Legal issues related to the announcement of Economic Concentration when carrying out M&A transactions

Part 1- DIFFICULTIES AND PROBLEMS WHEN DETERMINING THE THRESHOLD FOR NOTIFICATION OF ECONOMIC CONCENTRATION 

In the context of the global economic recession and the difficulties that enterprises face, implementing M&A (Mergers and Acquisitions) transactions is increasingly becoming an important strategy. This is a method to help enterprises restructure, consolidate their potential and create opportunities to participate in other potential fields.  

However, when carrying out M&A transactions, especially at large enterprises or multinational corporations, one of the important legal issues to keep in mind is Procedures for notification of Economic Concentration. This is a mandatory requirement when these transactions can significantly affect the competitive environment in the market.  

The law currently does not have a specific definition of Economic Concentration. However, based on the terms and conditions specifically stipulated in the Competition Law (“Competition Law 2018”) and Decree 35/2020/ND-CP detailing several articles of the competition law (“Decree 35/2020”), can be understood: “Economic Concentration is the process of consolidation, merger, acquisition or association of enterprises to create significant changes in market structure. These transactions can lead to the formation of larger-scale economic organizations or help enterprises strengthen their economic potential, leading to a dominant or monopoly position in the market.  

Accordingly, a transaction must be notified of Economic Concentration if transacting satisfies both conditions simultaneously: 

CONDITION 1 – BEING IN ONE OF THE FORMS OF ECONOMIC CONCENTRATION: 

a) Merger of enterprises;

b) Consolidation of enterprises;

c) Acquisition of enterprises;

d) Joint venture between/among enterprises;

e) Other categories of Economic Concentration as per the law.

CONDITION 2- SUBJECT TO THE THRESHOLD OF NOTIFICATION OF ECONOMIC CONCENTRATION: 

(applies to normal enterprises other than insurance enterprises, securities enterprises and credit institutions) 

Details on the forms and thresholds of Economic Concentration and implementation procedures have been analyzed by Apolat Legal at link. Audience, please refer to the article to understand more about the above conditions.  

However, in practice, understanding and applying the classifications and conditions determining this Threshold for issuing notification of Economic Concentration faces certain difficulties. Because the above criteria are being determined quantitatively, however, the applicable regulations are only at the level of laws and decrees. Therefore, when applied in practice, some issues still need guidance, as well as encountering problems when implementing. Typical examples are as follows: 

1. Regarding Total Assets threshold: 

Condition: Total assets in the Vietnamese market of an enterprise or group of affiliated enterprises reached 3,000 billion VND or more in the fiscal year preceding the planned year of Economic Concentration. 

Some inadequacies and problems in practice are as follows: 

• On what basis will the total asset value be calculated?  

• Based on the charter capital of the company or according to the financial statements?  

• Determined according to current market value or book value recorded in financial reports?   

• Does it include only tangible assets such as real estate, machinery, factories, or also intangible assets such as commercial value, and other immaterial assets?  

• How will the total assets of enterprises participating in Economic Concentration be understood? 

• Applicable with any party participating in the Economic Concentration, meaning that as long as one party participating in a transaction reaches this threshold, all parties must fulfill their obligation to notify Economic Concentration; or 

• Applicable at the same time, each party participates in Economic Concentration, meaning that each party participating in the transaction must reach this threshold before it must fulfill its obligation to notify Economic Concentration; or 

• Applicable with total assets combining all parties participating in the Economic Concentration, meaning the total assets of all parties participating in the transaction reach the prescribed threshold, the obligation to notify Economic Concentration must be fulfilled. 

According to the author’s opinion and practical experience, state agencies are applying the understanding of any party participating in Economic Concentration. That is, as long as one party has assets greater than 3,000 billion VND, all parties participating in the Economic Concentration must submit notification documents.  

2. Regarding sales or purchase volume threshold: 

Condition: Total sales or purchase volume in the Vietnamese market of an enterprise or group of affiliated enterprises reaches 3,000 billion VND or more in the fiscal year preceding the planned year of Economic Concentration.  

Inadequacies and problems in practice are as follows: Similar to the issue mentioned in the section on determining the Total Assets of an enterprise, it is currently unclear whether the revenue threshold applies to individual or simultaneous enterprises or to the combined revenue of participating enterprises. family.  

3. Regarding Transaction Value threshold: 

Condition: The Value of all Economic Concentration transactions reached at least 1,000 billion VND. 

Inadequacies and problems in practice are as follows: The law currently does not have instructions on how to calculate transaction value, which makes it difficult for enterprises to apply and carry out procedures. 

