Risks of multiple transfer contracts in the same M&A transaction

M&A is a complex field, each agreement is worth tens of billions of VND or more, so it is impossible to be subjective in the drafting and implementation of contracts. The use of many discrete and inconsistent contracts/documents is not only not "safer", but on the contrary, it also opens up dangerous loopholes, leading to risks for transactions and can cause protracted disputes between parties.

M&A is a complex field, each agreement is worth tens of billions of VND or more, so it is impossible to be subjective in the drafting and implementation of contracts.

From a real case

At the end of 2008, Mr. Hong A. P. and Ms. Tran Thi D. – two founding shareholders of D3 Joint Stock Company negotiated the transfer of shares to another investor, D2 Joint Stock Company. At that time, Mr. P. held 348 shares (36.44% of charter capital) and Ms. D. held 145 shares (15.18% of charter capital) out of a total of 955 shares of D3 Company. Initially, the parties made a written agreement on 06/10/2008 committing that Mr. P. and Ms. D. would sell a total of 925 shares of Company D3 to Company D2, divided into three phases: Phase 1: 638 shares at the price of USD 2,532,304.17; Phase 2: 31 shares at the price of 2,618,390.16 USD; Phase 3: 256 shares for 160,000 USD. However, the next day, on October 7, 2008, the parties signed a new agreement to replace the old agreement, adjusting the value of phase 2 to USD 1,290,716.57 for 31 shares (other terms on the number of shares and the remaining phases remained the same).

On 29/12/2008, at the request of Company D2 in order to complete legal procedures and avoid comparison of transfer prices with other shareholders, Mr. P. and Ms. D. signed an official share transfer contract to Company D2 at the listed price of USD 5,358 per share. This contract recorded that Mr. P. transferred 248 shares and Ms. D. transferred 104 shares (a total of 352 shares) to Company D2. According to the contract dated 29/12/2008, Company D2 has paid 1,698,486 USD, and 187,530 USD has not been paid at that time. Although not fully paid, this transfer contract was confirmed by Company D3 and carried out the procedures for registering the change of shareholders at the Department of Planning and Investment (the name at that time) – which means that the shares have been transferred to Company D2.

After the transfer, conflicts arose between the parties about the implementation of the agreement. Mr. P. and Ms. D. argued that Company D2 had not paid the purchase price as originally committed in the agreement dated 06/10/2008. They cited that the total amount paid by Company D2 under the official contract, even if paid in full, was still much lower than the originally agreed value for those shares. In addition, Mr. P. and Ms. D. also argued that they had an agreement on a "service fee" – specifically, if Company D2 successfully purchased 317 shares from another shareholder (a domestic shareholder symbolized as "C"), then Mr. P. and Ms. D. would be entitled to a service fee. They affirmed that Company D2 had successfully received the transfer of these shares but had not fully paid the service fee of 817,942 USD, only paid 471,504 USD, and was 346,438 USD short.

Due to the dispute, Mr. P. and Ms. D. filed a lawsuit in court, requesting: (1) Cancellation of the agreements dated 06/10/2008, 07/10/2008 and cancellation of the share transfer contract dated 29/12/2008; (2) Restoration of shareholder status to them (i.e. return of transferred shares); (3) Forcing Company D2 to pay the outstanding service fee of USD 346,438 mentioned above. The case lasted for many years due to procedural problems and the separation of the request to cancel the resolution of the 2010 General Meeting of Shareholders of D3 Company into another case (related to the shareholders' meeting that Mr. P. and Ms. D. said was held improperly when they no longer had shares). By January 21, 2025, the High People's Court in Ho Chi Minh City. Ho Chi Minh City (appellate session) pronounced the judgment No. 04/2025/KDTM-PT, rejecting all the requests of Mr. P. and Ms. D. Specifically, the court suspended the request for cancellation of the agreement dated 07/10/2008 due to the expiration of the statute of limitations for initiating a lawsuit, and at the same time did not accept the request to cancel the agreement dated 06/10/2008, cancel the contract on 29/12/2008 and restore the shares to the plaintiff.[1]

Legal risks when having multiple contracts in the same M&A transaction

From the above case, it can be clearly seen that there are potential risks when in the same M&A transaction, the parties have many different contracts or agreements.

