Duane Morris & Slevam Myanmar

COVID and the recent change in the government have added further concerns to the political state of Myanmar. We have seen foreign investors and suppliers face difficulty in recovering debts in Myanmar. This Alert sets out actions to consider towards recovering debts from a Myanmar company.

he COVID-19 pandemic triggered severe economic shock, particularly in countries like Myanmar that rely heavily on labour-intensive industries. The recent change in the government has added further concerns to the political state of Myanmar. With this recent set of events, we have seen foreign investors and suppliers face difficulty in recovering debts in Myanmar. This Alert sets out actions that may be considered by creditors towards recovering debts from a Myanmar company.

Dispute Resolution 

Should the debt be disputed, the parties will be required to proceed as per the dispute resolution clause in the transactional documents. Where applicable, creditors may claim against the debtor in the proper forum in Myanmar.

Due Diligence on the Debtor Company

Company searches may be conducted on the Myanmar company online registration system (MyCo), which reveals, among other things, the status of the company (e.g., registered, suspended, struck off or dissolved), details of members, paid-up capital as well as mortgages and charges over assets of the company, if any. It is not uncommon that debtor companies are found suspended or struck off due to failure to comply with some filing requirement. In such cases, creditors may request the debtor company to apply for revocation of the suspension by the registrar or petition the court to restore the company as a creditor.

Inquiries with the court (typically of the Yangon region) in Myanmar may reveal ongoing and past litigation including winding-up proceedings. It is noteworthy here that official court searches are not available in Myanmar as there is no central repository of information whereby past or pending cases may be definitively found. The results of such unofficial inquiries may not be accurate and may not be exhaustive.

Drafting and Service of Demand Letters

Service of a demand letter is a necessary step before initiating legal actions against debtors in Myanmar. According to Section 162 of the Myanmar Insolvency Law 2020 (MIL) and Section 78 of Insolvency Rules 2020, a company will be presumed insolvent if a creditor serves a statutory demand requiring the company to pay a sum due over 1 million kyat (approximately USD $560) and the company has for 21 days afterwards neglected to pay the sum or secure or compound for it to the reasonable satisfaction of the creditor. In such cases, creditors may make a winding-up petition to the court on the grounds that the debtor company is insolvent.

Negotiation and Settlement

Typically, parties will work toward an amicable solution during this phase, such as negotiating over a revised repayment schedule and/or taking securities over the assets of the debtor company. It is noteworthy that foreigners (individuals or entities) are not allowed to own any immoveable property in Myanmar, including taking securities over land/real estate property (except for leasehold interest subject to the approval by the Myanmar Investment Commission).

Winding-up Petition

Creditors may make a petition to the court to wind up the debtor company, provided that the conditions under paragraph 3 are satisfied. On hearing the winding-up petition, the court may order the company to wind up and appoint a liquidator. The winding-up order shall operate in favour of all creditors and of all contributories of the company as if made on the joint petition of a creditor and a contributory.

The principal functions of liquidators are to ensure that, as soon as reasonably practical, the property of the company is brought under their control and is distributed to the company's creditors and/or members, if there is a surplus. However, unsecured creditors may only be paid on a pari passu basis followed by the secured creditors, according to the order of priority under the MIL.

Voidable Transactions

After commencement of the winding-up proceeding, the company must cease to carry on its business except so far as required for its beneficial winding up. In case of insolvency, subject to limited exceptions, transactions entered into during a period prior to the liquidation shall be void, including:

  1. Making gifts or entering into a transaction for a consideration that is significantly less than the value of the business assets being sold (Section 360);
  2. Entering into transactions with an unsecured creditor whereby the creditor receives more than what they would if the transaction was set aside (Section 361);
  3. Entering into extortionate credit transactions (Section 363); and
  4. Creating a floating charge over the undertaking or property of the company (Section 364).

Pursuant to the MIL, a “period” may be two months to five years depending on the type of the transaction and whether it was with an associated person. If any of the above transactions are identified, the court may order, among other things, the restoration of the position.

Directors’ Liabilities

Pursuant to the MIL, directors may be personally liable for the following:

  1. Fraud in contemplation of winding up: Within 12 months prior to the winding up, if a director fraudulently removed any part of the company's property exceeding 500,000 kyats (approximately USD $280), or concealed any debt due to or from the company (Section 214);
  2. False representation to creditors: In the course of winding up, if a director makes any false representation or commits any other fraud for the purpose of obtaining the consent of any creditor to an agreement with reference to the company's affairs or to the winding up (Section 216);
  3. Fraudulent trading: In the course of winding up, if any business of the company has been carried on with intent to defraud creditors of the company (Section 218);
  4. Wrongful trading: At some time prior to the winding up, if a director continued to trade when they knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation (Section 219); or
  5. Reuse of company name: Within five years from the winding up, if a director carries out businesses or acts as a director of another company using the company’s name, except for members’ voluntary winding up (Sections 220).

