Importants Matters to Consider in M&A Contract

 Before carrying out merger or acquisition (M&A), enterprises need to research carefully regulations of law to protect their rights and interests. Regulations on each aspect of M&A activities are referred to in various legal documents such as Law on Enterprises, Commercial Law, Competition law, Law on Investment, Civil Code … When carrying out M&A, enterprises should also pay attention to some basic terms in the contract. The M&A lawyers should be referred to for effective process and minimizing risks of the transaction.

Definition, this term is used to define words, phrase used many times or unified understanding between the parties or abbreviations.

Entity, the parties should specify the parties’ information such as: corporate names, address of headquarter, name, position of legal representative, identity card number (or passport number) of legal representative, corporate tax code, … according to enterprise registration certificate or investment registration certificate. When entering into contract, the parties can contact and ask partners to provide copies of enterprise registration certificate or investment registration certificate to ensure correct information and authority to sign.

M&A conditions in M&A contract. Conditions for M&A are conditions agreed by two parties to carry out M&A. M&A is carried out only when these conditions have been met. These conditions include conditions agreed by General Meeting of Shareholders, Board of Directors, the company owner; Conditions of announcing company status, financial obligations, business activities …, announcing to relevant third parties; Conditions of business activities, company activities; Conditions of people, personnel.

Declaration and commitment of both parties on the status of enterprises, contract need to have term of affirmation and commitment of seller about corporate debt. This will limit disputes and risks for the buyer.

Determination of assets and financial obligations in M&A contract. This determination includes time of determination, entity, related costs, methods for disposal of assets.

Transfer of rights and obligations in M&A contract. The time of transfer, the time of enjoying rights and generating obligations, the conditions for transfer, the mode for transfer, the transfer procedures and the papers, documents needed to transfer, includes: transfer of ownership rights, economic rights; transfer of effective contract; Arising benefits enjoyed by merged company; Tax obligations, insurance obligations, wages for employees and debt repayment obligations.

Methods and time of payment, parties need to specify methods for payment and specific duration of payment with amount of each installment payment. In order to ensure safety, the parties should request a competent reputable organization to provide intermediary financial services. This third party will stand out to ensure the parties of the contract to comply correctly and legally with the agreement.

Conditions, time limit, procedure of M&A, the buyer needs to specify attached conditions and specific time in process of M&A to let the seller perform obligations of transfer of asset, stocks, shares under regulations of contract. Procedures include procedures under law and other procedures under company’s charter.

Legal rights and obligations, parties need to detail obligations in previous period, during and after contract performance as well as the specific time of termination.

Time limit of contract performance, parties need to specify the time of taking effect and termination, or arising grounds which result in the termination of the contract.

Term of dispute resolution, dispute may be brought to the competent Court or Commercial Arbitration for settlement.

Term of fines against violations is also necessary to pay attention. This is a type of sanctions made by the parties but this must be suitable for the regulations of law.

Force majeure clause. Force majeure is a legal event arising out of subjective will of the parties. These cases make one or both parties unable to perform or perform improperly their obligations. When breaching the contract due to a force majeure event, the law would not force to take responsibility for the asset.

Besides, merger contract should have term of transfer of stock, term of employee utilization plan after merger and acquisition.

Nguồn: https://antlawyers.vn/library/importants-matters-to-consider-in-ma-contract.html

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What a Law Firm Could Assist in an M&A Deal?

    M&A, abbreviated by Mergers and Acquisitions is expanding in both quantity and volume in Vietnam in many sectors. Successful M&A deals depend on various factors and legal due diligence, and drafting agreements are important processes in Vietnam.

For investors whom are interested in M&A deal in Vietnam as buyer or seller,it is important to hire a law firm that will assist in the process. The law firms in Vietnam could provide assessment of the target company through a legal due diligence, a legal background directly related to M&A deal, all of which are necessary to the completion of a successful deal. The attorney could then draft the letter of intent, and legal contracts, including the final purchase agreement, which will include a lot of stipulations that will need to be done correctly in order for the business transaction to be beneficial to both parties and in compliance with Vietnam regulations.

