Vietnam: Mergers & Acquisitions

The In-House Lawyer Logo

This country-specific Q&A gives an overview of mergers and acquisition law, the transaction environment and process as well as any special situations that may occur in Vietnam.

It also covers market sectors, regulatory authorities, due diligence, deal protection, public disclosure, governing law, director duties and key influencing factors influencing M&A activity over the next two years.

This Q&A is part of the global guide to Mergers & Acquisitions. For a full list of jurisdictional Mergers & Acquisitions Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/mergers-acquisitions/

  1. What are the key rules/laws relevant to M&A and who are the key regulatory authorities?

    1.1 In relation to all types of Vietnam-domiciled target companies, M&A transactions in Vietnam are primarily regulated by:

    1. the Law on Enterprises (2014) and its implementing legislation (the Law on Enterprises), from a general corporate law perspective; and
    2. the Law on Investment (2014) and its implementing legislation (the Law on Investment), from a general investment law perspective.

    1.2 In the context of listed and unlisted public companies, the Law on Securities (2013) and its implementing legislation (the Law on Securities) are of fundamental importance and in many cases apply in precedence to the Law on Enterprises and/or the Law on Investment.

    1.3 Other industry sector-specific laws also contain specific provisions regulating M&A transactions occurring within the relevant industry sectors, which are also of fundamental importance. Key indicative examples include:

    1. the Law on Credit Institutions (2010) and its implementing legislation (the Law on Credit Institutions), in the context of the banking and finance sector; and
    2. the Law on Real Estate Business (2014) and its implementing legislation (the Law on Real Estate Business), in the context of the real estate sector.

    1.4 International treaties of which Vietnam is a member are also crucial and must always be considered in relation to any Vietnam-based M&A transaction (albeit to a lesser extent in relation to listed or unlisted public target companies). Most important amongst these international treaties is the market access commitments made by Vietnam to the WTO upon accession in 2006 (the WTO Commitments). In many cases the WTO Commitments are the key source of foreign ownership restrictions and related market access rules.

    1.5 It is also often necessary for parties to consider other broadly-applicable laws such as, for example, the Law on Competition (2004) and its implementing legislation (the Law on Competition) (from a merger control perspective).

    1.6 The key (but not the only relevant) regulatory authorities in relation to Vietnam-based M&A transactions include:

    1. the Ministry of Planning and Investment (at central Government level) (the MPI) and the various relevant Departments of Planning and Investment (at municipal or provincial level) (the DPI);
    2. the Ministry of Industry and Trade (at central Government level) (the MOIT) and the various relevant Departments of Industry and Trade (at municipal or provincial level) (the DOIT), as well as the Vietnam Competition Authority (the VCA), which falls under the jurisdiction of the MOIT;
    3. the State Securities Commission (the SSC), in the case of listed or unlisted public target companies; and
    4. the State Bank of Vietnam (the SBV), which, amongst other important functions, regulates foreign exchange control in Vietnam (foreign exchange control laws being of fundamental importance in relation to any vendors or purchasers being foreign citizens or foreign-domiciled companies or other organisations).
  2. What is the current state of the market?

    2.1 The M&A market in Vietnam is strong and vibrant, notwithstanding its relatively small size in comparison with more developed markets.

    2.2 Numbers and overall value of completed M&A transactions in Vietnam have grown steadily during the last two decades (and in particular during 2016 and 2017), and are expected to continue to grow strongly during 2018 and 2019 and beyond.

    2.3 Although Vietnam and participants in its M&A market were disappointed with the withdrawal of the United States from the Trans-Pacific Partnership (the TPP), the fact of the TPP not having come to fruition in its USA-inclusive form as hoped has done nothing to suppress the enthusiasm of the foreign investment community for M&A transactions in Vietnam.

    2.4 The Vietnamese Government continues to achieve material progress in simplifying and streamlining administrative and regulatory procedures in Vietnam. These initiatives have made and are expected to continue to make material positive contributions to the strength and vibrancy of the Vietnam M&A market.

    2.5 Vietnam-domiciled target companies continue to present excellent value propositions for the international investment community, in an economy which continues to grow consistently at rates above 6% and is clearly destined to become one of the world’s powerhouse economies as the 21st century unfolds.

  3. Which market sectors have been particularly active recently?

    3.1 M&A activity during 2017 was strong and vibrant across a broad spectrum of industry sectors.

    3.2 Perennially strong sectors such as pharmaceuticals, manufacturing, real estate, FMCG, and general wholesale and retail distribution across many product categories continued to surge ahead, building upon the momentum having gathered in recent years. 2018 and 2019 are also expected to see continued expansion of M&A activity in these key established sectors.

    3.3 Of particular note is the strong growth which was seen in M&A activity in 2017 in the technology space. Foreign investor interest in the technology sector surged markedly during 2017, with acquisition activity having been very positive in the areas of e-commerce and fintech in particular. The M&A transaction pipeline in these emerging technology sectors for 2018 and 2019 looks to be very positive, as Vietnamese consumers become more comfortable with transacting electronically and foreign investors move in to exploit the resulting rapid market expansion.

  4. What do you believe will be the three most significant factors influencing M&A activity over the next 2 years?

    In our view, during the next two years the three most significant factors influencing M&A activity in Vietnam are likely to be:

    1. the increasing numbers of listed and unlisted public companies taking advantage of the availability of State Securities Commission approval to increase the permitted foreign ownership percentage of those public companies from 49% to 100%, which has only recently become a possibility;
    2. the increasing liberalisation and rationalisation of the regulatory landscape in Vietnam, which is already making and will continue to make the implementation of M&A transactions faster, easier, and less bureaucratic; and
    3. the continued and more expeditious implementation by the Vietnamese Government of its programme of equitising (privatising) State-Owned Enterprises in Vietnam and divestment of State shareholding interests in many former State-Owned Enterprises which have already been equitised, operating in a wide range of industry sectors, which gathered excellent momentum during 2017 and is expected to achieve major progress during 2018 and 2019.
  5. What are the key means of effecting the acquisition of a publicly traded company?

    5.1 In Vietnam there are two stock exchanges on which public companies may list their securities for trading, namely the Ho Chi Minh City Stock Exchange (the HOSE or the HSX) and the Hanoi Stock Exchange (the HNX).

    5.2 Investors wishing to acquire securities of Vietnam-domiciled public companies which are listed for trading on the HOSE or the HNX (Listed Securities) may do so by way of normal “on-market” acquisitions from unidentified vendors (On-Market Acquisitions), implemented using the services of Vietnam-licensed securities brokers and via the electronic trading and clearance systems maintained and operated by the Vietnam Securities Depository (the VSD) and “custodian banks” being members of the VSD (Custodian Banks).