Directors committing offences as described in Sections 214, 216 and 220 may also be punished by imprisonment in addition to pecuniary liabilities.

At this juncture, it would be prudent to conduct due diligence on local partners and traders before entering into any commercial arrangements or injecting any funds and to make sure transactional documents are properly drafted to safeguard your interests.

About Duane Morris & Selvam

Our firm has a strong presence in Myanmar and our on-the-ground team guides clients throughout debt collection proceedings, as well as assisting in due diligence on debtor companies and in negotiating with the aim of amicable settlements.

For More Information

If you have any questions about this Alert, please contact Leon YeePriyank SrivastavaBei Wang, any of the attorneys in our Myanmar office or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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Duane Morris & Slevam Myanmar

Duane Morris' office in Yangon, Myanmar, established through its joint law venture with Singapore-based Selvam LLC, serves international and domestic clients, focusing on investment and business matters. Duane Morris was among the first U.S.-based firms to open an office in Myanmar, providing on-the-ground, high-quality counsel to foreign and domestic businesses seeking to seize opportunities while minimizing the inherent risks in an emerging market.

Mergers and Acquisitions

Non-lawyers in the business community often view mergers and acquisitions as straightforward affairs but in fact, major corporate transactions have far-reaching consequences for companies. Transactional lawyers are charged with the responsibility for an ever-increasing number of regulatory and legal issues that must be resolved in order to fully protect their clients. Our multi-specialist lawyers lead every stage of the transaction to ensure that clients receive a seamless delivery of legal services that is effectively and efficiently integrated and managed.

Corporate Finance

We have advised on a broad range of cross-border investment transactions including divestments, hive offs and spin offs, corporate reorganisation and court-sanctioned schemes of arrangement. Our experience extends to:

  • Advising on company group structures and share capital structures to meet client's objectives
  • Advising on transaction structures and financing issues
  • Creating security for financing including asset-backed securitisation
  • Advising on stamp duties and tax implications of transactions
  • Drafting transactional documents
  • Assisting in due diligence

Licensing/Market Entry

In any emerging market, you have to measure both opportunity and risk and also gain an understanding of the nuances and the subtleties of how business is done there. There is a growing amount of interest in Myanmar from businesses in Europe, the U.S. and elsewhere in Asia. To help our clients invest and operate in this rapidly evolving business environment, we call upon our experience representing the government and various commercial entities in Myanmar and our understanding of the issues that businesses face when they engage with international counterparts, raise capital and navigate potential issues.

Funds, Private Equity & Venture Capital

We represent high-net worth individuals, private equity funds, venture capital funds and investee companies from a wide range of industries (including life sciences, education, technology, insurance and natural resources) at every point in the investment process, from helping them to negotiate and evaluate private equity transactions to restructuring and selling distressed businesses.

Our current clients include finance houses, global commercial and investment banks, investment managers, corporate financiers, offshore hedge funds, private equity firms and investors, private investment companies and insurance companies. We have experience advising in relation to all types of investment instruments, including preferred and common equity, senior, subordinated and convertible debt, bridge loans, options, warrants and exchangeable instruments. We also have long-standing and broad-based experience in the important process of exiting investments and realising value, including public offerings, recapitalisations, strategic sales and workouts. Such wealth of experience enables us to identify key market terms and emerging trends.

Our services include:

  • Advising on the marketing of a wide range of investment fund type funds, an area which is heavily regulated
  • Structuring hedge funds and funds of hedge funds and advising on their operation
  • Structuring corporate funds whose shares are traded on the Alternative Investment Market
  • Reviewing private equity fund documentation on behalf of potential investors
  • Advising on the negotiation and documentation of complex derivative transactions and their regulatory treatment
  • Advising investment managers both on and off-shore
  • Advising corporate finance houses
  • Tax and structuring advice for investors, investment vehicles and individual principals

Project Financing

We are able to represent participants in every aspect of development, financing, construction and operation of capital intensive projects and facilities around the region. Our lawyers have experience advising international banks, financial institutions, multilaterals, developers and investors. Their projects include power plants, pulp mills, telecommunications networks and facilities and other infrastructure assets.

We have advised on matters such as:

  • Structuring project arrangements - these arrangements include conventional construction and term loan facilities, letters of credit facilities, commercial paper facilities and financing from multilateral institutions
  • Negotiating, drafting and evaluating key project documents and financing related documents such as off-take agreements, sponsor support agreements, subordination agreements and intercreditor agreements
  • Preparing tender documentation, bids and proposals to acquire project assets

U.S. FCPA and UK Bribery Act Matters

For corporations based in the U.S. and Europe, bribery and corruption issues are something that they must remain aware of to ensure that they are not falling foul of their home legislation, whether it be the U.S. FCPA, UK's Bribery Act or other laws. We provide guidance to reach commercial and legal solutions for investors and entities' entry to Myanmar.

