Written by: Phuong Nguyen
The Covid-19 pandemic is spreading rapidly and causing severe damage to the global economy. However, it is not the same in Vietnam. Economic activities of the country are not interrupted, but with a narrower scale than before. So, many enterprises select economic concentration to increase capacity and restructure investment. According to Ministry of Planning and Investment‘s report for the first two months of 2020, the capital inflows that foreign investors brought to Vietnam in the form of capital contribution and share purchase reached over US$800 million.
Taking this chance, BLawyers Vietnam will provide underneath some general notes about this matter pursuant to Law on Competition of 2018 (“LOC”) for investor’s consideration.
What are forms of economic concentration pursuant to LOC?
The LOC regulated 05 forms of economic concentration, including:
- Merger of enterprises, which means an act whereby one or several enterprises transfer all of its/their properties, rights, obligations and legitimate interests to another enterprise, and at the same time terminate the existence of the merged enterprises.
- Consolidation of enterprises, which means an act whereby two or more enterprises transfer all of their property, rights, obligations and legitimate interests to form a new enterprise and, at the same time, terminate the existence of the consolidating enterprises.
- Acquisition of enterprises, which means an act whereby an enterprise acquires the whole or part of property or shares of another enterprise sufficient to control or dominate all or one of the trades of the acquired enterprise.
- Joint ventures between enterprises, which means an act whereby two or more enterprises jointly contribute part of their property, rights, obligations and legitimate interests to the establishment of a new enterprise.
- Other acts of economic concentration pursuant to Vietnamese laws.
When could could prohibit a case of economic concentration?
LOC could prohibit implementation of economic concentration of enterprises if it exerts an impact or is likely to exert a significant anti-competitive effect on Vietnam market. The criteria to determine the case of being prohibited is based on the nature of the effect. Another criteria is the possibility of causing the competition restriction effect of the economic concentration transaction. Only economic concentration transactions that cause or likely to exert significant anti-competitive effects without remedying such anti-competitive effects are prohibited.
When do enterprises must notify their economic concentration to a competent authority?
If economic concentration under the threshold of notification of economic concentration, the involving enterprises must submit a notification of economic concentration to the National Competition Commission (NCC). The threshold for notification of economic concentration of enterprises not being credit institutions, insurance enterprises and securities enterprises is determined since one of the criteria including:
- Total asset available or total sales or purchase volume in Vietnam market of an enterprise or a group of affiliated enterprises of which the enterprise is an affiliate must be worth VND3,000 billion (~USD128,5 million) or more in the fiscal year preceding the planned year of economic concentration;
- Total sales or purchase volume arising in Vietnam market of an enterprise or a group of affiliated enterprises of which the enterprise is an affiliate must be worth VND3,000 billion (~USD128,5 million) or more in the fiscal year preceding the planned year of economic concentration;
- Value of all economic concentration transactions must be worth at least VND1,000 billion (~USD42,8 million); or
- Joint market share of enterprises intending to participate in the economic concentration program must account for at least 20% of total share of the relevant market in the fiscal year preceding the planned year of economic concentration.
For economic concentration conducted outside the territory of Vietnam, involving enterprises should consider the threshold of notification of economic concentration based on the criteria of total assets; total sales or sales purchased on Vietnam market and the combined market share of enterprises intending to participate in economic concentration in the relevant market as mentioned above while the criterion of transaction value of economic concentration is not applicable.
In addition, the LOC also stipulated that each involving enterprise must notify NCC before conducting economic concentration.
Which legal consequence could be subject for a violation?
Acts of failing to comply with the LOC during economic concentration could include:
- Failing to notify economic concentration;
- Implementing economic concentration without receiving a notification of preliminary assessment result from the NCC;
- Implementing economic concentration before the NCC issues a decision on economic concentration; or
- Implementing prohibited economic concentration pursuant to the LOC, etc.
An enterprise committing those would be subject to administrative sanctions. When an enterprise conducts a merger, consolidation, acquisition, joint venture or fails to notify about economic concentration, they should note on a fine up to 05% of total turnover from the relevant market in the financial year preceding the year of violation committed.
Authorities could determine total turnover on the relevant market as total turnover of all markets related to violations in case enterprises participating in economic concentration are those participating in the production, distribution and supply chain for a certain type of goods or services or business lines of the enterprises joining economic concentration is the input to each other or support to each other.
In addition, they could impose remedial measures, contingent on types of violations, including revoking a business registration certificate, forcing to divide, separate the consolidated enterprises, or resell the assets that enterprises have purchased.