Legal due diligence of large-scale livestock farm projects (p1)

Investment in large-scale livestock farm projects is a field of interest for domestic investors seeking investment opportunities. One method for investors to acquire such projects is through the transfer of capital from the enterprises executing the projects. This method offers a relatively swift and straightforward transaction process but may pose risks to investors due to potential violations by the enterprises executing the projects prior to the transfer. This article highlights and analyzes several legal investment issues that investors should consider before deciding to acquire capital from enterprises executing large-scale livestock farm projects outside of auction or bidding scenarios. 

See part 2 here: Legal due diligence of large-scale livestock farm projects (p2)

1. Investment deposit  

According to Law on Investment 2020, the investors in investment projects are required to deposit or have a bank guarantee for their deposit obligation to ensure investment project execution if the project uses land allocated or leased out by the State or is permitted by the State to repurpose land, except in special cases listed under Article 43.1 of the Law on Investment 2020(1). 

The deposit to ensure the execution of an investment project ranges from 1% to 3% of the total investment capital, depending on the scale, nature, and progress of each project(2). Specifically:  

  • For capital up to 300 billion VND, the deposit rate is 3%; 
  • For capital exceeding 300 billion VND and up to 1,000 billion VND, the deposit rate is 2%;  
  • For capital exceeding 1,000 billion VND, the deposit rate is 1%. 

The timeframe for fulfilling the deposit obligation is as follows:  

  • After being issued with the Decision on investment policy, Decision on approval of investment policy concurrently with investor approval, or the Decision on investor approval (collectively referred to as the “Investment Policy Approval”) and 
  • Before executing the compensation, support, and resettlement plan approved by the competent authority (for cases where the investor does not advance compensation, support, and resettlement expenses) or prior to the issuance of decisions on land allocation, land leasing, or land repurposing (for cases where the investor has advanced compensation, support, and resettlement expenses)(3)

In case the investors fail to fulfill the deposit obligation on time, the project may be terminated under Article 48.2(d) of the Law on Investment 2020. Therefore, investors must carefully examine this issue before engaging in capital transfer transactions. 

2. Project execution progress 

Currently, many livestock farm investment projects face difficulties in execution after being issued investment policy approval, resulting in failure to meet the progress stipulated in the Investment Policy Approval. This poses significant risks as delays may lead to administrative penalties or even project termination. Specifically:  

  • Administrative fines ranging from 70,000,000 VND to 100,000,000 VND may be imposed for failure to carry out the procedures for approval of adjustments to the Investment Policy Approval in cases where adjustment is required by law. Remedial measures: Compliance with procedures for obtaining approval of the adjustment(4).
  • Administrative fines ranging from 70,000,000 VND to 100,000,000 VND may be imposed for suspending project activities for a total duration exceeding 12 months. Remedial measures: Resumption of the investment project in accordance with the timeline specified in the Investment Policy Approval(5).

Additionally, it is important to note that current legislation allows for project progress extensions not exceeding 24 months beyond the timeline approved in the Investment Policy Approval. Exceptions apply only in cases of delays caused by special circumstances under Article 41.4 of the Law on Investment 2020. Consequently, if an investment project is delayed by more than 24 months, procedures for obtaining an extension may face challenges. 

In conclusion, acquiring capital in large-scale livestock farm projects can offer lucrative opportunities for investors but carries inherent risks tied to compliance with investment regulations, particularly regarding the fulfillment of deposit obligations and adherence to project execution timelines. Therefore, investors should pay close attention to these aspects during the project due diligence process. 

(1) Reference the guidance of the Ministry of Planning and Investment at: Investors are required to make a deposit to ensure project execution (baochinhphu.vn) 

(2) Article 43.2 of the Law on Investment 2020 and Article 26.2 of Decree No. 31/2021/ND-CP 

(3) Article 26.5 of Decree No. 31/2021/ND-CP 

(4) Article 17.2.c, Article 17.3.c, Article 4.2 of Decree No. 122/2021/ND-CP 

(5) Article 19.2.c, Article 19.4.d, Article 4.2 of Decree No. 122/2021/ND-CP and Article 48.2.c of the Law on Investment 2020 

See more:

1/ Due diligence on personal data protection in M&A transactions

2/ M&A: 02 Notes For Sellers In Legal Due Diligence

2/ What Is Legal Due Diligence And Why Is It Important In M&A Transactions?

 


Disclaimers:

This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.

For issues related to the content or intellectual property rights of the article, please email cs@apolatlegal.vn.

Apolat Legal is a law firm in Vietnam with experience and capacity to provide consulting services related to Business and Investment and contact our team of lawyers in Vietnam via email info@apolatlegal.com.

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