The concept of control is important under the new merger control rules under the Competition Law 2018 and Decree 35/2020. In particular, economic concentration in the form of acquisition will arise if the acquiring entity acquires control over the target. Besides, the concept of control is also used to determine whether a company is an affiliate of another company when applying the size-of-person test under merger filing requirements.

Decree 35/2020, the acquiring enterprise establishes control over the target or a business line of the target in any of the following circumstances:

the acquiring enterprise obtains more than 50% of charter capital or more than 50% of the total voting shares of the target;
the acquiring enterprise obtains ownership of or the right to use more than 50% of the assets of the target concerning all or one business line of the target; or
the acquiring enterprise has one of the following rights over the target: (1) the right to directly or indirectly decide on appointment or removal of the majority of managing officers of the target (e.g., board directors; chairman of members’ council; general director of the target); (2) the right to decide on amendment or supplement of the target’s charter; and (3) the right to make important decisions concerning the business operation of the target (e.g., selection of the form of the business organization; selection of industry, business line, business location, and business model; adjustment of business scope and business line; and selection of form and method of mobilizing, allocating, and utilizing the business capital of the target).

Previously, under Decree 116/2005, the voting right at the general shareholder meeting or the board is the criteria to determine whether control over the target exists. The new definition of control under Decree 35/2020 also takes into account the acquiring enterprise’s ownership of and right to use assets of the target concerning a business line of the target, and certain strategic rights, which give the acquiring enterprise control and influence over the target just as the voting right does. Decree 35/2020 also makes clear that indirect control is now captured by merger rules.

It is not clear under Decree 35/2020, whether “negative control” (i.e., the right to veto (but not the right to push through) certain corporate decisions) would constitute a control under the third circumstance. However, a negative control is likely not captured by Decree 35/2020. This is because:

since the first two circumstances where control exists are positive control circumstance, logically, the third circumstance should also be a positive control circumstance;
if the concept of control under Vietnam’s merger rules includes negative control then the calculation of total revenue or total assets of the relevant parties to the economic concentration will become unduly complicated and inflated. For example, even EU merger filing regulations capture negative control concept but they do not apply this concept in the calculation of the revenue of the relevant parties to the economic concentration;
the language used to describe the third circumstance of control under merger control regulations is similar to the language used to the description of a parent-subsidiary relationship under Article 189.1 of the Enterprise Law 2014 which is a positive control relationship, and
the Vietnamese language of the concept control actually includes two words “kiểm soát” and “chi phối”. The word “chi phối” usually denotes a positive control in the Vietnamese language. For example, under regulations on State-owned enterprises, “controlling shares” (cổ phần chi phối) refer to a holding of more than 50% voting shares.

This post is written by Ha Thanh Phuc, Le Minh Thuy, and Nguyen Quang Vu.

Vietnam Business Law