3. Regarding the combined Market Share threshold: 

Condition: The combined market share of the enterprises planning to participate in the Economic Concentration reached 20% or more on the relevant market in the fiscal year preceding the planned year of Economic Concentration.   

Inadequacies and problems in practice are as follows: It is difficult for enterprises to determine the exact combined market share because of the lack of information about the revenue of competitors or other enterprises in the market. This can cause enterprises to not properly assess the level of competition in the market. a transaction, leading to errors in the implementation of the Economic Concentration notification or violating competition regulations without realizing it. 

PART 2- RISKS OF NON-COMPLIANCE WITH REGULATIONS ON ECONOMIC CONCENTRATION  

Next, the content related to determining the type of transaction and the threshold for notification of Economic Concentration in the article (link), within the scope of this article, the author will clarify the risks that arise in cases where enterprises do not comply with obligations related to Economic Concentration.

1. Regarding violations of regulations on Economic Concentration:(1) 

• Enterprise fails to notify Economic Concentration under the provisions of this Law. 

• Enterprise implements Economic Concentration without receiving notification of preliminary assessment result. 

• Enterprise implements Economic Concentration before having a decision on Economic Concentration although it is subject to official assessment of Economic Concentration. 

• Enterprise fails to meet or fully meet conditions specified in the decision on Economic Concentration prescribed. 

• Enterprises carrying out Economic Concentration are prohibited. 

2. Regarding legal risks arising from non-compliance with regulations on Economic Concentration:

a. Risk of investigation and complaints about competition cases:(2)  

• In case of deciding to investigate when there is a complaint from an organization or individual claiming that their legitimate rights and interests are being violated or when the National Competition Commission detects acts showing signs of violation. 

• The statute of limitations for investigation and complaint is 03 years from the date the act showing signs of violating competition laws is committed.  

• Measures to prevent and ensure the handling of administrative violations in investigating and handling competition cases can be as follows: 

• • Temporarily seize evidence, means of violation, licenses and practice certificates; 

• • Examination of means of transport and objects;  

• • Search the places where evidence and means of violations are hidden. 

• In case there are investigation results of violations, the business may issue a citation Decision to handle the case of violation of regulations on Economic Concentration.  

• Forms of handling: Unlike violations of anti-competitive agreements that can be criminally handled, for violations of regulations on Economic Concentration, the highest consequences are Apply administrative sanctions.  

b. Risk of being fined for administrative violations:(3)  

(*)  Note:  

1. The fine is calculated on the following basis: 

• The time determined is based on fiscal year immediately preceding the year commit violations by each enterprise participating in Economic Concentration.  

• The basis for determination is calculated above total revenue in the relevant market of businesses participating in Economic Concentration.  

• • The relevant market is determined based on the relevant product market and the relevant geographical market, specifically stipulated in Articles 3, 4, 5, 6 and 7 of Decree 35/2020.  

• • In case Enterprises participating in Economic Concentration are enterprises participating in the production, distribution, supply chain for a certain type of goods or service or the business lines of the participating enterprises. Economic Concentrations are inputs to each other or complement each other, then Total revenue in the relevant market is determined as the total revenue of all markets related to the violation.  

2. The fine level maximum is 05% total revenue of the violating enterprise on the relevant market in the fiscal year immediately preceding the year of commission of the act. In case the total revenue of the violating enterprise on the relevant market in the fiscal year immediately preceding the year in which the violation is committed is determined equal to 0 (zero) A fine of from 100,000,000 VND to 200,000,000 VND.(4)

3. The fact that the enterprise’s violation is on a large scale, with a large quantity or value of goods can be considered an aggravating circumstance of the act.(5)

4. The statute of limitations for sanctioning administrative violations is 01 year counted from the time of termination of the violation (for violations that have ended) or from the time of discovery of the violation (for violations that are being committed).(6)

(1) Article 44 of the Competition Law 2018 

(2) Article 77 and Article 80 of the Competition Law 2018 

(3) Article 10, 11, 12, 13, 14, 15 Decree 75/2019/ND-CP  

(4) Article 4 of Decree 75/2019/ND-CP 

(5)  Article 5.2.e Decree 75/2019/ND-CP 

(6)  Article 6.1.a and 6.1.b Law on Handling of Administrative Violations 2012, amended and supplemented in 2020 

See more:

1. Control of Market concentration in accordance with the Law on Competition (Part 1)

2. Control of Market concentration in accordance with the Law on Competition (Part 2)

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