The Approval You Assumed Was a Formality: M&A Due Diligence Failures in Vietnam

Japanese manufacturers acquiring or taking a controlling stake in Vietnamese operating companies often run rigorous financial and technical due diligence. Legal due diligence can receive less attention, especially where the deal appears operationally straightforward. In Vietnamese transactions, that is where risk often sits: the enforceability of representations and warranties, the sequencing of regulatory approvals, and the allocation of post-closing liabilities.

The cases below are not Japanese acquisition cases. They are Vietnamese deal disputes and publicly reported arbitration outcomes that illustrate the same diligence failures Japanese acquirers should avoid when buying into Vietnamese targets.

Case One: When a Broad Warranty Becomes a Collection Risk

In a fintech acquisition, a Korean investment fund acquired a majority stake in a Vietnamese payment intermediary from a domestic seller. After closing, the buyer discovered that part of the target’s transaction flows were allegedly connected to online gambling networks — a direct compliance issue under Vietnamese law and, the buyer argued, a breach of the seller’s warranty to comply with applicable law. The buyer pursued the seller through the Singapore International Arbitration Centre and obtained an award of approximately VND 626 billion, roughly USD 27 million, plus interest for breach of warranty and misrepresentation.

That result favored the buyer, but it did not make the risk disappear. The seller later sought Vietnamese court review of enforcement on public-policy grounds. The lesson is not that broad warranties are useless. The lesson is that a favorable arbitral award may still lead to an enforcement fight when collection must occur in Vietnam.

The drafting issue is equally important. Post-closing warranty disputes often expose three weaknesses: compliance wording that is broad but not tied to specific risk categories, unclear survival and claim procedures, and weak disclosure schedules that fail to shift known risks into a structured pre-signing review. A buyer may still win, but only after a costly dispute.

Case Two: The Indemnity That Was Actually Enforced

Following a 2015 acquisition, a subsidiary of a global confectionery group sought compensation from the Vietnamese seller group after the target company was assessed a tax penalty by a provincial tax authority for a pre-closing period. The claim reportedly succeeded because the SPA connected seller liability to a defined category of pre-existing but undisclosed tax exposure, discovered after closing, within a stated survival period.

The contrast matters. Vietnamese law does not treat representations and warranties in the same way a common-law SPA does. They become useful only when translated into clear contractual obligations: defined scope, indemnity triggers, caps, survival periods, claim procedures, and remedies. A warranty clause copied from an international template without this re-engineering may sound protective while leaving the buyer with a difficult recovery path.

Case Three: When “Signed” Does Not Mean “Effective”

A share transfer agreement between two Vietnamese corporate groups — one a state-linked hydropower company, the other a state-linked rubber conglomerate — was signed, with the buyer placing funds in escrow to secure performance. The seller later declined to complete the transfer. The buyer sued and initially obtained rescission, return of escrowed funds, contractual penalties, and damages.

On appeal, the Ho Chi Minh City High People’s Court, in Judgment No. 06/2024/KDTM-PT dated 24 January 2024, reversed the penalty and damages award. The transaction required regulatory approval, and that approval had not been obtained. The case illustrates the danger of assuming that signing alone creates full closing liability where required approval has not yet been secured.

The practical implication is direct. Signing before approval may be common market practice in Vietnam, especially where parties want to compress timelines. But the SPA must distinguish between signing, effectiveness, closing obligations, termination rights, escrow release, and liability if approval is delayed, refused, or never obtained.

The 3C Breakdown

Control. In each case, the buyer’s leverage depended on who controlled information before signing and who controlled the regulatory timeline. The seller controlled much of the operational, tax, and compliance information. The approval authority controlled timing. The buyer controlled only one thing: whether the SPA converted these uncertainties into enforceable allocation of risk.

Conduct. The conduct that created exposure was different in each dispute: undisclosed compliance risk, pre-closing tax exposure, and signing before required approval. None requires sophisticated fraud to become serious. They can arise from ordinary deal pressure, incomplete disclosure, and template drafting that does not reflect Vietnamese enforcement realities.

Consequence. The outcome tracks drafting quality. Where the SPA defined the risk category and claims mechanism, recovery was more realistic. Where the buyer relied on broad warranties, recovery required arbitration and then faced an enforcement challenge. Where the parties treated approval as a formality, the financial consequences shifted once the court examined whether the deal was legally capable of taking effect.

What This Means for a Japanese Manufacturer’s Due Diligence Scope

Japanese acquirers are often disciplined about technical, operational, and administrative detail. That instinct is useful in Vietnam, but it should be extended into the legal structure of the transaction.

Map the approval sequence before signing. Identify whether the deal may require foreign-investor approval, sectoral licensing clearance, economic concentration notification or clearance under the Competition Law 2018, foreign ownership review, or internal state-capital approval. Build the SPA around that sequence instead of treating approval as a post-signing formality.

Convert warranties into Vietnamese-enforceable obligations. Each representation should be tied to a defined risk category, a liability cap, a survival period, a claim procedure, and, where the exposure is material, escrow or holdback protection.

Require a disclosure schedule. A seller unwilling to produce a disclosure schedule against the warranties is not merely being informal. It may be signaling that the warranties cannot be relied upon. The schedule protects the seller for what it discloses and strengthens the buyer’s claim for what it does not.

Verify tax and compliance exposure independently. Management representations are not enough. Payment flows, related-party transactions, historical tax positions, licenses, and operational compliance should be tested against documents and authority-facing records, not just internal explanations.

The Underlying Risk Category

Under the 3C framework, these cases sit mainly in Conduct — undisclosed operational, tax, and compliance realities — but they become Consequence only when the agreement determines who bears the loss. The deal structure is the control mechanism. Where it is generic, Vietnamese courts and tribunals may not fill the gap in the buyer’s favor by default.

A Transaction Risk Decision Review scoped to an active acquisition can pressure-test warranty drafting, approval sequencing, and disclosure adequacy against the target company’s documentation before signing — see the /risk-review service page for scope and intake criteria.