MASTER THESIS - Bahnhofprivat.bahnhof.se/wb250067/buongiorno/vietnam/docume… · Web view3.2. Realities of the everyday life of disputes in M&A activities. 13. 3.3. Causes of failures

Preface and Acknowledgements

At the the present, merger and acquisition of enterprises in Vietnam have been happening at an increasing rate. The aim of this study is to bring forward a general view of eventful activities of this country at current time. Through comparison and analysis of the similar and the differences between the rules of law in Vietnam and the United Kingdom, the author will make some observations and comments and humbly forward put some proposals to admen and ameliorate the legal regulation of Vietnam to facilitate these business activities in the future.

I would like to thank Professor Lars Gorton and Dr Phan Huy Hồng for supervising on this thesis.

I would also like to thank Professor Christopher Woong for guiding on principle and method to write a formal thesis as required.

Lastly, I would like to thank Mr. Nguyễn Thái Dũng, my English teacher, who has generously devoted his time to write this thesis.

Table of contents

Preface and Acknowledgements...................................................................................1Table of contents...........................................................................................................21. Introduction....................................................................................................2

1.1 Objective:.......................................................................................................21.2 Scope of researches:.......................................................................................51.3 Methodology...................................................................................................51.4 Significant of theory and practice...................................................................51.5 The layout of thesis........................................................................................5

2. M&A In Overview.........................................................................................6

2.1 M&A concepts................................................................................................62.2 Motivations of M&A activities.......................................................................92.3 The Situation of M&A in Vietnam...............................................................10

3. Identifying Failures and Risks......................................................................12

3.1 What are the risks in M&A?.........................................................................123.2 Realities of the everyday life of disputes in M&A activities.......................133.3 Causes of failures and risks..........................................................................153.4 What drives the processes and how the transactions are carried out............16

4. How to avoid or to minimize risk.................................................................19

4.1 Procedure, legal process to consoliadte and merger enterprises according Vietnam Enterprise Law...............................................................................19

4.1.1 Procedure on the consolidate:..................................................................194.1.2 Procedure, legal process of consolidation of enterprises:........................204.1.3 Procedure, legal process of merger of enterprises...................................204.1.4 Procedure, the legal process of merger....................................................214.1.5 Comments................................................................................................21

4.2 Procedure, legal process of merger, acquisition of business UK law - experi-ence and review............................................................................................23

4.3 Comparison of similarities and differences in procedures, legal process of merger, acquisition business of Vietnamese law and the law UK................25

4.3.1 Similarities...............................................................................................264.3.1.1 Disclosure and honesty:..............................................................294.3.1.2 Differences:.................................................................................30

4.4 Summary of comparison of sequences, procedures on M&A transaction under the laws of Vietnam and the United Kingdom:..................................31

4.4.1 According to Vietnam's Enterprise Law:.................................................314.4.1.1 The sequence, the procedure of consolidation:...........................314.4.1.2 The order, procedures for merger:..............................................314.4.1.3 Company Law UK:.....................................................................314.4.1.4 The sequences, procedures applied to cases of mergers by abor-

tion: 32

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4.4.1.5 Comments:..................................................................................32

4.5 Improving legal sequences, procedures in M&A process in Viet Nam law.334.5.1.1 Current limitations......................................................................33

4.5.2 Some proposals to contribute to legal regulations on M&A of enterprises.................................................................................................................34

4.5.2.1 Legislatization.............................................................................344.5.2.2 On legal regulations:...................................................................34

5. Conclusion....................................................................................................35Table of Statutes and other Legal Instruments...........................................................37

National Legislations..................................................................................................37United Kingdom.........................................................................................................37Vietnam......................................................................................................................37Bibliography...............................................................................................................38

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Abbreviations

The UK The United Kingdom

LDN Enterprise Law

LĐT Investment Law

The UK The United Kingdom

LCTr Competition Law

CA 2006 Company Act 2006

Executive summary:

With the new policy of “doi moi” (innovation) in the economical landscape in Vietnam, the business affairs of merger and acquisition of companies have been developing in recent time. This is not only an important channel to attract investment capital, but this is also an important model to transfer businesses and to restructure enterprises in response to pressure of competition originating from the adaptation to the market economy. According to the press release of PriceWaterHouseCoopers, in 2008, Vietnam there were 146 merger and acquisition activities, with the total transaction value reaching 1 billion USD, an increase up three times in relation with 20061.

However, another statistic also showed that the success rate of merger and acquisition was only 35%2. There might be some explanations subjective as well as objective for the causes but apparently there was no satisfactory solutions for these problems in sight. In this thesis, the author will identify the risks involved in the business of merger and acquisition, and will figure out their main causes, and will propose that some should make the business of merger and acquisition more successful.

In this study, the author will use the method of comparative study. By comparing between theory and practice of Vietnam law and the United Kingdom law, the author hopes to discover the roots of the problems. The United Kingdom law is chosen here to compare with the VN law since the United Kingdom is a developed country with a long history of the stable legislature and sustainable developments in economy.

Firstly, the following question will be addressed: What are the risks in the business of merger and acquisition of enterprises?

Then some case studies will be examined to identify concretely the causes of risks and to compare with the ways of solving similar problems in the UK law. From the results of the analysis of strong and weak points in dealing with the business affairs of merger and acquisition from the perspective development of two legal systems, the author will propose some thoughts on amending, modifying and ameliorating the law on merger and acquisition to optimize these processes for the progress and sustainable developments in Vietnam for the economy of this country to be able to progress in parity with the global economy.

1 PricewaterHouseCoopers "Vietnam M&A activity review – 2008: Deal activity remains on growth track with positive outlook despite lower than 2007 total deal value", available at http://www.pwc.com/extweb/ncpressrelease.nsf/docid/5B89FC39EED2A717CA2575440035DA71

2 Minh Yên, " Tỷ lệ thành công của các vụ M&A trong nước rất thấp, chỉ đạt tỷ lệ khoảng 35%" (only 35% M&A success in Vietnam) VTC News 04/6/2008, available at http://www.vtc.vn/kinhdoanh/doanhnghiep/181209/index.htm

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http://www.vtc.vn/kinhdoanh/doanhnghiep/181209/index.htm

http://www.pwc.com/extweb/ncpressrelease.nsf/docid/5B89FC39EED2A717CA2575440035DA71

http://www.pwc.com/extweb/ncpressrelease.nsf/docid/5B89FC39EED2A717CA2575440035DA71

1. Introduction

1.1 Objective:

The trend of M&A of enterprises has been developing all over the developed countries in the world. In these fiercely competative and fast growing times, enterprises needed to cooperate to become strong enough to survive, or to gain the

market to be able to make profit. Entering the 21st century, the continuous train of wave of M&A has been observed under the new form and in the large scale. The trend of M&A has been expanding from developed countries to developing countries. In the year of 2006, the global total value of M&A reached the high record 3.460 billion US dollars3.

In Vietnam, M&A of enterprises have been also developing recently4. In 2008, there were 146 M&A transactions, which increased twofold of 2007, and total of value reached 1 billion USD increasing threefold to the year of 2006. The M&A market has been becoming a potential market, with increasing level about 30-40% a year.

In Vietnam, the Enterprise Law 2005 formed the legal basis for domestic and foreign business entities to have a common ground to carry out their corporate strategy in restructuring in ownership by governance and freely to transferring shares to merge or to sweep a majority of shares to acquire a target company. The nature of business is to expand itself more and more to take the market share. M&A of enterprises do not only help to improve their business's situation, but also contributing to solve the problem of unemployment and pension in the case of small businesses bankrupted. Vietnam is currently with an attractive market getting attention of investors in the region and the world. According to the statistics of the Central Committee of Innovation, in just 3 years according to the Enterprise Law in 1999 was put into life there were more than 300,000 small and medium enterprises already established. Capital mobilized from investors went up to tens of thousands of billions of Vietnam Dong. However, under the intense competition in the market economy, successes or failures in business are inevitable everyday occurrences.

Enterprise is a business entity to make profit. Under the conditions covered with risks and challenges from a competitive market mechanism, shifting from one kind of undertaking to another, changing of mode of operation or and restructuring the distribution of ownership are inevitable facts. Possible solution for an enterprise in

3 Global M&A outlook, World Economic Prospect Apr 2008, Business Publication available at http://findarticles.com/p/articles/mi_qa5456/is_/ai_n25420354

4 "Potential M&A opportunities in Vietnam" available at http://www.tbic.vn/english/10/tbic_details.aspx?DataID=13364

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http://www.tbic.vn/english/10/tbic_details.aspx?DataID=13364

http://www.tbic.vn/english/10/tbic_details.aspx?DataID=13364

http://findarticles.com/p/articles/mi_qa5456/is_/ai_n25420354

trouble is either to change mode of operating or to dispose of business or to sell business or to merger with the other to increase the financial and operational capacity of that enterprise. M&A is one of the channels to resolve the mode of the business operation. One of the objectives of M&A is to help enterprises resolve difficulties in many aspects such as weak production, poor management, the lack of capital, the lack of experience, the lack of competitive edge, the lack of market share, the lack of capacity to grow, and unability to exploit the availability of the domestic market such as an infrastructure or abundance of labor force, sales force, technical team and management team. Merging small enterprises into a larger economic group is one way to make them strong enough to compete in the market.

