Classifying business lines under VSIC and Provisional CPC

Under the current forms applicable to investment procedures to obtain an Investment Registration Certificate or a registration of an acquisition by a foreign investor, the foreign investor and the target company must specify the business lines of the target company according to both Vietnam Standard Industrial Classification (VSIC) and Provisional Central Product Classification (Provisional CPC). The VSIC is based on the International Standard Industrial Classification, not the Provisional CPC. Therefore, there might be some discrepancies among the scope of services under the VSIC and the Provisional CPC. In other words, when registering business lines, foreign investors might face the issue where the scope of a class under one classification might not be covered by a corresponding one under the other classification.

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Written by Nguyen Quang Vu On In ,

Closing Mechanics For Vietnam M&A Deals With Multiple Legal Representatives And Corporate Seals, And Online Submission

Various provisions of the Enterprise Law 2014 can now allow parties to an M&A deal in Vietnam to have more flexibility in designing a closing mechanics. In particular,

·        Multiple legal representatives – In a M&A deal involving a change of control, the buyer would want to control the legal representative position on the closing date. But this involves registration with the Business Registration Authority. Many sellers are reluctant to change the legal representative position before closing without receiving payment of the purchase price.

 In the past, a company can only have one legal representative. However, under the Enterprise Law 2014, a company can have two or more legal representatives. As such, the parties can agree that the target company will have two legal representatives appointed by the seller and the buyer. The legal representative appointed by the seller will continue to run the target company up until closing and will resign on closing. The legal representative of the buyer will assume control on closing. And after closing, the target company will deregister the legal representative appointed by the seller.

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Written by Nguyen Quang Vu On In ,

A closer look at the use of DICA account for M&A transactions in Vietnam – Part 2

Unclear definition of 51% FIE

Under Circular 6/2019, enterprises with foreign direct investment (FIEs), which must open DICA include (1) enterprises which are established by foreign investors (with or without local partners) (Incorporated FIEs); and (2) enterprises which do not fall under (1) but 51% of which are owned by foreign investors (51% FIEs). Normally, one would expect that a 51% FIE must be a FIE, 51% of which is actually owned by foreign investors (Actual 51% FIEs). However, Circular 6/2019 provides that a 51% FIE include enterprises which have foreign investors making capital contribution or purchasing shares resulting in  foreign investors’ owning 51% of the FIE. The use of the words “resulting in” suggests that a 51% FIE could be a 100% locally-owned company, which has potential foreign investors who may acquire 51% or more of its charter capital (Future 51% FIEs). 

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Written by Nguyen Quang Vu On In ,

A closer look at the use of DICA account for M&A transactions in Vietnam – Part 1

A closer look at Circular 6/2019 of the State Bank of Vietnam (SBV) reveals that it could create more problems than it solves. The key issue under Circular 6/2019 is the broader use of the “direct investment capital account” (normally referred to as DICA).

To understand the issue, one would need to know how DICA works. Under the foreign exchange regulations, DICA must be opened by a company in Vietnam, which has “foreign direct investment” (the FIE). Foreign investor/shareholders of an FIE will contribute capital to the FIE by transferring monies to DICA. Foreign investors/shareholders will get their monies back from Vietnam also by transferring monies from DICA to their own bank accounts (even in case the foreign investor/shareholder sells its investment to another investor). This simple arrangement works well for simple foreign direct investment activities in the 1990s where there is limited M&A activities and foreign investors are mostly foreign manufacturers who do not plan to sell their investment down the road.

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Written by Nguyen Quang Vu On In ,