A law firm with expertise of Vietnam regulations, with the lawyers having experience and legal knowledge will be able to provide the clients with the right check-list of the documents to review. In addition, the presence of lawyers contributes to strengthening the trust of the parties. In recent years, foreign businesses have often made acquisitions of all or part of a Vietnamese enterprise, and they often require the seller to engage law firms specializing in M&A. And now, not only the foreign businesses but also the Vietnamese parties are in need of conducting M&A deals with the participation of lawyers to ensure the success.

Lawyers shall conduct legal due diligence of enterprises, check reports and explanations with prudence, honesty and efficiency. They help the buyer and/or seller to understand their legal status, legal rights and obligations, legal regulations for assets, labor contracts, land records, construction and investment registration, certificates, and licenses and other matters. This is the basis for determining the status of enterprise and possible legal risks may cause. Lawyers will conduct and produce the most comprehensive, accurate, legal and objective information and legal documents by their professional, knowledgeable and ethical.

Lawyers shall advise the structure of an M&A to ensure the commercial intent that the parties are aiming and shorten the execution time and costs. In addition, it ensures the legality of procedures, safety and minimizes the legal and financial risks for the parties.

There is no common contract template for all M&A deals. Lawyers shall actualize the trade agreements, the will of the parties to the legally binding terms of the contract as well as clearly defines the rights and obligations of the parties to ensure the enforceability, minimize unlawful agreements or unclear terms that may cause the subsequent disputes.

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How To Conduct Legal Due Diligence for M&A in Vietnam?

Mergers and Acquisitions (M&A) has become popular in Vietnam as the country develops and more investors are eager to invest and gain control of the business enough to engage in, decide important business matters through partial or full ownership of an enterprise. A successful M&A mean the parties achieve their financial and commercial goals (increasing capital, raising management capacity, branding, etc) and ensuring safety and restraint the risk at the lowest level, though legal due diligence undertaken by law firm in Vietnam.

The Importance of Legal Due Diligence of Enterprise in M&A activities

Legal due diligence of enterprises focuses on full and detailed assessment of legal issues relating to the legal entity, capital contribution status, shareholder status, legal rights and obligations. From the investigation information, the parties can anticipate legal risks, assess opportunities to come up with alternatives. In addition, legal assessments help parties evaluate the reliability of their counterparts as well as understand their advantages and constraints for the negotiation process.

What Legal Due Diligence in M&A Activities Entail?

Evaluate the factors related to the legal status and capacity of the target enterprise: Review the legitimacy of the establishment, operation, possession of enterprise; ensure that the enterprise is not subject to procedures for dissolution or bankruptcy and compliance with the law of the enterprise in the course of operation. The information to be checked includes: dossiers, certificate of enterprise establishment, operation licenses, practice certificates, professional liability insurance, company charter, agreement between the company owner on rights of shareholders, capital contributors, minutes of meetings, member/shareholder register, certificate of capital contribution.

Evaluate the factors related to the business and financial activities of the target enterprise: Review the system of customers and partners of the enterprise; the documents on economic contracts (with customers, suppliers, etc); dossier of investment, construction, land, project; information on guarantee, mortgage (if any), debt and credit agreement, M&A, financial leasing contract, exclusive contract, franchise, etc, in terms of value, legality, validity, progress to evaluate legal risks in the future. Review the financial statements on the accuracy of the financial status of the business.

Verify the factors related to labor: Review labor contracts, labor agreements, internal labor regulations to determine the enterprise’s financial obligations to employees, compliance Labor law and reception of labor after the purchase or sale.

Verify the factors related to intellectual property: Review intellectual property rights of enterprises including: trademarks, trade names, industrial designs, layout designs, business secrets, etc; the property has granted the patent/license. Review matters of infringement of intellectual property rights of other organizations, individuals or legal persons in order to anticipate the risks of being sued or claiming damages.

