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HO CHI MINH CITY UNIVERSITY OF LAW
THE MANAGING BOARD OF SPECIAL TRAINING PROGRAMS

------ -----

BACHELOR’S THESIS

LEGISLATION ON MERGERS AND ACQUISITIONS
OF ENTERPRISES – LEGAL FRAMEWORK AND
RECOMMENDATIONS FOR IMPROVEMENT

Student

Le Thi Hanh Duyen

Student ID

1055010063

Class

CLC 35

Supervisor

Dr. Nguyen Anh Tuan

HO CHI MINH CITY
2014



I hereby affirm that this thesis is my own study under the supervisor’s guidance. All of
the information other than my idea to be used or quoted has been acknowledged by
means of complete references. I would bear
full responsibility for my protest.
July 15th, 2014
Le Thi Hanh Duyen


ABBREVIATIONS

M&A

Mergers and Acquisitions

WTO

World trade organization

US

United State of America

EU

European Union

SOE

State-Owned Enterprise


VND

Vietnam Dong

USD

United State Dollar

LLC

Liability Limited Company

JSC

Joint Stock Company

Civil Code 2005

Law No. 33/2005/QH11 on Civil

Law on Securities 2010

Law No. 70/2006/QH11 on Securities and Law No.
62/2010/QH12 on amending, supplementing a
number of articles of Law on Securities 2006.

Law on Enterprises 2005

Law No. 60/2005/QH11 on Enterprises


Law on Investment 2005

Law No. 59/2005/QH11 on Investment

Law on Competition

Law No. 27/2004/QH11 on Competition

Decree 102/2010/ND-CP

Decree No. 102/2010/ND-CP on Detailing a number
of articles of the law on enterprises

Decree 108/2006/ND-CP

Decree No. 108/2006/ND-CP on Detailing and
guiding the implementation of a number of articles of


the investment law.

Decree 116/2005/ND-CP

Decree No. 116/2005/ND-CP on Detailing the
implementation of a number of articles of the
competition law

Decree 58/2012/ND-CP

Decree No. 58/2012/ND-CP on Stipulating in detail

and guiding the implementation of a number of
articles of the securities law and the law amending
and supplementing a number of articles of securities
law.


TABLE OF CONTENTS

INTRODUCTION .......................................................................................................... 1
CHAPTER 1: THEORETICAL OVERVIEW OF M&A .......................................... 6
1.1 Definition of M&A ................................................................................................ 6
1.2

Related concepts ................................................................................................. 7

1.1.1 Market share .................................................................................................... 7
1.1.2 Assets .............................................................................................................. 7
1.1.3 Foreign investors ............................................................................................. 8
1.1.4 Enterprises ....................................................................................................... 8
1.1.5 Right to control ............................................................................................... 8
1.3

Characteristic of M&A transactions ................................................................... 9

1.4 Legal forms .......................................................................................................... 10
1.4.1 Acquiring the whole company ...................................................................... 10
1.4.2 Acquiring capital shares of LLC ................................................................... 11
1.4.3 Acquiring shareholding ................................................................................. 11
1.4.4 Public bids ..................................................................................................... 12
1.5 Legal outcomes .................................................................................................... 13

1.5.1 Merger ........................................................................................................... 13
1.5.2 Consolidation ................................................................................................ 13
1.5.3 Holding company - Subsidiary ..................................................................... 13
CHAPTER 2: LEGAL FRAMEWORK ON M&A OF ENTERPRISES............... 15
2.1 Whether a M&A transaction can be carried out .................................................. 15
2.1.1 Economic concentration under Law on Competitive 2004 ........................... 15
2.1.2 Vietnam’s WTO commitments and ratio of foreign capital ......................... 17
2.1.3 Ratio of non State-owned capital in State owned enterprises ....................... 19
2.2 Valuation of enterprises ....................................................................................... 19
2.2.1 General provisions on valuation ................................................................... 19
2.2.2 Valuation of State-owned enterprises ........................................................... 20


2.2.3 Principles of bidding in public bid ................................................................ 22
2.3 M&A contract ...................................................................................................... 22
2.3.1 Pre-contractual agreements ........................................................................... 23
2.3.2 Fundamental issues ....................................................................................... 24
2.3.3 Rights and obligations of contractual parties ................................................ 25
2.3.4 Methods of payment ...................................................................................... 25
2.4 Procedures in M&A transaction ........................................................................... 26
2.4.1 Procedures for foreign investor ..................................................................... 27
2.4.2 Procedures for public bids ............................................................................. 28
2.4.3 Procedures for transferring capital share ...................................................... 28
2.4.4 Procedures for transferring shareholding ...................................................... 29
2.4.5 Procedures for merger and consolidation...................................................... 29
CHAPTER 3: RECOMMENDATIONS FOR IMPROVEMENT .......................... 31
3.1 M&A market in Vietnam and orientations. ......................................................... 31
3.2 Review of legal framework on M&A .................................................................. 33
3.3 Recommendations ................................................................................................ 34
3.3.1 Unifying the definitions ................................................................................ 34

3.3.2 Enhance the market opening ......................................................................... 35
3.3.3 Criterion to determine the obligation of notification to Competition
Administrative Body .............................................................................................. 36
3.3.4 Supplementing regulations ............................................................................ 37
3.3.5 Simplifying procedures ................................................................................. 37
3.3.6 Codifying legislations ................................................................................... 38
CONCLUSION ............................................................................................................. 39


