Vietnam Business Law is a website managed by lawyers of Venture North Law Limited (VNLaw). Venture North Law Limited (VNLaw) is a Vietnamese commercial law firm. We won the Rising Law Firm of the Year Award at the Southeast Asia Law Awards for the years 2020 and 2021 held by The Legal 500. Very few Vietnamese law firms have achieved a similar regional recognition.
Posted in: Merger & Acquisition
In September 2019, the Government issued new Decree 75/2019 providing administrative sanctions regarding violation of the Vietnam new competition law. Decree 75/2019 details violation in competition including violation of (a) competition-restricting agreements, (b) abuse of a dominant market position or monopoly position; (c) economic concentration; and (d) unfair competitive practices. Set out below are some notable changes in Decree 75/2019:
If a director of a joint stock company (the Company) breaches his/her fiduciary duties and causes damage to the Company, under Article 161.1 of the Enterprises Law 2014, a shareholder or group of shareholders holding 1% or more ordinary shares for six consecutive months (1% Shareholder) can on its own behalf or on behalf of the Company to make a civil claim against the director. However, it is unclear whether (1) the 1% Shareholder can request the director to pay compensation directly to the 1% Shareholder or (2) the 1% Shareholder can only request the director to pay compensation to the Company. In other words, it is not clear if the 1% Shareholder can claim the director for reflective loss (e.g., the diminution of the value of such Shareholder’s shareholding in the Company).
The following arguments support the view that the 1% Shareholder cannot claim for reflective loss:
· Under the Enterprises Law 2014, a shareholder is not allowed to withdraw capital from the Company in any form. If a claim for reflective loss is permitted then the 1% Shareholder is indirectly allowed to withdraw capital from the Company which is contrary to the principle provided by the Enterprises Law 2014;
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.
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.