During the second discussion session of the program “Business and Law: Disputes in investment project transfer contracts,” Lawyer Pham Duy Khuong shared insights into the necessary conditions for transferring investment projects and considerations when conducting transfers after meeting all the conditions.
MC Mai Trang inquired: “Mr. Khuong, could you please elaborate on the general conditions for transferring all or part of an investment project to another investor?”
Lawyer Khuong responded:
Firstly, the investment project or part of the investment project for transfer should not be terminated according to the provisions of Article 48, Clause 1 and 2 of the 2020 Investment Law. These conditions include:
Article 48. Termination of Investment Project Activities
- Investors terminate investment activities, investment projects in the following cases:
a) Investors decide to terminate the operation of the investment project;
b) According to the termination conditions stipulated in the contract, business regulations;
c) Upon the expiration of the operation period of the investment project.
- The investment registration agency terminates or partially terminates the operation of the investment project in the following cases:
a) The investment project falls under one of the cases specified in Sections 2 and 3 of Article 47 of this Law, and the investor cannot remedy the cessation conditions;
b) The investor is not allowed to continue using the investment location and does not carry out procedures to adjust the investment location within 06 months from the date of discontinuation of the use of the investment location, except as provided in point d of this clause;
c) The investment project has ceased operation and has been 12 months from the date of cessation of operation, the investment registration agency cannot contact the investor or the legal representative of the investor;
d) The investment project falls under the case of land revocation due to failure to put the land into use, delayed use of the land according to the land laws;
e) The investor does not sign the fund or does not have a guarantee of fund signing obligation as required by law for investment projects subject to ensuring the implementation of the investment project;
f) The investor conducts investment activities on the basis of simulated civil transactions as stipulated by civil law;
g) According to the judgment, decision of the court, arbitration award.
Secondly, foreign investors receiving the transfer of an investment project, or part of an investment project, must meet the conditions stipulated in Section 2 of Article 24 of the 2020 Investment Law. These conditions include:
Article 24. Investment in the form of capital contribution, share purchase, capital contribution purchase.
- Foreign investors contributing capital, purchasing shares, or purchasing capital contributions from economic organizations must meet the following regulations and conditions:
a) Conditions for market access for foreign investors as stipulated in Article 9 of this Law;
b) Ensure national defense and security as prescribed by this Law;
c) Regulations of land laws on conditions for obtaining land use rights, land use conditions on islands, communes, wards, border towns, communes, wards, coastal towns.
Thirdly, conditions as stipulated by land laws in the case of transferring investment projects associated with the transfer of land use rights, assets attached to the land.
Articles 188 and 194 of the 2013 Land Law, conditions for investment projects in the construction and business of residential buildings to transfer land use rights associated with all or part of the project must have a land use rights certificate, and simultaneously meet the following conditions: (i) fulfill the conditions stipulated in Section 1 of Article 188; (ii) complete the construction of corresponding technical infrastructure according to the schedule specified in the approved project.
Therefore, Section 1 of Article 188 of the Land Law: (i) has a certificate, except in cases stipulated in Section 2 of Article 186 and cases of inheritance as stipulated in Section 1 of Article 168 of the 2013 Land Law; (ii) the land is free of disputes; (iii) land use rights are not mortgaged to ensure the enforcement of judgments; (iv) within the land use period.
Fourthly, conditions as stipulated by real estate and property business laws in the case of transferring investment projects in residential construction and real estate projects.
Article 48 of the 2014 Real Estate Business Law allows the project investor to transfer the entire or part of the real estate project to another investor to continue investing and doing business in Vietnam. The transfer must not alter (i) the objectives, (ii) the content of the project, (iii) ensuring the rights of customers, relevant parties, and (iv) must be approved in writing by the competent state authority responsible for investment decisions.
