Fraud in mergers and acquisitions (M&A): identifying legal risks and practical implications

Fraud in mergers and acquisitions (M&A) has become an increasingly common issue in modern corporate transactions. Such conduct may distort the true value of a business and cause significant losses to investors. Fraud in M&A transactions can also undermine market transparency and integrity if they aren’t strongly managed and controlled. Thus, the early identification of legal risks is essential.

I. Overview of issues related to fraud in mergers and acquisitions (M&A)

Fraud in mergers and acquisitions (M&A) is becoming increasingly prevalent in contemporary corporate transactions, where financial, legal, or valuation-related information concerning a target company is intentionally concealed or misrepresented.

Such conduct may result in inaccurate business valuations, misguided investment decisions, and substantial losses for purchasers or investors. In addition to financial risks, fraud in M&A transactions can adversely affect market transparency and stability. Accordingly, identifying and controlling these risks is of critical importance in transactional practice.

II. Understanding fraud in mergers and acquisitions (M&A)

1. What constitutes fraud in mergers and acquisitions (M&A), and how does it differ from ordinary commercial risks?

In the context of mergers and acquisitions (M&A), fraud refers to the intentional provision, concealment, or misrepresentation of information relating to a target company, such as its financial condition, liabilities, legal status, assets, or business prospects, with the purpose of distorting the value of the transaction and obtaining an unlawful advantage. Its characteristic is the deliberate intent to deceive the counterparty during negotiations and transaction execution.

By contrast, ordinary commercial risks in M&A transactions generally arise from objective factors such as market fluctuations, policy changes, or forecasting errors. These risks are not the result of intentional misconduct but are inherent in investment and business activities, although they may still cause financial losses.

2. What types of conduct are commonly classified as fraud in mergers and acquisitions (M&A)?

In practice, fraud in mergers and acquisitions (M&A) may take various forms aimed at inflating corporate value or concealing material risks. Common examples include:

• Inflating revenue or profits to enhance financial statements and create a misleading impression of business performance;
• Concealing liabilities or contingent financial obligations, causing the purchaser to misestimate the company's actual financial condition;
• Manipulating financial reports or accounting records in a manner that does not accurately reflect operational realities;
• Concealing or failing to disclose legal disputes, litigation, tax liabilities, or other legal obligations, thereby reducing the purchaser's awareness of potential risks;
• Misrepresenting the value of assets, including the overvaluation of tangible or intangible assets such as brands and intellectual property rights;
• Providing misleading information during the due diligence process or intentionally delaying or restricting the purchaser's access to critical information.

3. What are the early warning signs of fraud in mergers and acquisitions (M&A)?

• Inconsistencies between internal reports, audited financial statements, and management accounts, or unusual fluctuations across reporting periods;
• Abnormally high revenue or profit growth that is inconsistent with industry or market conditions;
• Reluctance to provide documents during due diligence or repeated delays in providing important information;
• Unclear debt structures and cash flow arrangements, particularly where operating cash flows do not correspond with reported profits;
• Excessive reliance on a number of major customers or contracts without sufficient transparency regarding sustainability;
• Frequent changes in accounting policies or revenue recognition methods, especially immediately before M&A negotiations;
• Incomplete legal disclosures or indications that disputes, tax obligations, or contingent liabilities are being concealed.

4. What is the statute of limitations for civil claims arising from fraud in mergers and acquisitions (M&A) under Vietnamese law?

Disputes arising from fraud in mergers and acquisitions (M&A) are generally subject to the limitation periods prescribed by the Civil Code 2015.

Specifically, under Article 429 of the Civil Code 2015, the statute of limitations for initiating a lawsuit concerning contractual disputes is three (03) years from the date on which the claimant knew or should have known that its lawful rights and interests had been infringed.

For disputes involving non-contractual liability, such as claims for damages arising from fraudulent conduct, Article 588 of the Civil Code 2015 generally provides the same limitation period of three (03) years from the date on which the injured party knew or should have known that its lawful rights and interests had been violated.

III. Legal regulations relevant to fraud in mergers and acquisitions (M&A)

1. How does Vietnamese law address fraudulent conduct in mergers and acquisitions (M&A)?

Currently, fraud in M&A transactions is not governed by a single specific statutory provision but is addressed through various legal frameworks. Specifically:

• Civil transactions (M&A agreements): If one party intentionally provides false information or conceals material facts affecting the other party’s decision to enter into the agreement, the transaction may be declared invalid due to deception under Article 127 of the Civil Code 2015.
• Liability for damages: A party causing losses to its counterparty in an M&A transaction may be liable for compensation under the principles governing non-contractual liability set out in Article 584 of the Civil Code 2015.
• Limitation period for contractual disputes: A three-year limitation period applies from the date the injured party knew or should have known that its rights and interests were infringed, under Article 429 of the Civil Code 2015.
• Criminal liability for serious fraudulent conduct: If deceptive acts are committed for the purpose of unlawfully appropriating property, the offender may be prosecuted under Article 174 of the Criminal Code 2015 (as amended in 2017 and 2025) concerning the offense of Obtaining Property by Fraudulent Means.

