Many legal problems arise after M&A deals

According to experts at the seminar, many disputes have emerged due to the lack of attentiveness on the part of both sellers and buyers in M&A eals.

Nguyen Thi Van Quynh, managing partner of DNPro Counsel LLP, said that most of M&A transactions in Vietnam in the past time are stake and asset purchases.

Regarding asset purchases, there are many different kinds of assets such as land, workshop, machinery and brand equities. Each of these assets has to bear different tax rates, which enterprises have not paid due attention to.

Taking the case of a Spanish group who bought a building material plant of Building Materials Corporation No. 1 as an example, Quynh said that the two sides cut a deal of purchasing assets worth US$3 million and inclusive of value-added tax (VAT), but all assets were included in only one invoice.

The problem occurred when the buyer wanted to reclaim VAT, but the seller refused to give the invoice. After that, the General Department of Taxation and the Ministry of Finance said the buyer did not have to pay the tax as this was an acquisition transaction.

Such a situation is not rare in M&A transactions in Vietnam, Quynh said.

Meanwhile, according to Duong Ba Anh Duyen, partner of DNPro, to avoid legal problems, all sides need to have careful preparations, evaluations and legal basis. The success rate of settling post-M&A disputes is not high while there are more conflicts arising.

She gave an example of a newly-established Vietnamese logistics firm that sold its 70% stake to a Hong Kong-based firm. Apart from the majority stake, the buyer also demanded that its name be stated in the investment certificate, according to Duyen.

However, in the logistics sector, there are regulations capping foreign stakes at a maximum of 49%. Moreover, changing the name in the investment certificate is impossible since joint stock companies are not allowed to change information of founding shareholders within three years of operation.

Besides, some other problems such as the pricing agreement and terms of settlement in foreign currencies with buyers who are local investors have made contracts invalid as they violate the forex regulations of the central bank.