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.

ANT Lawyers is a law firm in Vietnam located in the business centers of Hanoi, Danang, Ho Chi Minh city. We provide convenient access to our clients. Please contact us to book your time in advance to let us provide our best services.

 

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M&A Foreign Capital Dominates, Pouring into Education

Foreign investors are interested and want to invest in Vietnam education market.

Foreign direct investment (FDI) into education sector from August 2018 – the time when Decree 86/2018/ND-CP takes effect – reached 97 million USD in October 2019, of which M&A activities, in particular buying shares in education sector accounted for 37%.

This figure shows that foreign investors are more interested in a more collaborative strategy to reduce risks in education investment.

Regarding the trend of attracting foreign capital into Vietnam’s education market, FDI into this field will continue to increase, in which the trend of cooperation is a key strategy.

In 2018, the education sector had two important Decrees: Decree 135 and Decree 86. These two decrees have simplified conditions for investment in the education sector for both domestic and foreign investors.

In particular, Decree 135 has simplified the legal and operation requirements, shortened administrative procedures, while Decree 86 has reduced the requirement for personnel and increased the enrollment limit for Vietnamese students.

Overall, education accounts for less than 2% of total FDI into Vietnam. High tax costs, personnel requirements, minimum required capital for foreign investment, besides a complex approval process are some of the significant barriers for foreign investors.

It is still too early to fully assess the impact of Decree 86, but it can be seen that the level of foreign investors’ interest in Vietnam’s education market has increased significantly.

Before the effective date of Decree 86, foreign investors faced many barriers when investing in education, such as limiting the percentage of Vietnamese students: 10% for primary school and 20% for high school level. International schools in Vietnam therefore depend heavily on the enrollment of foreign students.

After this Decree came into effect, international schools took advantage of opportunities and promoted the enrollment of Vietnamese students. This move has certainly affected the attraction of foreign investors considering the attractive opportunities of the international education market in Vietnam.

The number of international schools in Vietnam with affordable tuition is quite limited, but often, schools with small and old campuses and basic facilities will have a modest tuition fee. ExpatFinder’s latest international school fee survey shows that the average annual tuition of international schools in Vietnam is 17,940 USD, ranking 13th in the world and 5th in Asia. Countries with higher fees may include China, Singapore, Hong Kong and Australia. However, there is always a significant source of demand for international schools in Asia, because this is the stepping stone for their children to apply for prestigious universities in the Western countries.

In addition, the recruitment needs of children from foreign experts in Vietnam are also increasing. Vietnam will attract more FDI after the signing of trade agreements and become an ideal alternative destination for multinational companies in the context of the US-China trade war.

The number of foreigners working in Vietnam will increase, bringing with them their families, thereby creating a significant demand for international education, especially in cities that attract a lot of FDI. In 2018, Vietnam had more than 320,000 foreign workers, an average increase of 8% per year since 2008. A survey of HSBC’s foreign workers in 2019 showed that Vietnam rose from the 19th position to 10th on the ranking of countries with “attractive working and living environment” because of low living costs and rising incomes.

ANT Lawyers is a law firm in Vietnam located in the business centers of Hanoi, Danang, Ho Chi Minh city. We provide convenient access to our clients. Please contact us to book your time in advance to let us provide our best services.

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

What could be assisted in an M&A Deal by a law firm?

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 firm 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?

Legal Due Diligence help management make better investment decision 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.

Our lawyers in Vietnam constantly follow up with changes of law to provide the client with update for better decision making process.

Source: ANTLawyers.vn

 

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