    5.3 Investors may also acquire Listed Securities by way of sale and purchase agreements entered into directly with identified vendors (Direct Agreement Acquisitions). Direct Acquisition Transactions are, however, subject to “trading band” restrictions, pursuant to which any transaction implemented at a purchase price per share being >7% (in the case of the HOSE) or >10% (in the case of the HNX) above or below the closing price of the relevant securities on the HOSE or the HNX (as applicable) on the trading day immediately prior to the completion of the Direct Agreement Acquisition, requires the specific case-by-case approval of the State Securities Commission.

    5.4 Direct Agreement Acquisitions must also be implemented using the services of Vietnam-licensed securities brokers and via the electronic trading and clearance systems maintained and operated by the VSD and Custodian Banks.

    5.5 In the case of securities of unlisted public companies, acquisitions must be implemented via the Unlisted Public Company Market (the UPCOM), also using the services of Vietnam-licensed securities brokers and via the electronic trading and clearance systems maintained and operated by the VSD and Custodian Banks. Acquisitions of UPCOM-registered securities are implemented in manners being broadly similar (but not identical) to the On-Market Acquisitions and Direct Agreement Acquisitions described above in relation to Listed Securities.

    5.6 Any acquisition of voting shares in any Vietnam-domiciled public company (whether listed or unlisted) resulting in the acquirer (aggregated with its related persons and entities) holding ≥25% of issued and paid-up voting share capital must be implemented by way of a “mandatory public offer”, approved by the State Securities Commission and implemented in accordance with specifically legislated rules and procedures (an MPO).

    5.7 Once any shareholder (aggregated with its related persons and entities) holds ≥25% of issued and paid-up voting share capital, then the following types of further acquisitions must also be implemented by way of an MPO:

    1. any acquisition by that shareholder (aggregated with its related persons and entities) of between ≥5% and <10% of issued and paid-up voting share capital, implemented within 12 months of any previous MPO transaction; and/or
    2. any acquisition by that shareholder (aggregated with its related persons and entities) of ≥10% of issued and paid-up voting share capital, implemented at any time.

    5.8 MPO exemptions can, however, be obtained by way of ordinary resolutions of the General Meeting of Shareholders of the target company (which usually require the affirmative votes of ≥51% of the issued and paid-up voting share capital represented at the relevant Annual General Meeting of Shareholders (AGM) or Extraordinary General Meeting of Shareholders (EGM) and being eligible to vote on the proposed resolution).

    5.9 Investors may also acquire shares of a public company by way of subscription pursuant to private placement transactions, subject to approval by the General Meeting of Shareholders of the relevant target company (requiring super-majority affirmative voting, usually necessitating ≥65%) and approval by the State Securities Commission, which must be implemented in accordance with specifically legislated rules and procedures.

  6. What information relating to a target company will be publicly available and to what extent is a target company obliged to disclose diligence related information to a potential acquirer?

    6.1 Public companies in Vietnam (both listed and unlisted) and their “major shareholders” (that is, holding ≥5% of issued and paid-up voting share capital, aggregated with their related persons and entities) (Major Shareholders) – and their governance and executive managerial officers (Officers) – are subject to public disclosure obligations being broadly similar to (but generally less onerous than) those to which public companies and their directors, officers, and substantial shareholders are subject in more developed jurisdictions.

    6.2 The disclosure obligations of listed and “large-scale” unlisted public companies, are more onerous than those of unlisted pubic companies not being “large-scale”. Applicable law defines “large-scale” unlisted public companies as being those having paid-up equity capital in the amount of ≥VND120 billion (equivalent to approximately ≥USD5,316,000), as reflected in the audited financial statements of the relevant company for the most recently-ended financial accounting period.

    6.3 Information and documents having been disclosed to the public by public companies or their Major Shareholders or Officers will normally be available in electronic copy format on the websites of any one or more of the target company, the State Securities Commission, and/or the relevant stock exchange (whether the HOSE or the HNX). In most cases, however, the bulk of this publicly disclosed information will only be available in the Vietnamese language.

    6.4 Public companies are often (but not always) reticent to facilitate the conduct by investors of due diligence over and above the information available on the public record. Where public companies do agree to facilitate due diligence, care must be taken from the perspective of Vietnam law prohibitions against insider trading.

    6.5 As a general proposition, the overall standard of compliance by public companies and their Major Shareholders and Officers with their public disclosure obligations is reasonable, but not of the standard generally observed by public companies and their significant shareholders, directors, and officers in more developed jurisdictions. The conduct of additional due diligence, over and above the information available on the public record, to the extent practicable, is prudent and desirable in most cases.

    6.6 In relation to all Vietnam-domiciled companies (whether public or private), the following basic searches are possible to conduct from public record sources:

    1. The National Business Registration Portal (NBRP):

      The searches available via the NBRP provide basic enterprise registration details of Vietnam-domiciled companies. The NBRP is searchable online on a free-of-charge basis (providing very limited corporate information) or a fee payment basis (providing somewhat more detailed corporate information). Results are available immediately or within one business day, depending upon the type of search conducted. The search results are mostly in the Vietnamese language, although some limited information in relation to the enterprise registration certificate of the relevant target company is normally available in English.

      The following is a link to the website of the NBRP:

      https://dangkykinhdoanh.gov.vn/en-gb/home.aspx.

    2. The National Registration Agency for Secured Transactions (the NRAST):

      The searches available via the NRAST provide details of security instruments (such as mortgages and pledges) registered over “moveable” assets (which excludes real property, aircraft, and vessels). The NRAST database is searchable online (free of charge) or by way of physical hard-copy application (on a fee payment basis) and on the basis of the names of the security provider and/or the security holder. The online search results are available immediately, whereas the results of searches conducted by hard-copy application are available promptly (normally within less than one working week).

      It should, however, be noted that not all security instruments are required to be registered with the NRAST. Therefore, the search results arising from the NRAST database in some cases will not reveal all of the security instruments in existence which affect the target company and/or its equity capital or assets.

      The following is a link to the website of the NRAST:

      https://dktructuyen.moj.gov.vn/home.html.

    3. The National Office of Intellectual Property (the NOIP):

      The searches available via the NOIP provide details of intellectual property rights having been registered with the NOIP, such as registered trademarks, trademark licences, patents, registered designs, and others. The NOIP database is searchable by way of physical hard-copy application, on a fee payment basis, and on the basis of the name of the registered owner or licensee and also on a number of other bases. Results of official searches are slow and can take more than one month to obtain. Searches via the online platform provided by the NOIP can also be conducted, on a free-of-charge basis, and will normally produce results immediately, although the degree of accuracy and comprehensiveness of the results obtained via such online searches is generally lower as compared with the physical hard-copy searches.

