Updated: Aug 13, 2020
This article is mainly intended as an insight for law students, graduates or any person seeking to join a corporate law firm or the corporate department in a multidisciplinary firm.
This article has three main themes:
(i) explaining what entails corporate law
(ii) commercial awareness
(iii) the job scope of a corporate lawyer
There are several areas of corporate law such as corporate banking, project finance, corporate conveyancing, corporate M&A (Mergers & Acquisitions), Capital Markets (Equity or Debt). It would be prudent to research which specialisation resonates well with you.
What is corporate law?
Corporate law revolves around commercial entities/corporations and the work is mostly transactional and advisory. The bulk of it comprises of deals and corporate proposals. Deals are mergers & acquisitions and joint ventures, whereas corporate proposals are initial public offerings, rights issue, private placement, takeovers, related party transactions, share buy-backs and share capital reduction. The difference between transactional work and dispute resolution is the former is about marrying deals whereas the latter is about surgically taking them apart.
A corporate lawyer needs to be familiar with company law. When dealing with a client who is a public entity, one may need to also read the Capital Markets and Services Act 2007, the Bursa Listing Requirements & Practice Notes, Securities Commission Malaysia’s Guidelines and Securities Commission Malaysia Act 1993.
Throughout a corporate lawyer’s career, it is advisable to develop and hone one’s commercial awareness. It will give colour to the facts of a particular brief and allows the corporate lawyer to gain the client’s confidence as clients often expect lawyers to know their business and industry.
What is commercial awareness?
Commercial awareness is about understanding what makes a business tick. It’s about knowing the prevalent issues in the world and analysing how it might impact your client’s business. For example, how does the US and China trade war affect your client if your client is an oil & gas player and how does the introduction of vape products harshen the commercial conditions for a tobacco industry stakeholder?
Commercial awareness also means understanding your client’s end goal, determining how it can be done with minimal risk and what are the ensuing effects on its other arms of business, shareholders, clients, competitors and creditors.
An example of commercial awareness.
A client wants to raise funds to generate working capital for business expansion. The client proposes to raise funds via the issuance of shares by inviting its existing shareholders to purchase additional new shares in the company at a discounted price in proportion to their existing shareholding. This is commonly known as a rights issue. Some may ask “Why not borrow the necessary funds from a bank?”.
The below lists down three advantages from doing a rights issue:
1. Raising funds via equity allows the client to raise the required funds without having to incur interest costs as compared to bank borrowings and/or other interest-bearing debt instruments.
2. This enhances the client’s capital base, lowering the client’s gearing (put simply, the debt to equity ratio) creating headroom for the client to consider debt financing for future business expansions.
3. If the client is a public listed company, the resultant increase in the number of the client’s shares may potentially improve the trading liquidity of the client’s shares.
Suggestions on growing commercial awareness
The growth of commercial awareness is usually proportional to working experience. However, putting effort in the activities listed below may accelerate such growth.
1. Watching shows like Dragon’s Den or Shark Tank
2. Listening to informative radio stations such as BFM, the Bottom Line or the Marketplace APM
3. Reading the Edge Markets
4. Reading public documents on Bursa Malaysia i.e. circulars/notice to shareholders in respect corporate proposals or annual reports (“AR”) of public listed entities
For example, a recent takeover offer by a wholly-owned subsidiary of 7-Eleven Malaysia Holdings Bhd to acquire Caring Pharmacy Group Berhad.
You may find a segment in the AR labelled as Management Discussion & Analysis (“MD&A”) which will prove useful as the MD&A shows the strategies implemented by the company to tackle adverse market conditions, competitors or streamlining its production.
What does a corporate lawyer do?
A corporate lawyer advises businesses on their legal obligations, structure transactions and assist to negotiate deals. Drawing a comparison with a litigator, a litigator normally deals with court officers, the opponent’s counsel, witnesses and the client. A corporate lawyer instead would often correspond with investment bankers or principal advisers, corporate secretaries, reporting accountants or auditors, independent market researchers, and the client’s in-house legal, accountants and corporate officers (directors & C-suite personnel).
Due diligence is the bread and butter of a corporate lawyer’s work which arises from deals and corporate proposals and is usually conducted by pupils and junior Associates. The timetable for due diligence is often tight and this may be because the client’s business sector is fast-paced (for example the FMCG industry), to meet the ripe market conditions for a lucrative share price valuation or for market sentiment.
Unlike civil or criminal litigation where there are procedural rules, there is no similar guideline or authority on how to conduct due diligence, therefore a pragmatic and inquisitive stance should be taken when conducting due diligence.
An example of a due diligence exercise
For simple illustration purposes, an acquisition will be chronicled to describe the responsibilities of a corporate lawyer. The due diligence seeks to provide information to the purchaser on how the target company operates its business, the potential scalability of such business and the benefits and risks of such an acquisition.
The information allows the purchaser to make a better and more informed decision of whether to proceed with or to terminate the transaction. Sometimes, the information discovered in due diligence offers the parties (usually the purchaser) an opportunity to renegotiate the terms of the Share Sale Agreement ("SSA").
The first consideration is the type of entity of the acquisition vehicle i.e. a limited liability partnership or a company limited by shares. Secondly, the place of incorporation of this acquisition vehicle will be considered; usually the chosen place of incorporation is a tax efficient jurisdiction such as the Cayman Islands. Further research may be needed on different tax treatments of different jurisdictions on how payment to an acquisition vehicle is taxed.
Due diligence commences when a document request letter or RFID (request for information & documents) is sent to the vendor by the lawyers. The below examples set out what a due diligence exercise aims to accomplish:
1. what are the assets and liabilities of the target company
2. what are its contracts, who are the parties and whether are there any provisions in any contract allowing a party to renegotiate or to terminate the contract should there be an acquisition
3. does the target company own any intellectual property
4. does the target company own any licences or have any regulatory approvals
5. whether there is any existing or potential litigation
6. whether there is any existing contingent liabilities or material commitment
7. will there be any employment & industrial relations issues arising from a restructuring of the personnel, if any and if yes what can be expected from the trade union
8. any restrictions in the removal & appointment of directors
9. does the covenants in any banking facility prohibits an acquisition
10. does the procedure of the acquisition breach the shareholder agreement (if any) or runs contrary to the constitution of the target company
11. does the target company have the relevant policies in place i.e. personal data protection and anti-corruption & bribery
12. is there an anti-trust aspect to the acquisition
If the purchaser is satisfied with the results of the due diligence, the deal proceeds to the execution phase i.e. the signing of the SSA.
The closing day will be a choreographed chain of signings. The corporate lawyers have to ensure all the right documents inter alia share certificates, board and members resolutions, the SSA and indemnity letters are in the right location to be signed as most of the time directors or shareholders are travelling.
The writer hopes this article may assist law students and graduates keen on practising corporate law to have a clearer picture on the nature of a corporate lawyer. Corporate law can be exciting especially when learning about different types of proposals accompanied with a sense of fulfilment when successfully solving issues encountered during due diligence.
If you are seeking information on what are the formalities for pupillage or how to file your pupillage papers, please refer to Weera Premananda’s article entitled How To E-File Your Pupillage Forms in https://brainylaw.wordpress.com/.
This article represents the views of the writer alone. Information in this article may not constitute the most up-to-date information.