Business restructuring and M&A in Mongolia

1) In what forms can the reorganization of a legal entity be carried out?

Reorganization can be carried out in the following forms: 

• merger /two separate entities are merged as a new one/;
• acquisition /an entity acquires another entity and merge with itself/;
• split up /an entity is demerged into two separate entities/; and
• spin off /an entity sells a part of its business creating a separate entity/ (Article 18-22 of the Law on Company).

2) What are the procedures for the division or merger of a company?

Split-up or merger process is carried out as follows:

• Board of directors or the CEO submits to the shareholders’ meeting proposals on matters regarding reorganization of the company.
• The shareholders’ meeting resolves the issues by the overwhelming majority.
• Confirmation of names of the new company(ies) shall be obtained from the competent authority.
• Shareholders’ meeting of the new company(ies) shall adopt a new charter respectively.
• New company(ies) shall be registered with the state registration authority.

3) How to separate a specific type of activity into an independent company?

Spin-off of a business is carried out as follows:

• The Board of Directors (in its absence, the Chief Executive Officer) shall issue a resolution on approval of the conditions and procedures for the spin-off and the spin-off balance, as well as a resolution on establishment of a new company therefrom.
• Confirmation of names of the new companies must be obtained from the state registration authority.
• Shareholders’ meeting of the newly established company shall adopt its charter and if decided to have a Board of Directors, the members must be selected/appointed in the meeting. The company that is being reorganized shall be the shareholder of the new company established.
• The new company shall be registered with the state registration authority for legal entities by submitting required documents.

4) Is it possible to reorganize a company in case of bankruptcy?

The Law on Bankruptcy allows for the reorganization of a company going under bankruptcy. The debtor itself (the company going under bankruptcy), creditors or claimants accounting for one third (or more) of the total debts claimed from the debtor, or the trustee can file a request for recapitalization of the debtor within 60 days from the date of its insolvency to the respective court, provided that satisfying creditor claims is deemed achievable in higher amount through recapitalization and continued operation than liquidation. Whether or not to reorganize is subject to the discretion of the applicant, and this decision should be clearly specified in the recapitalization plan.  

5) Which government agencies' approvals should be obtained for mergers and acquisitions?

Depending upon specific situations, the following approvals or opinions are required for M&A, including:

In the case of acquisition of 33 percent (or more) of the total shares of a Mongolian legal entity by a foreign state-owned legal entity, approval (regular permit) from the state central administrative authority in charge of economy and development (currently the Ministry of Economy and Development) shall be required, provided that such a Mongolian legal entity operates in the sectors of (i) mining, (ii) banking & finance, or (iii) media, information and communications.

In the case of reorganization of a dominant entity by merging with or acquiring another entity; or acquisition of 20 percent (or more) of the common shares or 15 percent (or more) of the preferred shares of a competing company that sells goods and products of the same nature; or merger with and acquisition of affiliated entities, opinion of the anti-monopoly department (currently the Authority for Fair Competition and Consumer Protection) shall be required.

Authors: Buyanjargal Tungalag, Bolormaa Volodya