Overlapping and contradictory legal validity between documents

In an M&A transaction, usually the parties only sign a formal contract that clearly stipulates the terms of the transfer. However, in the above case, there are up to three different documents: the first two agreements (06/10/2008 and 07/10/2008) and one official contract (29/12/2008). The existence of many different documents has led to overlap and contradiction in the content that the parties must implement. In fact, the written agreement dated 07/10/2008 declared to replace all previous agreements, i.e. in place of 06/10/2008. Despite this, both of these agreements are still in circulation and cited by the plaintiff when the dispute occurred. The Court determined that both the agreements on 06/10, 07/10 and the contract on 29/12/2008 were signed voluntarily, legally and effective from the time of signing. Thus, the first risk is that these documents have inconsistent content but are all legally valid, making it unclear which agreement the parties must follow if a violation occurs.

The Court of Appeal pointed out that the plaintiff and the defendant did not agree on the process of negotiating the price – each party cited a different figure (the plaintiff claimed that the negotiated price was $7,938 per share, the defendant claimed that the price was $5,358 per share under the contract). However, the final written contract (29/12/2008) did not record the price of 7,938 USD/share as presented by the plaintiff, and there was no other evidence showing that the parties agreed on a higher price outside the contract. This shows that, when there are many parallel contracts/documents, if the content is contradictory or not clearly reaffirmed, the final official document will often be considered by the court as the decisive basis for the case. Oral agreements or "implicit" agreements outside the contract are difficult to recognize if they are not recorded in a legally valid document in writing.

Difficulty in proving the "real deal"

Another major legal risk is the difficulty of proving what is a real agreement between the parties when there are many different documents. In this case, Mr. P. and Ms. D. argued that the real value agreed by the two parties was much higher than the price stated in the contract on 29/12/2008, and the signing of the low-price contract was only for the purpose of carrying out the procedure. However, all the content of the document signed by the parties does not clearly record the difference value or any additional payment. Accordingly, the trial panel found that the plaintiff's presentation of the price of 7,938 USD/share was unfounded, because the defendant did not admit it and the plaintiff failed to present evidence to prove the implicit price between the parties.

The existence of many contracts/agreements in a transaction but the parties cannot agree on which document is the final basis will lead to protracted and complicated disputes.

Consequences when the parties do not agree on the applicable document

The existence of many contracts/agreements in a transaction but the parties cannot agree on which document is the final basis will lead to protracted and complicated disputes. In this case, it took more than 15 years (2008–2023) for the case to come to an end, with multiple levels of trial courts. The core reason is that each party relies on a different document to protect its interests: Mr. P. and Ms. D. adhere to the agreement dated 06/10/2008 (and somewhat 07/10/2008) to assume that Company D2 has not fulfilled its full payment obligations; on the contrary, Company D2 only recognized the contents of the contract on 29/12/2008 and affirmed that it had paid under that contract.

The obvious consequence is that the cost and time of the proceedings are expensive for both parties, while the investment project may be stalled, and the target company (Company D3) will be in a state of shareholder instability for a long time. On the other hand, the uncertainty of the applicable text also makes it easier for the court ruling to lean towards the status quo rather than canceling the transaction. Indeed, the High Court decided not to cancel the contract and not to restore the shares to the plaintiff, partly because there was no basis to determine a breach of contract on the part of the defendant. The Court recognizes that the signed documents are valid and that the defendant has paid in full according to the final contract, so there is no basis for cancellation. If the parties had a single, clear contract from the beginning, then the seller would probably have avoided a protracted dispute and affected its legitimate interests.

M&A is not a simple transaction

The purchase and sale of shares/contributed capital of an enterprise is not a simple purchase and sale of an asset. This is a complex, long-term transaction that includes many different regulations and processes. Therefore, businesses and investors when participating in M&A transactions need to be very careful to be able to bring the M&A deals they participate in to "land" safely. And one of the key things that parties in an M&A transaction need to remember is that the clearer, simpler, and more consistent the contract, the lower the legal risk. By doing this, businesses and investors can truly protect their interests and avoid repeating expensive lessons like the case mentioned above.