The merger filing thresholds under the new Decree 35/2020 are drafted broadly and have no exception (see more here). Accordingly, many M&A transactions, which have no anti-competitive impact in Vietnam are still subject to filing requirements. A filing process could take substantial time and effort since at law and in practice, the competition authority (NCC) has very broad discretion in demanding additional information or documents about the parties. Below are some potential structures for overcoming the merger filing threshold in Vietnam. The risks associated with these structures is that Vietnamese authorities may take the view that the parties have undertaken a transaction to conceal another transaction and therefore the first transaction is not valid. Failure to notify the NCC may be subject to a penalty from 1% to 5% of the total revenue in Vietnam of the parties.

Unincorporated joint venture

For a joint venture transaction, instead of incorporating a new joint venture company, the parties may consider entering into an unincorporated joint venture where no new entity is established (e.g., a Production Sharing Contract). An unincorporated joint venture does not fall into the types of economic concentration that is subject to merger filing in Vietnam. This is because the Competition Law 2018 only expressly applies to incorporated joint ventures but not unincorporated joint ventures.

“Non-sale” transaction

The merger filing requirements under the Competition Law 2018 applies to a direct or indirect sale of shares or assets. Under the Civil Code 2015, a sale transaction is defined to mean a transaction where the seller transfers title of a property to the buyer and the buyer pays cash to the seller. Accordingly, if the parties structure the proposed transaction as a non-sale transaction, then the parties can take the position that the non-sale transaction is not of the type of transactions that are subject to merger filing requirements.

A non-sale transaction can be structured as follows:

Option 1 - At first, the buyer will contribute cash into the target company in return for a minority stake. After the cash injection, the parties will de-merger or split the target company into two companies of which the buyer will own the majority of the company holding the business, and the seller will own the company holding the cash consideration contributed by buyer. Technically, under this structure, there is no sale and purchase of assets or shares between the buyer and the seller which result in a change of control of the target company;
Option 2 – Option 2 will be similar to Option 1 but instead of de-merger, the target company will use the cash injection to buy-back all the shares held by the seller; or
Option 3 - The buyer will pay the seller in kind not in cash (e.g., by shares in another company which owns the cash). This is because, in a sale transaction, the Civil Code 2015 provides that the buyer will pay “cash” to the seller. However, this structure may work for companies outside of Vietnam only. This is because under the Enterprise Law 2014, a sale of shares in a Vietnamese company can be paid in kind.

Relying on certain unclear points of the law.

Under this approach, depending on specific cases, the parties could just take the view that they do not need to make a merger filing based on one or more of the following reasons:

The Competition Law 2018 and Decree 35/2020 require a merger filing to be made with the NCC. Since the NCC is not yet established, one could take an aggressive position that the parties to an economic concentration do not have the obligation to notify until the NCC is established. However, in practice, in the absence of the NCC, the MOIT still accepts merger filing made under the Competition Law 2018.
Article 1 of the Competition Law 2018 which sets out the scope of application of the Competition Law 2018 provides that: “This Law regulates practices in restraint of competition and economic concentrations which have or may have a competition-restraining impact on Vietnam’s market; unfair competitive practices; competition legal proceedings; dealing with breaches of the law on competition; and State administration of competition”
Based on the underlined wording, one could argue that the Competition Law 2018 and by implication Decree 35/2020 do not apply to an economic concentration, which has no anti-competitive impact on Vietnam’s market. Accordingly, even if an economic concentration satisfies the merger filing thresholds under Decree 35/2020, there is no filing obligation unless such transaction may have an anti-competitive impact on Vietnam’s market; and
The wording of Article 13.1 of Decree 35/2020 can be interpreted to mean that each of Buyer, and Seller (not either one) must satisfy the US$ 130 million threshold in order to trigger the merger filing requirement. However, this does not appear to be the intention of the draftsman of Decree 35/2020..

This post is written by Nguyen Quang Vu.

Vietnam Business Law