In the case of foreign investments, we always witnessed waves of massive investments in the joint ventures and establishing of new enterprises with foreign investment in the period from 1987 to 2005. Lately, we saw again another wave of investments pouring into the purchase and the merger of businesses by foreign corporations in commerce, financial and investment funds' fields with local retail businesses, real estate companies and banks. It is not very hard to see the common denominators of these transactions, that is, foreign investors already recognize the advantages of doing so. It is more convenient and economical to acquire existing businesses with an experienced labor force, available facilities, established market than to form new businesses with many difficulties and uncertainties in dealing with the unfamiliar bureaucracy and unknown market. According the statistics, there was only 35% the M&A activities successful5. Most of the failure of the M&As can be attached with either subjective or objective causes, as Mr. Pham Tri Hung said:

"Vietnamese enterprises do not have enough information and understanding on the conditions and procedures of M&As. The legal framework for M&As’ activities did not provide in detail, did not determine clearly on the M&As' transaction cost; the information on the M&As' activities did not update in full, and untransparency; many the enterprises have not joint into the securities market; the role of Auditing has not related which caused the difficulties to the person who want to know the financial situations of the enterprises are the gap of the M&As’ activities.6"

There were many discussions on the Internet and at many conferences about the gap in the legal framework governing M&As’ activities.

The purpose of this study is to identify the risks, to examine the causes and to find out ways to overcome obstacles and problems to improve the changes of success of M&As. The author will focus on the experience from the United Kingdom and will

5 Minh Yên, "Tỷ lệ thành công mua bán doanh nghiệp chỉ đạt 35%" (only 35% M&A success) available at http://www.vtc.vn/kinhdoanh/doanhnghiep/181209/index.htm

6 Phạm Trí Hùng " Khung pháp lý điều tiết sáp nhập, mua lại doanh nghiệp ở Việt Nam" (Legal framework govern M&A in Vietnam) available at http://my.opera.com/Pham%20Hung/blog/k

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http://my.opera.com/Pham%20Hung/blog/k


use the comparative method to study the similarities and the differences between the regulation of Vietnam and the UK to find some useful applications for ameliorating the Vietnam law on M&A. The reason that the United Kingdom law is chosen in this study since the United Kingdom is a developed country with a long history of the stable legislature and sustainable developments in economy. In the year of 2006, the United Kingdom issued the new company law, "Company ACT 2006,7" which is a complete set of laws to treat company affairs, inheritances and developments of previous regulations of the United Kingdom and Europe on M&As. The United Kingdom is a typical country with the common law system with the tradition of the free enterprise guaranteeing the freedom of competition and the freedom of the businesses of individuals.

The aim of the thesis is finding out the motivation which drives the conducting of M&A activities. Through research, the motives of M&A depend on business objectives. The differences in benefits of business entities will lead to the conflict and will cause the failure in M&A activities. The practical experience and regulation of both Vietnam and the UK proved that the rules seem to require the consensus idea in the process of M&A of enterprises. To get the consensus, there must be the publicity of information to a certain level. The involved parties must have enough information before making decision.

Law stipulates a legal corridor to keep people to behave accordingly to live under a common order. It is the roots of everything. Vietnam Enterprise Law had the initiative to make the necessary legal framework for business activities and M&A activities. However there still were some gaps in the framework namely the specific regulations about the procedure of M&A to eliminate the uncertainties of confusion in practice.

The comparative method will help us understand the rules of merger and acquisition of enterprises better. From the results of the analysis, the author will then go further to find out favourable conditions and difficulties in applying the rules to M&As’ activities in Vietnam. Eventually, it will resolve the question of how to constitute law on merger and acquisition to facilitate entrepreneurs in their business with all advantages and at the same time to ensure the rights and the legitimate interests of all participating in parties including third parties.

1.2 Scope of researches:

There are many issues to be considered in M&As. In the scope of this study, the au-thor will focus only on the causes of risks and the ways to deal with them and specif-

7 Explanatory notes the company act 2006: available at www.opsi.gov.uk/ACTS/acts2006/pdf/ukpga_20060046_en.pdf P1

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http://www.opsi.gov.uk/ACTS/acts2006/pdf/ukpga_20060046_en.pdf

ically on forms, processes, procedures and legal consequences of merger and acqui-sition regarding form and content of the UK and Vietnam laws.

1.3 Methodology

The author will use the comparative method to compare between the regulations of law and legal practices of the UK and Vietnam to find out advantages and difficul-ties, and at the end to contribute some proposals to ameliorate laws and regulations on M&As in Vietnam to be able to integrate into the global economy.

1.4 Significant of theory and practice

There were some research on M&As in the world which focused either in M&As themselves, or deeply in the interesting topic about the method conducting M&As, or the conditions of organization, or financial issues, or outcomes of post-M&As, or cross-border transactions of M&As. In Vietnam, there were some papers on M&As, that focused on effects and benefits of M&As and furthermore some recommenda-tions on researching solutions for some problems as research topics to attract and en-courage and to attract more researchers in this field of study. These documents are very useful for references to this study whose topic is still fairly new in the law re -search community in Vietnam, hence the author takes this initiative as the motivation to research with the purpose to contribute to the progress of Vietnam.

1.5 The layout of thesis

The main body of the thesis divides into 5 parts: After introduction, Section 2 is the discussion of M&As such as concepts, forms and interests of M&A, the way to con-duct the M&As; Section 3 focuses on investigating the causes of failures of the M&As’ activities to identify risks, causes of risks regarding with the applying the current regulation of Vietnam on the M&As; Section 4. The author will look into the UK experience on its M&As’ practice, then make the comparison between Vietnam and UK law on the M&As. The author will review and offer some recommendations. And last part is the conclusion.

2. M&A in Overview

2.1 M&A concepts

The term "merger and acquisition" are abbreviated as M&A. At present, this term was not translated consistently from English into Vietnamese. The majority of the

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translations are translated literally as "merger and purchase of enterprise.8" There-fore, the term M&A is also used as an economic term, but with different meanings. In the case of acquisition, an enterprise takes over another enterprise without the con-sent of the latter; therefore, the target company will no longer in existence. In the case of merger, two individual companies agree to unite into one entity to operate with mutual interest, so there is no target company or company to buy. Both compa-nies will be in business under a common name.

An acquisition is a takeover9 where a company buys another company. An acquis-ition may be friendly or hostile. In the case of a friendly acquisition, the two compan-ies cooperate on negotiations; but in the case of hostile acquisition, the target com-pany is either not willing to sell, or the management of target company being un-aware of the intention of the buyer. Acquisitions are often happening to the purchase of a small company by a larger company. However, sometimes a smaller company could acquire the right to control the management of larger companies.

Merging is the combination of two companies to become a larger one. These activities are often on a voluntary basis and include the conversion or payment in cash for the target company. The conversion of stock is usually used with the author-ization of the shareholders of both companies. Merger could be a takeover, but the result is the forming of a company with a new name or a new trade name.

According to Weinberg and Blank in the Mergers and takeovers, the term takeover is used instead of acquisition. Takeover occurs when a company acquires the right to take control of another one, mainly a smaller business. This action can be defined as a transaction whereby an individual, group or individual companies hold the right to control the property of another company, both by direct to become the owner of the property, or indirectly by acquiring the right to control the management company. A takeover activity will take effect by holding the majority of the contributed capital of the company10.

8 Lưu Minh Đức, "Thâu tóm và hợp nhất nhìn từ khía cạnh quản trị công ty: Lý luận, Kinh nghiệm quốc tế và thực tiễn Việt Nam", (năm 2008, số 15-7+8, trang 38-44), Tạp chí Quản lý kinh tê (Takeover and merger aspect from company management: Theory, International experience and Vietnam pragmatic), available at http://www.vjol.info/index.php/QLK/article/view/691

9 Điều 4 khoản 17 LDN sử dụng thuật ngữ "thâu tóm": Nhóm người thoả thuận cùng phối hợp để thâu tóm phần vốn góp, cổ phần hoặc lợi ích ở công ty hoặc để chi phối việc ra quyêt định của công ty (Any group of persons who act together in an attempt to take over the capital contribution, shares, or control the decision making process of the company).

