Vietnam’s merger control legislation plays a crucial role in ensuring fair competition and protecting consumers’ interests. This legislation encompasses several key features that companies seeking to merge or acquire businesses in Vietnam must navigate. These features include thresholds for notification, the authority responsible for reviewing merger, the types of transactions covered, and the potential consequences for non-compliance. Understanding these key features is essential for businesses looking to undertake merger or acquisition within Vietnam’s competitive market.
Legal basis
The primary legislation governing merger control in Vietnam is the 2018 Competition Law, which took effect on July 1, 2019, replacing the previous 2004 Competition Law that was in effect from July 2005 to June 2019. Two decrees have been enacted to implement the 2018 Competition Law:
+ Decree 75/2019/ND-CP, effective from December 1, 2019, establishes the administrative penalties for violations of the competition law.
+ Decree 35/2020/ND-CP, effective from May 15, 2020, provides guidance on key aspects related to economic concentration. This includes defining control, setting filing thresholds, and establishing standards for assessing the competitive impact of a transaction.
The government is currently preparing a third decree, which will establish a new competition law authority named the National Competition Commission (NCC). The NCC will assume the responsibilities and functions previously held by two authorities: the Vietnam Competition and Consumers Protection Authority (VCA), responsible for reviewing and deciding on the approval of economic concentrations and investigating alleged competition law violations, and the Vietnam Competition Council, which handled cases investigated by the VCA. In this context, “VCA” refers to the competent competition authority of Vietnam.
Scope of application
a. Merger
The following forms of economic concentrations are regulated by the 2018 Competition Law:
+ Enterprises merging: This involves one or more enterprises transferring all their lawful assets, rights, obligations, and interests to another enterprise, resulting in the termination of the merging enterprises’ business activities or existence.
+ Enterprises consolidating: This refers to two or more enterprises transferring all their lawful assets, rights, obligations, and interests to form one new enterprise, leading to the termination of the consolidating enterprises’ business activities or existence.
+ Enterprise acquisition: This occurs when an enterprise purchases shares, ownership interests, or assets of another enterprise, with the aim of gaining control or governance over the acquired enterprise or any of its trades or business lines.
+ Joint ventures: This entails two or more enterprises contributing a portion of their lawful assets, rights, obligations, and interests to establish a new enterprise.
The 2018 Competition Law also includes a catch-all provision that covers “other forms of economic concentration in accordance with laws.” While there is no specific guidance on this provision, it is worth noting that foreign companies operating in Vietnam fall under the definition of an enterprise. Consequently, there is a possibility that an economic concentration may occur based on a business cooperation contract between independent enterprises, without the creation of a new entity.
b. Joint ventures
The 2018 Competition Law provides a broad definition of a joint venture, encompassing all types of joint ventures between two or more enterprises, including “greenfield” joint ventures. However, the law lacks clarity on essential inquiries, such as whether joint control is necessary, whether the joint venture should be full-function and autonomous in terms of operation, whether it needs to be established on a lasting basis, and whether it must operate in the same relevant market as either of the involved parties. These unresolved questions leave room for interpretation and require further clarification to ensure a comprehensive understanding of the requirements for joint ventures under the law.
c. Does the competition law provide a specific definition for the term ‘control,’ and does it encompass minority and other interests that fall short of control?
The 2018 Competition Law provides a definition of “control” specifically within the context of acquisition transactions. According to the law, an acquirer will be considered to have control over the target company or a particular business line of the target if any of the following conditions are met:
+ With over 50 percent of the charter capital or the voting shares of the target, the acquirer secures ownership.
+ By obtaining over 50 percent of the assets of the entire business or a specific business line of the target, the acquirer gains the right to own or use.
+ Empowered by decision-making authority, the acquirer exercises control over various aspects concerning the target:
+ The appointment or removal, either directly or indirectly, of a majority or all of the directors, the chair of the members council, or the CEO/general director.
+ Amendment of the target’s charter.
+ Important business activities, which include the organization of business operations, business lines, geographical scope of operations, mode of doing business, adjustments to the scope of business and business lines, as well as forms and methods of raising, allocating, and utilizing capital.
