3 issues to consider when conducting an asset deal in M&A transaction

Date: 27 August 2021

Writer: Thao Nguyen

Buying (the whole or part of) the asset of enterprises is a fairly common form of M&A transaction. The asset related to the M&A transaction must satisfy the conditions so that the buyer can own such asset. However, the issues related to the acquisition of assets are regulated in different legal documents, causing difficulties for enterprises when conducting asset deals. 

Through the below article, BLawyers Vietnam will introduce 03 issues that enterprises need to consider when conducting an asset deal in M&A transactions.

1. Labor issues

There are 2 issues related to labor that enterprises should take into account when buying assets in M&A transactions. Firstly, the asset deal leads to labor force rearrangement and is the cause of the termination of labor contracts with many employees (mass layoff). Secondly, the buyer inherits labor contracts for the transferred employees after completing the asset deal transaction.

For the first issue, the seller shall develop a labor utilization plan. However, the buyer needs to conduct due diligence on personnel structure, employees’ information, and labor contracts to reach an agreement with the seller on such a plan to achieve the most effective solution.

For the second issue, the buyer needs to consider factors such as compensation and benefits, accounting and tax, human rights, anti-bribery, work permits for foreign staff, pending claims and complaints, strikes, turnover rate, labor safety, etc to identify issues needing to be resolved when inheriting the rights and obligations of seller towards the transferred employees.

2. Tangible property ownership

It is of the essence to determine the assets are legally owned by the seller. This can be indicated by Certificate of land use rights and ownership of houses and other land-attached assets or assets sale contracts. The buyer also needs to consider co-ownership issues, disputes, and complaints related to the purchased property.

In case the purchased asset is under construction, the buyer shall evaluate whether the construction is in conformity with the law to ensure that the construction after being transferred will not be interrupted or be detracted from its value.

In case the buyer is a foreign-invested enterprise, it is necessary to pay attention to the restrictive regulations on real estate ownership for foreign-invested enterprises. Accordingly, foreign-invested enterprises are allowed to buy assets attached to land but cannot receive land use rights transfer from existing land users.

3. Intellectual property rights (“IPRs”)

When the purchased property is intellectual property rights, the buyer should take into account the following issues:

  • Firstly, the buyer needs to determine the seller’s ownership of the IPRs. For IPRs established on the basis of registration, the buyer must check the ownership based on the protection title was granted. For IPRs that do not need or cannot be registered for a protection title, the buyer must examine that the seller meets all legal requirements to be considered the legal owner of such IPRs.
  • Secondly, the buyer needs to determine whether (i) the IPRs can be transferred; (ii) the IPRs are being mortgaged at other institutions; (iii) the transfer requires consent from another third party; (iv) the IPRs are in a dispute; or (v) other potential risks may occur.
  • Thirdly, the transfer of industrial property rights must be done in the form of a written contract and this contract will only take effect when it has been registered at the state management agency in charge of industrial property rights. The buyer needs to strictly comply with the law to ensure the legal value of the transfer contract.

In order to protect legitimate rights and interests and mitigate potential risks when performing asset deals in M&A transactions, enterprises shall consider the above issues. Simultaneously, it is of great importance that enterprises seek advice from consultants to carry out the deal efficiently in the short time available.

Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

Maybe you want to read:

Which legal grounds shall affect M&A transactions from 2021?

Common risks happened after mergers and acquisitions (M&A) transactions

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