INTRODUCTION

1. The necessity of research
For requirements of the modern economy, the enterprises are always maturing to
survival. Some of them choose a long-term plan to build their technology, brand,
market share, etc… while some of them use mergers and acquisitions (hereinafter
M&A) as alternatives to internal expansion. Being out of resources to continue
enhancing the business interests or being on the brink of bankruptcy may be the
reasons for closing the venture book of an enterprise. M&A is an inevitable
consequence of the economy and leads to the appearance of larger business entities. In
the positive point, a successful M&A transaction will enhance the business of both the
buyers and the sellers by the synergic - the well-known 1+1 =3. M&A represent a
major force in the modern financial and economic environment. This is an area with
potential for both good and harm1.
In the globalization, M&A is an effective and efficient instrument for cross-border
investment. Obviously after Vietnam is an official member of WTO, M&A activities
dramatically developed in Vietnam and became a large capital market. This is the
opportunities and challenges for Vietnamese enterprises to take advantages of the
foreign resources, i.e. capital, technology, experience in doing business, etc… and the
State to control and administer related issues. M&A activities may be considered from
legal, financial or corporate governance aspects. However, legal aspect is the most

important aspect and dominates the others.
From the theory perspective, M&A is not still a new activity in Vietnam, but the legal
framework on M&A exists some legislations compiled when the law-makers have not
had a complete awareness about this phenomenon yet. For instance, Laws on
Enterprises and Laws on Investment were adapted in 2005, which sufficiently regulate
M&A transactions have shown many conflicts and shortcomings in the
implementation. Besides that the legal framework is not identical and exists too many
outdate provisions. To prepare for an official economic market with strong flow of
foreign direct investment, it is necessary to carry out a comprehensive review of
legislations on M&A in which point out the shortcomings and the orientation to
improvement.
From the practical perspective, the legal barrier is a substantial difficulty of investor in
Vietnam M&A market2. The difficulty may arise from the unreality of provisions, the
1

J. Fried Weston, Kwan S. Chung, Susan E. Hoag (1990), Mergers, restructuring, and corporate control,
Prentice-Hall, United Stated of America, p.xxv
2
Available on http://baodautu.vn/thi-truong-ma-hoi-thuc-hoan-thien-khung-phap-ly.html, last visited at 5 June
2014.

1


confusing understanding of the State agencies, the lack of guidance, or the
complication of legal system. For the purposes of creating an appropriate legal
framework that go along with a strong M&A market, it is necessary to have an
overview of legal framework, assess the implementation and recommendations for
supplementing and amending the legislations.
Regardless the previous reasons, the most important reason that M&A is a sector in

which stroke and attracted me at the first sight. Hence, the topic “Legislation on
mergers and acquisitions – Legal framework and recommendations for
improvement” is a proper chosen for my graduate thesis. During the limited time, the
author had tried the best to study as much as possible. However, it is impossible to
finish a perfect thesis. Any comments and advices are always welcome to improve my
work.
2. Literature review
For the necessity, M&A also attracted the concerns of many authors before. The legal
researches on Vietnam legislations on M&A may be the overview of legal framework
or arise from a certain aspects.
In Ho Chi Minh City University of Law, the most essential research may be the final
report of scientific research of the Ministry level “Legislation regulating on mergers
and acquisitions of enterprises in Vietnam” coordinated by Dr. Pham Tri Hung, which
covered the main aspects of legal framework on M&A. The other researches may be
regarded that: Master’s Thesis 2007 of Tran Thanh Tung “Acquisitions in accordance
with current legal system”; Bachelor’s Thesis of Nguyen Hai Minh Thi (2008) “Selling
of enterprises – theory and reality”; Bachelor’s thesis of Nguyen Thi My Dung (2009)
“Acquisitions of enterprises – theory and reality”; Master’s Thesis of Dao Trong Nhan
(2009); Master’s Thesis of Tran Van Khanh (2009) “ Mergers and acquisition – a
comparision between Vietnamese legislation and Britain’s”; “M&A of enterprises in
Vietnam legal system – the status and recommendations for improving”; Bachelor’s
Thesis of Pham Van Anh (2010) “Acquisitions of enterprises – theory and the reality”;
Master’s Thesis of Huynh Van Hieu “Economic concentration under acquisitions in
accordance with Vietnamese Competition Law (2010); Bachelor’s Thesis of Le Ngoc
Tram Anh (2012) “Acquisitions of enterprises – theory and the reality”; Bachelor’s
Thesis of Nguyen Thi Vinh (2013) “Legislation on mergers and acquisitions –
Shortcomings and recommendations”.
Meanwhile, the other researches such articles, discussions are also the meaningful
works on legal framework on M&A. Maybe regarding to some sufficient researches
such: Pham Duy Nghia (2012) “Short criticism from corporate governance

perspective”; Luu Minh Duc & Nguyen Dinh Cung (2010) “Mergers and acquisitions
with respect to corporate governance perspective: theory, international experience and
reality in Vietnam” in the Journal of Economic Management; Securities Commission
(2003), scientific research of the Ministry level “State Management subjects to take
2


over, consolidation on Vietnam securities market”; Vietnamese Competition Authority
(2012) “Economic concentration report”; Nguyen Ngoc Son (2004) “Determining the
relevant market according to Competition Law 2004” in Journal of Legislative
Research.
In spirit of inheriting and absorbing the previous researches, the author proposed a
more general study and deeper analyses on legal aspect of M&A sector. This thesis will
present the relationship between legislations on the implementation of a common
M&A transaction. At the end, the author will review the legal framework and
recommend some issue that need to be improved.
3. Delimitation
Legislation on M&A is a wide range with the distinct perspectives, in the delimitation
of this thesis the author will focus on researching Vietnam legislation on M&A of
enterprise with the following points:
• Recognize M&A activities are the economic phenomenon under the scope of
regulations of vary legislations.
• Recognize M&A activity as a direct investment forms in which an enterprise try
to take over another. The transactions in which an individual take over an
enterprise do not fall in the delimitation of the thesis.
• A transactions always have the buyer and the seller,
• The selling enterprises only refer to LLC and JSC.
• M&A transactions will be carried out following some legal forms and strict
procedures.
• Legal framework on M&A shall be construed from four aspects: the permission