10 Laurance Rabinowitz, "Weinberg and Blank on takeovers and mergers", Sweet and Max-well, Published (1989) Re: 37 Apr 2008 para.1-1002

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http://www.vjol.info/index.php/QLK/article/view/691

Merge can be defined as an arrangement in which the assets of two or more companies become one, or under the control of a company. The merging of the two companies is in effect when the shareholders of one or more companies merged by exchanging stocks on a voluntary or a legal activity to become shareholders of stocks of merged companies; or by all shareholders of acquired company in exchanging their shares on a voluntary or a legal activity to exchange for shares of a company's division into new company11.

The difference between the merger and takeover is only in the purpose and at the level. In takeover activities, the control directly or indirectly of the company were transferred from target company to acquiring company; meanwhile, in merger operation, shares of the merged companies will be spread among shareholders of both companies, hence there is no position domination of this company to other companies12.

Thus mergers are on the whole, but takeover only needs holding the number of shares sufficient to govern the operations of the company. According to Luu Minh Duc, the difference between the merger and takeover can be interpreted by the right to control company. In the case of takeover, the company owner has the right to alter the Executive Committee and redirect the business of the target company. In cases of merger, it requires the cooperation. The owners of both companies have equal rights in deciding the structure of the Executive Committee and activities of the merged company.

Acquisition is happening when a company acquires part or all the shares of other enterprises. Brand names of target companies can be retained or changed depending on the decisions of the acquiring company. The objective of a company purchasing other company is to achieve scale advantages, the increase efficiency of business and increase market share.

In acquisition activities, a company may purchase another company in cash, shares or combination of both. One other form common in the business of the purchase and sale is buying all the assets of the purchased company.

One type of acquisition is reverse merger, occurring when a private company bought business listed on the floor in a relatively short time. Private companies will use this method when companies that have potential and want to increase capital. After sales taken place, private companies and their variables are issued shares.

Merger activity is occurring when the business most of them are business in the same industry, agreeing to combine a new business with the greater scale and higher



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competitiveness. The result of the merger is the life for a new company different with the companies before merging. This new company can use a completely different name from the ones from old companies before merging or the new company's name is a combination of the names of the merged companies. Whether to change the name of business after the merger, the brand name of old businesses is still maintained and kept development in the future.

Considering the structure of the business, there are many different forms of merger. Below are some distinct forms of merger based on the relationship between the two companies being merged13: Merger in the same sector (also called a horizontal merger) is the merging of two companies competing directly and sharing the same product lines and the same market. Vertical Merger is the merging of businesses in the supply chain such as between a company with customers or suppliers of that company. The market-extension merger occurs when two companies selling similar products, but in different markets. The product-extension merger occurs when two companies selling different products, but related to each other in the same market. The conglomerate merging occurs when two companies are not in the same field of business, but want to diversify their business to become interdisciplinary or multipurpose company

Considering like the financial structure, there are two-forms of merging: Purchase merge occurs when a company purchases another company. The purchase of a company is conducted in cash or through some kinds of debt arrangement. The consolidation occurs when two companies merged under a new legal entity and a brand new company is formed. The finance of two companies will merge into one in the new company.

2.2 Motivations of M&A activities

The motivation of M&A activities is to bring benefits for both parties. The strategic approach describes a variety of ways in which firms can be strategically related. The motives reflect what types of business combinations are chosen14. They may base on the aims of business to decide what types of M&A being conducted. There were

13 Kathy Lien, Chief Strategist, Forex Company Market "Mergers And Acquisitions - Another Tool For Traders" Access Investopedia's FREE Forex Report, available at Investopedia.com

14 Johan Lindqvist & Sofia Ahsberg. "Mergers and Acquisitions in New Economy:An Opportunistic Approach towards Organisational Changes" International Management Master Thesis No 2000:33, P.10-30, available at http://guoa.ub.gu.se/dspace/handle/2077/2391

Also Marina Martynove. "Mergers and acquisitions in Europe" Finance Working Paper N0.114/2006 January 2006 Available at,

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http://guoa.ub.gu.se/dspace/handle/2077/2391

http://www.investopedia.com/

many theories to classify M&A motives into horizontal integration, vertical integra-tion and conglomerate integration. Motives such as an economic scale and scope, ef-ficiency improvements and cost reductions are common outspoken economic mo-tives for conducting M&A.

The cooperation benefits both parties: Enterprises can plan mutually benefits for both parties by selecting buy back plan. This is particularly true in the case of a corporation being in a drastically competition. In this respect, a strategically large company or a large investment company with the mutual fund will decide to buy smaller competitors to reduce competitive pressure and create a merged corporation

Expanding market: Companies make acquisition as a way to increase market share. Often business has a good sales record can be more effectively by combining with business having expertise in marketing. The management can make the best out of the combined enterprises by making a team out of the best salespeople to work along with the best marketing team to become an excellent team of the sales force so they can work together to achieve the sale target of the company. Conversely, acquisition activity also helps the enterprises to be able to eliminate bad products and get rid of ineffective staff. Another word, the effective support to sales force would increase the amount of total revenue for the business by promptly bring out possessions to consumers. Such cooperation is not only limited in sales and marketing but it can also apply in all areas of business combined. The improvement applying for the optimization process in various departments has made organization become stronger and to increase in market value.

Competative Price: Some companies actively implemented M & A activity to expand the market share. The higher market share will lead to the increased purchasing power higher than the ability to deliver. When orders come in more, enterprises will increase production, and therefore the production prices will decrease, and price will become more competitive. When suppliers achieve to reduce cost per unit, they can afford to offer the discount price to client. This can be seen with the production cycle with products and services getting faster. Even if profit per unit of production decreases, but volume of sales increases to a certain level, then the result is the net profit for company getting more profitable.

Diversication of products and services: The company also conducts purchase other companies with products, services, additional aims to diversify products and services themselves. By increasing the options for goods and services that companies provide to customers, managers can create more revenue for company. As manufacturers, car dealers go not just sell cars, they also provide spare parts, make

http://www.pwc.com/Extweb/ncpressrelease.nsf/docid/C9960B46C38BAD57CA257545001083BC

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after-sale services and make customers feel more comfortable. Often the after sale services can make better profits even it could create more profits than products themselves.

Effective operation: Acquisition can also be used to improve the operation of a business, especially for the producers. Since customers will regularly evaluate the ability to deliver goods at periodic intervals, when the processes of production are in good operations then the enterprises can increase production and will get more trust from clients. This is an important factor to achieve success for a business. Furthermore, acquisition will also eliminate the redundancy of personnel with the similar function making company leaner hence more effective.

2.3 The Situation of M&A in Vietnam

The purchase, sale, transfer, merger and acquisition in the world have always been happening to increase, but in Vietnam, this activity is only in the early stage. There were two reasons for the development of Vietnam M&A market being started. Firstly, the implementation of the Law on Investment and the Enterprise Law was in effect thus creating a common ground for domestic and foreign players to be treated on equal terms, Secondly, at present time, most of Vietnamese enterprises are small in comparison with foreign enterprises; in fact they are lacking in market experience, financial ability, staff to be able to operate business effectively. So it is very logical that through the M&A activities, Vietnam enterprises may get together to increase their abilities on competition in the market.

Nguyễn Thường Lạng và Nguyễn Thị Quỳnh Thư argued that

"According to the evaluation of foreign investors, to operate in a new and fully po-tential as in Vietnam, investors will have various choices. First is to establish a 100% foreign capital enterprise; second is to develop branches and third is to de-velop through merger and acquisition activities. But the best choice in this stage in Vietnam is M & A 15.”

According to the statistics, however, in Vietnam, there was only 35% the cases of M&A being successful. The level of the thus success ratio was still low. The success ratio of M&A in the world is two-third16.

15 Nguyễn Thường Lạng và Nguyễn Thị Quỳnh Thư, "Môt số vấn đề về sáp nhập, mua lại doanh nghiệp và tình hình Việt Nam" (Merger and acquisition an overview and Vietnam situation) available at www.centralbank.vn/vn/tintuc/vp/dvtoi/tin/tap chi _2008_09_04_042121.doc?tin=500


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http://www.centralbank.vn/vn/tintuc/vp/dvtoi/tin/tapchi_2008_09_04_042121.doc?tin=500

The reason is that Vietnamese enterprises do not have enough information, the knowledge of the conditions, procedures for M&A. Moreover, the procedures of M&A in Vietnam are not specific. Besides, although the market is a very potential and the need of M&A is becoming a trend, but in reality now, Vietnam still is new market with potential disadvantages for M&A transactions. Until now, in Vietnam the main M&A activities are only for the merger and acquisition of state-owned en-terprises which are weak, unable to survive on its own, or on the verge of bankruptcy ... with another state-owned enterprise under the administrative order of the govern-ment, hence it does not reflect truly a true image of the reported M&A activities re-ported above. In general, the actual activities of M & A in Vietnam are still in small scale, self serving, in small quantity, lack of knowledge, lack of information and lack of participation of well known companies.