In addition, in an M&A deal, the acquirer should ensure that participation in capital contribution or acquisition of the target enterprise is permitted, the form of M&A implementation is in accordance with the law and the M&A deal was approved by the competent authority of each party. After that, the factors related to M&A transaction procedures and constraints and restrictions of law (if any) must be evaluated.

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What information matters in M&A transaction?

Nowadays, in the field of business and investment, the term “Merger and Acquisition” (M&A) is a very common term. This is considered as one of the global investment methods, and is a business and development strategy applied by many businesses. In conducting the M&A, beside information provided by the target company, other information are also important before the buyer stepping into negotiation with the seller of the target company.

Intelligence compliance in Vietnam

Corporate Information Search

Legal Service for M&A in Vietnam

Mergers and acquisitions are usually conducted through three main stages, that is: reviewing and evaluating target businesses, valuation and price negotiation, completing legal procedures. When participating in a business merger and acquisition, investor or buyer need to ensure high accuracy of inside information of the target business. It is extremely important for investor or buyer in determining the value of the deal as well as helping investors make decisions about whether to participate in the acquisition and merger of this business or not. The tasks to consider and evaluate the target business include searching information and evaluating the information on shareholders, investors, influential individuals, and further information i.e. financial statements, accounts receivable and payables, staffs, customers, business locations, facilities status, competitors, business registrations, licenses and business area divisions, company image, and potential disputes, or criminal records of relevant people of the target company.

In fact, not every country has specific regulations governing mergers and acquisitions, as does Vietnam, although it is mentioned in various legislations. In many cases, the investors have to search information, and evaluate the situation themselves to learn various aspects of the business beside the information given by the target company for instance finding general information about a business, information about the legal representative, information about business manager or capital contributors of that business as well as other related information. In particular, the buyer might be interested to know if the owner or shareholders have other business similar to the target business or if any of those have criminal records. Further, the buyer might wish to know the history or the target company with registration and changes of registration in the last three years. Other information about business lines, subsidiary, child companies, dependent companies, charter capital, founding shareholders, seal specimen could also be of importance business intelligence. Based on the information obtained, the buyer is able to reach some information conclusion about the business and the target beside official information provided by the target itself.

In conclusion, all relevant information about the business and people matters in M&A transaction, being corporate information or influential investors or stakeholders are important that the investor or buyer should pay attention to every details, and should attempt to search and evaluate such information such as part of their effort to evaluate market entry risks in investment through intelligence market entry risks analysis in Vietnam.

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Mergers and acquisitions

Mergers and acquisitions (M&A) is an activity that takes control of a business through owning part or all of that business. This is the term for a merger, consolidation or acquisition between two or more businesses together. In Vietnam, the system of legal documents does not have the concept of mergers and acquisitions, this is the commercial term. In legal terms, this term is understood to include activities of consolidation, merger and acquisition of enterprises, specifically:

Merger of an enterprise is the transfer of all of its lawful assets, rights, obligations and interests to another enterprise and at the same time terminating its business or its existence. The acquirer company still exists and inherits all assets, rights and obligations of the acquired companies.

Consolidation of enterprises means that two or more enterprises transfer their entire properties, rights, obligations and lawful interests to a new enterprise and at the same time, consolidating companies shall cease to exist.

Acquisition of an enterprise is a activity that an enterprise directly or indirectly acquires all or part of the capital and assets of another enterprise sufficient to control and dominate the enterprise or a business line of the acquired enterprise. Acquired enterprise still exist, only changing the enterprise structure.

M&A always requires strict legal compliance with both acquired and acquirer enterprise. Under Vietnamese law, merger, consolidation and acquisition are one of the forms of economic concentration. Recently, economic concentration is the legal acts which have been implemented quite popular in Vietnam. Along with the positive effects, this activity also has the potential to affect competition in the market. Therefore, the merger activity is not only governed by the Enterprise Law but also regulated by the Competition Law. The current Competition Law has amended and prohibited businesses to implement economic concentration that has an impact or is likely to cause significant anti-competitive effects on the Vietnamese market.