of State on implementation of transactions, valuation, contract, and procedures.
The review and recommendations also arise from the practical of Vietnam legislations
and some foreign legislation.
4. Purposes
Firstly, the thesis will give the understanding with legal aspect about M&A activities.
The reader will have a general overview about the scope of regulation of laws on M&A
activity, including definitions, characteristics, legal forms, and legal outcomes.
Secondly, the legal framework on M&A of enterprise will be presented with respect to
some typical matter that the parties may be concerned in process of M&A such the
permission of State on implementation of transactions, valuation, contract, and
procedures. Correspondingly, the author will analyze the shortcomings in theory as
well as practical of legislations.

3


Thirdly, the thesis will have a look over the M&A market and anticipate the orientation
of development of M&A market with the dominating elements.
Last but not least, review the practical of legislations on M&A and contribute some
recommendations for improvement.
5. Methodology
For the purposes of thesis, the author the author will combine various kinds of legal
methods as follows:
• Description method is used mainly in Chapter I to present definitions, concepts
and provisions of law.
• Analytical method is used in all chapters to analyze the provisions and reasons
of this provision.
• Inductive method is used to withdraw the conclusions on each issue and the
recommendations
• Synthetic method is used to collect relevant information from different sources

such as books, journal articles, cases, etc… and synthesise the result of
analytical method to have a general picture of legislation.
• Comparative method is used to compare between, the current laws and the draft
new laws, the Vietnamese laws and the foreign laws, the theory and the
practical.
Moreover, the author carried out the research from the generalisation to the detail and
from the theory to the practical.
6. Significance
The thesis is one of reference resources, which is up to date the new effective
legislations and the trend to improve and develop of legal framework, for anyone who
desired to conduct M&A activities in Vietnam, especially foreign investors. The thesis
is also an overall picture about legislations on M&A, indicates what the parties shall do
and should do in M&A process.
Besides, the thesis is also a codification of legislations on M&A in which indicated the
confusing of the implementation of law in practical, the lack, and redundancy of legal
system. Moreover, it contributes some necessary recommendations which can be used
for improving the legislation on M&A.

4


7. Structure
Besides Introduction and Conclusion, the thesis is divided into three main chapters, as
defined below:
CHAPTER 1: THEORETICAL OVERVIEW OF M&A
CHAPTER 2: LEGAL FRAMEWORK ON M&A OF ENTERPRISE
CHAPTER 3: RECOMMENDATIONS FOR IMPROVEMENT.

5



CHAPTER 1: THEORETICAL OVERVIEW OF M&A

Before analyzing any legislation, we must understand about the scope of regulation.
Similar to this topic, we need to understand what M&A is, and what types of these
activities are under the regulation of laws. Now, Chapter 1 will present the theoretical
overview about M&A activities, including the definitions, characteristics, legal forms
and legal outcomes.
1.1 Definition of M&A
M&A is an economic term without official definition. Instead of defining M&A, the
researchers and law-markers give the definition of two separate words: Merger and
Acquisition.
Mergers mean any transaction that forms one economic unit from two or more
previous one. Acquisitions – tender offers is that one party –generally a corporation
seeking a controlling interest in another corporation –asks the stockholders of the
firm it is seeking to control to submit, or tender, their shares of stock in the firm3.
Merger is a combination of two or more companies in which the assets and
liabilities of selling firm(s) are absorbed by the buying firm, although the buying
firm may be considerably different organization after the merger, it retains its
original identity. Acquisition is the purchase of an asset such as a plant, a division
or even an entire company4.
M&A with respect to economy is a process of procedures that leads to the
change in capital structure and corporate governance of the parties.5
Vietnamese law, as others law around the world, has no direct definition regarding
M&A, however, M&A activities are specified in several legislations.
Article 152 and Article 153 of Law on Enterprises 2005 defined that merger is
one or more companies of the same type transfer all lawful assets, rights,
obligations and interests into another existing company and correspondingly cease
to exist; consolidation is two or more companies of the same type transfer all
lawful assets, rights, obligations and interests into a new company and

correspondingly cease to exist. However, definition for acquisition is not provided
by Law on Enterprise 2005.
Law on Investment 2005 regarded M&A as a direct investment form which
excluded capital capital share and purchase of shareholding.6
3

J. Fried Weston, Kwan S. Chung, Susan E. Hoag (1990), supra note, p.4
Sherman, Andrew J. (2011), Mergers and acquisitions from A to Z, American Management Association, US,
p.2-3.
5
Cited by Tran Thi Bao Anh (2012), Legislation regulating on mergers and acquisitions of enterprises in
Vietnam, Final report of scientific research of the Ministry level, p.15.
6
Article 21 and Article 25, Law on Investment 2005.
4

