CONSEQUENCES WHEN VIOLATING THE DUTY OF NOTIFICATION OF ECONOMIC CONCENTRATION?

Question:

Company A was merged into Company B. After the transaction, total assets of Company B are 3500 billion Vietnamese Dong. The transaction was made in 2020. At the time the transaction was made, the companies did not conduct the notification procedures of economic concentration. Do the companies have to continue proceeding these procedures? In the case of failure to do so, what are the legal risks that the companies must confront?

Answer:

In accordance with Article 29.1 of the 2018 Competition Law, the merger of Company A into Company B is defined as a form of economic concentration. However, whether the companies must conduct the notification procedures of economic concentration at the time the merger is implemented or notdepends on many factors. In particular:

Pursuant to Article 13.1 of Decree No. 35/2020/ND-CP, enterprises must proceed the notification procedures of economic concentration to the National Competition Commission before the implementation of the economic concentration if they fall into these cases:

1. Total asset available in the Vietnamese market of a company or a group of affiliated companies of which the company is an affiliate must be worth Vietnamese Dong 3,000 billion or more in the fiscal year preceding the planned year of economic concentration;
2. Total sales or purchase volume arising in the Vietnamese market of a company or a group of affiliated companies of which the company is an affiliate must be worth Vietnamese Dong 3,000 billion or more in the fiscal year preceding the planned year of economic concentration;
3. Value of all economic concentration transactions must be worth at least Vietnamese Dong 1,000 billion;
4. The 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.

Regarding the factor of total assets of the enterprises participating in the transaction, the threshold of 3000 billion Vietnamese Dong is determined according to figures in the financial report in the preceding year before the before economic concentration, not the total joint assets of enterprises after the transaction. As for this issue, the information that client provided does not specify the total assets before the merger (economic concentration) of Company A, Company B or the figures of the total joint properties of the parent company that Company A or Company B is a member. Therefore, it can not be asserted that the transaction of these companies is in the case of having to carry out the procedures of economic concentration according to Point a Clause 1 Article 13 of Decree No.35/2020/ND-CP guiding the Competition Law.

Clients need to provide us more information as we need to consider and determine whether the notification procedures of economic concentration need to be proceeded or not.

However, if this merger falls into the notification, companies shall be at risk of being fined according to the regulations of Article 14 and 15 Decree No.75/2019/ND-CP dated September 26, 2019, specifically:

“Article 14. Failure to give notification of economic concentration

A fine ranging from 01% to 05% of total turnover of each enterprise participating in the economic concentration earned from the relevant market in the financial year preceding the year in which the violation is committed shall be imposed upon that enterprise for failure to give notification of such economic concentration as regulated in Article 33 of the Competition Law.

Article 15. Other violations against regulations on economic concentration

1. A fine ranging from 0.5% to 01% of total turnover of each enterprise participating in the economic concentration earned from the relevant market in the financial year preceding the year in which the violation is committed shall be imposed upon that enterprise for:
2. a) Carrying out the economic concentration without obtaining a notice of preliminary valuation from the National Competition Committee as regulated in Clause 2 Article 36 of the Competition Law, except for the case prescribed in Clause 3 Article 36 of the Competition Law.
3. b) Carrying out the economic concentration before the National Competition Committee issues a decision as regulated in Article 41 of the Competition Law in case such economic concentration requires an official evaluation.
4. A fine ranging from 01% to 03% of total turnover of each enterprise participating in the economic concentration earned from the relevant market in the financial year preceding the year in which the violation is committed shall be imposed upon that enterprise for:
5. a) Failing to satisfy or insufficiently satisfying the conditions specified in the decision on approval for economic concentration prescribed in Point b Clause 1 Article 41 of the Competition Law;
6. b) Carrying out the economic concentration in the case prescribed in Point c Clause 1 Article 41 of the Competition Law”.

In this case, the merger transaction has occurred and the companies have never submitted an economic concentration dossier to the competent authorities before, if they are required to perform obligations, they will be considered as acts of “Failure to notify economic concentration” and apply Article 14 of Decree No. 75/2019/ND-CP above. Depending on the extent of the transaction's impact on the market, transaction value, past violations of companies, etc., competent state agencies will consider and decide on the lowest fine level is 01% and the maximum is 05% of the total revenue of both Company A and Company B. The value of this total revenue is determined according to the financial reports of the fiscal year preceding the year of committing the violation of the company - financial report in 2019 (due to transactions made in 2020).

In case the merger transaction between Company A and Company B is prohibited, Company B - the merging company is also at risk of being fined according to the pArticle 10 of Decree No. 75/2019/ND-CP:

“Article 10. Banned merger of enterprises

1. A fine ranging from 01% to 05% of total turnover of the transferee enterprise and the transferor enterprise earned from the relevant market in the financial year preceding the year in which the violation is committed shall be imposed upon the transferee enterprise for carrying out the merger banned as regulated in Article 30 of the Competition Law.
2. Remedial measures:
3. a) The transferee enterprise is forced to carry out full/partial division;
4. b) The transferee enterprise is forced to operate under a competent authority’s control over prices of goods/services or other transaction terms included in its signed contracts.”

In general, it can be seen that the act of violation of the obligation to notify of economic concentration in M&A transactions can expose enterprises to high legal risks. Therefore, enterprises should pay attention to this issue when implementing investment activities and expanding the system by the means of mergers and acquisitions.