On the economic side, the economic concentration will reduce competition (because competitors cooperate with each other and the market access becomes difficult) and distort the market leading to damage to consumers. Stemming from the need to control economic concentration activities to avoid the formation of large enterprises with the power to control the market and unfair competition, create conditions for new businesses to join in market, Competition Law creates a legal corridor that allows state management agencies to control economic concentration activities, and accordingly adjust M&A activities.

Each M & A form has governed by its own legal provisions. Therefore, before conducting any M&A activity, investors need to carefully understand the provisions of the law to best protect their rights and interests in accordance with the provisions of law.

How ANT Lawyers Could Help Your Business?

Please click here to learn more about Corporate and M&A Legal Service or contact our lawyers in Vietnam for advice. Send us request via email at ant@antlawyers.vn or call us at +84 28 730 86 529

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M&A Due Diligence and Execution in Vietnam

Merger and Acquisition (M&A) activities in Vietnam have been rapidly increasing over the the years in value and number of transactions when Vietnam’s opening policies to attract foreign investments loosen up. The M&A due diligence and execution are therefore important steps to ensure a successful transaction.

For foreign investors wishing to take advantage with a certain level of risks in Vietnam where the cost of labour are cheap, mid-income populations are growing, and the need of capital are high, it is imporatant to find the right target companies to invest. Challenges might arise when approaching the right local companies, locating the right decision makers within the local companies, encountering differences in languages and cultures.

It is imporant that the local consultants with the understanding of the business and legal environment in Vietnam where the local companies are incorporated could be involved at an initial stage to monitor and minimize the risks, improve the effectiveness of the M&A process in Vietnam.

The Vietnam consulting company could also provide corporate intelligence and insights of the Vietnam targeted companies to have an overall evaluation of the compliance of the Vietnam companies, possible risks involved and growth potential. Financial forensic services might also be needed before other further steps. Then, the following will need to be considered when undertaking the M&A in Vietnam.

+Due diligence

M&A due diligence in Vietnam is a vital step because it determines whether the M&A will succeed or not. There are some aspects that must be carefully considered:

-Financial reports

Review all the financial reports of the Vietnam targeted companies within 3 to 5 years to assess the current and future financial situation. These data needs to be audited by a reputable independent auditing company. Evaluating financial situation targets on many aspects such as the reasonable connection between the financial statements, operating and sales margin of the business in relation to the average in that industry. These data allow valuation real value of the target business.

-The cash flow

Checking the dates on invoices showing that whether targeted businesses have paid promptly or not. Term of payment may vary from industry to industry, but generally 30 to 60 days. If the money order is paid after the billing date period of 90 days or more, it means that the business owner may be struggling with cash flow. Finding out that if the clients’ inability to pay bills or not is very important.

-The staff

Determining the importance of staff for the success of the business considering work habits of employees, working time of key employees; ability to remain working after a change of the owner occurs; the incentives necessary to keep key employees; ability to easily replace key employees; the relationship of key employees with the company’s customers.

-The customers

This is the most important assets of the Vietnam targeted company. Make sure that clients are as the other tangible assets of the business. Evaluating customers on some primary aspects: the relationship with the current owner of the business, customer history with business relations and the contribution of each customer to the profits of the company; assessing that customer will leave or stay when the business having new owners; customer services and dispute of the company, the relationship of the former owner of the business with the community or the industry.

-Business location

This is especially important if the targeted company is a retail company. Does the importance of business location play a crucial role for the success of the company? How is the location of the company you plan to acquire? Is there sufficient parking lot for customers? How does the company depend on sales in the region? How is the prospects of the business in this area? Does this place have been in the process of rapid change from new residential district office building or not? Has business location become more or less desirable because of contemplated changes in surrounding area or not?