However, it is worth noting that the law is not clear on whether minority protection rights of a shareholder would be considered as constituting “control.” Depending on various factors, such as the nature of the rights, the type of target company (public or private), and the agreements between the acquirer, target, and other shareholders, such rights may not be viewed as conferring control on the acquirer.
What are the notification thresholds for establishing jurisdiction, and are there situations in which transactions that do not meet these thresholds may still be subject to investigation?
For an economic concentration to require notification, it must surpass at least one of the four thresholds based on the previous fiscal year preceding the transaction:
+ The aggregate market share of the involved parties.
+ The cash value of the transaction (applies to onshore transactions exclusively).
+ The total assets of any individual party (or conceivably, the total assets of all parties combined) on a group-wide basis in Vietnam.
+ The total turnover of any individual party (or possibly, the total turnover of all parties combined) on a group-wide basis in Vietnam.
The “group company” turnover and assets thresholds mentioned in points (3) and (4) pertain to a definition in Decree 35. Decree 35 defines a “group company” as a group of enterprises that one or more enterprises in the group have common control or common management.
The legislation does not explicitly specify whether determining compliance with the market share threshold should consider only the market shares of the direct parties to the transaction. However, previous filings under the 2004 Competition Law suggest that the competent competition authority (VCA) considered market share on a group-wide basis. Therefore, we expect that a similar approach will continue.
The legislation does not clarify whether each party involved in the economic concentration should apply the turnover and assets thresholds individually or if they should applied on a combined basis for all participating parties. Based on experience, we can conclude that for the test satisfy, at least one party involved in the concentration must meet the applicable turnover or assets thresholds.
The obligation when filing a transaction
Filing is obligatory when a transaction, regardless of its location (onshore or offshore), qualifies as an economic concentration and satisfies one of the applicable filing thresholds. Even foreign-to-foreign merger must be notified in Vietnam if they fulfill the relevant conditions. The law does not provide any exceptions.
However, according to Article 1 of the 2018 Competition Law, the law governs “economic concentrations that impact or are likely to impact competition restrictions in the Vietnamese market.” Hence, one possible interpretation is that an economic concentration transaction that does not impact or is unlikely to impact competition in the Vietnamese market would not fall under the coverage of the 2018 Competition Law. The need to assess whether there is an impact or likelihood of impact on the Vietnamese market would require a case-by-case basis approach.
Approval from authorities
The Department of Planning and Investment (DPI) in the specific province where the target company located requires foreign investors wishing to invest in Vietnam to seek approval if met the certain conditions. For example, when establishing a new joint venture company, foreign investors must first obtain an investment registration certificate from the DPI, which essentially grants permission for the investment in Vietnam. Subsequently, they can apply for an enterprise registration certificate.
Moreover, if a foreign investor intends to acquire a majority stake in a Vietnamese company, it must register its intention and acquire approval for the acquisition from the DPI. The licensing authorities hold considerable discretion in evaluating these applications. In practice, they may consider factors such as national security interests, public interests, and domestic market protection measures, particularly in sensitive sectors like oil and gas, infrastructure and energy, banking, and financial services. Furthermore, various investment sectors in Vietnam impose limits on foreign ownership shareholdings.
Conclusion
In conclusion, Vietnam’s merger control regulations encompass several key features that aim to ensure fair competition and protect the interests of both domestic and foreign investors. The mandatory filing requirement for economic concentration transactions, regardless of their location, helps regulate the impact on competition in the Vietnamese market. The involvement of the Department of Planning and Investment (DPI) in approving foreign investments and acquisitions promotes careful scrutiny of applications, taking into account national security and public interests. Additionally, the presence of foreign ownership shareholding caps in various investment sectors demonstrates Vietnam’s commitment to maintaining control and balance in its economic landscape. Overall, these key features of Vietnam’s merger control regulations provide a solid framework for overseeing merger and acquisitions, fostering a competitive and sustainable business environment in the country.
HMLF is always available to offer assistance in understanding the procedures with authorities.
Harley Miller Law Firm “HMLF”
Head office: 14th floor, HM Town building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.
Phone number: +84 937215585
Website: hmlf.vn Email: miller@hmlf.vn
