Exiting Vietnam: M&A vs. Corporate Dissolution — Points for Choosing the Optimal Method
A Vietnamese attorney provides a detailed, practice-based explanation of the options for M&A (share transfer) and corporate liquidation/dissolution procedures when exiting a business in Vietnam, together with the procedure, timeframe, and risks of each, drawing on hands-on experience. Taking into account practical considerations such as recovery of investment, tax optimization, and labor matters, this article offers perspectives for Japanese-affiliated companies to consider in determining the optimal exit scheme. NEXORA LAWFIRM has extensive experience supporting numerous projects relating to Japanese-affiliated companies' exit from Vietnam, including M&A support, corporate liquidation, surrender of licenses, and labor, tax, and accounting matters, and its strengths lie in end-to-end support from management decision-making through to execution.
01 - Overview
Exiting Vietnam can be divided into two categories: the dissolution of the local company (whether wholly foreign-owned or a joint venture), and the termination of a Vietnam-based business (such as a joint business under a BCC contract or a project under a PPP arrangement). Of these, exiting a business is, in principle, handled by terminating or cancelling the relevant contracts (the BCC contract, PPP contract, joint venture agreement, etc.) (*note, however, that where the business is conducted under a BCC contract, there is also a procedure for closing the BCC contract's management office).
There can be various reasons for exiting, but the following two scenarios are typically envisaged.
Compulsory exit
This includes the following cases.
Where the term of business activity, the term of the project (as set out in the IRC), or the term of the enterprise's activity (as set out in the ERC) has expired but an extension is not permitted.
Where the various licenses relating to the company (the IRC or ERC) have been revoked due to a legal violation.
Where the company fails to maintain the statutory minimum number of members for six consecutive months and does not carry out the procedure to convert its corporate form.
ii. Voluntary exit
Where the company decides to exit on its own judgment, due to continuing deterioration of the business, or because of trouble with a joint venture partner.
*This article covers the former — dissolution of the local company — and the latter, voluntary exit.
02 - Overview of Methods for Exiting Vietnam
When exiting a business in Vietnam, there are, as shown in the diagram below, primarily two methods: (i) exit via M&A, and (ii) exit via corporate dissolution. In addition, methods ancillary to each are also described.
03 - Comparing Exit via M&A and Exit via Corporate Dissolution
Exit via M&A
Liquidation
Bankruptcy
Advantages
No burden (time, cost, etc.) associated with corporate dissolution
Compared with the procedure for corporate dissolution, exit via M&A is simpler and faster (it is sufficient to carry out the procedure for changing the company's capital contributors following the transfer of the interest/shares)
If the company has value, an economic return can be obtained (consideration from the sale)
Less impact on stakeholders (employees, creditors, debtors)
No burden of finding or negotiating with a candidate to take over the business or entity
Liquidation can be carried out at the discretion of the company's capital contributors (shareholders), regardless of the creditors' wishes
Compared with bankruptcy proceedings, liquidation proceedings have a higher likelihood of being successfully completed
If the insolvency requirement is met, once the procedure is carried out, no further economic burden arises
Disadvantages
There is a burden involved in finding a candidate to take over the business or entity and in negotiating and discussing the transfer (in some cases, if no suitable candidate can be found, the company will be forced to choose the corporate dissolution method instead)
Even after the M&A agreement is executed, there remains a possibility that liability (for damages or liability to third parties) must continue to be borne, depending on the terms of the M&A agreement
There is a high possibility of burdens such as responding to the procedure, long waiting periods, and high costs
There is an impact on stakeholders (employees, creditors, debtors) (in some cases, claims from stakeholders or disputes relating to the termination of various contracts may arise, requiring a response)
Given Vietnam's particular bankruptcy regime, there is a high possibility that bankruptcy cannot be successfully carried out
There is an impact on stakeholders (employees, creditors, debtors) (in some cases, claims from stakeholders or disputes relating to the termination of various contracts may arise, requiring a response)
As set out above, each method has its own advantages and disadvantages. The company's business and other interests involved should be given careful thought, and the most appropriate method should be chosen. Choosing the wrong method risks a double burden.