Corporate Commercial

As external legal advisers to publicly listed companies, multinationals as well as small and medium-sized companies, our full service corporate practice has the necessary sophistication and resources to allow us to be efficient and responsive to our clients' needs. These advantages allow us to offer our clients custom legal solutions and professional project management in a uniquely efficient and cost-sensitive manner, regardless of whether we are functioning as sole legal counsel for companies or working together with in-house legal departments to provide critical advice on complex legal issues.

Corporate Real Estate

We have long-standing relationships with key players in the real estate market and our focus on innovative solutions to real estate issues have enabled us to represent major banks, financial institutions, real estate companies and individual in transactions involving construction, mortgages, debentures, loans and mezzanine financing related to land as well as leases of industrial, commercial and residential properties. Many of the real estate transactions that we handle are extremely complex and present a variety of challenges.

We have advised on matters such as:

  • Drafting and reviewing of construction and asset management contracts for a securitisation exercise
  • Drafting and reviewing various security documents such as all monies open mortgages, deed of assignment of rental proceeds and debentures
  • Commercial and residential development projects for listed property developers involving several hundred units
  • Advising as head counsel for the first integrated commercial and residential project with public transport system
  • Floor financing documentation for moving stock
  • Ship mortgages for refinancing of existing vessels and new builds
  • Assignment of Charter Hire Insurances and Earnings

Dispute Resolution

The Dispute Resolution practice of Selvam LLC conducts a wide array of contentious and non-contentious work in multiple jurisdictions in Asia, and engage in both domestic and international arbitration matters.

Reach includes:

  • Admiralty & maritime
  • Banking, finance, securities and brokerage disputes
  • Contractual disputes
  • Disputes arising out of partnership agreements, shareholder agreements, acquisitions, mergers and joint ventures
  • Employment matters
  • Intellectual property, technology, media and entertainment
  • Insurance
  • Property and construction disputes
  • White collar crime

Intellectual Property

In this age of global competition and the wide-ranging intellectual property protection afforded by international conventions, companies (whether as proprietors or licensees) no doubt have to manage numerous risks arising from the various types and complexity of IP assets. Our lawyers are well versed in the acquisition and protection of IP rights as well as managing and development those IP rights. As such, we are able to advise clients in the areas of patents, trademarks, copyrights and trade secrets at any stage in the growth and development of their IP assets. Our practice also extends to the ever-evolving high-tech world. Our tech-savvy team is engaged on matters involving software development, content licensing, website development and a myriad of e-commerce related issues. Lastly, we actively assist our clients in selecting and clearing trademarks and service marks, registering and maintaining marks and copyrights, both domestically and globally.

Tax

The Tax Practice is an integral part of our transactional practice, working closely with our corporate lawyers to structure and effectuate complex transactions from a tax perspective to better fit our clients' business objectives. For M&A transactions, we also assist in tax due diligence. Apart from institutional and corporate clients, we also advise on the tax aspects of charities, institutions of public character and other not-for-profit organizations.

Technology, Media & Telecommunications

Unlike other firms of our size and sophistication, we speak and understand the language of the TMT field and have the resources to protect any TMT company's intellectual property interests worldwide. We are focused on private equity, pre-IPO fundraisings and M&A work for TMT companies, particularly for the telecoms sector. Our extensive industry expertise and relationships, combined with our capabilities across critical legal disciplines, permit us to meet the full needs of TMT across industries.

Shipping

Our shipping practice team is fully equipped to advise on all legal aspects relating to the shipping industry. We draw upon experience and in-depth industry knowledge in order to support our clients and their needs.

Our areas of focus include:

  • Charterparty disputes
  • Cargo claims
  • Commodity trading and trade finance
  • Mortgage enforcement and ship finance disputes
  • Marine insurance
  • Oil trading and transportation
  • Shipbuilding, repairs and conversion
  • Ship finance and ship sale & purchase

Banking & Finance

Our Banking and Finance Industry Group provides advice on a wide range of banking and financial services. We understand our clients' goals and are able to adapt our approach and recommendations, and model innovative arrangements or entire financial structures to obtain optimal solutions. We provide advice to leading financial institutions on banking issues, capital markets transactions, mergers and acquisitions and securities regulatory matters. We represent a broadly based and diversified number of providers and consumers of credit around the world, advising our clients in complex financing transactions. In light of the unique risk-oriented nature of a financial institution's business and the highly regulated environment in which it operates, we recognise the importance of providing timely and seamless services. No complex financing transaction occurs in isolation. In many cases, complexities will arise due to the structuring of acquisitions, the creation of holding companies, taxation, restructuring and insolvency or real estate issues. We believe in an interdisciplinary team approach to meeting a client's transactional and advisory needs.

Energy, Oil & Gas

Myanmar is blessed with natural resources, and has tremendous potential for numerous industries to attract a great deal of foreign investment. As the economy opens more and more and infrastructure improvements take hold, we are helping clients to establish investments and entities in areas such as oil, natural gas, coal, minerals and copper.

For More Information

For more information, please contact Krishna Ramachandra or any of the lawyers referenced in the Attorney Listing.

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