6


Law on Competition 2004 also defined merger and consolidation is quite similar
to Law on Enterprises 2005. In addition, Law on Competition 2004 defined
acquisition as an enterprise purchases all or part of assets of another enterprises
sufficient to control or govern the activities of acquired enterprise.7
In researching for the definition of M&A, we would refer to Article 904 (1), UK
Company Act 2006 referred a merger is where the undertaking, property and
liabilities of one or more public companies are to be transferred to another existing
public company (a merger by absorption) or a new company (a merger by
formation of a new company).
Briefly, a merger refers to the combination of two enterprises and the appearance of a
new organization. On the other hand, an acquisition is one enterprise purchasing the

whole or a part assets, rights and obligation of another. Finally, merger, consolidation,
or acquisition is the expression of M&A transaction. Notwithstanding, M&A is
actually carried out in many forms and fulfilled characteristics that pointed out in the
next sections.
1.2 Related concepts
M&As related to a variety of concepts, among the most important of which as follows.
1.1.1 Market share
Market share shows the standing of an enterprise in a certain goods or service market.
Ordinarily, the higher market share an enterprise had, the more competitiveness it got.
Besides, the high market share will create a barrier in the market and restrain on
competition.
The economists will professionally determine the market share base on principles
provided in legislations. According to Law on Competition 2004, market share is
calculated based on “turnover” of an enterprise in competition with total turnover of all
enterprises in the relevant market of a certain goods or service 8. The definition will be
presented via the following formula:
𝑴𝒂𝒓𝒌𝒆𝒕 𝒔𝒉𝒂𝒓𝒆 =

𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑜𝑓 𝑒𝑛𝑡𝑒𝑟𝑝𝑟𝑖𝑠𝑒
× 100%
𝑡𝑜𝑡𝑎𝑙 𝑡𝑢𝑛𝑜𝑣𝑒𝑟 𝑜𝑓 𝑎𝑙𝑙 𝑒𝑛𝑡𝑒𝑟𝑝𝑟𝑖𝑠𝑒

1.1.2 Assets
“Assets” referring herein includes tangible and intangible assets of enterprise.
Intangible assets can’t be absolutely calculated but they bring the enterprise a longterm benefit, including but not limited to creations, land using right, patents,

7
8

Article 17, Law on Competition.

Article 3.5, Law on Competition.

7


trademarks, licenses, concession licenses, brand credibility,…9 Tangible assets mean
the other assets of enterprise such as goods, tangible fixed assets, stocks, etc.
1.1.3 Foreign investors
Foreign investors defined in this thesis are simply enterprises, specifically10:
-

An enterprise duly constituted and organized under foreign law (hereinafter
foreign enterprises)
An enterprise duly constituted and organized in Vietnam with the foreign
holding ratio over 49%.

1.1.4 Enterprises
Enterprise means an economic organization, which having its own name, permanent
office, and having organized for the purpose of conducting business operation11.
Enterprises comprise foreign enterprises and Vietnamese enterprises. Enterprises
established in Vietnam (hereinafter Vietnamese enterprises) may be sole member
limited liability company, limited liability company two or more member, joint stock
company, partnership and private enterprise. All types of enterprise have the legal
entity except for private enterprise.12 Hereinafter, the term “company” is presented for
enterprise having the legal entity.
1.1.5 Right to control
Control in a simple expression is the use of power to influence an outcome.13
Regardless of the regular control of board of management, the ownerships can control
over the enterprise by dominating the process of making decision within authority.
Under the Law on Enterprise 2005, the decisions of general meeting of shareholder or

the member’s council will be adopted if it had been approved by at least 65% present
shareholders or members having voting rights else at least 75% subject to important
issues.14 It should be stated that if an enterprise acquires at least 75% charter capital of
another, it will gain control over the target absolutely. The annex of Resolution No.
71/2006/QH11 allowed Vietnamese enterprises to provide in the charter the necessary
ratio to adopt decisions of general meeting of shareholder or the member’s council
even the majority ratio 51%15. Moreover, a definite ratio of charter capital will be
equivalent to a control level depend on the interaction between majority
9

PhD Nguyen Trung Thang (2013), Valuation of trademark and intangible assets in M&A. Available on
http://www.massogroup.com/knowledge/insights/8305-dinh-gia-thuong-hieu-va-tai-san-vo-hinh-trong-m-a.html
last visited at 17 June 2014.
10
Article 2.1 Decision No. 88/2009/QD-TTg.
11
Article 4.1, Law on Enterprises 2005.
12
Article 38, 63, 69, 130, 141, Law on Enterprises 2005.
13
Available on http://www.investopedia.com/terms/c/control.asp , last visited at 30 June 2014.
14
Article 52, 104, Law on Enterprises.
15
This provision is directly applied to replace the corresponding provisions of Law on Enterprises 2005.

8


shareholders/members and minority shareholders/members and the board of

management.
In the thesis, the right to control will be mentioned relatively as if an enterprise owns
more than 50% of share capitals or ordinary shares of another16.
1.3 Characteristic of M&A transactions
From the definition of M&A and practical M&A activities, there are some various
characteristic in respect of M&A as the followings:
Firstly, the buyers aimed to take control of the sellers – this is the most important
feature of M&A transactions. In common, they are all strategic transactions that
involve a change or shift in control of enterprises and a correspondent shift in strategic
direction17. The following transactions in which the corporate governance of the target
enterprise has no change are not M&A transactions:
-

An enterprise acquired less than 50% the charter capital or shares of another;
Financial investments in which an enterprise acquired shareholding of another
but have not participated to control the target enterprise.