Vietnam should improve the legal framework on M & A. This legal framework will create conditions for establishing the transaction, the position of the purchase, the position of the sale, and the legal consequences after completion of the transaction. Currently, the regulations relating to the M & A activities to conduct transactions have taken shape in the regulations of the Civil Code, Enterprise Law, Investment Law, and Law on Competition. The Investment Law in 2005 has added 2 new forms of investment which are mergers and acquisitions of business, share purchase or capital contribution to the management of investment activities. The Enterprise Law 2005 also stipulated on consolidation, the merger of enterprises and transfer of enterprise shares. However, this policy just stopped short at the surface of the form of M & A activity, meanwhile issue of content should be defined more fully, since there are more substance in M & A activities such as the evaluation of an existing business, the resolution of financial issues, shares, stocks, taxes, and employees... of both sides during and after the completion of the transaction of M & A. In recent years, riding along the strong wave of the stock market development, the equitization of shares of state ownes enterprises have been happening massively. But a legal framework with clear, and full transparency to use as the basis for the implementation of the M&A activities to prevent the economic concentration and unfair competition is not available, it still is in the process of preparation.

M&A activities manifest the right of freedom of business, the right of freedom of business owners. In many countries, M&A activities which are recognized by law and regulations are quite understanding, detailed.

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3. Identifying Failures and Risks

There are 3 approaches in identifying failures and risks in M&A activities. First is through the legal disputes on M&A of enterprise at the courts in Vietnam to identify failures and risks. However this approach has limitations because (1) it is not easy in accessing court documents and (2) at present time, since Vietnam is still in the early stage of M&A activities, there is no typical case of value in existence worth to con-sider. Second is through theoretical aspects on Strategy of enterprise to study the mo-tives of M&A activities, and based on this finding, to find out the internal and exter-nal factors on decision and subsequent influences to various stages of M&A activi-ties. Third is based on observations from the above two approaches through the regu-lations on sequences, procedures of M&A activities according to Vietnam law and UK law to reach some solutions for amelioration; ega; regulations of Vietnam about M&A activities.

3.1 What are the risks in M&A?

The M&A activities are the deeds of buying and selling a part or a whole ownership of a business namely acquiring a significant number of shares of an enterprise which can affect many involve objects such as investors, owners, creditors, administrators. So if the risks can be identified, it will help investors to avoid or to limit or to mini-mize unwanted failures. Risk may come from the miscalculation of the value of the business, or the lack of information about the debts of the business, or from the risky potentials such as the bad impact on the environment from the business production activities. Risks may come from the unability to adequately measure all involved le-gal factors to conduct a successful M&A transaction.

The risks are potentials on the operation, especially in business. The management should be contriving to figure out the risks and should be planned the risks' solution to foremost expedite the case on the bad condition. So, we could be said that the risks always along with business. People said that "the more risk, the more win".

3.2 Realities of the everyday life of disputes in M&A activities

In reality, there have been many lawsuits on purchase, sale, the transfer of assets or shares of enterprise brought to courts for trial. For example, in the case of Đỗ bá Sơn versus Nguyễn Nhật Thanh on the dispute of contract of transfer of shares not going through the general meeting of shareholders, the Appeal Courts based on Article 19 (1), Article 51 (1c), Article 58 (1) of the Enterprise Law 1999. Article 131 (2), Article 146 of the Civil Code 1995 to proclaim the contract was invalid, disabled

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because the contract of t share transfer was not approved by the shareholders’ general meeting, in which the founding shareholders did not accept the transfer17.

In the case of Mai thị Ánh Thủy versus Võ thị Ánh Tuyêt on the dispute of not getting her annual dividends from her 10% of capital contribution valued at two billion VND to the total amount of capital in Thuận Thảo company. The Appeal Court passed the judgment that although the name of Mai Thi Thuy Anh with the contribution of 2 billion as 10% of the capital is in the business license. Mrs Thuy could not provide the receipt that confirms her contribution for the total capital to the company therefore she only held the status of a pending member in waiting for the transfer of her contribution. The court then decided to reject Mrs. Thủy request of annual divideds18.

In this similar case of Nguyễn Thị Cúc versus Nguyễn văn Hỷ on the dispute about member companies. (35/KTPT on 26/4/2005) filrd the Court of Supreme Appeal in Ho Chi Minh City, the court judged that the capital contribution to the company did not comply with the procedures under Article 22, 23 Enterprise Law, since she did not have any of the following documents: the receipt of contribution, as well as records of the receiving of the contribution of capital assets, the record of property prices in the accounting records of the company.

The capital contribution to the company required by the legal basis must meet the conditions stipulated by the law stating that should have its own funds to contribute capital, must be on the accounting records of the company on the capital contributed.

Considering the transfer of capital contribution by the company must also have the sufficient legal basis such as must have a record of the meeting of the members' consensus of the reasons for the transfer of funds contributed by the company; must have its own money on the sale of capital contributions, must be the system of accounting for records disengagement and transfer the purchase funds contributed by member companies, must be the paper certificate of capital contribution by the company after the purchase of capital contributions.

Similarly, Phạm Thiên Long versus Phạm Quốc Thịnh disputes between member company, in the number of 18/KTPT on 9/3/2005, Court of Appeal in Ho Chi Minh City has identified "in terms economic activities and in the field of accounting business activities, all activities must comply with the rules of law and the charter of company. Article 27 Enterprise Law regulation that member companies when raising capital, the company member must be received a certificate of capital contribution. Article 19 Accounting Law regulations that all financial activities of the enterprise must set up accounting documents. In terms of legal basis of capital contribution to the company, they must meet requirement of the rules of law. The company must

17 Decree 93/2007/KDTMPT 10/11/2005 Court Appeal Supreme in HCMC

18 Decree 83/2007/KDTMPT 10/11/2005 Court Appeal Supreme in HCMC

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have its own funds to contribute capital and minutes of meetings of members. The contribute capital must be on the accounting records of account transfer and the purchase of capital contributed by member companies."

The case United Concord International Ltd (referred to as the UCI) versus Radian Investment Company LTD (referred to as RIL). The Court of Supreme Appeal in HCMC19 judgments that "the amendment, or modifications rules GISH, change activities registered, appointed replaced, free of the chairperson of the Board and Vice Chairperson of Board of Directors, General Director, Deputy Director-General, Chief Accountant of GISH are issues especially important with individual venture (...) specific issues, mainly on the will of the Council members management decisions on the principles agreed (...) principles agreed in the Charter and the venture GISH, not conflict, and not against Article 52 Enterprise Law 2005. The unanimous principle which was stated in the Charter of company and in the Joint-venture contract did not contradiction to Article 52 Vietnam Enterprise Law 2005. The core of matters must be approved by all the members of Board of Directors' meeting with 100% agreed. Whereas with content and conditions for approving 3 of the resolution of the Board, the Appellate Court said that "Article 52 Enterprise Law provides that “at least 65% of members of Board of Directors attend the meeting "not to sign documents made by RIL and Enterprise Law in 2005 stipulated that" the rate specified by the charter company regulations."

The case Veil Infrastructure Limited versus Limited Liability Construction Traffic Duc Hanh and Joint Stock Construction and Transportation Companies Duc Hanh. The parties have signed a loan agreement that conversion, the company Veil Infrastructure Limited agreed to deposit a loan for the company limited liability construction traffic Duc Hanh, then the loan will be converted into shares of the company's shares. The Appeal Court20 has identified the loan conversion and agreed to extend that, although there was no decision by the Prime Minister of Vietnam and the Company Law 1990 did not allow Limited Liability Company Vietnam sold shares to foreign companies, so the contract between Veil Infrastructure Limited Company conducted for companies limited liability construction traffic Duc Hanh on the capital loan was illegal. This contract violated the Company Law 1990 and violated regulations on foreign currency management.

3.3 Causes of failures and risks

Risks occurred when you do not comply with the procedures stipulated by the law on purchase, sale, the transfer of stock. Although, Vietnamese law on business was

19 Decree 82/2007/KDTM-PT 28/8/2007 Court of Supreme Appeal in HCMC

20 Decree 15/2007/KDTMPT 06/02/2007 Court of Supreme Appeal in HCMC

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formed in recent years, but the law has set the foundation for the basic operation of the business including regulations on the procedures to implement the transfer of shares, stock. When people do not comply with the procedure it is one of the reasons for the failure, or face the dispute.

Since it is difficult to get documents, especially the documents on court decisions which do not have to disclosure in full and hard to access, so the research on the risks and failures of transaction of M&A are still limited and have to stop at some point. Otherwise, as in the above analysts, the Vietnam M&A market is still at the early stages. The M&A transactions are simple and in small scale, so complicatedcases of conflicts have not occurred yet.

