (and/or recommend seeking) advice and assistance from relevant internal and/or external expertise with respect to the identification, prevention, mitigation and addressing of adverse human rights impacts.
  • if you are acting for a company seeking to establish a joint venture with another company or companies, you are able to identify human rights risks connected with or arising from the planned activities of the joint venture and/or the activities of the joint venture partners and you are able to suggest appropriate ways of managing those risks, including by contractual means.
  • if you are acting for a company seeking to divest or restructure certain shareholdings or assets, for example as part of a corporate restructuring or reorganisation, you are able to identify human rights risks (i) arising from or connected with your client’s activities up to the point of transfer and (ii) which may subsist post-transfer, and you are able to suggest appropriate ways of managing those risks, including by contractual means.
  • whatever the nature of the transaction, you are able to identify and suggest appropriate ways of dealing with human rights risks that may arise post-completion, and/or in the course of implementation of legal risk management and/or governance arrangements agreed between companies (e.g. where the transaction involves the establishment of a joint venture), as part of an ongoing lawyer-client relationship and to the full extent of your mandate to do so.

The ‘Getting Started’ section:

Tells you more about how and why human rights issues can arise in corporate/M&A work; and provides some hypothetical case scenarios, discussion questions and model answers which you can use to develop your skills with respect to

  • identifying human rights risks; and
  • integrating consideration of these issues into how you advise your client in specific transactional contexts.

The ‘Practical Resources’ section:

Outlines the different due diligence methodologies you could consider using to help you identify human rights risks arising from or connected to,

  • your client’s business activities; and/or
  • the business activities of the target company and/or the target assets.

Shows how human rights risks can be relevant to the negotiation of key contract terms;

Offers suggestions as to the different ways in which parties to corporate/M&A transactions can respond to human rights risks contractually, including

  • the various ways in which contractual regimes can assist the parties to anticipate, identify, prevent, mitigate, address, remedy and allocate responsibilities with respect to human rights risks; and
  • ways to ensure that parties have appropriate leverage

provides ideas as to additional activities and/or services that you could discuss with your corporate clients in the course of and/or following completion of a transaction (depending on the nature and scope of your client’s business activities and your on-going lawyer-client relationships) relevant to the future identification, prevention and mitigation of human rights risks.

The ‘Further reading and resources’ section provides links to further materials, information and resources relating to business and human rights that may be of interest to corporate/M&A lawyers.

Practical resources for corporate and M&A lawyers

Pre-engagement checks and screening

In order to comply with their professional and legal obligations, lawyers must carry out certain checks before they can accept instructions from clients. For instance, if you work as a lawyer in a law firm you will need to check for possible conflicts of interest between the work contemplated in the new instructions, any other work being carried on by the firm, and any other business interests of the firm or its lawyers. In many jurisdictions, it will be obligatory to carry out identity checks prior to accepting instructions from new clients, for instance under economic sanctions, anti-money laundering or anti-corruption regulations, so that you are in a position to identify potentially higher risk transactions and verify the client’s identity. You should be thoroughly familiar with the local professional and legal standards that apply to you as a practising lawyer, as well as the internal controls and compliance systems that your firm has put in place to help you to identify and minimise these risks.

Pre-engagement human rights screening can help you, at an early stage to:

  • identify potential human rights risks associated with (i) a proposed acquisition or merger and/or (ii) the business activities of the companies involved;
  • identify potential ethical and/or reputational risks to your firm and/or your client; and
  • begin to develop, with your client, a strategy for responding to these risks in a manner which is consistent with:
    • your legal and professional obligations as a lawyer;
    • your (and your firm’s) responsibilities under the UN Guiding Principles on Business and Human Rights as a business actor and as a professional adviser to other business enterprises; and
    • the client’s own approach and/or stated intentions.

However, this is no substitute for detailed transactional legal due diligence, discussed further below.

Pre-engagement human rights screening: corporate client: asset sale/share sale: example questions in relation to client and target company/assets

Important notes: The checklist below is illustrative only. It is not exhaustive and will not identify all of the human rights issues that may be relevant to your prospective client and/or the proposed transaction. Furthermore, not all of these questions will be relevant in a given context, and those that appear relevant will obviously need reviewing and adapting to suit the specific transaction and circumstances.