Secondly, the parties entered into a trade or rarely volunteer to join a merger or
consolidation. When used in this thesis, the buyers are preferable to be enterprises for
pursuant to the purposes of thesis.
Thirdly, the subject of M&A transaction is shareholding or capital share of enterprises.
Even though an enterprise can purchase actual assets such as warehouses, licenses,
distributions networks, etc… to dominate the target, it is not popular in Vietnam and
regardless herein. Some types of enterprise cannot be the subject of M&A such as:
-

Regarding the private enterprises, Article 145of Law on Enterprise 2005
permitted the owner to sell their own enterprises but the buyer shall re-register
the enterprise. Private enterprise has no legal entity, and as a result no assets so
the owner has responsible for unlimited liability. The owner and enterprise seem

to be a single body, there is no distinguish between rights and obligations of
them18; they can sell what is theirs, but themselves. In analyzing, the act of

16

Article 34, Decree No. 116/2005/ND-CP stipulated that : Control or domination of other enterprises as
provided for in Competition Law is the case where an enterprise acquires the right to own the assets of another
enterprise which is sufficient for holding over 50% of the voting right in the shareholders congress or the
management board or is at a level which, as provided for by law or the controlled enterprises charter, is sufficient
for the controlling enterprise to dominate financial policies as well as the operation of the controlled enterprise
for the purpose of obtaining economic benefits from business operation of the controlled enterprise.
Pham Tri Hung (Coordinator) (2010), Legislation regulating on mergers and acquisitions of enterprises in
Vietnam, Final report of scientific research of the Ministry level, p.8.
17
Michael E. S. Frankel (2005), Mergers and Acquisitions Basics, Iohn Wiley and Sons, Canada, p.1
18
Ho Chi Minh University of Law, Business entity textbook, p.41.

9


-

private enterprise being sold can be understood as the selling assets of an
individual.
Subject to partnership, the general partners are entitled to control and manage all
business activities and must respond for unlimited liability, while the limited
partners only have the voting right on direct issue relating to their rights and
obligations. As previously mentioned the capacity of general partners cannot be
transferred. Besides the capital share in partnership does not represent the

control right. Therefore, acquiring wholly or partly of a partnership is not the
M&A transactions.

1.4 Legal forms
Despite of different interpretations, M&A activities must be done in certain forms that
comply with legal regulations. Legal forms are the manners that provided and guided
in particular procedures, conditions and other related legal issues. Although M&A is an
economic phenomenon in relation to various activities, the law-markers cannot pay
attention to all of their aspects. The law just regulates some typical activities in which
especially concern to public interests such as competition, internal enterprises, minority
shareholders, creditors, and employers19. In practice, the parties may pick out the most
suitable form up to specific circumstances.
1.4.1 Acquiring the whole company
Law on Enterprise 2005 has no stipulation for acquiring the whole company, it may be
implied to understand that LLC and JSC may be acquired wholly by transferring all
capital shares/ shareholdings to another enterprise20.
The buyers may exercise a tender offer in which they bid a premium price being
attractive enough for the members/ shareholders to quite the control21. All members/
shareholders of the seller will be a single decision maker that decided to sell or not.
The decision to sell a company must be approved by at least 75% members or
shareholders present in the meeting22; however, this ratio only applies for
circumstances if a merger or a consolidation (also known as re-organization of
company in accordance with Law on Enterprise) will be conducted afterwards. In
another hand, they can negotiate in good faith with members/shareholders for reaching
100% selling approval. Of course, sole member LLC will be simpler to be sold wholly
if the owner agrees to sell 100% capital shares.

19

Pham Duy Nghia (2012), Short criticism from corporate governance perspective. Journal of Legislative

Research, (10(171)), p.46-49, p. 48.
20
Article 44,64,87 Law on Enterprises 2005.
21
Luu Minh Duc & Nguyen Dinh Cung (2010), Mergers and acquisitions with respect to corporate governance
perspective: theory, international experience and reality in Vietnam, the Journal of Economic Managemant.
Available on http://thongtinphapluatdansu.edu.vn/2010/01/01/4271/ , last visited 27 June, 2014.
22
Article 52.2 (b) Law on Enterprises.

10


1.4.2 Acquiring capital shares of LLC
The structure of LLC with two or more members is quite close 23 to the extent that the
members are restrained to transfer capital share freely. If the members decide to sell
their capital share, they must offer to the other members or demand the company to
redeem first. If all remaining members or the company refuse to buy or are unable to
buy the entire selling capital share, they are permitted to transfer to the third party 24.
Thus, the accession into LLC with two or more members must be allowed by
member’s council. The owner of sole member LLC can transfer a part of his capital
share to another and the company shall be consequently converted to LLC with two or
more members25.
Charter capital of LLC may be the amount of capital that is contributed or committed
to contribute within 36 months26. Draft New Law on Enterprises 2014 proposes to
shorten the time limit for commit to contribute from 36 months to 90 days 27.
Obviously, the members/ owners have right to transfer their contributed capital shares.
Notwithstanding, the issue here is whether they can transfer the committed capital
shares. With respect to the members/owner, capital contribution is the obligation of
them to the company; however, with respect to the buyers it may be the right. There is

no provision on the transfer of committed capital shares, but Article 315 of Civil Code
allowed “the obligor may transfer a civil obligation to a substitute obligor, if it is so
consented by the obligee”. In the principle of the theory in which everyone has rights to
do whatever unprohibited, the committed capital shares may be transferred as if the
member’s council has approved. Because of no guidance in this issue, it is impossible
to implementation in practical. Hence, we agree that the members/owner just sell the
contributed capital shares.
1.4.3 Acquiring shareholding
A JSC may issue ordinary shares and preference shares, preference shares include
voting preference share, dividend preference share, redeemable preference share, or
otherwise as provided in the charter28. Only shareholders whose ordinary share and
voting preference share will be entitled to vote in the general meeting of shareholders,
but voting preference share shall not be allowed to transfer to another person29.
Acquiring shareholding in M&A as a result only regards to ordinary share.