      The following is a link to the website of the NOIP:

      http://iplib.noip.gov.vn/WebUI/WLogin.php

    4. The Copyright Office of Vietnam (the COV):

      The searches available via the COV provide details of copyright works having been registered with the COV, which may include all forms of works being capable of copyright protection (including software source code). The COV database is searchable by way of physical hard-copy application, on a fee payment basis, and on the basis of the name of the registered owner and on a number of other bases. Results of official searches are slow and can take more than one month to obtain. Informal searches can also be conducted via the online platform provided by the COV, on a free-of-charge basis, and will normally produce results immediately, although the degree of accuracy and comprehensiveness of the results obtained via such online searches is generally lower as compared with the physical hard-copy searches.

      The following is a link to the website of the NOIP:

      http://www.cov.gov.vn/cbq/index.phpoption=com_mfit&view=mlookup&Itemid=90

    5. Departments of Natural Resources and Environment (at provincial or municipal level) (the DONRE):

      The searches available via the various provincial or municipal level DONREs provide details of registered land use rights (the Vietnam equivalent of land titles) (Land Use Rights) and ownership of buildings and other assets attached to land (Buildings)), including any mortgage security or encumbrances registered over Land Use Rights and/or Buildings. No search with national coverage is available. Each province and major city in Vietnam has its own DONRE and their databases can only be searched on a province-by-province or city-by-city basis. Each respective DONRE is searchable by way of physical hard-copy application, on a fee payment basis, and on the basis of the name of the registered land user and/or Building owner. Applicable policies and procedures differ from DONRE to DONRE and accordingly, the timeline for obtaining results differs from province to province and city to city. Results are in most cases available within approximately two to four working weeks, but in some cases it can be difficult to obtain responses within a reasonable timeframe or at all.

    6.7 There is extremely limited scope for the conduct of litigation searches in Vietnam, even where the names of the parties and the details of any relevant dispute are known. Although there is some limited search functionality in connection with various different courts on a province-by-province and city-by-city basis, these are very difficult and time-consuming to perform and the results are highly unreliable.

    6.8 The available searches outlined in Section 6.6 above – and the databases upon which they are based – are comparatively underdeveloped and unsophisticated, in comparison with their counterparts from more developed jurisdictions, and the results obtained from them cannot be regarded as being comprehensive or altogether reliable.

    6.9 With the exception of the public disclosure obligations of public companies (as outlined in Sections 6.1 to 6.4 above), Vietnam-domiciled target companies and vendors of shares or other equity interests in them are under no disclosure obligations at law, in connection with M&A transactions. Although under Vietnam law there are broad prohibitions against outright fraud and deliberate misrepresentation, Vietnam law requires nothing of target companies or vendors in relation to disclosure of information to prospective purchasers (except as outlined in Sections 6.1 to 6.4 above in relation to public companies).

  7. To what level of detail is due diligence customarily undertaken?

    7.1 In the context of public companies (whether listed or unlisted):

    1. the standard expectation of target companies and vendors is that purchasers should rely solely or primarily on the information available on the public record;
    2. on a case-by-case basis, some target companies and vendors will consider facilitating the conduct of due diligence, to an extent which is in most cases significantly limited; and
    3. in any event, target companies and vendors need to take care to avoid contravening Vietnam law prohibitions against insider trading, in connection with the disclosure and receipt of information which is not on the public record but which may be price-sensitive.

    7.2 In the context of private companies, historically Vietnamese companies and vendors have been uncomfortable with the concept of due diligence and have been resistant to facilitating the conduct by prospective purchasers of detailed due diligence investigations. After more than two decades since Vietnam first opened its doors to foreign investment, however, the need for foreign investors to conduct detailed due diligence investigations is now widely appreciated in Vietnam, and target companies and vendors are increasingly willing to allow sufficiently transparent and detailed due diligence investigations to be conducted.

    7.3 In many (but not all) cases nowadays, Vietnamese target companies and vendors are generally prepared to facilitate the conduct of due diligence investigations which approach the levels of transparency and detail to which investors from more developed jurisdictions are accustomed.

    7.4 On the other hand, Vietnamese target companies and vendors:

    1. are in many cases strongly resistant to the use of electronic data rooms and/or the delivery to purchasers or their advisors of copies of documents (whether in hard copy or electronic format);
    2. in many cases will insist on the use of physical data rooms only, normally on-site at the target company’s premises, with no opportunity for the prospective purchaser or its advisors to take copies (whether in hard copy or electronic format);
    3. in many cases will be inexperienced with handling due diligence processes and will struggle to identify, locate, collate, and present in an orderly and comprehensive manner the information and documents having been requested for disclosure; and
    4. in many cases, will be reticent to incur costs in engaging legal, financial, accounting, and/or tax advisors to assist them in handling due diligence processes, instead seeking to rely on internal employee resources who lack the time and experience to manage an adequate and efficient due diligence process.

    7.5 As a result of the factors outlined in Section 7.4 above, it is in many cases not possible, from a practical perspective, for foreign investors to conduct due diligence investigations to the degree of transparency and detail to which they are accustomed when conducting M&A transactions in more developed jurisdictions.

  8. What are the key decision-making organs of a target company and what approval rights do shareholders have?

    8.1 There are three key corporate forms under Vietnam law. All Vietnam-domiciled companies (with isolated exceptions) exist under one of these three corporate forms. These three corporate forms include:

    1. joint stock companies (also referred to as “shareholding companies”) (JSCs);
    2. limited liability companies with one member (LLC1s); and
    3. limited liability companies with two or more members (LLC2s).

    8.2 All public companies take the corporate form of a JSC, but there are also JSCs which are not public companies. In the case of all JSCs (whether public or private):

    1. the ultimate decision-making body is the General Meeting of Shareholders, which:

      (a) consists of all of the holders of issued and paid-up ordinary or other voting shares;

      (b) retains exclusive decision-making authority in relation to the most fundamentally important aspects of the ownership, structure, and corporate and business affairs of the JSC; and

      (c) in most cases requires a 51% affirmative vote to pass ordinary resolutions and a 65% affirmative vote to pass special resolutions.

