Mergers and acquisitions (M&A) are an indispensable part of the global business landscape and an important factor in the economies of countries. From a legal perspective, M&A is a complex investment activity, involving many different issues such as securities law, corporate law, competition law, etc.
By specifying the legal regulations applicable to M&A activities in Vietnam and international commitments related to M&A, this article provides managers, investors and businesses with a more general perspective on this activity, thereby contributing to promoting the development of the M&A market in Vietnam.
1. Legal regulations applicable to M&A activities in Vietnam
The law in M&A activities is understood as a synthesis of legal norms in many different legal fields, regulating social relations arising in the process of parties conducting M&A activities. Accordingly, the law on enterprise M&A is specifically regulated in a number of the following legal documents:
M&A under the provisions of the Enterprise Law
The Enterprise Law was passed by the National Assembly at the 8th session (term XIII) on November 26, 2014 and took effect from July 1, 2015. The Enterprise Law provides the concept and procedures for mergers and consolidations of enterprises. The 2015 Enterprise Law also considers enterprise M&A as a form of enterprise reorganization arising from the enterprise’s own needs. Although there is no clear definition of enterprise M&A, the Enterprise Law has specific provisions on M&A for each type of enterprise, specifically as follows:
– Chapter 2, Article 18 (Right to establish, contribute capital, purchase shares, purchase capital contributions and manage enterprises) clearly states that organizations and individuals have the right to contribute capital, purchase shares, purchase capital contributions in joint stock companies, limited liability companies, and partnerships, except in the following cases: State agencies and armed forces units use state assets to contribute capital to enterprises for their own benefit; Subjects not allowed to contribute capital to enterprises according to the provisions of the law on cadres and civil servants.
– Chapter 3, for LLCs, Article 52 (Repurchase of capital contributions) and Article 53 (Transfer of capital contributions) specifically regulate a number of issues related to the transfer of capital contributions of LLC members.
– Chapter 5, for joint stock companies, Article 125 (Sale of shares) and Article 126 (Transfer of shares) clearly state that the Board of Directors decides the time, method, and price of selling shares. The selling price of shares must not be lower than the market price at the time of offering, or the value recorded in the books of the shares at the most recent time, except in special cases. Article 126 (Transfer of shares) also clearly states that shares of joint stock companies are freely transferable. The transfer is carried out by contract in the usual way or through transactions on the stock market (TTCK)…
– Chapter 9 also specifically regulates a number of issues such as: division of enterprises (Article 192), separation of enterprises (Article 193), merger (Article 194), procedures, documents, and order of registration of merging enterprises (Article 195).
Enterprise M&A according to the provisions of the Investment Law
The Investment Law was passed by the National Assembly at the 8th Session (13th tenure) on November 26, 2014, effective from July 1, 2015. The 2015 Investment Law recognizes two forms of M&A, which are mergers and acquisitions of enterprises. M&A activities are considered one of the forms of direct investment. The acquisition of enterprises can be carried out in the form of partial or complete acquisition of enterprises or branches. Accordingly, investors have the right to contribute capital, purchase shares, and capital contributions to economic organizations (Article 24); Foreign investors can invest in the form of contributing capital, purchasing shares, and capital contributions to economic organizations (Articles 25 and 26).
Enterprise M&A under the provisions of the Competition Law
The Competition Law was passed by the National Assembly at the 5th Session (14th tenure) on June 12, 2018, effective from July 1, 2019, regulating the forms of economic concentration including: Merger of enterprises; Consolidation of enterprises; Acquisition of enterprises; Joint ventures between enterprises; Other forms of economic concentration as prescribed by law. In which, merger of enterprises is the transfer of all of one or several enterprises’ assets, rights, obligations and legitimate interests to another enterprise, and at the same time terminating the business activities or existence of the merged enterprise. Consolidation of enterprises is the transfer of all of two or more enterprises’ assets, rights, obligations and legitimate interests to form a new enterprise; at the same time, terminating the business activities or existence of the merged enterprises.
Acquisition of an enterprise is when an enterprise directly or indirectly buys all or part of the capital contribution and assets of another enterprise sufficient to control and dominate the enterprise or a sector or profession of the acquired enterprise. Joint venture between enterprises is when two or more enterprises jointly contribute a part of their assets, rights, obligations and legitimate interests to form a new enterprise. Typically, Article 30 specifically mentions forms of economic concentration that are prohibited when an enterprise carries out economic concentration that causes or is likely to cause an impact that restricts competition in the Vietnamese market.
According to the provisions of the Competition Law, enterprise mergers, consolidations and acquisitions are acts of economic concentration. Therefore, enterprise mergers, consolidations and acquisitions are prohibited in cases where the mergers, consolidations and acquisitions create a combined market share of the enterprises participating in the economic concentration, causing or having the potential to significantly restrict competition in the Vietnamese market.