23

LLC does not have right to issue shareholding and the number of member is limited under 51 members.
Besides the relationship in capital, the members of LLC have relationship with each other in confidential business
information.
24
Article 43, 44 Law on Enterprises 2005.
25
Article 155, Law on Enterprises 2005.
26
Article 6.1, Article 6.2, Article 18.1, Decree 102/2010/ND-CP
27
Article 49.3, Draft New Law on Enterprises 2014
28
Article 78.2, Law on Enterprises 2005.

29
Article 79, 81, Law on Enterprises 2005.

11


Shareholdings are free to transfer to another person, except that within 3 years
founding shareholders can transfer their shares to another person who is not founding
shareholders if so approved by general meeting of shareholders30.
1.4.4 Public bids
The public bids is when an enterprise carries out the purchase of a partial or the whole
number of voting stocks of a public company for the purpose of having a control in
public company to ensure the equality for the shareholders of the target company31.
The public bids must ensure the following principle32:
-

The tender offer conditions are applied fairly to all shareholders of the target
company or the investor of the targeted investment fund.
The parties involved in the tender offer are provided sufficient information to
reach the proposal to purchase shares and closed-end fund certificate.
Respecting self-determination right of the shareholders of the target company
or the investor of the targeted investment fund.
Complying with regulations of the law on securities and securities market and
other relevant laws;
The party making tender offer must appoint a securities company as an offering
agent.

In case of the target company being a public company33, the buyers who want to have
the right to control34 without approval by general meeting of shareholders35 shall
conduct public bids in the following cases36:

-

Acquiring over 24% ordinary shares;
The buyers who have owned 25% or more voting shares continuously acquire
10% or more voting shares;
The buyers who have owned 25% or more voting shares continuously acquire
from 5% to fewer than 10% voting shares within 01 year since the last public
bid.

In comparison with the other forms, public bids dramatically influent to securities price
of the target company if the deal succeeds37. Process of public bids shall follow strict
procedures managed by Securities Commission.
30

Article 87.5, 81.3, Law on Enterprises 2005.
Article 4.12, Decree 58/2012/ND-CP.
32
Article 40, Decree 58/2012/ND-CP.
33
According to article 25 Securities Law 2006, public company is a JSC which: (i) has offer shares to public; (ii)
has securities listed in the Stock Exchange or the Securities Trading Center; (iii) has at least 100 investors,
excluding professional investors and has the paid-up charter capital of 100 billion VND or more.
34
As referred in Section 1.1.5
35
Article 32.2 (a,b), Law on Securities 2010
36
Article 32.1 (a,b), Law on Securities 2010
31


12


1.5 Legal outcomes
After carried out M&A transaction in a certain form, the purchasing enterprise and the
target enterprise may chose some paths to establish relationship between them. The end
of the paths which adhere with legal procedures are considered legal outcomes.
1.5.1 Merger
Law on Enterprises 2004 provided that in a merger, the parties must be the same type
of company38. It means that private enterprise if not convert into sole member LLC39
cannot be merged with any enterprises and a partnership cannot be merged with a LLC
for instance. This regulation seemed to be imperfection throughout recent years so that
Draft New Law on Enterprises 2014 has proposed to revise it. Pursuant to the Draft, the
parties may be the different types of company40.
All companies shall cease the existence and a new company shall be established.
1.5.2 Consolidation
Similar to a merger, Draft New Law on Enterprise 2014 allows two or more companies
in different types to consolidate41 and private enterprise may be consolidated to another
as if converted to LLC. The consolidating companies shall transfer all its assets, rights,
liabilities, and interests into the consolidated company and cease the existence.
Both merger and consolidation are exercised when acquiring the whole company or
voluntary of the parties.
1.5.3 Holding company - Subsidiary
For simplifying of procedures, the parties do not need to examine consolidation or
merger, the buyer with at least 51% of charter capital or shares of the target company
will create a relationship between holding company (the buyer) and subsidiary (the
target company).42

Sub - conclusion
This Chapter has presented the subjects of legal framework on M&A. Because of the

complication of activities, we cannot reach a certain definition on M&A. However, the
37

Securities Commission (2003), State Management subjects to take over, consolidation on Vietnam securities
market, scientific research of the Ministry level, p.39.
38
Article 153, Law on Enterprises 2005.
39
Article 36, Decree 102/2010/ND-CP
40
Article 210, Draft New Law on Enterprises 2014.
41
Article 211, Draft New Law on Enterprises 2014.
42
Article 4.15 (a), Law on Enterprises 2005.

13


subjects could be recognized through their characteristics, legal forms, and legal
outcomes. Comprehensive awareness of the subjects of legal framework will be the
basis to understand the next chapter.

14


CHAPTER 2: LEGAL FRAMEWORK ON M&A OF ENTERPRISES

Legal framework on M&A covered regulations in many different fields, including laws
on enterprises, laws on investment, laws on securities, law on competition, Civil Code,

laws on tax, laws on accounting, Labor Code, … and the subordinate documents.
Overall, the steps of M&A process shall be in accordance with distinct regulations. To
succeed in a deal, the lawyers play an important role throughout the process to point
out potential risk in each step. This chapter will present typical legal issues powerfully
affecting on the transaction’s success.
2.1 Whether a M&A transaction can be carried out
2.1.1 Economic concentration under Law on Competitive 2004
Competition is the nature of economic market. Historical development of economic
market has proven the substantial moderator role of government in competition. M&A
activities are considered economic concentration – one out of three set of the practices
in restrain of competition in Law on Competition 43. Vice versa, Law on Competition
has become the important source document that the parties should prefer to in respect
of M&A activities44. Even if without the intent, the economic concentration may
completely reduce market competition. Law on Competition is designed to protect
trade and commerce from restraint, monopolies, price fixing and price discrimination45.
Therefore one of the purposes of Law on Competition is to determine the delimitation
of concentration to remain and protect market structure effectively.
2.1.1.1 Fundamental criteria to determine economic concentration
At first, the parties (in M&A transaction or economic concentration) must do business
in relevant market. Relevant market is specified by two criteria: what enterprises buy
and/or sell (relevant product market) and where they do it (relevant geographical
market). Goods or services in relevant market may be substituted for each other in
terms of characteristics, use purpose and price with similar competitive conditions in
which area is significantly different from neighboring areas46. Law on Competition has
stipulated in adequate details on criteria to determine relevant market 47, however
determining relevant market is very complicated and Vietnam currently has little

