New guidance on M&A approval process
With the effect of the Law on Investment 2020, the Ministry of Planning and Investment issued Official Letter No.8909/BKHDT-PC at the very end of last year, providing guidance on the implementation of investment procedures. These are the key points and explain how new guidance on approval procedures will benefit potential mergers and acquisitions.
According to Section I, Item 3.2 of the letter, the target company receiving the capital contribution or selling shares and contributed capital – instead of the foreign investor itself as regulated in the Law on Investment 2014 and the 2020 version – shall submit one dossier applying for mergers and acquisitions (M&A) approval to the investment registration authority.
However, the form used for the M&A approval procedure must be signed by both the foreign investor and the target company, and so we, therefore, opine that either or both of them could still submit the dossier in reality.
According to the letter, the dossier applying for the M&A approval currently requires more information and documents in comparison with the former regulations. This first consists of a written request for the M&A approval which includes specific information such as enterprise registration details of the target company, including name, enterprise code, enterprise form, head office address, business lines, charter capital, and current foreign investor if applicable.
This written request also requires information on founding shareholders, if any, and land use right certificate of the target company (if it uses land located in the island, border, or coastal areas); the holding ratio of the foreign investor before and after making the investment; the transaction value; and information on the investment project of the target company (if any), which is new in comparison with the former regulations.
The second part of applying for approval consists of a valid copy of the legal identity documents of both the foreign investor and the target company.
The third is a written agreement on capital contribution, purchase of shares, and contributed capital between the foreign investor and the target company, which is also new. Of note, from a practical aspect, the M&A approval must be obtained before the investor executes any capital contribution, purchase of shares, and contributed capital. Therefore, this requirement may create confusion for both the foreign investor and the target company on whether they should submit the draft written agreement or the signed one to the investment registration authority.
In addition, if the foreign investor makes an investment by way of contributing additional capital (not purchasing any shares or contributed capital from any current shareholder or member), it would be uncertain which kind of written agreement is required for submission.
The fourth and final part of this process is a written declaration on land use right certificate if the target company uses land located in the island, border, or coastal areas. However, the letter does not provide any form or further guidance for this declaration so it is still uncertain whether the target company shall declare on the basis of self-declaration and self-responsibility, or with confirmation/certification by a competent authority.
In terms of business lines and market access conditions applied for foreign investors, those investors shall be treated equally with local ones with respect to market access conditions, save for specific cases provided in the list of business lines restricted to foreign investors which will be issued by the government. However, it is still uncertain when such a list will be issued by the government.
In the list, the restricted sectors should comprise business lines that are not allowed, and conditional business lines for market access. The government will elaborate the market access conditions applied for the foreign investor in each sector in compliance with the applicable laws, resolutions, ordinances, decrees, and international treaties to which Vietnam is a signatory.
Before the application of the Law on Investment 2020, all valid dossiers submitted to the investment registration authorities shall be processed in accordance with the 2014 law. However, the 2020 version has already taken effect and replaced the previous one. Hence, the letter offers two circumstances under which the dossier shall be processed:
Firstly, if the deadline is overdue but there is still no result returned to the applicant, such a dossier shall be continuously processed pursuant to the Law on Investment 2014 and relevant regulations.
Alternatively, if the deadline is after January 1, 2021 the investment registration authority shall instruct the applicant to supplement missing required documents (if any) or amend the submitted dossiers for compliance with the Law on Investment 2020, and the procedure shall be conducted pursuant to the correspondent laws.
For the sake of implementation, the letter is issued together with application forms used for investment registration procedures. However, the letter is provisional guidance to ensure implementation of investment registration procedures in accordance with the Law on Investment 2020 from January 1, 2021 until an official decree guiding the same is issued by the government.
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