    2. the General Meeting of Shareholders elects a governance body, which:

      (a) is referred to as the “Board of Management”;

      (b) is akin to the governance body referred to in most jurisdictions worldwide as the “Board of Directors”;

      (c) retains exclusive decision-making authority in relation to many key aspects of the corporate and business affairs of the JSC;

      (d) in most cases, requires a bare majority affirmative vote of >50% in in order to pass any resolution, with the Chairman normally having a casting vote in the event of a deadlocked vote;

      (e) is chaired by a Chairman elected by the Board of Management (who performs important functions not only in relation to the operations of the Board of Management but also in relation to the convening and administration of meetings of the General Meeting of Shareholders); and

      (f) is answerable to the superior decision-making authority of the General Meeting of Shareholders,

    3. the Board of Management appoints a “General Director”, who is:

      (a) the most senior executive managerial officer of the JSC;

      (b) akin to the office referred to in most jurisdictions worldwide as the “Chief Executive Officer”;

      (c) responsible for managing the day-to-day business operations of the JSC; and

      (d) answerable to the superior decision-making authority of the Board of Management, and

    4. the General Meeting of Shareholders in most cases elects a separate and distinct “Inspection Committee” (also referred to as the “Board of Supervisors”), which:

      (a) was until recently a compulsory body but is now capable of being opted out of, pursuant to special resolutions of the General Meeting of Shareholders (subject to certain specified conditions);

      (b) is responsible for supervising and reporting to the General Meeting of Shareholders in relation to the operations of the Board of Management, the General Director, and the other managerial officers and/or employees of the JSC;

      (c) is broadly akin to the concept of an Audit Committee in many other jurisdictions worldwide;

      (d) has broad powers to require the provision by the Board of Management, the General Director, or other managerial officers and/or employees of the JSC, of information and documents; and

      (e) is answerable only to the General Meeting of Shareholders.

    8.3 In the context of JSCs, amongst other exclusive decision-making powers of the General Meeting of Shareholders:

    1. whether the JSC is public or private, the capital structure of the JSC cannot be changed, new shares of any class cannot be authorised for issuance, and no dilutive issuance of shares or convertible instruments may be implemented, without special resolution approval by the General Meeting of Shareholders (usually ≥65% affirmative vote); and
    2. in relation to public JSCs (and depending upon the express provisions of the charter of the relevant public JSC), the requirement for certain acquisitions to be implemented by way of a Mandatory Public Offer can only be waived by ordinary resolution approval of the General Meeting of Shareholders (usually a ≥51% affirmative vote).

    8.4 Vietnam-domiciled companies having only one member (shareholder) can exist only in the form of an LLC1. In relation to LLC1s:

    1. there is no separate owner’s decision-making body (such as a General Meeting of Shareholders) and governance body (such as a Board of Management);
    2. the sole member (owner) of the LLC1 (the Owner) must choose to have the LLC1 governed either by:

      (a) a sole Chairman (also referred to as the sole “President”), appointed by the Owner as its “authorised representative” to:

      (I) represent the Owner in respect of its 100% equity interest in the LLC1; and

      (II) make decisions for and on behalf of the Owner, or

      (b) a “Member’s Council”, consisting of two or more “authorised representatives” of the Owner, appointed by the Owner to:

      (I) represent the Owner’s 100% equity interest in the LLC1 in equal proportions or in such other proportions as may be allocated by the Owner; and

      (II) make decisions for and on behalf of the Owner,

    3. the sole Chairman or Member’s Council (as applicable):

      (a) operates, in effect, as an owner’s body (such as a General Meeting of Shareholders) and a governance body (such as a Board of Management), rolled into one; and

      (b) retains exclusive decision-making power in relation to most of the key aspects of the ownership, governance, and corporate and business affairs of the LLC1 (with very limited exceptions which are reserved for resolutions of the Owner itself),

    4. the sole Chairman or Member’s Council (as applicable) appoints a General Director, who is:

      (a) the most senior executive managerial officer of the LLC1;

      (b) akin to the office referred to in most jurisdictions worldwide as the “Chief Executive Officer”;

      (c) responsible for managing the day-to-day business operations of the LLC1; and

      (d) answerable to the superior decision-making authority of the sole Chairman or Member’s Council (as applicable), and

    5. the Owner appoints one or more Inspectors (who, where there is more than one Inspector, form an Inspection Committee), being:

      (a) responsible for supervising and reporting to the Owner in relation to the operations of the sole Chairman or Member’s Council (as applicable), the General Director, and the other managerial officers and/or employees of the LLC1;

      (b) broadly akin to the concept of an Audit Committee in many other jurisdictions worldwide;

      (c) in possession of broad powers to require the provision by the sole Chairman or Member’s Council (as applicable), the General Director, or other managerial officers and/or employees of the JSC, of information and documents; and

      (d) is answerable only to the Owner.

    8.5 In the context of LLC1s, no changes in the capital structure of the LLC1 can occur without the approval of the sole Chairman or the Member’s Council (as applicable) and/or resolutions of the Owner itself (depending upon the charter of the LLC1) and this includes any transfer of the whole or any part of the contributed charter capital of the LLC1.

    8.6 In order for any part of the contributed charter capital of any LLC1 to be transferred by the Owner to any transferee, it is firstly necessary for the corporate form of the LLC1 to be converted into that of a JSC (which require a minimum of three shareholders) or an LLC2. This cannot occur without the approval of the sole Chairman or the Member’s Council (as applicable) and/or resolutions of the Owner itself (depending upon the charter of the LLC1).

    8.7 In addition, in practical terms, no part of the contributed charter capital of any LLC1 can be transferred without the approval of the relevant provincial or municipal corporate licensing authority (being, in most cases, the relevant provincial or municipal Department of Planning and Investment (the DPI)).

    8.8 In relation to LLC2s:

    1. there is no separate owner’s decision-making body (such as a General Meeting of Shareholders) and governance body (such as a Board of Management);
    2. the LLC2 is governed by a “Members’ Council”, consisting of:

      (a) all of the members (Owners) being natural persons; and

      (b) in relation to each Owner being a company or other non-natural legal entity, one or more “authorised representatives” of that Owner, appointed by that Owner to represent specified proportions of that Owner’s equity ownership interest in the contributed charter capital of the LLC2, for the purposes of sitting on the Members’ Council and voting the charter capital percentages allocated to them,

    3. the Members’ Council:

      (a) operates, in effect, as an owner’s body (such as a General Meeting of Shareholders) and a governance body (such as a Board of Management), rolled into one; and

      (b) retains exclusive decision-making power in relation to all of the key aspects of the ownership, governance, and corporate and business affairs of the LLC2,

    4. the Members’ Council appoints a General Director, who is:

      (a) the most senior executive managerial officer of the LLC2;

      (b) akin to the office referred to in most jurisdictions worldwide as the “Chief Executive Officer”;

      (c) responsible for managing the day-to-day business operations of the LLC2; and

      (d) answerable to the superior decision-making authority of the Members’ Council,

    5. where there are more than 11 Owners, the Owners must appoint an Inspection Committee, but where there are 11 or less Owners, the appointment of an Inspection Committee is optional;
    6. where an Inspection Committee is appointed, that Inspection Committee:

      (a) must consist of two or more Inspectors;

      (b) is responsible for supervising and reporting to the Owner in relation to the operations of the Members’ Council, the General Director, and the other managerial officers and/or employees of the LLC2;

      (c) broadly akin to the concept of an Audit Committee in many other jurisdictions worldwide;

      (d) in possession of broad powers to require the provision by the Members’ Council, the General Director, or other managerial officers and/or employees of the LLC2, of information and documents; and

      (e) is answerable only to the Owners.

