New guidance on M&A approval process.

With the effect of the Law on Investment 2020, the Ministry of Planning and Investment issued Official Letter No.8909/BKHDT-PC at the very end of last year, providing guidance on the implementation of investment procedures.

This article sets out the key points of the new guidance on approval procedures and explains how it affects potential mergers and acquisitions.

Under Section I, Item 3.2 of the official letter, the target company that receives the capital contribution or sells the shares or contributed capital must submit one application for mergers and acquisitions (M&A) approval to the investment registration authority. Under the Law on Investment 2014 and the 2020 version, the foreign investor itself submitted this application.

However, both the foreign investor and the target company must sign the form used for the M&A approval procedure. In our view, therefore, either party or both parties can still submit the application in practice.

Under the official letter, the application for M&A approval now requires more information and documents than under the previous regulations. The first document is a written request for M&A approval. This request must state the target company's enterprise registration details, including its name, enterprise code, enterprise type, head office address, business lines, charter capital and any existing foreign investor.

The written request must also state: information on any founding shareholders; the target company's land use right certificate (if the company uses land on islands or in border or coastal areas); the foreign investor's ownership ratio before and after the investment; the transaction value; and information on any investment project of the target company. This last item is new compared with the previous regulations.

The second document is a valid copy of the legal identity documents of both the foreign investor and the target company.

The third document, which is also new, is a written agreement between the foreign investor and the target company on the capital contribution or the purchase of shares or contributed capital. In practice, however, the investor must obtain M&A approval before it makes any capital contribution or purchases any shares or contributed capital. This requirement may therefore leave both parties unsure whether they should submit a draft agreement or a signed agreement to the investment registration authority.

In addition, if the foreign investor invests by contributing additional capital (without buying shares or contributed capital from an existing shareholder or member), it is unclear which kind of written agreement the parties must submit.

The fourth and final document is a written declaration on the land use right certificate, if the target company uses land on islands or in border or coastal areas. However, the official letter provides no form or further guidance for this declaration. It is therefore unclear whether the target company may make the declaration itself and take responsibility for it, or whether a competent authority must confirm or certify it.

On business lines and market access conditions, foreign investors receive the same treatment as domestic investors, except in the specific cases set out in the list of business lines restricted to foreign investors. The Government will issue this list, but it is not yet clear when.

The list should include business lines that are closed to foreign investors and business lines that are open subject to market access conditions. The Government will set out the market access conditions for foreign investors in each sector in accordance with the applicable laws, resolutions, ordinances and decrees and with the international treaties to which Vietnam is a party.

Before the Law on Investment 2020 applied, the investment registration authorities processed all valid applications under the 2014 law. The 2020 law has now taken effect and replaced the 2014 law. The official letter therefore sets out two scenarios for processing applications:

First, if the processing deadline has passed but the applicant has not yet received the result, the authority continues to process the application under the Law on Investment 2014 and related regulations.

Second, if the processing deadline falls after 1 January 2021, the investment registration authority instructs the applicant to supply any missing documents or amend the submitted application to comply with the Law on Investment 2020. The authority then carries out the procedure under the applicable law.

To support implementation, the official letter comes with the application forms for investment registration procedures. However, the letter is only provisional guidance. It ensures that investment registration procedures follow the Law on Investment 2020 from 1 January 2021 until the Government issues an official guiding decree.