Signing and closing are separate events in almost every Vietnamese acquisition, and the gap between them is where deals quietly lose value. Merger control clearance, amendments to the investment registration certificate, landlord and lender consents and licence updates all take time, and during the period between signing and closing the seller still runs a business the buyer has already paid to acquire.
Interim covenants are the answer. They keep the target operating in the ordinary course, list the actions that need the buyer’s consent, and give the buyer information without handing it control. Drafted well, the covenants between signing and closing preserve the business that was priced; drafted loosely, they leave the buyer with a damages claim instead of the company it bargained for.
The gap between signing and closing is measured in months, not days. Photo: Pexels.
The period between signing and closing creates a governance problem in every delayed M&A transaction. The seller still owns and controls the target, but the buyer has agreed a price based on the target’s condition at signing. Conduct-of-business covenants protect that value while allowing management to keep operating the company and responding to normal commercial needs.
Why interim covenants between signing and closing are necessary
Vietnam M&A transactions may have a gap between signing and closing because regulatory approvals, third-party consents, financing or restructuring remain outstanding. During the period between signing and closing, business decisions can change debt, working capital, assets, employees, contracts or compliance exposure. Interim covenants allocate who may make those decisions and when buyer consent is required.
Ordinary-course operating covenant
The seller commonly agrees to operate the target in the ordinary course, preserve the business organisation and maintain material relationships. “Ordinary course” should be defined by reference to past practice, industry conditions and agreed budgets. A vague standard may restrict legitimate action when market conditions change.
The covenant can require reasonable efforts to preserve licences, insurance, key employees, customers, suppliers and assets. It should not guarantee outcomes outside the seller’s control.
Restricted actions requiring buyer consent
The SPA may prohibit specified actions without prior written consent, including:
- issuing shares, changing capital or amending constitutional documents;
- declaring dividends or transferring value to sellers or related parties;
- incurring material debt, granting security or giving guarantees;
- acquiring or disposing of material assets or businesses;
- entering, amending or terminating material contracts;
- making capital expenditure outside the approved budget;
- hiring or dismissing senior personnel or changing material remuneration;
- settling significant litigation or regulatory proceedings;
- changing accounting policies or tax elections; and
- entering related-party transactions.
Thresholds should be proportionate to the target. Requiring consent for routine purchases or minor customer contracts can paralyse daily operations.
The restricted list should be short, specific and tied to figures. A workable Vietnamese package covers issuing or transferring shares, amending the charter, changing the legal representative, disposing of or encumbering land use rights and material assets, entering into or terminating material contracts above an agreed value, incurring borrowing outside an approved facility, changing accounting policies or the auditor, settling litigation or tax assessments, and increasing remuneration outside the annual review. Anything else should be left to management, because a list that catches routine operations simply produces consent requests nobody has time to answer.
Buyer consent process
The agreement should identify the buyer representative, notice method and response deadline. Consent should not be unreasonably withheld or delayed where the seller needs operational flexibility. Deemed consent after a short period may be appropriate for time-sensitive matters.
Emergency exceptions should permit action necessary to protect people, assets, licences or legal compliance, with prompt notice to the buyer.
Avoiding premature control
The buyer should not exercise control before legal closing. Excessive involvement in pricing, customers, suppliers, employees or competitive strategy can create merger-control and competition-law concerns. The target must remain independently managed until ownership transfers.
Information-sharing arrangements should use clean teams, access limits or confidentiality safeguards where the parties are competitors. Buyer consent rights should protect transaction value without amounting to day-to-day control.
Interim covenants must not tip into gun jumping. Where the transaction is notifiable under Vietnam’s competition rules, the parties must remain independent competitors until clearance, so the buyer cannot direct pricing, allocate customers or receive competitively sensitive information in raw form. The usual protections between signing and closing are a clean team arrangement for sensitive data, consent rights framed as veto rather than instruction, and an express statement that the seller retains day-to-day management until completion.
Consent thresholds must match how the business actually operates. Photo: Pexels.
Access to information
Access between signing and closing should be defined rather than open-ended. A workable clause gives the buyer monthly management accounts, notice of any regulatory inspection or material claim, copies of board and member resolutions, and reasonable access to named managers during business hours on notice. It should also record what the buyer may not do with the information, because in the period between signing and closing the parties remain separate undertakings and competitively sensitive data has to be routed through a clean team.
The buyer may require periodic financial statements, management reports, cash-flow updates and notice of material events. Access rights should respect data protection, confidentiality, privilege and contractual restrictions. They should also avoid disrupting employees or commercial relationships between signing and closing certainty is achieved.
Compliance and regulatory cooperation
The seller should continue complying with laws, licences, tax obligations and reporting duties. Material inspections, incidents, claims or notices should be reported promptly. The parties may also need to cooperate on Vietnam M&A approval, merger-control filings and sector consents.