Article 49 of the Real Estate Business Law sets forth conditions for the transfer of real estate business projects:
a) The project has been approved by the competent state authority, with a detailed plan at a scale of 1/500 or an approved master plan;
b) The project or the transferred part has completed compensation and land clearance. In the case of transferring the entire investment project involving the construction of infrastructure, corresponding technical infrastructure must be completed according to the schedule specified in the approved project;
c) The project is free from disputes regarding land use rights, not mortgaged to ensure the enforcement of judgments, or for the execution of administrative decisions of the competent state authority;
d) There is no decision to revoke the project or revoke the land by the competent state authority.
In practice, attention should still be paid to the issue of the origin of land use rights for the project: is the land allocated, leased, or acquired through the transfer of land use rights from the market? The source is that the land must be allocated by the State with payment or leased with a one-time payment for the entire lease period; only land legally acquired through the transfer of land use rights from others can be transferred for the project.
Article 49 of the 2014 Real Estate Business Law also emphasizes that (i) the transferring investor must have a land use rights certificate for the entire or part of the transferred project; (ii) the receiving investor for the entire or part of the real estate project must be a real estate business enterprise, have sufficient financial capacity, and commit to continuing the investment and construction in accordance with legal regulations, ensuring the schedule and content of the project.
Fifthly, conditions specified in the investment approval proposal, Investment Registration Certificate, or other relevant legal regulations (if any).
MC Mai Trang continued with the question: “Yes, so for projects that have met all the transfer conditions, what principles should be followed during the transfer, Mr. Khuong?”
Lawyer Khuong shared:
In accordance with Clause 2 of Article 48 of Decree No. 31/2021/NĐ-CP, in the case of transferring an investment project that generates income, the investor must fulfill financial obligations to the State as stipulated by law, in this case, personal income tax (for individual investors) or corporate income tax (for organizational investors).
Regarding the transfer of projects in real estate business activities: Articles 11 and 12 of Decree No. 02/2022/NĐ-CP state that at least 15 days before the transfer, the transferring party must notify all customers, relevant parties (if any), and make at least three consecutive announcements in a local newspaper or on local or central television stations about the transfer of the project or part of the project. Simultaneously, they must address any opinions related to the project from relevant parties.
Sequence and procedures for transferring investment projects: In terms of sequence, according to the 2020 Investment Law and implementing guidelines, the parties involved in the transfer of investment projects (i) sign a memorandum of understanding or a transfer agreement, and then (ii) proceed to change the investor information in the Land Use Rights Certificate.
At the end of the forum, MC Mai Trang asked both guests: “Finally, I would like to hear advice from both of you. What should the receiving and transferring parties pay special attention to in order to minimize potential risks and disputes in the future?”
After Mr. Net’s response, Lawyer Khuong shared:
For the receiving party, it is crucial to independently or with the assistance of a legal firm conduct a comprehensive review of the project’s legal aspects (Legal Due Diligence), financial review of the company (Financial Due Diligence), auditing, tax settlement; issues related to finance, customers, debts, project implementation status, technology, intellectual property ownership, human resources, labor, design documents, environmental impact assessment reports, fire protection and prevention; transaction contracts with partners that have been, are being, or will be implemented to control risks arising from litigation and compensation related to these contracts.
For the transferring party, it is necessary to thoroughly investigate whether they have the capacity to receive the transfer (whether the business is qualified for real estate transactions, etc.), or has the authorized agency approved the transfer of the project or not, as I have explained in Part 1.
In addition, all parties must adhere to legal regulations regarding project transfer contracts, which must be documented and notarized according to the laws applicable to real estate business projects related to land use rights.
Furthermore, in light of the current information sources, to avoid risks related to the transferring party entering into a transfer contract with another party, new investors need to carefully examine the project’s status and the status of land use rights to prevent the contract from being invalidated and causing damage to the company.
Closing the program, MC Mai Trang expresses gratitude to the two guests for sharing valuable legal information with the television audience and readers. She looks forward to the next time the guests return to the studio to continue sharing their expertise and professional legal perspectives.
In June 2023, Lawyer Pham Duy Khuong participated in the Business and Law program: Commercial franchise contracts in the restaurant and dining sector organized by VTV. Additionally, the program is also led by MC Mai Trang.