-Competitors

Considering this aspect in order to define the capacity of the targeted business in the industry, the following questions would help: who are its competitor and what are their strategies? Does the price war happen frequently? How has the competitive environment changed?

-Business registration, permits and zoning

It’s necessary to make sure that business registration certificate and other legal documents can be easily given to the buyer. It would be better to acknowledge the procedures to transfer these documents and its fee with the help of local management set up company in Vietnam. If the targeted company is a joint-stocks company, what is the procedure for the business registration? Can foreigners own the company 100% according to Vietnam laws? Conditional investments in Vietnam need to be considered carefully by lawyers in Vietnam to avoid mishaps.

-The company image

Company image can be a significant asset and that cannot be assessed in the financial report. There are many intangible factors to consider when evaluating a company: how to serve customers, how employees answer the phone and the level of support the community or the industry.

+Negotiate the price

It is important to understand the purpose and motivation of both parties. The sellers’ motivation are formed and affected by value drivers. There are two main value drivers which are approach value and avoidance value. Approach value is our purpose such as prosperity and avoidance value is the negative effect that we need to eliminate. Normally, the buyers try to find out what are the reasons why the owner wish to sell the companies. This will help the buyers plan a reasonable strategy beforehand.

A research analyzes the general aspects that the buyers seeking for via conducting surveys companies’ owner who have sold or transformed their enterprises. The research results are focus on profit maximization (79%), minimization of tax payable (73%), protection of viability of the company (71%)…(Source: Acquisition Marketplace Review, 2007).

The motivation of the buyer in most cases is similar to the motivation of the seller, which is to maximize profits, expand markets, increase revenue, operating areas, areas of activity, minimize taxes…

How ANT Lawyers Could Help Your Business?

Please click here to learn more about Corporate and M&A Legal Service or contact our lawyers in Vietnam for advice. Send us request via email at ant@antlawyers.vn or call us at +84 28 730 86 529

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The Valid Transfer Date of Member or Shareholder Rights of Buyer Arising from M&A

The specific time for transferring ownership right of asset is very important in all contracts. This time affects the lawful rights and obligations of not only seller, purchaser but also of the third party.

The most-important principal of civil law is the recognition and respect of agreement between the related parties. It means that the parties may freely decide the specific time for transferring ownership rights. Nonetheless, in some special case such as M&A contract, the specific time is not under the decision of parties.

In legal term of Vietnam, M&A is deemed as similar to split-off, split-up, merger, acquisition of an enterprise, contributing capital to existing enterprise, and purchasing contributed capital of member or shareholder of existing enterprise.

When is the transfer of member or shareholder rights of buyer come into effect in cases of split-off, split-up, merger and consolidations, acquisition?

The Law on Enterprise 2014 provides the definition for each type as follows:

For splitting up enterprise:

“Article 192. Split-up

The splitted-up company shall cease to exist after the new companies are granted Enterprise Business Registration. The new companies are jointly responsible for the unpaid debts, labor contracts, and other liabilities of the splitted-up company, or reach an agreement with the creditors, customers, and employees to decide on one of the new companies to settle such obligations.”

For splitting off enterprise:

“Article 193. Split-off

After business registration, the splitted-off company and new companies are jointly responsible for the unpaid debts, labor contracts, and other liabilities of the splitted-off company, unless otherwise agreed among the splitted-off company, new companies, the splitted-off company’s creditors, customers, and employees.

For merger and consolidations of enterprise:

“Article 193. Consolidation

After business registration, the consolidated companies shall cease to exist; the new company shall take over the lawful rights and interests as well as unpaid debts, labor contract, and other liabilities of the consolidated companies.”

For acquisition of company:

“Article 195. Acquisition

Procedures for acquisition:

c) After business registration, the acquired companies shall cease to exist; the acquirer shall take over the lawful rights and interests as well as unpaid debts, employment contract, and other liabilities of the acquired companies.”

The above regulations of laws have determined the specific time for ceasing survival, transferring rights and obligations from old entity(ies) to new entity(ies) after split-off, split-up, merger and consolidations, acquisition. This time is specified after completing the legal procedures at competent state authorities.

