The Competition Law 2018 defines a joint venture between enterprises (JV) as a transaction where “two or more enterprises together contributes a portion of their lawful assets, rights, obligations, and interests to form a new enterprise” (JV Definition). The Competition Law 2018 requires a JV satisfying certain notification thresholds to be notified to the competition authority for review. However, the application of the JV concept under the Competition Law 2018 is problematic because:

First, the JV Definition does not take into account the element of “joint control”; and
Second, the JV Definition does not accurately reflect the sequence of actions in the formation of a JV company under the Enterprise Law 2020.

Regarding the first issue, compared with the definition of JV under EC Merger Regulation (ECMR), the JV Definition lacks the element of joint control. Under ECMR, the parent companies of a JV have to jointly control the JV by having the possibility of exercising decisive influence (see more here (Sections B.I.3 and B.IV)). The potential anti-competitive effects of JVs come from the fact the JV parents could act together via the JV vehicle instead of competing with each other. Therefore, a JV without being jointly controlled by the JV parents is simply an extension of the controlling JV parent, and has no anti-competitive effect.

For example: a JV has two parent company being competitors with each other, one holds 99% of the JV (99% Parent Company) and the other holds 1% (1% Parent Company), assuming there is no special arrangement. In the example, only 99% Parrent Company can control the commercial behavior of the JV and there is no possibility for the 1% Parrent Company to jointly direct the commercial behavior of the JV. Therefore, in that case, there is no possibility for joint activity between the JV parents, thus JV as controlled by the 99% Parent Company is still the competitor of the 1% Parent Company.

Regarding the second issue, the JV Definition includes two actions:

the first action is the contribution of lawful assets, rights, obligations, and interests; and
the second action is the formation of a new enterprise.

Under the JV Definition, the second action comes after the first action. However, under the Enterprise Law, a new company must always be incorporated first and then the founding members/shareholders of such new company will contribute capital. Given the wrong sequence of actions in the JV Definition, technically, one could argue that a JV as provided in the JV Definition could never arise and accordingly no merger filing is triggered by such a JV.

This post is written by Ha Thanh Phuc and Nguyen Quang Vu.

Vietnam Business Law