Prospective client’s approach to business and human rights generally
  • Has the prospective client (or its parent company if it is a member of a corporate group) made a public policy commitment in relation to business and human rights?
  • Does the prospective client operate in accordance with a human rights code of conduct? Where is this documented and how is it conveyed to managers and staff? Is human rights training part of staff induction and/or training?
  • Does the prospective client (or its parent company if it is a member of a corporate group) report publicly on the human rights risks arising from or linked to its business and how it manages those risks? Is the report externally verified? If so, is a recognised reporting framework used? Is this reporting consistent with applicable laws on public reporting and other requirements to disclose human rights risks?
  • Does the prospective client (or its parent company if it is a member of a corporate group) participate in any self-regulatory or industry-specific initiatives relating to business and human rights? If so, which?
  • Has the prospective client (or its parent company if it is a member of a corporate group) been the subject of (a) independent benchmarking or reporting initiatives, (b) adverse press comment, (c) shareholder action or (d) public demonstrations or consumer boycotts as a result of adverse human rights impacts arising from its [business activities, products or services]?
Questions relating to target company/assets
  • Acquisition of land/buildings/plant/site: Were any inhabitants relocated in order for the site to be acquired or developed? Is the site in the vicinity of habitation by groups with the status of indigenous peoples? Does the location of the plant or its operations have the potential to negatively affect access by local inhabitants to water or other resources or to support their livelihood? Does the land have important cultural value to the local community? Are private security companies used at the site? Are they appropriately regulated? Do they receive sufficient training with respect to the use of force?
  • Employees: Do workers receive training in relation to health and safety? What percentage of the workforce is made up of (a) contract workers and (b) migrant workers? What are the [company’s/site] policies in relation to (a) contract workers and (b) migrant workers? What are the [company’s/site] policies on minimum age verification and/or identity documentation management?
  • Supply chain issues: What steps are taken to ensure that suppliers to the site/company are compliant with internationally recognised labour standards and international prohibitions on the use of child labour and forced labour?
  • Stakeholder engagement and community relations: Does the company/site engage with or take advice from civil society organisations, non-governmental organisations or community representatives with respect to the human rights impacts of the site/operations? If so, how? And, if so, what has the site/company learned from these processes?
  • Government actions and relations: Have actions by government or government agencies in connection with the site/operations had (or might they have the potential to have) an adverse impact on the human rights of local inhabitants or others?
Agreement for legal services (also referred to as “engagement letter” or “retainer agreement”): business and human rights: key provisions potentially relevant to business and human rights
Scope of work:

In light of the outcomes of pre-engagement screening for human rights issues (see example 1 above) you will want to discuss with your client the extent to which human rights issues will need to be covered in the transactional legal due diligence, and in any other project-related work (including follow up and supplemental legal services) and ensure that this is reflected in the “scope of work” provisions in the retainer agreement between you and your client.

Responsibilities of client:

For more complex corporate and commercial work, your engagement letter is likely to contain provisions relating to your access to information and documents relevant to the transaction. If the pre-engagement screening has highlighted possible human rights risks associated with the transaction, you may wish to tailor those provisions to ensure that information and documents relating to those specific risks come within the scope of what you will have access to.

Integrity and ethics:

Your engagement letter may set out, in general terms, your firm’s policies and aspirations as regards professional, ethical and business standards. In addition, it may record the expectation that your client operate to similarly high standards (particularly if the client has its own code of ethics or human rights policy which the law firm/lawyer may be required to adhere to) and will not request any services from the lawyers that would be disreputable or compromise the firm’s integrity or ability to comply with applicable professional standards or regulations. You may want to consider, in light of any pre-engagement screening checks, whether there is a need for any specific reference to human rights standards in these general terms.

Further reading and resources

In this section you will find a list of further reading and resources prepared by external sources that are relevant to the issues discussed in this chapter. This list will be updated from time to time. If you have any suggestions as to further materials that would be of interest to lawyers working in the corporate/M&A field please contact us.