After being granted an enterprise registration certificate or carrying out business adjustment and registration procedures, the new entity(ies) must (jointly) be responsible for: unpaid debts, labor contracts, and other liabilities, and the old entity(ies) will either cease to exist or still exist with smaller or bigger business. Accordingly, although the buyer and the seller (called collectively the parties participating M&A) have signed a M&A contract which has been agreed to take effect before the completion of legal procedures at state authorities, the buyer has not had any legitimate right yet to the seller. The M&A contract is one of the necessary documents submitted to state authorities to proceed the next legal procedures.

When is the transfer of member or shareholder rights of buyer come into effect in cases of contributing capital to existing enterprise, purchasing contributed capital of member or shareholder of existing enterprise?

The purpose of M&A is to gain control and dominance right of all or part of seller, not merely owning part of the capital or shares of the enterprise as a normal investment activity. With these cases, no new entity is established and no old entity is ceased to exist. The enterprise, after contributing capital or purchasing contributed capital, may have a change in the capital contribution ratio or keep it unchanged, but the information of members and shareholders of the enterprise shall be modified. The Law on Enterprise recognizes the rights of only members of limited liability companies and shareholder of joint stock companies but does not prescribe legal status before becoming a member or shareholder.

When is investor recognized as a legitimate member, shareholder to get the rights and obligations that the law stipulates?

The contribution of sufficient capital as committed is not a decisive factor in being entitled the right of member or shareholder. As well as notifying to the competent authorities is uncertain to generate member and shareholder right. Nevertheless, the Enterprise Law has uniform provisions on this issue as follows:

For joint stock company:

Contributing capital:

“Article 124. Offering of shares to existing shareholders

In case the amount of offered shares are not completely purchased by shareholders and recipients the preemptive right, the Board of Directors is entitled to sell the remaining authorized shares to shareholders of the company or other people in a reasonable manner and conditions that are not more convenient than the conditions offered to shareholders, unless otherwise accepted by the General Meeting of Shareholders or shares are sold via a Stock Exchange.

Shares are considered as sold when they are fully paid and information about the purchaser mentioned in Article 121.2 hereof are fully written in the shareholder registration book; from this time, the purchaser shall be come a shareholder of the company.”

Purchasing contributed capital:

“Article 126. Share transfer

Recipients of shares in the cases mentioned in this Article shall only become the company’s shareholders from the day on which their information mentioned in Article 121.2 hereof are fully recorded in the shareholder registration book.”

For limited liability company:

Purchasing contributed capital:

“Article 53. Transferring contributed capital

The transferring member still has the rights and obligations to the company in proportion to his/her capital until information about the buy mentioned in Article 49.1.(b), (c) and (d) hereof is written on the member registration book.”

Accordingly, when the information of buyer is recorded in member/shareholder registration book, the buyer will officially have the legal rights for members and shareholders. The next legal procedures are intended to notify the competent authority and amend the enterprise registration certificate. The most important content of the registration book is the total amount of contributed capital of each member or shareholder. This is evidence for the ownership in limited liability companies and joint stock companies. For a limited liability company, both registration book and enterprise registration certificate are two proofs of ownership right of the member. However, for joint stock company, only registration book is evidence on shareholder’s ownership right. This is the reason showing important role of registration book.

Depending on each M&A form, the buyer and the seller should attend to the time of termination and generation of legitimate rights and interests, obligations and responsibilities as members and shareholders. M&A aims to purchase and sell a special asset, which is property or capital of an enterprise. With the special assets, the regulation of laws may stipulate strictly depending on case by case which it is suggested the parties consult with law firm in M&A in Vietnam to receive advice.

How ANT Lawyers Could Help Your Business?

Please click here to learn more about Corporate and M&A Legal Service or contact our lawyers in Vietnam for advice. Send us request via email at ant@antlawyers.vn or call us at +84 28 730 86 529

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