    7. 8.9 In the context of the Members’ Council of an LLC2:

      1. voting power is dictated by the percentage of the contributed charter capital (in the case of Owners being natural persons) held by each respective Owner or (in the case of Owners being companies or other non-natural legal entities) the “authorised representatives” of each respective Owner having been appointed by that Owner to sit on the Members’ Council;
      2. ordinary resolutions in most cases require an affirmative vote representative of ≥65% of the contributed charter capital of the LLC2, in order to be passed (depending upon the provisions of the charter of the LLC2); and
      3. special resolutions in most cases require an affirmative vote representative of ≥75% of the contributed charter capital of the LLC2, in order to be passed (depending upon the provisions of the charter of the LLC2).

      8.10 In relation to LLC2s:

      1. no changes to the charter capital (that is, any increase or decrease of the registered charter capital) of the LLC2 may be made without special resolution approval of the Members’ Council;
      2. Owners enjoy pro rata pre-emptive rights to participate in any charter capital increases and are thus protected from dilution;
      3. Owners enjoy pro rata pre-emptive rights in relation to any proposed sale by any Owner of the whole or any part of its contributed charter capital (provided that the other Owners are given due and proper opportunity to exercise their pre-emptive rights, transfers of contributed charter capital do not require any further internal corporate approvals unless specified otherwise in the express provisions of the charter of the relevant LLC2); and
      4. no part of the contributed charter capital of the LLC2 may be transferred without the approval of the relevant provincial or municipal corporate licensing authority (in most cases, the DPI).

      8.11 Although the voting percentage thresholds outlined above in this Section 8 are common and reflect the prevailing norms, the charter of any JSC (whether public or private), LLC1, or LLC2 must always be checked in order to verify the specific requirements for the passing of resolutions by the relevant shareholders’ or members’ body.

  9. What are the duties of the directors and controlling shareholders of a target company?

    9.1 Vietnam law imposes upon governance and managerial officers of Vietnam-domiciled companies certain duties being broadly similar to the duties imposed upon directors and officers in many jurisdictions worldwide.

    9.2 Officers’ duties vary, depending upon factors such as the corporate form of the relevant company, whether the relevant company is public or private, and the specific office(s) held by each respective officer.

    9.3 As a general proposition, however, all governance officers (such as (in the case of JSCs) Board of Management members or (in the case of LLCs) Members’ Council Representatives) and executive or senior managerial officers (such as General Directors, Deputy General Directors, Directors, or Deputy Directors – which in Vietnam are executive managerial offices, as opposed to governance offices) are subject to the following broad duties:

    1. to exercise their delegated powers and perform their delegated obligations in accordance with Vietnamese law, the charter of the relevant company, and any resolutions of any superior decision-making bodies or offices within the relevant company;
    2. to exercise their delegated powers and perform their delegated obligations in a manner which is honest, prudent, to the best of their ability, and with a view to furthering the best and lawful interests of the relevant company to the maximum possible extent;
    3. to act in a manner which is loyal to the interests of the relevant company and the interests of the shareholders or member(s);
    4. not to use for their own personal benefit, or the benefit of any person or entity not being the relevant company, any assets, information, know-how, or business opportunities of the relevant company;
    5. not to abuse their position within the relevant company for their own personal benefit or the benefit of any person or entity not being the relevant company;
    6. to declare to the relevant company all equity interests held by them and/or their related persons in any other Vietnam-domiciled companies (limited, in the case of any other JSC, to controlling shareholding stakes);
    7. to declare to the relevant company any interests which they or their related persons have which may conflict with their duties as officers of the relevant company; and
    8. to abstain from voting on any proposed resolutions in respect of which they have any conflict of interest.

    9.4 In the case of public companies (whether listed or unlisted), governance or managerial officers who are also shareholders are subject to certain public disclosure obligations in relation to various matters such as acquisitions or divestments of shares in the relevant company.

    9.5 As a general proposition, controlling shareholders or members are not subject to any particular duties under Vietnam law, as compared with any other shareholders or members.

    9.6 It is, however, important to note that in the case of public companies (whether listed or unlisted);

    1. “major shareholders” of public companies (that is, shareholders holding ≥5% of issued and paid-up voting share capital, aggregated with their related persons or entities) (Major Shareholders), Vietnam law imposes certain public disclosure obligations (in relation to matters such as acquisitions or divestments of shares in the relevant company) to which shareholders with smaller holdings are not subject; and
    2. shareholders holding or proposing to hold (together with their related persons or entities on an aggregated basis) ≥25% of issued and paid-up voting share capital are subject to Mandatory Public Offer obligations in relation to certain types of proposed share acquisitions.
  10. Do employees/other stakeholders have any specific approval, consultation or other rights?

    10.1 As a general proposition, employees and other stakeholders do not have any particular approval, consultation, or other rights in connection with M&A transactions in Vietnam, except in certain limited cases.

    10.2 In the context of merger transactions, the entity which continues to exist post-merger (the Merged Company) is obliged at law to retain the employees of the entity which merges into the Merged Company and ceases to exist post-merger. In some cases, the Merged Company will be obliged to consult with relevant internal or external trade unions in relation to employment usage plans and/or related matters.

    10.3 In the context of asset acquisition transactions, Vietnam law does not recognise any concept of the “transfer” of employees or similar. “Transfers” of employees can only be achieved by way of the voluntary termination of existing contracts of employment with the transferor entity and the entry into fresh contracts of employment with the transferee entity. Employees cannot be compelled to participate in such termination and re-hiring processes. The transferor entity is obliged to prepare an employment usage plan and obtain the opinion of relevant internal or external trade unions in relation to it.

  11. To what degree is conditionality an accepted market feature on acquisitions?

    11.1 In the context of target companies being public companies, as a general proposition there is a low degree of tolerance in Vietnam for conditionality, except in relation to mandatory pre-completion requirements such as trading band waivers, competition law clearances, or resolutions of the General Meeting of Shareholders to approve MPO waivers.

    11.2 In the context of public companies, the general perception and expectation of target companies and their shareholders is that purchasers ought to acquire shares in the target company on an “as is” basis and in reliance upon publicly available information (as opposed to the conduct of due diligence investigations).

    11.3 In the context of target companies being private companies, conditionality is nowadays a widely accepted and fairly commonplace feature of M&A transactions in Vietnam. This represents a significant change in the M&A landscape in Vietnam, as compared with, for example, 20 years ago or even 10 years ago, when conditionality was generally far less acceptable to many proposed vendors.

    11.4 Even in private company scenarios, there does remain a significant degree of resistance to lengthy lists of conditions precedent, particularly onerous conditions precedent, and the inclusion of conditions precedent the satisfaction of which is not wholly and clearly within the reasonable control of the vendor(s) and/or the target company. As is the case in many jurisdictions worldwide, in Vietnam it is highly desirable for lists of conditions precedent to be kept as short and user-friendly as possible, and for the responsibility for the fulfilment of each condition precedent to be clearly and specifically allocated to one or more specified parties.