Examining some court cases, we see that the Enterprise Law in Viet Nam formed a favourable foundation fo the M&A activities for the transfer of stocks and shares and assets. But why there exists these disputes while there are already these regula-tions? We can examine this problem under two angles, one is the knowledge about the law, and the other is obeying it. Those who involve in the M&A activities have to understand and carry out the regulations seriously; otherwise they will face the legal penalties and sufferwith damages. But at present, the question is “Are the present le-gal system fully equipped to deal with these problem adequately?” Next, we will try to find the answer in the folloing pages.

It is unavoidable fot the not to face complex problems such as tax, accounting, conversion of assets and profit distribution. Many companies have difficulties in paying debts. Some faces cultural problem or environmental protection, some have to deal wirh the consequencesof merger, how to increase the company value to attract attract investors. Finally, M&A activities are not as easy as people thought. Many problemscan make M&A problems or even bring failure at any time. Therefore, it is important to get active participation of high level leaders in the company from all phases of M&A activities with the assistance of planning, finance, professional consultants to manage the post-merger.

The Vietnam company, at present, when carry out M & A are based only on the legal framework for the shares, issued and listed securities: Enterprise Law 2005, Investment Law 2005, Competition Law 2004 and Securities Law 2006. Nevertheless, these laws do not have regulation in detail.

PhD. Phan Đăng Tuất21, Director of Institute of Strategic Research and Policy of Industry and Trade Ministry raised a concernen that:

Thus, the M&A definition is still initial in the Vietnam market. Many company haven't familiar in this concept. Someone knew that M&A conducting is combined

21 Minh Yên, " Tỷ lệ thành công của các vụ M&A trong nước rất thấp, chỉ đạt tỷ lệ khoảng 35%" (Only 35% M&A activities successful) VTC News 04/6/2008, available at http://www.vtc.vn/kinhdoanh/doanhnghiep/181209/index.htm

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two or more enterprises. Beside this is the gap in legal that reveal the overlap of the legal documents on M & A. There were no decree on M & A, no written guideline for procedures, procedures, processes to specifically guide M&A activity clearly making the merging of companies and people carrying out the tasks to have difficulties in setting up the transaction. The buyer of each company must resolve the consequence of post merger problems.

3.4 What drives the processes and how the transactions are carried out.

What factors drives the processes and how the transactions are carried out? There are a fewconcepts on mergers and acquisitions: Haspeslagh & Jemison (1991) proposed internal process originated and a traditional institutional theory (Selznick, 1949, Berger & Luckman, 1967 etc) and environmental approaches organisational theory (Powell & DiMaggio, 1991, Pfeffer & Salancik, 1978 etc). We will examine succes-sively these concepts.

According to Haspeslagh & Jemison (1991), the M&A process is driven by the in-ternal process which focuses on different phases such as ideas, decision-making and integration phases.

Each company has its own way to approach the realization of M&A. It depends on its motives to carry out M&A. The ideas phase which was described by a variety of ways in which firms can be strategically related. The motives reflect what types of business combinations are chosen, such as horizontal integration, vertical integration and conglomerate. The firms' ideas may focus on M&As between unrelated compan-ies or M&As within the same market with unrelated manufacturing and M&As between companies with related products but in another market.

If the share price is rising, the company is successful. About M&As there is no other alternative, if the market wants growth, wants to acquire, wants to develop holistic solutions or be global, there is only one alternative, to conduct M&As.” Coercive and mimetic are factors which lead to uncertainty".

There is not much choice in the M&A, if market needs to grow, to have M&A, to develop an overall solution, or to operate globally then there is one only choice which is M&A.

From the analyzing factors of motivation of M&A, Johan Lindqvist & Sofia Ahsberg22 based their research on 6 enterprises and drew out three conclusions:


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The Uncertain M&A Process – the strong uncertainty in the industry results in the process being driven more by mimetic factors than analytic evaluated facts.

The Pragmatic M&A Process – the short-term perspective of both the managers and the stakeholders makes the process more pragmatic than analytic.

The Environmental Dependent M&A Process – the high degree of environmental dependency creates a process that is strongly formed by companies’ audience, such as financiers and customers.

In practice, M&A activities based only on the business strategy aims. So the management usually overlooks the shareholders' benefits. The M&A activities were conducted in many cases only stemmed from the management benefit themself withoutconsoderation for the third parties. Hence these may be the causes that lead to the risks and failures of the M&A activities.

The analysis and comments of Johan Lindqvist & Sofia Ahsberg based on the ex-haustive limited 6 enterprises so may not be as general trends of all activities, M & A. However, the reasoning those values refer to consider the effort of active M & A and the factors leading to the risk, or frost from the subjective rather than based on the allocation of a scientific the factors of the market before conducting an active M & A.

In practice, M&A activities based only on the business strategy aims. So the management usually preterit the shareholders' benefits. The M&A activities were conducted in many cases only stem from the management benefit themself without the thirs parties. Hence these are some causes that leading the risks and failures on the M&A activities.

In fact, the implementation of M & A is only based on strategic goals and busi-ness, more so when managers often ignore the interests of the shareholders. The im-plementation of M & A because the many benefits of the body of the manager, should ignore the rights of third parties. So this is the cause of the failure and risk.

4. How to avoid or to minimize risk

The approach method is based on the examination of the regulation of law and the experience from UK practice, to understand the way to avoid or reduce the risks. In this part, the author will look at some topics: application of Vietnam and the UK regulation on M&A; comparion the two systems to find out some advantages; describe some of the UK experience on M&A; some recommendation.

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4.1 Procedure, legal process to consoliadte and merger en-terprises according Vietnam Enterprise Law

4.1.1 Procedure on the consolidate:Vietnam law mentioned that consolidation enterprises are proceeded by the re-

quirement of enterprises.

"two or more companies in the same type (hereinafter referred to as con-solidating companies) can be consolidated into the new company (herein after referred to as consolidated company) by way of transfering of all as-sets, rights and liabilities, and interests into the consolidated company and the consolidating company cease to exist23"

Competition Law also mentioned consolidate enterprises"Two or more enterprises transfer all the assets, rights and liabilities,

and legal interests to form a new enterprise, simultaneous cease the exist of the consolidating enterprises24".

4.1.2 Procedure, legal process of consolidation of enterprises:About consolidation enterprises, the article 152 Enterprise Law stipulated that, the consolidating companies will prepare the consolidating contract, the charter company; members, owners, or shareholders through a contract, the charter, elected the public list of key companies and conducting business registration. Contracts must be submitted to the creditors and inform their employees know within fifteen days from the date passed. In case the one that in which the company has consolidated market share since 30% to 50% of the relevant market, the legal representative of the company being consolidate must notify the agency managed competition before proceeding consolidate, unless the law on competition with other provisions. Vietnam Competition Law banned the circumstances under which consolidated company which consolidate with market sharefrom 30% to 50% in the concerned market as a result of the consolidation of companies, the legal representative of the consolidated companies must report to the competition controlling agency prior the consolidation, except where the law on competition with other provisions. After registration business, consoldating companies are cease to exist, the consolidated company will inherit all the rights and legitimate interests, responsible for the debts unpaid, contract workers and the other property of the consolidating companies.

23 Article 152 (1) Enterprise Law

24 Article 17 (2) Competition Law

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4.1.3 Procedure, legal process of merger of enterprisesEnterprise Law stipulated that merger means

"one or more companies in the same type (hereinafter referred to as merging companies) can be merged into another existing company (herein after referred to as merged company) by means of transfering of all assets, rights and liabilities, and interests into the merged company and the merging company will cease to exist."25

Competition Law also mentioned merger enterprises"One or more enterprises transfer all the assets, rights and liabilities,

and legal interests to another enterprise, simultaneous cease the exist of the merging enterprises26".

This concept is confirmed with the concept of acquisition, that an enterprise pur-chases all the assets of another. However, Vietnam Enterprise Law has not been re-flected the case of takeover, which an enterprise purchase sufficient share capital to control, or change the top management, or redirect the business activities of the other enterprise.

4.1.4 Procedure, the legal process of mergerProcedure for merger, the companies involved preparing the merger contract and the draft charter of the mergered company. The members and the owner of the company, or the shareholders of the companies involved through the merger, the charter merg-ered company and conduct business registration mergered companies as stipulated by the Law. The mergered contract should be sent to all creditors and inform their employees know within fifteen days from the date passed. After business registration, the merging company cease to exists; mergered companies inherit all the rights and legitimate interests, responsible for the debts unpaid, labour contracts and obligations other assets of the merging company. In case of merger under which the mergered company recognized that have a market share from 30% to 50% of the relevant market, the legal representative of the company to notify management agencies to compete before the merger. Only in cases where the law on competition with other provisions. Enterprise Law prohibit the case of the mergered companies that follow that the company has received merger market share above 50% in the market concerned27.

