Resolving Disputes in M&A Transactions: Common Causes, Types of Disputes, and Critical Stages

Mergers and acquisitions (M&A) play a pivotal role in corporate restructuring and business development. Due to the inherently complex nature of M&A transactions, disputes may arise at any stage of the deal and are often multi-dimensional, involving multiple areas of law such as civil, enterprise, investment, tax, competition, securities, and intellectual property. This article analyzes the key causes of disputes in M&A transactions and identifies the most dispute-prone stages of the process.

1.Causes and Common Types of M&A Disputes

Disputes in M&A transactions typically stem from several fundamental causes:

• Breach of Representations and Warranties (R&W): The seller may provide inaccurate or incomplete statements regarding the financial, legal, tax, asset, or employment status of the target company. Such misrepresentations may result in indemnification obligations or make the transaction voidable.
• Non-fulfillment of Covenants: Either party may breach contractual commitments, such as maintaining business operations in the ordinary course, non-compete behaviour, or timely transfer of assets.
• Failure to Satisfy Conditions Precedent: One or more parties fail to fulfill mandatory requirements for the transaction to become effective, including capital contribution registration (pursuant to Article 26 of the Law on Investment 2020), economic concentration notification (Article 33 of the Law on Competition 2018), or obtaining regulatory approvals.
• Post-Merger Conflicts: Following completion, disputes may arise over voting rights, dividend distribution, appointment of personnel, or management of consolidated assets, particularly where there is a lack of clarity in agreements or failure to amend the company charter accordingly.
• Disputes over Purchase Price Adjustment Mechanisms: When the agreement includes a purchase price adjustment clause, especially under “earn-out” or “locked box” structures, disputes may emerge from differing interpretations of financial indicators or key performance indicator (KPIs). Earn-out: A mechanism allowing the seller to receive an additional portion of the purchase price if the company meets agreed financial targets in the future (e.g., revenue, profit, EBITDA). Locked box: A mechanism where the purchase price is fixed based on a historical balance sheet, and the seller undertakes not to extract any economic value from the company after that date.
• Tax-Related Disputes: The parties may disagree over the obligation to declare and pay taxes arising from the share or equity transfer (corporate income tax, personal income tax). This is especially common in cross-border transactions or where foreign investors are involved.
• Legal Conflicts or Regulatory Inconsistencies: Vietnam’s legal system currently lacks a comprehensive statute governing M&A transactions. The legal framework governing M&A transactions reveals conflicts among the Law on Investment, the Law on Enterprises, the Law on Competition, and international commitments such as those under the WTO and the CPTPP.

2.Dispute-prone stages

• Execution of Key Contractual Provisions:

At this stage, disputes often arise due to ambiguity or incompleteness in the contract. Where the agreement fails to clearly define core terms such as purchase price, payment method, closing date, liability caps, and remedies for breach, the risk of dispute significantly increases.

• Fulfillment of Conditions Precedent and Transfer:

Following contract execution, the parties are responsible for satisfying all conditions precedent to render the transaction effective. Failure by one party to fulfill obligations (e.g., failure to obtain investment approval or complete asset transfer) may entitle the other party to terminate the contract or claim damages.

• Post-Merger Integration (PMI):

In the course of reorganization and post-acquisition restructuring, issues may arise from differences in governance models, corporate culture, accounting policies, and human resources. Without a detailed PMI plan, the effectiveness of the transaction may be undermined and prolonged disputes may ensue.

Disputes in M&A transactions are inevitable in an open economy. However, with thorough preparation, a professional process, and competent legal advisory, businesses can proactively manage and resolve disputes. A clear legal framework, combined with an effective dispute resolution mechanism, not only safeguards short-term interests but also lays the foundation for long-term strategic cooperation.

This article is the first installment in the TNTP series on “Resolving Disputes in M&A Transactions: Common Causes, Types of Disputes, and Critical Stages” focusing on common causes and types of disputes. Subsequent articles will analyze dispute resolution mechanisms and provide practical recommendations for dispute prevention and control. Should you wish to discuss this topic further, please do not hesitate to contact TNTP for timely assistance.

Sincerely,