    11.5 It is very common in Vietnam for vendors to insist upon the payment by purchasers of up-front deposits, with 10% of the total purchase price being the typical bottom-line demand. Vendors often expect such deposits to be paid direct to them (as opposed to placed into escrow) and to be subject to forfeit if the transaction does not complete in any circumstances aside from unilateral termination by the vendor. Negotiation of arrangements being acceptable to foreign purchasers (such as escrow arrangement or narrowly-defined forfeiture scenarios) is often painstaking and difficult. There is, however, nowadays an increasing degree of acceptance in relation to the use of escrow accounts, subject to reasonable, balanced, and carefully documented release and forfeiture provisions.

    11.6 In some cases, conditionality can give rise to bureaucratic difficulties in connection with M&A transactions in respect of which any approval or registration action is required from relevant State licensing authorities in order to achieve completion.

  12. What steps can an acquirer of a target company take to secure deal exclusivity?

    12.1 By far the most common scenario is for vendors to require the execution of a binding or partially binding Memorandum of Understanding or similar, providing for the payment by the purchaser of an up-front deposit (which is normally expected to be calculated as a percentage of total purchase price, with 10% being very common). In many cases, vendors will strongly insist upon such deposit arrangements, before they are willing to grant exclusivity or facilitate the conduct of due diligence.

    12.2 In many cases, vendors expect that deposits will be paid to them directly (as opposed to placed into escrow) and subject to forfeiture if the transaction does not complete in any circumstances except for unilateral termination by the vendor. Negotiation of arrangements being acceptable to foreign purchasers (such as escrow arrangement or narrowly-defined forfeiture scenarios) is often painstaking and difficult. There is, however, nowadays an increasing degree of acceptance in relation to the use of escrow accounts, subject to reasonable, balanced, and carefully documented release and forfeiture provisions.

    12.3 In some cases, where the purchaser has a comparatively high degree of bargaining power, vendors are sometimes willing to grant exclusivity in the absence of an up-front deposit, although such circumstances are comparatively uncommon.

  13. What other deal protection and costs coverage mechanisms are most frequently used by acquirers?

    13.1 In the context of Vietnam M&A transactions, it is increasingly common for vendors and purchasers to agree upon arrangements consisting of:

    1. the lodgement by the purchaser of an up-front deposit, calculated as a percentage of the proposed total purchase consideration (with 10% being common);
    2. the deposit being placed into escrow, in an account opened in the dual names of the parties with a mutually-acceptable escrow services provider such as a neutral bank; and
    3. the release or forfeiture of the deposit being subject to balanced, reasonable, and carefully documented contractual provisions.

    13.2 The use of contractual protections such as indemnity provisions entitling innocent parties to recover from the defaulting party any loss or damage suffered as a result of unlawful and unilateral termination is also increasingly common in Vietnam (whether on a liquidated damages basis or a full indemnity basis).

    13.3 From a costs perspective, it would be unusual to see any arrangements other than each party bearing its own transaction costs on its own account, regardless of the completion or non-completion of the transaction, regardless of the circumstances.

  14. Which forms of consideration are most commonly used?

    14.1 Cash is the form of consideration which is by far the most commonly used in Vietnam M&A transactions.

    14.2 Share swap transactions are expressly recognised by Vietnam law and are increasingly used in Vietnam. There are, however, material regulatory difficulties associated with Vietnam-domiciled companies acquiring or otherwise receiving transfers of shares in the capital of foreign-domiciled companies, meaning that cross-border share swap transactions are difficult to implement and are rare.

    14.3 It is possible for consideration to be paid by way of other in-kind forms such as assets, land use rights, technology, or intellectual property and this is done successfully in some cases. There are, however, material administrative difficulties associated with the use of these types of in-kind consideration in Vietnam, meaning that successfully completed transactions implemented on this basis are rare.

  15. At what ownership levels by an acquirer is public disclosure required (whether acquiring a target company as a whole or a minority stake)?

    15.1 Public disclosure is not relevant in the context of target companies being private companies and is only relevant in the context of target companies being public companies (whether listed or unlisted).

    15.2 In the context of public companies, for the purposes of determining public disclosure obligations, the shareholdings of any person or entity must be aggregated together with the shareholdings of all of their related persons or entities.

    15.3 Any shareholder holding less than 5% of issued and paid-up voting share capital (on an aggregated basis) is not subject to any public disclosure obligations, unless:

    1. that shareholder and/or its related persons or entities acquire shares which take their total aggregated shareholding up to ≥5% of issued and paid-up voting share capital (in which case they must disclose publicly the fact of having become a “major shareholder” within seven calendar days of having completed such acquisition);
    2. that shareholder (being a natural person) also holds any governance or executive managerial office within the relevant public company (in which case they are deemed to be an “internal shareholder” or “insider” (an Internal Shareholder) and are thus obliged to disclose publicly any proposed acquisition or divestment of shares in the company, no later than three business days prior to implementing the proposed transaction); or
    3. that shareholder (being a company or other non-natural legal entity) has any of its representatives holding any governance or managerial office within the relevant public company (in which case they are deemed to be an Internal Shareholder and are thus obliged to disclose publicly any proposed acquisition or divestment of shares in the company, no later than three business days prior to implementing the proposed transaction).

    15.4 Any shareholder holding ≥5% of issued and paid-up voting share capital (on an aggregated basis) is deemed to be a Major Shareholder, and must disclose publicly, with seven calendar days of completion, any acquisition or divestment by it or its related persons or entities which increases or decreases its total aggregated shareholding above or below each interval of an even 1%. Thus, for example:

    1. if a Major Shareholder holds 5.5% and then acquires an additional 0.3% to take it up to 5.8%, this acquisition will trigger no disclosure obligation; whereas;
    2. if a Major Shareholder holding 5.8% acquires an additional 0.3% to take it up to 6.1%, this acquisition must be disclosed within seven calendar days of completion.

    15.5 In the case of Internal Shareholders, any acquisition or divestment of any shares in the relevant public company must be disclosed no later than three business days prior to the proposed date of implementing the proposed transaction.

  16. At what stage of negotiation is public disclosure required or customary?

    16.1 Public disclosure is only relevant in the context of target companies being public companies (whether listed or unlisted).

    16.2 Where the vendor or the purchaser is deemed by law to constitute an Internal Shareholder, any proposed sale or purchase by such Internal Shareholder or its related persons or entities must be publicly disclosed no later than three business days prior to the proposed date of implementation of the proposed transaction.

    16.3 In relation to any Major Shareholder not being an Internal Shareholder, any disclosable sale or purchase by it or its related persons or entities must be publicly disclosed within seven calendar days as from the date of completion.