These obligations should align with the framework for conditions precedent and closing conditions.
Leakage and value transfers
The leakage definition needs a start date. In a locked-box deal it runs from the accounts date; in a completion accounts deal the relevant control period is signing and closing itself. Whichever structure is used, the seller should provide a schedule of permitted leakage at signing and confirm at completion that nothing outside that schedule has occurred, so the buyer can settle the point on the day rather than discovering it in the completion accounts months later.
In a locked-box deal, interim covenants should prohibit leakage such as dividends, management fees, asset transfers, debt forgiveness or benefits to sellers and connected persons. Permitted leakage must be listed clearly and reflected in the agreed price.
Breach and remedies
Remedies should escalate rather than sit at a single level. A minor breach is normally dealt with by indemnity, a material and unremedied breach entitles the buyer to refuse to complete, and a breach that survives the long-stop date allows termination. Recording in the agreement that covenants given for the period between signing and closing survive completion, and are not extinguished by it, avoids the common argument that the buyer lost its claim by choosing to close.
The SPA should state whether breach allows damages, specific indemnification, postponement, termination or refusal to close. A materiality threshold and cure period can prevent a technical breach from ending the transaction. Serious value leakage or deliberate misconduct may justify stronger consequences.
Warranties may be repeated at closing, but a bring-down condition should not automatically duplicate every interim covenant breach. The relationship between covenants, warranties and closing rights must be express.
Signing and closing drafting checklist
- Define ordinary course and past practice.
- Set materiality thresholds for restricted actions.
- Create a fast and documented consent process.
- Permit genuine emergency and compliance action.
- Avoid buyer control between signing and closing.
- Protect confidential and competitively sensitive information.
- Coordinate leakage, price and related-party restrictions.
- State remedies and cure periods clearly.
Conclusion
Conduct-of-business covenants should preserve the target without freezing it. The best provisions combine measurable restrictions, realistic thresholds, quick consent and appropriate exceptions. When coordinated with the Vietnam share purchase agreement, they protect buyer value while leaving the seller able to run the company responsibly until closing.
Frequently asked questions about signing and closing
Why is there a gap between signing and closing in Vietnam deals?
Because completion depends on steps that cannot be done on the day of signing. Depending on the target these include merger control clearance, an amended investment registration certificate or enterprise registration certificate, approvals for conditional business lines, landlord and lender consents, and updates to the shareholder register. Two to four months is common, and regulated sectors take longer.
What does an ordinary-course covenant actually require?
That the seller runs the target consistently with past practice and applicable law, maintains its licences, insurance and material contracts, preserves relationships with key customers, suppliers and employees, and does not change its accounting policies. It is a standard of continuity rather than performance: the seller does not guarantee results, but it cannot reshape the business between signing and closing.
How should the buyer consent process be drafted?
Name individuals on both sides, allow consent by email, and impose a short deemed-consent period, commonly five business days, after which a request that has not been refused is treated as approved. Add an emergency carve-out permitting the seller to act without consent where delay would breach the law or cause material loss, subject to notifying the buyer promptly. Without deadlines the covenant becomes a source of delay rather than protection.
What is leakage and how is it controlled?
Leakage is value passing out of the target to the seller or its connected parties between the locked-box date or signing and completion: dividends, management fees, bonuses, related-party purchases on non-market terms, waivers of debt owed by the seller, or transaction costs paid by the target. The agreement should define permitted leakage narrowly and give the buyer a euro-for-euro or dong-for-dong indemnity for anything else, usually uncapped and outside the general warranty limits.
What remedies apply if the seller breaches an interim covenant?
Damages are the default, but they are hard to quantify before completion, so agreements usually add sharper tools: a specific indemnity for the breach, a right to refuse to complete where the breach is material and unremedied, and in some deals a defined price reduction. Pairing the covenants with the material adverse change condition and a long-stop date gives the buyer a coherent exit if the target is not delivered in the state agreed at signing.
Next step
Build the interim covenant list from the actual approval timetable rather than from a precedent. Map every step that must be completed between signing and closing, including the corporate resolutions and registration filings required under the Law on Enterprises, then set consent thresholds that let the business keep trading through that period.
IVLF Lawyer drafts interim covenants, consent mechanics and leakage protection for acquisitions of Vietnamese companies, and runs the completion process itself. An experienced Vietnam M&A lawyer keeps the covenants enforceable without creating competition-law exposure. See our legal services or contact IVLF Lawyer.
Related reading: Managing conditions precedent before closing, Material adverse change clauses in Vietnam acquisition agreements, and Warranty and indemnity insurance in Vietnam M&A.
This article is provided for general information only and does not constitute legal advice for any specific case. Regulations may change – please consult a qualified professional before acting. Should further analysis be required, please contact one of our lawyers below.
