Note in negotiating payment periods in M&A transactions

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Note in negotiating payment periods in M&A transactions

Payment is one of the important provisions and is always considered by the parties in M&A transactions in Vietnam, especially one of the parties being foreign individuals/organizations.

Most M&A transactions in Vietnam, the Seller is mainly an individual/Vietnamese organization owning shares/capital contribution in a company. Buyer means foreign investors including foreign individuals and organizations wishing to invest in Vietnam through the purchase of shares/ capital contributions of a Vietnamese company with experience, position and finding capacity in the field that the Investor wishes to invest in.

Regular M&A transactions through multiple due dimming processes, legal, due dosimetry, and the conclusion of the M&A Contract. However, Buyers, especially foreign investors, are always careful and want to pay the transfer price after holding all the papers, documents, and requirements set out in the transaction that the Seller has fully implemented.

Accordingly, in the current transactions, foreign investors all outline a payment roadmap with many stages for the Seller to gradually implement and complete the conditions set by the Investor before paying the full transaction value. This roadmap can last for several years depending on the size of the Target Company and the parties’ agreement.

This seems very reasonable and persuasive to ensure the buyer’s risk limitation if the Seller has received sufficient funds but does not cooperate in carrying out administrative procedures to recognize the buyer as a new member/shareholder of the Company.

The actual agreement is so, but Vietnamese law has provisions that make it difficult in this agreement. Specifically as follows:

According to the provisions of Clause 2, Article 30 of the Law on Enterprises 2020, “Enterprises are responsible for registering to change the contents of the Enterprise Registration Certificate within 10 days from the date of change”, i.e., enterprises with capital changes will have to register the change of charter capital and record new capital contributing members/shareholders of the Company on the Enterprise Registration Certificate. This means that, in several stages, the Target Company must make adjustments to its respective charter capital and recognize the Investor as a new member/shareholder of the Company within 10 days from the date the Investor makes the payment.

Therefore, investors need to understand this regulation and have a plan to agree with the target company members/shareholders to speed up the transaction or agree in more detail about the rights and obligations of the Investor after owning the capital contribution/shares in the Target Company while the transaction is not finished.

In addition, foreign investors should pay attention to the following provisions in case of the agreement to pay the full value of the transaction after the Target Company implements procedures at the state agency noting that the Investor becomes a member/shareholder of the company/owner of the entire capital contribution/share on the enterprise registration certificate of the target company.

According to the provisions of Clause 2, Article 52 and Clause 1, Article 58 of Decree No. 01/2021/ND-CP, when changing company members or updating foreign investors to the Department of Planning and Investment, they must submit transfer contracts or papers proving the completion of the transfer.

For some provinces in Vietnam, the application of relatively different laws, some provinces/cities will require the Company to provide the contract for the transfer of contributed capital/shares and documents proving the completion of the transfer. However, these “documents proving the completion of the transfer ” do not have a clear definition. The specific guiding legislation that leads to the understanding and applying state agencies in the provinces/cities is different.

Some provinces/cities will request to provide a bank account statement of Buyer who has recorded the full value recorded in the Transfer Contract. Some provinces/cities only require written confirmation of the completion of the transfer confirmed by Buyer and Seller.

Therefore, the agreement on the completion of the payment after the Seller has completed administrative procedures to recognize the buyer as a new member/shareholder of the Company may not be suitable for some transactions performed in the provinces/cities that require the provision of bank account statements of Buyer recorded the full value in the transfer contract.

Therefore, the agreement and delivery of the payment roadmap should also take into account the views of the state agencies in the Province / City where the Seller’s Company is headquartered, from which buyer can consider and select appropriate payment options, balance the interests of the two parties and limit the risks when making transactions.

If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.

This article is for general information only and is not a substitute for legal advice.