Option arrangements are used quite frequently in M&A transactions in Vietnam. Many foreign investors have used options or convertible securities as a mechanism to, among other things, acquire additional shares once the regulatory restriction is removed or to allocate commercial risks between the parties.

Generally speaking, an option arrangement should be valid for the following reasons:

• Under Article 122 of the Civil Code, a civil transaction will be valid when it satisfies all of the following conditions: (a) persons participating in the transaction have capacity for civil acts; (b) the objective and contents of the transaction are not contrary to the law or social morals; and (c) persons participating in the transaction act entirely voluntarily. An option arrangement generally satisfies all these requirements and should be valid.
•  Articles 6.1 and 6.7 of the Law on Securities recognize options as a form of securities. In particular, option to sell or option to buy is defined as a right stipulated in a contract which entitles a purchaser to choose the right to purchase or to sell a pre-determined volume of securities at a pre-determined price during a specified period.

• Under Article 64 of the Commercial Law, options to purchase goods or options to buy goods are allowed to traded on a commodity exchange organized under the Commercial Law. In particular, call option or put option contract means an agreement whereby the option purchaser has the right to purchase or to be sold a certain type of goods at a pre-determined price (referred to as the contracted price) and must pay a certain amount of money for the purchase of this right (referred to as the option price). The option purchaser has the right to opt to carry out or not to carry out such purchase and sale of such goods. 

However, the major difficulty relating to option arrangement is that exercising an option is not an automatic process. In Vietnam, after an option is exercised, the parties usually have to obtain necessary regulatory or corporate approvals so that shares can be issued or transferred to the relevant option holder. Therefore, cooperation of the counterparties is essential for successfully exercising an option arrangement. Certain option arrangements appear to have been successfully implemented with the cooperation of the parties involved.

Another difficulty is that although there is law which generally recognizes options arrangements, there are few detail implementation rules and regulations or court precedents. Therefore, it is difficult to anticipate how the authorities including the courts and other authorities view and enforce an option arrangement in practice.