Enterprise M&A according to the provisions of the Securities Law
The Securities Law was passed by the National Assembly at the 8th session (14th tenure) on November 26, 2019, effective from January 1, 2021, replacing the Securities Law No. 70/2006/QH11 and the amended Securities Law No. 62/2010/QH12, which specifically stipulates that the division, separation, merger and consolidation of securities companies and fund management companies must be approved by the State Securities Commission before implementation.
Enterprise M&A according to the provisions of the Law on Credit Institutions
The division, separation, consolidation and merger of credit institutions (CIs) must be approved by the State Bank and implemented in accordance with Law No. 17/2017/QH14 dated November 20, 2017 amending and supplementing a number of articles of the Law on CIs and effective from January 15, 2018.
Vietnam’s international commitments regarding corporate M&A
Up to now, Vietnam has signed and participated in many investment or investment-related agreements such as: Investment encouragement and protection agreements signed with over 50 countries; investment agreements/chapters within the FTA framework; other investment-related commitments such as: Agreement on trade-related investment measures of the World Trade Organization (WTO), agreements on services in the WTO and FTAs, agreements on the establishment of multilateral investment guarantee organizations, the 1958 New York Convention on the recognition and enforcement of foreign arbitral awards, etc.
In general, Vietnam’s agreements and commitments related to M&A activities are expressed in the form of foreign investors’ share ownership ratio in Vietnamese enterprises, or are expressed in the form of commitments to allow foreign investors to have a commercial presence and penetrate into investment sectors and fields in Vietnam.
Commitments in GATS/WTO
Vietnam has joined the WTO with a commitment to open its market to foreign investors in a planned manner. Since 2009, many service sectors have allowed foreign investors to participate in providing services such as architecture, market research, education, goods distribution and advertising. This expansion is an opportunity for investment activities through M&A. Some restrictions on share ownership ratios have no time limit for removal such as:
– Services related to forestry, hunting and agriculture: Only joint ventures or business cooperation contracts are allowed. The foreign capital contribution must not exceed 51% of the legal capital of the joint venture.
– Telecommunication services without network infrastructure: Foreign capital contribution in the joint venture shall not exceed 65% of the legal capital of the joint venture.
Commitment in the ASEAN region
Vietnam’s international commitments in the ASEAN region on M&A are mainly reflected in the Framework Agreement on the ASEAN Investment Area. One of the objectives of the Agreement is to build an ASEAN Investment Area with a more open and transparent investment environment among ASEAN member states. Accordingly, member states commit to take appropriate measures to ensure clarity and consistency in the application and interpretation of their investment-related laws, regulations and administrative procedures, in order to create and maintain a predictable investment regime in ASEAN.
Investment promotion and protection agreements
The investment encouragement and protection agreements that Vietnam has signed (with 54/55 countries) have relatively consistent content following the model of traditional investment encouragement and protection agreements in the world.
International commitments on bilateral investment with liberalization elements related to M&A
These commitments include the Vietnam-Japan Investment Promotion, Protection and Liberalization Agreement and the Vietnam-US Bilateral Trade Agreement. In addition to the commitment on investment protection, Vietnam also commits to the right to establish for foreign investors. Both agreements use the opt-out method, that is, they make general commitments and the Contracting Parties have the right to maintain or promulgate measures that are inconsistent with these general obligations and must list those measures in a number of annexes.
In Appendix H of the BTA, Vietnam commits to the United States to remove all restrictions on the transfer of investment capital. Accordingly, 100% foreign-invested enterprises are not required to give priority to transferring to Vietnamese enterprises. In addition, Appendix H also commits to allowing US investors to establish foreign-invested joint stock companies and loosening restrictions on capital ownership of US investors. According to the provisions of the BTA, within 3 years from the date the Agreement comes into effect, US investors are allowed to establish foreign-invested joint stock companies in Vietnam.
FTA has investment commitments
FTAs have investment commitments that Vietnam is not much involved in M&A. Foreign investors’ participation in capital contribution and share purchase in Vietnamese enterprises under this Agreement is carried out in accordance with the provisions of Vietnamese law.
M&A activities in Vietnam are mainly regulated in the 2015 Civil Code, the 2014 Enterprise Law, the 2018 Competition Law, the 2019 Securities Law, the 2014 Investment Law and in accordance with international commitments related to M&A activities of which Vietnam is a member. Due to the complex nature of M&A, the law on M&A not only regulates issues of ownership or management of target enterprises, but also addresses related issues such as: registration of changes in enterprise ownership, registration of M&A procedures, tax obligations, determination of target enterprise value, competition law to control M&A activities.