25 Article 153 Enterprise Law

26 Article 17 (1) Competition Law

27 Art. 153 (2) Enterprise Law

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4.1.5 CommentsThe spirit of Vietnam law on business as a business owner is to entitle decisions on production and business scale activities, selected forms, methods to mobilize and use of capital, accounting for property28, use and disposition of assets of the business. However, Vietnamese law also requires businesses are supposed to comply with the rules of law on the professions and business, finance, tax, labour, the protection of public order and security environment. The control of state agencies ensures stability and maintain order business, as well as to protect the interests from the state, public benefits and interests of individuals. Therefore, the purchase and sale, merger is the right business decisions of the owners, but owners must still comply with the order, procedures when transferring assets, transfer funds or assets.

Vietnamese law prohibits the act of declaration is not misleading, inaccurate content profile business registration; statements are not misleading, inaccurate, not timely changes in the content registration records business29.

Transactions and the merger should conduct the registration in the relevant jurisdiction. For company's limited liability, all transactions on capital must be registered in the agency business registration to record the change investor or member companies. The transactions of company shares over the convenience, the registration is only required in some cases. However, it should also note that if investors held 5% of the total number of shares of the report and registered in the agency business registration. For companies and the public companies listed on the stock market, must be published and notified at the request of the Securities Law for the transaction and integrating the merger. The enterprises of foreign investment are not carried out the re-registration as stipulated by the new law, the transfer of the legal capital or shares must be approved by the agency has an investment license for the business. The enterprises of foreign investment will still belong to this type of Limited Liability company.

It should also pay attention to the provisions of the antitrust authority as stipulated by the Law on Competition comes into force on 1/7/2005, related to the transaction and integrating the merger. This law stipulates a number of articles related to ban focused economy as a result of integrating the operations and mergers among enterprises.

For the company's liability limit for the assignment of capital must be offered pri-ority for the remaining members. In the case of the remaining members not to buy or not buy all the new sold to others30.


29 Art. 11 Enterprise Law

30 Art. 44 Enterprise Law

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For joint-stock company, the offer for sale and transfer of shares by the Management Board. The company must notify in writing to the shareholders by the method to ensure the permanent address of theirs. The notice must be posted in the newspaper in three consecutive numbers within ten working days from the date of notification. Once the shares are sold, the company must release and exchange of stock to the buyer. The company may sell shares without exchange of stock. In this respect, information about shareholders stipulated in Clause 2, Article 86 of this Law be recorded in the book of registered shareholders is sufficient to prove actual ownership of shares of shareholders in the company. The shares are freely transferable, except as provided in paragraph 3 of Article 81 and Clause 5 of Article 84 of this Law. The transfer is done in writing in a way that normal or by hand stock exchange. Transfer papers must be transferring parties and the transfer or receive representatives authorized their signing. The transferable is still the owner of the shares related until the name of the person receiving the transfer is registered in the book of registered shareholders. In case only transfer some shares of stock with names of the old shares were canceled and the company issuing new shares recorded the number of shares has been transferred and the number of shares remaining31.

For private enterprises, the private enterprises have the right to sell their business to others. At the latest fifteen days before to transfer business to the buyers, business owners must be notified in writing to the agency business registration. The notice must be a clear name, headquarters of the enterprise; name and address of the buyer; total unpaid debts of the enterprise; name, address, number and duration of debt pay-ments to each creditor; contract labour and other contracts signed but not yet done and how to settle the contract it. Buyer enterprises must register the business32.

4.2 Procedure, legal process of merger, acquisition of busi-ness UK law - experience and review

As part of the analysis was the term merger under UK law means such as the merger and acquisition under the Enterprise Law Vietnam. Therefore, according to Company Act 2006 the order, the procedures and mergers business are defined in the same section 27, with the rules from the article 902 to article 918, in which regulation is very detailed information about the requirements necessary to conduct a consolidated and merger business.

The preparation before the planned transfer, through the shareholders, shareholders' meeting, or the council members to gain approval or the job is first and



important. If you violate these rules may the transfer will encounter obstacles or lead to legal disputes.

Board of Directors of the company's transfer must be draw and passed a draft terms, including at least these issues the name, address, headquarters of the com-pany's transfer and the company received transfer, In which to determine which com-pany is limited liability by stock companies or limited liability are guaranteed and share capital; the number of shares of the company receiving the transfer with the di-vision members and the ratio of stock and the amount of the payment in cash; terms relating to divide shares of the company receiving the transfer; on which sharehold-ers of the company receiving the transfer will have the right to participate in the profit sharing33.

The Board of Directors of each merger company must distribute copies of the draft terms of this agency for business registration. The agency business registration must sign the report. This notice must be posted at least one month before the date of the meeting summoned to the company through the plan34.

The consent of member company's merger: Planning must be ratified by the ma-jority representing 75% of the value of shares of each member of each company mer-ger, present and voting in person or represented at the meeting35.

Reporting the explanation of the Board of Directors: Board of Directors of each company merger to develop and through the report include: speeches to explain the effect of agreements or arrangements and draft legal basis and for the economic terms and in particular for the rate of exchange shares and indicate any difficulties especially valuable.36

Through the charter of the new company to receive transfer: In the case of mer-gers in the formation of a new company, the charter of the company receiving the transfer, or draft the charter must be ratified by a resolution of the company or trans-fer of each company transfer37.

In conclusion of the work must be carried out for a transaction and integrating the merger of enterprises, according to British law, which is

Planning a merger and most businesses: the responsibility of the director of the company must prepare a draft term, with more specific about the timing. The content should have a specific division of tasks and requirements to achieve38.

33 Art. 905 Company Act 2006

34 Article 906 Company Act 2006



37 Art. 912 Company Act 2006


Reports of specialists: the report must be outlined on behalf of each company merger. Reporting requirement is to report and write a specialist who should be eligible to be appointed as a legal audit and meet the demand's independence. Reports of experts must indicate the method or to use exchange rates to exchange shares, opinions formwhether approach or the method used is appropriate for all circumstances of the case, indicate the value achieved when using each method and opinions form about the relationship between an important method to achieve decisively valuable; describe any value is not any special happen; to express opinions those data of specialists on exchange rates exchanges of shares is appropriate39.

If reports annual accounting of the company's merger in relation to annual financial terminate more than seven months before the meeting summoned the first to pass the plan, Board of Directors of the company must prepare a speech Additional accounting. The speech must include balance sheets increased affairs of the company as at a date not more than three months before the draft articles adopted by the Board of Directors; a balance between the speeches of companies and business must be included in the consolidation40.

Investigation documents: UK Law, members of each merging company must have sufficient authority to check at the headquarters of the company all documents are listed and receive copies of this document or any part that they are not required to pay, within one month and ends on the first meeting of the members through to the plan. Documents can be checked is the draft terms; the report explained the Board of Directors; the report; accounting for reports and annual financial reports three years to terminate on or before the first meeting of the company through to the plan and any additional accounting41.

Disclosure, transparency: Public means public disclosure of information by both voluntarily or by the rules of law. According to British law, publicly-based process can form part of the legal process, under which the parties provide information to other parties on the relevant documents to which they are controlled. In property transactions, based on the public to provide information the buyer knows about the seller or the agent concerned about conditions or the influence of other assets may af-fect the value of intellectual property friendship.




4.3 Comparison of similarities and differences in proced-ures, legal process of merger, acquisition business of Vietnamese law and the law UK

The criteria used to review the similarities and the difference between Vietnamese law and UK law on the order, the procedures and mergers businesses of the regulations on legal aspects: Freedom of right of the will, self-decision and bear the consequences suffered; protection rights and legitimate interests of the owners, shareholders and those who participate, protect rights of minority shareholders; issue publicly, transparency, responsibility publicly, penalized for violating rules publicity; responsibility of management: the divide between ownership and management rights; these situations occur easily the abuse of power, prohibit to limit the abuse of power; responsibility of the vendor, responsible for the accuracy of the information; Liability compensation; responsibility of the buyer, the concept of due diligence, investigation documents, investigate the situation; Penalties for violations. The protection of rights and legitimate interests of citizens and owner in particular are one of the dominant principles of the law. In the rules of law, it has spent the key to the regulations on this issue.

In this thesis, the author only focuses in analyzing some essential point about the consent, the publicity and transparency of information and the penalties in M&A ac-tivities.

4.3.1 Similarities Complying with the order to conduct a meeting: Shareholders' meeting must be according to the charter of the company and must be conducted according to the order has been credited in the program. A shareholder or representative group of shareholders owns 1% charter capital to qualify include names to the list include representatives must meet the quantity.

Achieve the consensus: The need to achieve the consent or approval before conducting the buying and selling businesses. Shareholders, the owner, creditors, including employees with the prior consensus' facilitate the transfer42.

