The Investment Canada Act: A New Approach to the Regulation of Foreign Investment in Canada
George C. Glover, Jr., Douglas C. New, and Marc M. Lacourcière, 41(1): 83–98 (Nov. 1985)
The new Investment Canada Act signals a welcoming attitude to foreign investment in Canada and carries with it the repeal of Canada's controversial Foreign Investment Review Act. The Investment Canada Act requires a notice filing for all new Canadian business establishments by non-Canadians and for acquisitions of existing Canadian businesses by non-Canadians and a review and approval of substantial investments and investments in sectors deemed sensitive to Canada's cultural heritage or national identity. This Article describes the provisions of the new law and the major changes from the Foreign Investment Review Act.
Business Organization and Securities Laws of the People's Republic of China
Henry R. Zheng, 43(2): 549–619 (Feb. 1988)
As foreign investment in China has grown over the past decade, China's law of business organizations has been changing. Economic reform has led to greatly decentralized government control over domestic enterprises, and the introduction of the concept of legal person has been central to the new laws and regulations governing business organizations. This Article reviews these laws with an emphasis on how they affect foreign investment enterprises.
A Byproduct of the Globalization Process: The Rise of Cross-Border Bank Mergers and Acquisitions--The U.S. Regulatory Framework
Joseph J. Norton and Christopher D. Olive, 56(2): 591 (Feb 2001)
This Article examines the U.S. regulatory framework as it pertains to foreign bank acquisitions of U.S. banking interests, particularly from the "regulatory approval" perspective. Over the past two decades, the United States has endeavored to establish a domestic "level playing field" for the U.S.-based operations of U.S. and foreign banking institutions through the legal and practical imposition of a "national treatment" approach. The U.S. banking authorities have also used an international standards-based "gateway" for foreign banking institutions to initially enter the United States. In order to provide some practical insights and reference points, this Article endeavors to address these issues in the context of two recently completed foreign bank M&A transactions in the United States. This Article then considers the issue of access to "nonbank," but financially related, activities for banking institutions in the United States as a result of, and motivating factor behind, foreign bank M & As of U.S. banking institutions and other U.S. financial institutions. In this context, the possible relevant implications of the most recent U.S. bank reform legislation is considered. The Article concludes with selective observations.
G. Mitu Gulati and Kenneth N. Klee, 56(2): 635 (Feb 2001)
This Article lays bare the recent efforts of vulture investor Elliott Associates to holdup the Government of Peru. When Peru tried to restructure its Brady Bonds, Elliott launched global litigation to tie up the money and force Peru into default. A Brussels' court brought Peru to its knees and forced it to settle with Elliott. Elliott's leverage was based on its novel interpretation of the so-called pari passu clause which requires a debtor's creditors to rank equally. This Article first explains why, from an ex ante bargaining perspective, sovereign debtors would be loathe to agree to pari passu clauses with the interpretation given by the Brussels court. Next, the Article looks to the literature and case law construing sovereign and corporate debt and demonstrates why the Brussels interpretation is wrong, results in a windfall to holdout creditors, and is harmful to the majority of other creditors. The Article then discusses New York bond interpretation law and the need for the Brussels interpretation to be challenged. The Article concludes with some important insights about market changes that will result if the Brussels interpretation is allowed to stand.
Toward Facilitating Cross-Border Secured Financing and Securitization: An Analysis of the United Nations Convention on the Assignment of Receivables in International Trade
Harry C. Sigman and Edwin E. Smith, 57(2): 727 (Feb. 2002)
The United Nations Convention on the Assignment of Receivables in International Trade has recently been adopted and is now open for signature. The Convention promulgates substantive and choice of law rules that will, if the Convention becomes effective in a sufficient number of countries, significantly improve the feasibility of cross-border transactions involving the assignment of receivables. The Convention will achieve this by reducing or eliminating obstacles to efficient commercial practices and by providing greater certainty on many issues. The authors explain the Convention's provisions and discuss relevant provisions of Revised U.C.C. Article 9 to facilitate comparison and to assist counsel to understand how the Convention might affect transactions having a U.S. connection.
Acquiring a Business in France: A Buyer's Guide
Laura Snyder, 57(2): 793 (Feb. 2002)
France is an important place for international investors. An investor contemplating the acquisition of a company or of assets located in France should understand the legal environment in which businesses in France operate. This Article provides an introduction to selected areas of French law which are of particular relevance. More specifically, this Article: (i) examines the choices a buyer has in structuring an acquisition, (ii) analyzes the pre- and post-acquisition authorizations and declarations that may be required, (iii) exposes the myriad of labor issues raised, directly and indirectly, by the acquisition, (iv) summarizes the manner in which industrial facilities are regulated under French environmental law, (v) addresses recent changes in French law as regards foreign corrupt practices and the implications of these changes for the American parent of a French subsidiary, and (vi) describes the various forms of companies that exist under French law and their most pertinent features.
Empty Voting and Hidden (Morphable) Ownership: Taxonomy, Implications, and Reforms
Henry T. C. Hu and Bernard Black, 61(3):1011–1070 (May 2006)
Most American publicly held corporations have a one-share, one-vote structure, in which voting power is proportional to economic ownership. This structure gives shareholders economic incentives to exercise their voting power well and helps to legitimate managers' exercise of authority over property the managers do not own. Berle-Means' "separation of ownership and control" suggests that shareholders face large collective action problems in overseeing managers. Even so, mechanisms rooted in the shareholder vote, including proxy fights and takeover bids, constrain managers from straying too far from the goal of shareholder wealth maximization.