43

Article 16, Law on Competition.

Pham Duy Nghia (2010), “Legislations on acquisition of enterprises: Short criticism from corporate
governance perspective”, Journal of Legislative Research, (10(171)), p.46-49, p. 48.
45
Black’s law dictionary 9th ed. (2009), p.111.
Antitrust law is the more common term in US, but competition law is popularly used in the other countries.
46
Article 3.1, Law on Competition.
47
Section 1, Chapter 2, Decree No. 116/2005/ND-CP
44

15


experience in it48. In fact, conclusion of whether enterprises do business in relevant
market belongs to competence of Administrative Body for Competition49 and inclines
to economics. Such instance for the exclusion of economic concentration is a merger
between Cocacola Vietnam and KPMG – two enterprises belong to two different
business lines. Of course, M&A transactions between the parties doing business in
irrelevant market are falling out the scope of Law on Competition.
Then, if the parties of M&A deal do business in relevant market, the combined market
share will be calculated to infer how parties run out the deal. The high combined
market share is not the determinant to restrain competition substantially50, but it is the
solid criterion and the signal of negative effects on competition51. To certain level of
the combined market share, the government has the adequate control policies.
2.1.1.2 Supervising policy
* Prohibited cases (black area): all economics concentration shall be prohibited if the
enterprises participating in the economic concentration have the combined market
share in the relevant market more than 50%52. In this case, economic concentration
established an enterprise or group of enterprises holding majority market share in

which competition structure market is being dramatically altered. Hence, competition
will be restrained and misled53.
* Notified cases (gray area): where the enterprises participating economic
concentration have the combined market share in the relevant market of from 30% to
50%, the legal representative of such enterprises must notify the Administrative Body
for Competition prior to carrying out the economic concentration. The enterprises shall
have right to conduct economic concentration only upon the completion of notification
and receiving the written reply of Administrative Body for Competition54.
* Freely conducted cases (white area): if the combined market share of enterprises in
the relevant market under 30%, then it be stated that the economic concentration
cannot create dominant position for established enterprise/ group of enterprises so that
it cannot potentially cause the competition any harm to the competition. Similarly, the

48

Nguyen Ngoc Son (2004), Determining the relevant market according to Competition Law 2004, Journal of
Legislative Research, (11(63)), p.25-31.
49
Article 49, Law on Competition.
50
Vietnamese Competition Authority (2012), Economic concentration report, p.93.
51

Vietnamese Competition Authority (2012), supra note 50, p.114.
Article 18, Law on Competition.
53
University of Economics and Law (2010), Competition Textbook, p.162.
54
Article 20,22, Law on Competition.
52


16


economic concentrations will freely carry out55 if the established enterprise after
economic concentration is still medium and small size enterprise56.
2.1.1.3 Exemption
In principle, the black area is completely prohibited, however Vietnamese laws on
competition, as the other countries, takes account to effectiveness of economic
concentration and reserves some exemptions57. The transactions in which the combined
market shares of participating parties more than 50% but fall in the following cases 58
may be approved to run out:
− One or more of the parties participating in the economic concentration are at
risk of being dissolved or becoming bankrupt59;
− The economic concentration has the effect of extension of export or capital
share to socio-economic development and/or to technical and technological
progress.
2.1.2 Vietnam’s WTO commitments and ratio of foreign capital
M&A market in Vietnam is still growing and is considered as an attractive investment
destination. Measured in terms of volume and value has risen dramatically in the past
yeas60 so that M&A
is appraised as an efficient channel to attract FDI.
Internationalization era has put the Vietnamese economy under lots of pressures and
challenges. One of the most important missions of Vietnamese government is to protect
the internal economy and take advantage of the foreign resources. Foreign investors
who desire to invest directly in Vietnam through M&A activities will subject to some
restrictions, specifically:
− Hold up to 49% shareholdings of public joint stock company61.
− Owning not exceed 20% charter capital of joint stock credit institution62 63.
− Uncommitted sub-sectors in WTO Commitments.