The approval of the shareholders: So discount rate or discount to brokers or guarantor in the offer for sale of shares must be approved by shareholders representing at least 75% the total number of shares voting.

The approval of the Council members, board: In the case of company limited liability the contract, the transaction must be approved by Council members, it is a

42 WJL Knight LLB, Solicitor Partner Simons & Simons "The Acquisition of Private Compa-nies", Longman, Sixth Edition (1992) P. 20-22

contract, transactions between the company with members, representatives authorized by the member, Director or the Director-General, representative of the legal company and the people concerned; manager parent company, Who has the right to appoint managers to the parent company and the people concerned. The draft contract or notice the main of the transaction plan to conduct must be notified to the members of the Council members and must be posted at the headquarters of the company.

In case of the Charter does not prescribe the Council members must decide whether to approve of the contract or transaction within fifteen days from the date listed; in this respect, a contract, the transaction is approved if with the agreement of the members representing at least 75% of the total capital with voting rights. Similarly for companies limited liability a member of contracts, transactions between companies with the people concerned must Council members or the company chairperson, Director General or Director of Inspection and member show considers the decision by the majority principle, each person has one vote. The increase in the charter by receiving additional members must unanimously be by the members, except the company Charter and other provisions.

For creditors, the parties in the transfer of assets needed to pay attention on achieving the agreement of creditors. In many cases, the buyer must gain the consent of creditors to ensure that the conditions are still entitled to the preferential loans or of the conditions of work as before. Failing to achieve the consent of creditors before the buyer may be faced with disputes, complaints, or the proceedings can cause prolonged the loss, effort, cost, or lose the business opportunity's business43.

The lender also may be required to settle debts before the two sides conducted the buyer and seller promoting the purchase and sale of businesses.

The consent of the bank before entering into the agreement is signed purchase and sale of businesses. The aim to ensure that investors can later be continued with the loan conditions as before.

The owner of the land: the cases of land owners do not agree. Conditions on the use of infrastructure, along the way needs provide electricity, water supply, relating to the use of the system to process waste. In many cases do not achieve the consent of the owner of the land, the implementation activities after the transfer will encounter many difficulties.

The consent of workers: General principles of labour law Viet Nam is to protect the rights of workers, so in many cases purchase the business next must inherit all the rights and obligations regarding workers, in particular must continue to maintain and implement the labour contract signed with the workers. Employer next, in the case of

43 Andrew Stilton, Partner, Martineau Johnson. "Sale of Shares and Businesses: Law, Practice and Agreements", Sweet & Maxwell Limited, Published (2006). P. 33-35

mergers, business division, transfer ownership, management rights or rights to use assets, are responsible for the continued implementation of labour contracts with employees until the two sides have agreed to modify, terminate the contract or when the contract was signed new labour.

In the case of nonuse of all existing workers, the employers must set up the next project using labour, including the number of workers continuing to use, bringing the number of workers trained to go back to continue to, the number of retired workers, the employers have to terminate the employment contract. Option to use labour must be the participation of the Trade Union and the implementation must notify the agency management level workers. Seller and the buyer must have a responsibility to resolve the rights of workers. The identification of expenses for training and paying for benefits for losing their job should be calculated in the process of purchase transaction's business. The case of termination of employment, as a result of the merger transfer business employers to pay for pensions lost jobs for workers every year working with a monthly salary, but also the lowest in two months' salaries.

UK law: Indemnification for dismissal laws and laws protecting employees 1978 (The Employment Protection (consolidate) Act 1978), Part V, subsections especially 72-76 in the case found the dismissal to the law councils labours arbitrators have jurisdiction44.

The Act protects employees in 1992 and law's dismissal laws and 1992, took effect on 1/4/1992 (Employment Protection Order 1992 and the Unfair dismissal Order 1992, both of Which came into force on 1 April 1992). Employees must get back if they succeed in initiating a legal action illegal dismissal laws. Calculate the damage will be based on the criteria: the loss immediate and long-term, damage related to the dismissal, the loss comes from senior workers, costs, support retirement date and the loss of welfare45.

The general principle of the labor law in Việt Nam is to protect workers, therefore in many cases of M&A, the buying company must assume the total package in term of labor force, specifically, it must provide employment to workers and honous all the tems in the labor contracts previously signed onless they reach another agreements.46

In the case that the buying company cannot provide employment to part or whole of existing labor force, the company must have an appropriate plan to retrain, early retirements, lump sum compensation with the consent of the local Union and inform the upper level Unions. Buyers and sellers are responsible to implement the

44 WLJ Knight LLB, Solicitor The Acquisition of Private Companies , 6th ed., Longman P. 60


46 Article 31 Labour Law

contract/ The amount og compensation must be planned beforehand in the documents of M&A.

The termination of labor contract due to M&A, workers must be compensated for lay off at the rate of each month foe every eorking year with the minimum at 2month salary47.

The termination of the labour law does not properly can lead to damage to the buyer. Request for termination of employment must notice from thirty days to forty-five days depending on the type of employment is the determining if defined the time. The breach will result in termination of the illegal and often penalty is to recognize that workers return to work and be paid at least two months' salary, plus salaries in the days' employees are not working 48.

The previous agreement with the vendor and employees to maintain and use the staff of excellent experts of the company is also a problem the buyer should consider in order ensuring the stable after the transfer or enter. In case of need to reduce labour and additional work force to increase the productivity of labour, the buyer pay attention to the costs necessary for this activity. Achieve the consent of workers to ensure the psychological moreover to avoid the conflict, disagreement right from the start, it helps the buyer can promote the strengths of the team five professionals and workers, as well as work experience in their working conditions with the new owners, with strategic new business49.

The buyer should also pay attention to the sort of a pension fund for the dismissal of workers. Upon termination of employment who have regularly worked in enterprises, institutions and organizations from a year or more, employers are responsible for pension dismissal, every year worked a half month's salary, plus allowances paid 50

One problem the buyer needs to pay attention is that collective bargaining with the union signed and the terms of the welfare fund, praise or terms of increased wages51.

4.3.1.1 Disclosure and honesty:

General principle of business law prohibit the statements not misleading, inaccurate content profile business registration; statements are not misleading, inaccurate, not timely changes in the content profile post business registration; or declared

47 Article 17 & 31 Labour Law


49 Article 17 & 31 Labour Law



controlled registered capital, not contributing enough time and capital as registered; intentionally the valuation contributed capital incorrect actual value52.

According to business law, obligation of business are to organize the work accounting, and filing financial reports of an honest, accurate and on time. Detect when information has been declared or reported inaccurate, incomplete, it must be timely amend and supplemented about it.

Joint stock companies must submit financial reports every year in the general meeting of shareholders. the finacial report must be passed to state agencies authorized under the provisions of law on accounting and legal related, at the same time must be to all existing shareholders. All organizations and individuals have the right to view or copy financial reports every year of the company's shares in the agency business registration with authorities.

Circular of the Ministry of Finance provide on the declaration on the means of mass media, or other information about the stock market or stock exchanges of information during three days occur when events associated with the decision to consolidate and merge.

Managers, representatives authorized, members of the council members and General Director have the responsible to carry out the rights and obligations with honest, careful, well, loyal to the interests of the company and owner of the company. These responsibilities aim to ensure maximum benefits of the company and the company owner. The law prohibit the top manager not use the information, know-how, business opportunities of company and not to abuse their position, and position of the company's assets to private interests or to serve the interests of organizations and individuals.

The rules reflect the principle: the law of Vietnam and the UK are focused on achieving the consent of the owners, shareholders, creditors and employees prior to merge and mergers. The case does not fully comply with the order, procedures, or just to comply with terms of form, which does not really achieve the consent may be the cause of the problem and prolonged dispute.

4.3.1.2 Differences:

Publicity and Transparency of Information: The UK law is very srict in the violations of their regulations on information, the alterations of information, content alterations of information, the responsibility about the accuracy of information, if there are some abuses, it maust be penalized 53; besides the right to have information can be activated by all partie including owners, shareholders, creditors, buyers and sellers.

52 Article 11 (4)Enterprise Law

53 Article 897 (5) (6) (7) (8) company act 2006

Experiences from the UK in legalization the rules in M&A activities. UK law is flexile to response to the change in economic development, it is prompt to make amendments, modifications in the M&A activities into their Company law54.

The penalties are stipulated very clear in the UK law including in the criminal code for the serious violation of the law.55.

4.4 Summary of comparison of sequences, procedures on M&A transaction under the laws of Vietnam and the United Kingdom:

4.4.1 According to Vietnam's Enterprise Law:4.4.1.1 The sequence, the procedure of consolidation:

Prepare the merge, the draft charter consolidated companies;Send a contract to the creditors and inform workersReport to management agencies on competition (case of consolidated company

have market share from 30% to 50% of the related market)Pass the agreement, rules - by members, owner of the company or shareholders Elected or appointed Chairman of the Board members, company Chairman,

Executive Committee, Director General or Director of the consolidated company.Conducting business registration consolidated companies.