In the past few years, the derivatives revolution, hedge fund growth, and other capital market developments have come to threaten this familiar pattern throughout the world. Both outside investors and corporate insiders can now readily decouple economic ownership of shares from voting rights to those shares. This decoupling—which we call "the new vote buying"—is often hidden from public view and is largely untouched by current law and regulation. Hedge funds, sophisticated and largely unfettered by legal rules or conflicts of interest, have been especially aggressive in decoupling. Sometimes they hold more votes than economic ownership, a pattern we call "empty voting." That is, they may have substantial voting power while having limited, zero, or even negative economic ownership. In the extreme situation of negative economic ownership, the empty voter has an incentive to vote in ways that reduce the company's share price. Sometimes hedge funds hold more economic ownership than votes, though often with "morphable" voting rights—the de facto ability to acquire the votes if needed. We call this "hidden (morphable) ownership" because under current disclosure rules, the economic ownership and (de facto) voting ownership are often not disclosed. Corporate insiders, too, can use new vote buying techniques.
This article analyzes the new vote buying and its corporate governance implications. We propose a taxonomy of the new vote buying that unpacks its functional elements. We discuss the implications of decoupling for control contests and other forms of shareholder oversight, and the circumstances in which decoupling could be beneficial or harmful to corporate governance. We also propose a near-term disclosure-based response and sketch longer-term regulatory possibilities. Our disclosure proposal would simplify and partially integrate five existing, inconsistent share-ownership disclosure regimes, and is worth considering independent of its value with respect to decoupling. In the longer term, other responses may be needed; we briefly discuss possible strategies focused on voting rights, voting architecture, and supply and demand forces in the markets on which the new vote buying relies.
Law of Private Placements (Non–Public Offerings) Not Entitled to Benefits of Safe Harbors—A Report
committee on Federal Regulation of Securities, ABA Section of Business Law, 66(1): 85–124 (November 2010)
Massey Prize for Research in Law, Innovation, and Capital Markets Symposium—Foreword
70(2): 319-320 (Spring 2015)
Financial Innovation and Governance Mechanisms: The Evolution of Decoupling and Transparency
Henry T. C. Hu; 70(2): 347-406 (Spring 2015)
Financial innovation has fundamental implications for the key substantive and information-based mechanisms of corporate governance. “Decoupling” undermines classic understandings of the allocation of voting rights among shareholders (via, e.g., “empty voting”), the control rights of debtholders (via, e.g., “empty crediting” and “hidden interests”/ “hidden non-interests”), and of takeover practices (via, e.g., “morphable ownership” to avoid section 13(d) disclosure and to avoid triggering certain poison pills). Stock-based compensation, the monitoring of managerial performance, the market for corporate control, and other governance mechanisms dependent on a robust informational predicate and market efficiency are undermined by the transparency challenges posed by financial innovation. The basic approach to information that the SEC has always used—the “descriptive mode,” which relies on “intermediary depictions” of objective reality—is manifestly insufficient to capture highly complex objective realities, such as the realities of major banks heavily involved with derivatives. Ironically, the primary governmental response to such transparency challenges—a new system for public disclosure that became effective in 2013, the first since the establishment of the SEC—also creates difficulties. This new parallel public disclosure system, developed by bank regulators and applicable to major financial institutions, is not directed primarily at the familiar transparency ends of investor protection and market efficiency.
As starting points, this Article offers brief overviews of: (1) the analytical framework developed in 2006−2008 for “decoupling” and its calls for reform; and (2) the analytical framework developed in 2012−2014 reconceptualizing “information” in terms of three “modes” and addressing the two parallel disclosure universes.
As to decoupling, the Article proceeds to analyze some key post- 2008 developments (including the status of efforts at reform) and the road ahead. A detailed analysis is offered as to the landmark December 2012 TELUS opinion in the Supreme Court of British Columbia, involving perhaps the most complicated public example of decoupling to date. The Article discusses recent actions on the part of the Delaware judiciary and legislature, the European Union, and bankruptcy courts—and the pressing need for more action by the SEC. At the time the debt decoupling research was introduced, available evidence as to the phenomenon’s significance was limited. This Article helps address that gap.
As to information, the Article begins by outlining the calls for reform associated with the 2012−2014 analytical framework. With revolutionary advances in computer- and web-related technologies, regulators need no longer rely almost exclusively on the descriptive mode rooted in intermediary depictions. Regulators must also begin to systematically deploy the “transfer mode” rooted in “pure information” and the “hybrid mode” rooted in “moderately pure information.” The Article then shows some of the key ways that the new analytical framework can contribute to the SEC’s comprehensive and long-needed new initiative to address “disclosure effectiveness,” including in “depiction-difficult” contexts completely unrelated to financial innovation (e.g., pension disclosures and high technology companies). The Article concludes with a concise version of the analytical framework’s thesis that the new morphology of public information—consisting of two parallel regulatory universes with divergent ends and means—is unsustainable in the long run and involve certain matters that need statutory resolution. However, certain steps involving coordination among the SEC, the Federal Reserve, and others can be taken in the interim.
Cross-Border Closing Opinions of U.S. Counsel
Legal Opinions committee, ABA Business Law Section; 71(1): 139-226 (Winter 2015/2016)