55

Article 18, Law on Competition.
Article 3, Decree No. 90/2011/ND-CP stipulated that medium and small size enterprises are separate business
organizations, registered to do business, the charter capital under 10 billion VND or the average number of year
no more than 300 people.
57
University of Economics and Law, supra note 52, p.161.
58
Article 19, Law on Competiton.
59
Article 4.2, Law on Bankruptcy 2014 stipulated that “Bankruptcy is status in which enterprises, co-operatives
are incapable to pay their due debts and are declared bankruptcy by court”
60
KPMG (2013), Doing deals in Vietnam – A dealmarker’s perspective, p.3
61
Article 2.1, Decision 55/2009/QD-TTg of the Prime Minister on holding rates of foreign investors on the
Vietnamese securities market.
62
Article 3.1, Decree 01/2014/ND-CP stipulated: “Joint stock credit institutions mean credit institutions which
are established and organized under form of joint stock companies, including: Joint stock commercial banks,
Joint stock financial companies, Joint stock finance-leasing companies.
63
Article 7, Decree No. 01/2014/ND-CP on Foreign investors' purchase of shares of Vietnamese credit
institutions.
56

17



Since 01st January 200864, foreign investors without restriction have acquired capital
shares/ shareholdings of Vietnamese enterprises except for acquiring shareholdings of
joint stock commercial banks and uncommitted sub-sectors65. According to Schedule
of Specific Commitments in Services, foreign investors are allowed to invest in 110 out
of 155 sub-sectors of Service Sectorial Classification List66 that the 45 remaining subsectors are e.g. medical and dental service, real estate services, postal service, radio and
transmission service, social service, tourist guide service, etc. In light of the spirit of
GATS, Vietnam has no obligation to grant the right to access market or apply principle
of national treatment for the foreign investor in sub-sectors, not including in the
Commitments. In theory, specialized laws will provide the restrictions in these fields;
however, there is no regulation on this matter. In the practice, the lack of regulations
led to the inconsistent interpretations of State agencies and the confusion of foreign
investor, especially certifying for investment projects or accessing market in the subsectors in which Vietnam uncommitted67.
Uncommitted sub-sectors, banks, and public companies are the spine of the economy
or the sensitive fields; it should limit the ratio of foreign investor shareholding to avoid
depending on the foreign resources. However, the restrictions somehow seem to be
void to foreign investors, as if they own a Vietnamese enterprise, which carry out all
M&A activities in restrictions.
− Being shadow owners of Vietnamese enterprise who dominating business
secretly.
− Establishing an enterprise in Vietnam and this enterprise will establish or
acquire/contribute to take control of another enterprise. The later enterprise is
Vietnamese enterprise in accordance with the current Law on Enterprise, but the
Draft New Law on Enterprise 2014 prevented this case by extending the
definition of foreign investors that enterprises, having the ratio of foreign
investors68 shareholding more than 49%, are also foreign investors.
− Firstly, an enterprise is registered by Vietnamese legal entities with fully
restricted lines. The enterprise will establish the other subsidiaries and transfer
all restricted lines to subsidiaries. Finally, foreign investors will acquire the
holding enterprise to control subsidiaries’ business69.


64

01 year since Vietnam acceded to WTO 01/01/2007.
Schedule of Specific Commitments in Services (2006), horizontal commitments, p.3.
66
Note by the Secretariats of WTO, 10th June 1991.
67
Ha Thi Thanh Binh (2009), Internalizing of Viet Nam’s WTO Commitments in Services, Journal of Legislative
Research (5(142))
68
As referred in section 1.1.4
69
Doan Hong Nhung, Capital capital shares, purchase of shareholdings in Vietnamese enterprise.
Available on http://dddn.com.vn/dau-tu/khi-chinh-sach-vong-quanh-2013121003023893.htm , last visited on 12
July 2014.
65

18


2.1.3 Ratio of non State-owned capital in State owned enterprises
In Vietnam, SOEs is dominating the key economic sectors and taking a considerable
proportion of 34% in total of GDP70. On 17 July 2012, the Prime Minister issued
Decision No. 929/QD-TTg on approval of scheme “Restructuring of SOEs focusing on
economic groups and State – owned corporations period 2011 – 2015”, becoming the
great motivation for M&A of SOEs. However, State remains taking control (holding
more than 50% of charter capital) on some vital economic sectors listed in Decision
No. 37/2014/QD-TTg of Prime Ministry on criteria, lists for classification of SOEs
(will take effect on 06 August 2014 and replace Decision No. 14/2011/QD-TTg on 4
March 2011 of Prime Minister)71. The investors as a result may only conduct M&A

transactions in the sectors which out of the restrictions.
The recent legislations are step-by-step concretizing the orientation to economic
market in Vietnam despite of the fact that the intercession of the State on the market is
quite deep. In the following years, the ratio of non – State owned capital in SOEs
should be increased to boost the power of market.
2.2 Valuation of enterprises
Price is the paramount issue in M&A transaction; it determines the amount of value
that is transferred to the seller in exchange for ownership of the business that is for
sale72. The price is the most significant determinant of the deal’s success, it is critical
point through which all deals must flow73. A line of price term in M&A contract is the
result of a complexity process in which a huge volume of documents is analyzed.
Normally, this work will be performed by professional institution such as auditing
companies, securities companies, price evaluation institutions, etc. The value of
enterprise is particular, not only a number in deed but also including economic value.
The price is not constant but constantly changing.
2.2.1 General provisions on valuation
Blacks Law Dictionary defined that valuation is the process of determining the value of
a thing or entity74. To the extent of M&A deals, the valuation will respond to this
question “How much is a company worth?” Law on Prices takes effect on 01 January
2013 also regulates on evaluation that is the authorized institutions determine monetary
value of assets provided by Civil Code equivalent to price market at certain location, a
certain time to serve a certain purpose in accordance with valuation standards75.
Meanwhile, enterprises are also one type of goods so that the valuation of enterprise in
70

Available on http://dangcongsan.vn/cpv/Modules/News/NewsDetail.aspx?co_id=30110&cn_id=656748, last
visited on 29 June 2014.
71
Referred in Annex
72

Sherman, Andrew J. (2011), supra note 4, p.144.
73
Michael E. S. Frankel (2005), supra note 17, p.191.
74
Black’s law dictionary 9th ed. (2009), p.1690.
75
Article 4.15, Law on Prices 2012.

19


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