    16.4 In the case of a Mandatory Public Offer transaction, the target company must publicly disclose the public offer within three business days of receiving the required public offer documents, the offeror must announce the public offer within seven calendar days of receiving SSC approval being obtained, and the public offer must remain open for a period of between 30 and 60 calendar days.

  17. Is there any maximum time period for negotiations or due diligence?

    Vietnam law does not specify any maximum time period for negotiations or due diligence in connection with Vietnam M&A transactions. Such matters are purely for commercial negotiation between the parties.

  18. Are there any circumstances where a minimum price may be set for the shares in a target company?

    18.1 In the context of private target companies, there is no law which prescribes any minimum price for shares or contributed charter capital in any target company. In practical terms, however, it can often be difficult to obtain the necessary regulatory approvals for an acquisition transaction where the proposed purchase price is lower than the registered par value of the target shares (in the case of a JSC) or the actual amount of the target contributed charter capital having been paid into the target company by the vendor (in the case of LLCs). Such difficulties arise purely from the formation by licensing officials of discretionary opinions to the effect that the proposed purchase price is “unreasonable” or has been devised in order to evade tax liability. In addition, it should be noted that there is legal basis for the Vietnam tax authorities to impose capital transfer tax on the basis of the deemed actual market value of the transferred shares or contributed charter capital, as opposed to the consideration having been paid by the purchaser.

    18.2 In the case of shares in listed public companies, any Direct Agreement Transactions not implemented via the normal on-market trading system are subject to “trading band” restrictions, namely, that the purchase price must not be:

    1. in the case of HOSE listed companies more than 7% above or below the closing price of the relevant shares on the HOSE at the end of the trading day immediately preceding the date of implementation of the proposed transaction; or
    2. in the case of HNX listed companies more than 10% above or below the closing price of the relevant shares on the HNX at the end of the trading day immediately preceding the date of implementation of the proposed transaction.

    18.3 Direct Agreement Transactions can be implemented at purchase prices falling outside of the allowable “trading bands”, but only pursuant to specific approvals granted by the SSC on a case-by-case basis.

    18.4 In the context of Mandatory Public Offer transactions, the price at which the offeror makes the public offer must not be less than:

    1. the average reference price of shares of the target company as announced by the [HOSE or HNX] within the 60 consecutive calendar days preceding the date of the offeror lodging the MPO registration documents with the SSC (the Offer Lodgement Date); and/or
    2. the highest purchase price paid by any entity which implemented any mandatory public offer to acquire shares in the target company within the 60 consecutive calendar days preceding the Offer Lodgement Date.
  19. Is it possible for target companies to provide financial assistance?

    19.1 In the context of public companies, the law prohibits public companies from providing loan finance to shareholders or proposed shareholders, including for the purposes of financing acquisitions of shares in the charter capital of such public companies, except in very limited circumstances.

    19.2 In the context of private companies, there are no express prohibitions against target companies providing any form of financial assistance in connection with acquisitions of shares in their equity capital.

  20. Which governing law is customarily used on acquisitions?

    20.1 Vietnam law is used almost exclusively in connection with Vietnam M&A transactions (that is, where the target company whose equity is being transferred is domiciled in Vietnam).

    20.2 Although in some cases the choice of foreign law may be a theoretical possibility, in practical terms:

    1. the choice of foreign law may be regarded as being essentially meaningless (given the mandatory application of Vietnam law to the transaction); and
    2. any benefits arising from the choice of foreign law are in most cases outweighed by the detriment.
  21. What public-facing documentation must a buyer produce in connection with the acquisition of a listed company?

    21.1 Any foreign citizen or foreign-domiciled company wishing to acquire any shares in any listed (or other public) company in Vietnam must firstly:

    1. apply to the VSD for and be issued with a Securities Trading Code
    2. establish with a licensed Custodian Bank an Indirect Investment Capital Account, denominated in VND; and
    3. engage the services of a Vietnam licensed securities broker, and open a Securities Trading Account with that securities broker.

    21.2 Each of the compulsory registrations referred to in Section 21.1 above require the applicant to provide detailed personal or corporate particulars, together with supporting documents for identification purposes (such as passports or corporate constitutional documents). Such information and documents are not, however, made generally available to the public as a result of these compulsory registration steps.

    21.3 For so long as any shareholder is not a Major Shareholder (i.e., holds less than 5% of issued and paid-up voting share capital, aggregated with its related persons and entities) nor an Internal Shareholder, the only information relating to them which will be generally available to the public is their name and number of shares held (which information can generally only be obtained by way of accessing a copy of the register of shareholders of the relevant listed company, as maintained electronically by the Vietnam Securities Depository, which is very difficult to achieve except with the direct assistance of the relevant listed company).

    21.4 Upon becoming a Major Shareholder (or, once having become a Major Shareholder or Internal Shareholder, upon implementing any disclosable share sale or purchase transaction), that shareholder is required to implement its public disclosure obligations by way of the completion and publication of a disclosure form in the prescribed form. These prescribed forms require the relevant shareholder to disclose publicly details such as:

    1. its name and registered head office or residential address;
    2. the numbers and classes of shares held by it;
    3. the names and addresses of its related persons or entities and their shareholdings; and
    4. its securities trading code.
  22. What formalities are required in order to document a transfer of shares, including any local transfer taxes or duties?

    22.1 In the case of any target LLC, ownership of contributed charter capital is in all cases registered on the face of either or both of an Investment Registration Certificate (in the case of many foreign-invested LLCs) and/or an Enterprise Registration Certificate (in the case of all LLCs) – each of which is a certificate issued by the relevantly-empowered State licensing authority (noting that such certificates cannot necessarily be relied upon as providing conclusive evidence that the charter capital registered therein has in fact been duly and properly paid in). Therefore, in order for any ownership of any contributed charter capital of any LLC1 to be transferred, it is invariably necessary to procure amendments to the applicable IRC and/or ERC, in order to register such transfer and the particulars of the transferee.

    22.2 In the case of any target LLC, any transfer of any contributed charter capital will require the following documentation, in addition to the necessary amendments to the applicable IRC and/or ERC:

    1. a charter capital transfer agreement;
    2. amendments to the internal Register of Members maintained by the LLC; and
    3. the cancellation of the Certificate of Charter Capital Contribution held by the transferor and the issuance of a new Certificate of Charter Capital Contribution in favour of the transferee.

    22.3 In addition, in order for any transfer of contributed charter capital in any LLC to be completed, “tax clearances” must be obtained from the local tax authorities, following the payment of “capital transfer tax” (where applicable). In relation to target companies being LLCs, capital transfer tax is payable by all vendors (whether foreign or domestic, organisations or individuals) who realise any capital gain on the transfer, at the rate of 20% of the capital gain realised by the vendor on the transfer.