4.4.1.2 The order, procedures for merger:

Prepare the merger agreement, the draft charter mergered company.Send a contract to the creditors and inform workersReport management agencies to compete (case of mergered company have market

share from 30% to 50% of the market related)Through the agreement, the charter, members, the owner of the company or the

shareholders of the companies involved.Conducting business registration mergered companies.

4.4.1.3 Company Law UK:

1) The order, procedures apply to cases of mergers in the formed of new company Preparing the program, the plan of merger (the company's director of mergers and

company mergers have been responsible for preparing) 56;

54 explanatory notes relate to the Companies Act 200655 Article 34 (5), (6) article 35 (3), (4), article 36 (3), (4) Company Act

56 Article 905 company act 2006

Sent to the agency business registration. Registration agency business announced on Gazette (the report) (must be published at least 1 month before the meeting summoned by the program (the plan) merger. 57;

The approval representing 75% of the funds contributed by the member company mergers 58;

Reports and explanations of the Board of Directors on all matters related59;Reports and explanations of the experts on all the issues involved60. (Regulations

of the Court can participate in the meeting)Regulation on the additional accounting report 61;Provision on the investigation document62 before 1 month and ends on starting the

first session for the adoption (the plan) merger. Documentation include the draft articles, reports Board of Directors, reports of experts, financial reports;

Through the charter company merger (new company) 63;Protect the rights from the shareholders (who hold securities)64;Uundivided shares of the company transferred65;

4.4.1.4 The sequences, procedures applied to cases of mergers by abortion:

This regulation is the same as in the case of mergers (in the formed of new company). However, there are a number of the order, the procedure are not the necessary such as the merger plan, the investigation documents, as well as the members approve the draft chapter the plan of the merger.

The draft program (the plan) must not br necessary for member companies to receive the transfer if the Court.

4.4.1.5 Comments:

Through comparing sequences, procedures for conducting the merger and businesses under the Enterprise Law and Law on Viet Nam the Company UK showed that there are following differences










The disclosure information and the responsibilities in disclosure of information are important. The rules of the Board of Directors business mergers or acquisition must prepare the program, the plan of merger, financial reports and explain the issues relating to the financial situation, as well as on issue's merger.

Disclosure information is not only the company directors’ responsibility, but also of the agency business registration. The published information about merging company will help shareholders, creditors, as well as third parties related to conditions checking documents and the real situation of the company.

The rules of procedures and documents required to have, as well as the steps carried out detailed and specific help for yourself company mergers and acquisition is carried out properly defined at the same time identifying responsibilities of stake holders involved in the process of merger, or check on the merger.

Regulations on penalties for acts not execute properly defined by the Company Law.

These are the strong points in the UK law from which we cwn studu to admend, modify to sequences, procedures of M&A in the business law of Vietnam.

4.5 Improving legal sequences, procedures in M&A process in Viet Nam law

4.5.1.1 Current limitations

The legal liability of administrators has not been defined specific and clear in the Vietnam law. Therefore, there have been many disputes between member companies, between the owners, and between the Board of Directors with shareholders in the transfer of capital, or transfer of shares. In the Enterprise Law only if the obligations of the owners, members of the Board, members of the Board of membership and obligations of the Director-General, a director general is to "exercise the rights and duties assigned to be honest, careful, it's best to ensure legal benefits maximum of the company and shareholders of the company; loyal to the interests of the company and shareholders of the company; not use information, know-how, business opportunities for the company's abuse of position, and position of the company's assets to private interests or to serve the interests of organizations and individuals; report timely, adequate, correct for the company in the business and that they related to their owned or contributed the capital, share dominates; notice was posted at the headquarters and branches of the company." 66.

Disclosure, the transparency of information: if it were scattered in the Enterprise Law, but with the merger and most businesses are not raised. Vietnamese Enterprises Law also lack part of penalties for those acts does not comply with the rules of law.

66 Article 56, 72, 119 Enterprise Law

In fact, the penalties for violations in the society and business in particular are defined in criminal law and ordinance violation fines administration.

Regulations related to a merger and acquisition on the Enterprise Law has estab-lished the legal framework to be able to participate in the decision and choose the ap-plication of very suitable circumstance and their desirable. Regulation, however also is general, not specific and detailed. The lawmaker has not measured all arisen matters. So, they let the Government and the Ministry has the right to issue all the details. The M&A activities were defined in the different law: business law, investment law and competition law. So it is hard to find out and to apply.The UK experience have gradually the policies of the different laws in the same act such as Financial Services and Market act, regulations on competition by Takeover Directive of the European Parliament (Directive 2004/25 / EC of the European Parliament and of the Council). It is benificial for us to learn more about this.

The difficulties of the purchase of business can be easily seen that most of the companies are sold in the situation of debt, so no one wants to buy their shares. Therefore, the Government has provided two solutions. The first is bidding if the buyer wanted to buy the whole package from the seller, including the labor force. The second method is auction if they only want to buy assets. If the transaction failure leads to disputes we can see that the reasons are lack of understanding the law and compliance to the law. In many cases we could concern that either the lack of publicity and transparency of management is responsible for the preparation of the transaction and integrating the merger.

4.5.2 Some proposals to contribute to legal regulations on M&A of enterprises

4.5.2.1 Legislatization

Regulations must be under the same text, especially in the laws to avoid the conbfu-sion from the maze created by administrative orders from ministries, departments who have make many rules leading to overlapping and difficult to implement. The UK experience in the process of legislature of company law should be learnrd fo im-proving our M&A procedure regulations.

Mergers and acquisition activities of developing enterprises require more detailed and specific regulations. There should be appropriate regulations for penalities, because it would make people recognize their own responsibility when carrying out the tasks to obey the correct rules of law in performing duties in a careful and honest manner.

Seminars should be organizde to unified concept, and find out the reason why only 30% cases of transactions successful. Based on the ideas of the seminars, it should determine the basis for improved regulation law.

4.5.2.2 On legal regulations:

The examination and evaluateions of the terms of the M&A shold be based on economy principle. Economic factors must be consideed on making rules of law, I,e, law is promulgated for the benefits of genuine economic development to ensure the sustainability, and risk reduction.

Compare with policies of other countries, especially the policies of UK law to supplement and ameliorate the rules of law in the Viet Nam transaction and integration of the merger. Consider additional regulations on the acquisition, merger, takeover under the law’s modern concept.

Admend to the law on sequences, procedures, eliminate out of date inactive regu-lations without decrees and circulars guiding the implementation, otherwise it will be impossible to apply conflicting rules of law. The unification into a set of laws on business will honor the essential principle of law in which law is the highest level, in ehhect it iss easy to learn, easy to apply and convenient for integrating the operations and mergers.

Additional details and specific sequence, procedures in the conducingt of mergers and businesses are as follows:

Regulations for the time information must be disclosed, penalties for the supply of inaccurate or false information, especially the information about financing, the prospectus, the financial report; Regulations on the right to investigate the information right to collect information; Need of additional regulations on penalties for violations, for example, do not reveal to public full information, or misleading information, or abusing advantage of holding information for advantages; most specifically is the regulations on publicity, the responsibilities of a broker under the law.

5. Conclusion

Merger and acquisition have begun to develop in the time span of more than ten years, and the trend is going strong. However these activitues are still fairly new, and business entities in Vietnam haven’t yet gather enough experiences to deal effec-tively with the business of M&A. The study to learn the experiences in UK in the practice of legal regulations on companies in general and about the merger and ac-

quisition of business in particular is indeed very beneficial for conducting similar ac-tivities in Viet Nam.

To incorporate more specific details and appropriate terms into a consistent set of legal documents will make it easier for enterprises to carry out the tasks of M&A and it will create favourable conditions for anyone who has interest in studying theory of M&A as well as for law practice professionals in settling disputes, reconciling differ-ences between two parties in M&A in the current situation of the integration of Viet-nam into the international business community. The study of law and the learning of experiences from UK regulations on sequences, procedures, where the carrying out a purchase and merger of a business in Vietnam with additional details and specific tasks in order to ensure confidentiality, control right of owners, shareholders, members and all parties participing in this transaction is necessary to conduct M&A activities appropriately along the legal corridor is to ensure the sustainability of econ-omy as well as to limit any abuses, loss or unwanted negative effects.

Table of Statutes and other Legal Instruments

National Legislations

United Kingdom

Company Act 2006

Vietnam

Civil Code (No. 33/2005/QH11 of 14 June 2005)

Enterprise law 2005

Investment law 2005

Competition law 2004

Decree 139/2007/NĐ-CP

Bibliography

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