    22.4 In the case of any target JSC being a private company, in order for any transfer of shares in that JSC to be documented and completed, in all cases the following documentation is required:

    1. a share transfer agreement;
    2. the updating of the internal Register of Shareholders of the JSC, to reflect the transfer and the particulars of the transferee;
    3. the cancellation of the Share Certificate held by the transferor and the issuance of a new Share Certificate to the transferee.

    22.5 In the case of any target JSC being a private company, tax clearances must also be obtained, following the payment by the vendor of capital transfer tax (being assessed in all cases at 20% of the capital gain realised by the vendor on the transfer).

    22.6 Where any transfer of shares in any private JSC gives rise to any change in the shareholdings of the founding shareholders of the JSC or any change in the foreign shareholdings in the JSC, such changes must be reported to the relevant local corporate licensing authority as a post-completion matter.

    22.7 Where the purchaser of any shares in any private JSC is a foreign investor, in most cases it will be necessary for that foreign investor and the target company to apply for and obtain from the local corporate licensing authority an “acquisition approval”, as a condition precedent to completion.

    22.8 In the case of any target JSC being a public and listed company:

    1. where shares are purchased by way of normal On-Market Transactions, no documentation is required;
    2. where shares are purchased by way of Direct Agreement Transactions, a share sale and purchase agreement is required;
    3. the transaction is implemented by the parties’ respective Vietnam securities brokers, via the compulsory electronic share registry and clearance systems maintained by the VSD and Custodian Banks being members of the VSD; and
    4. the results of the transfer and the registration of the transferee’s ownership of the shares are recorded in the electronic share registry system maintained by the VSD.

    22.9 In the case of any target JSC being an unlisted public company, the procedural and documentation requirements are broadly similar to those applicable in relation to listed companies, except that the transfer process is administered via the UPCOM (with the parties’ respective securities brokers, the VSD, and the Custodian Banks still playing a crucial and compulsory roles, in a manner being broadly similar to that applicable in the context of listed companies).

    22.10 In the case of any target JSC being a public company (whether listed or unlisted), full completion of the transfer of shares cannot occur until such time as capital transfer tax has been paid by the vendor, assessed in all cases at the rate of 0.1% of the transfer consideration (with the realisation or otherwise of any capital gains being irrelevant). In practice, it is the responsibility of the vendor’s securities broker to deduct and remit such capital transfer tax to the State, before remitting the balance of the sale proceeds to the vendor.

    22.11 In relation to any M&A transaction in Vietnam where the vendor and/or the purchaser is a foreign investor, Vietnam foreign exchange control laws must be considered, and it will in all cases be compulsory for purchase prices to be routed through certain special types of statutory bank accounts held by the vendor, the purchaser, and/or the target company with appropriately licensed banks in Vietnam.

    22.12 There are many variables and permutations which apply in connection with M&A transactions in Vietnam. The procedural and documentation requirements of any two or more M&A transactions in Vietnam are rarely identical. From a procedure and documentation perspective, each and every proposed M&A transaction in Vietnam must be considered and analysed carefully on its own individual and unique merits.

  23. Are hostile acquisitions a common feature?

    23.1 To date, hostile acquisitions have not yet become a common feature of the M&A landscape in Vietnam.

    23.2 There is a number of reasons for the relative rarity of hostile acquisitions, including:

    1. the fact that the regulatory platform for the implementation of hostile acquisitions is comparatively underdeveloped;
    2. the fact that the size of the securities market is sufficiently small that it is relatively easy for resistance to hostile acquisitions to be organised and mobilised; and
    3. there are numerous informal techniques available to opponents of hostile acquisitions to thwart the successful implementation of hostile acquisitions.
  24. What protections do directors of a target company have against a hostile approach?

    24.1 Any acquisition of voting shares in any Vietnam-domiciled public company (whether listed or unlisted) resulting in the acquirer (aggregated with its related entities) holding ≥25% of issued and paid-up voting share capital must be implemented by way of a “mandatory public offer”, approved by the State Securities Commission and implemented in accordance with specifically legislated rules and procedures.

    24.2 Once any shareholder (aggregated with its related entities) holds ≥25% of issued and paid-up voting share capital, then the following types of further acquisitions must also be implemented by way of a “mandatory public offer”:

    1. any acquisition by that shareholder (aggregated with its related entities) of between ≥5% and <10% of issued and paid-up voting share capital, implemented within 12 months of any previous MPO transaction; and/or
    2. any acquisition by that shareholder (aggregated with its related entities) of ≥10% of issued and paid-up voting share capital, implemented at any time.

    24.3 Where any offeror proposes to implement any MPO, it must firstly prepare an application dossier containing certain prescribed minimum information and documents, setting out in detail the particulars of the proposed public offer (the MPO Dossier). The offeror must submit the MPO Dossier to the target company, simultaneously with its submission of the MPO dossier to the SSC.

    24.4 The MPO cannot be implemented unless and until such time as the SSC issues its approval. Within 10 business days of receiving the MPO Dossier, the Board of Management of the target company must issue to the SSC its written opinion in relation to the proposed public offer. Before deciding whether or not to approve the MPO, the SSC will in practice have regard to the opinion of the Board of Management of the target company.

    24.5 The abovementioned requirements for the implementation of an MPO can, however, be exempted, if an exemption is approved by ordinary resolution of the General Meeting of Shareholders of the target company (which normally require the affirmative votes of ≥51% of the issued and fully paid-up voting shares being represented at the relevant AGM or EGM and being eligible to vote on the proposed resolution).

    24.6 Aside from the MPO requirements, Board of Management members of public companies would only have informal means available to them in order to resist the implementation of hostile acquisitions.

  25. Are there circumstances where a buyer may have to make a mandatory or compulsory offer for a target company?

    Yes. Please refer to our analysis above in response to Question No. 24.

  26. If an acquirer does not obtain full control of a target company, what rights do minority shareholders enjoy?

    26.1 In Vietnam, there are no “squeeze out” or similar laws. Minority shareholders cannot be compelled to sell any shares which they hold in any Vietnam-domiciled company, regardless of the percentage of issued and paid-up voting share capital held by any majority shareholder.

    26.2 Minority shareholders always retain their statutory rights to attend meetings of the General Meeting of Shareholders or Members’ Council and to vote their shares or contributed charter capital interests.

    26.3 In the case of JSCs, minority shareholders (or groups of minority shareholders) having held ≥5% of issued and paid-up share capital for any consecutive period of ≥6 months enjoy additional rights to:

    1. require the Board of Management to convene EGMs of the General Meeting of Shareholders;
    2. nominate candidates for election to the Board of Management or the Inspection Committee; and
    3. require the relevant JSC to provide certain types of information and documents relating to the governance, management, and/or operations of the relevant JSC.
  27. Is a mechanism available to compulsorily acquire minority stakes?

    No. No such mechanism exists in Vietnam.