2. What is the procedure for reporting fraud and submitting evidence when fraud is discovered in an M&A transaction?

The reporting of fraudulent conduct in M&A transactions is governed by the Law on Denunciations 2018, the Civil Procedure Code 2015, and other relevant regulations concerning corporate governance and legal enforcement. Individuals and organizations are entitled to submit information to competent authorities for review and resolution.

The basic procedures are as follows:

• Step 1: Pursuant to Article 91 of the Civil Procedure Code 2015 (as amended in 2025), the reporting party must provide evidence supporting its claims, including M&A agreements, financial statements, due diligence reports, emails, meeting minutes, and documents demonstrating concealment or misrepresentation.
• Step 2: Under Article 23 of the Law on Denunciations 2018, the denunciation must clearly identify the complainant, the accused party, the alleged violations, relevant dates and locations, and supporting documents.
• Step 3: Pursuant to Article 25 of the Law on Denunciations 2018, the denunciation may be submitted to the State administrative authority, an investigative body (where criminal conduct is suspected), or a court (where civil remedies are sought).
• Step 4: According to Article 28 of the Law on Denunciations 2018, the competent authority will receive, classify, and determine whether the denunciation satisfies the conditions for formal handling.
• Step 5: Pursuant to Article 29 of the Law on Denunciations 2018, the authority will investigate the allegations, collect evidence, communicate with relevant parties, and assess the authenticity of the reported conduct.
• Step 6: Depending on the findings, the matter may result in the invalidation of the transaction, compensation for damages, administrative sanctions, or referral to criminal investigation authorities where criminal violations are identified.

3. Can a case be reclassified from “Fraudulent Appropriation of Property” to an offense involving “Violations of Economic Management Regulations” in order to obtain a lighter sanction?

The determination of whether conduct constitutes the offense of Obtaining Property by Fraudulent Means under Article 174 of the Criminal Code 2015 (as amended in 2017 and 2025), or instead falls within the category of offenses relating to violations of economic management regulations, such as the offense of Violating Accounting Regulations Causing Serious Consequences under Article 221 of the same Code, is not a matter of strategic choice for obtaining a lighter sentence.

Rather, the classification depends entirely on the nature of the conduct and the available evidence. If the perpetrator employed deceptive methods from the outset with the intention of inducing the victim to voluntarily transfer assets, thereby enabling unlawful appropriation, the conduct will generally be prosecuted under Article 174.

Conversely, if the conduct merely involves violations of accounting, financial, or corporate management regulations resulting in damage, without evidence of an initial intent to appropriate property, prosecution under Article 221 may be considered.

IV. Questions regarding fraud in mergers and acquisitions (M&A)

1. What is the statute of limitations for initiating a civil lawsuit in disputes arising from fraud in mergers and acquisitions (M&A) under Vietnamese law?

For disputes arising from M&A transactions (which are generally characterized as contractual disputes or claims for damages), the statute of limitations is governed by the Civil Code 2015 as follows:

• Statute of limitations for contractual disputes: Three (03) years from the date on which the person entitled to bring the claim knew or should have known that his/her lawful rights and interests had been infringed, under Article 429 of the Civil Code 2015.
• Claims for non-contractual damages: The same three (03) year limitation period applies, commencing from the date on which the injured party knew or should have known that his/her lawful rights and interests had been violated, under Article 588 of the Civil Code 2015.
• Special circumstances: If an M&A dispute is determined to involve the protection of ownership rights or rights to use property, it may fall within the category of claims not subject to any statute of limitations under Article 155 of the Civil Code 2015, depending on the nature of the dispute.

2. What evidence should an acquirer gather to initiate civil proceedings upon discovering fraud in a merger and acquisition (M&A) transaction?

In disputes involving fraud in M&A transactions, the acquirer should focus on collecting evidence capable of proving both the fraudulent conduct and the actual damages suffered, in accordance with the burden of proof principle set out in Article 91 of the Civil Procedure Code 2015, as amended in 2025.

• First, the acquirer should collect transaction-related evidence, including the M&A agreement, letter of intent, negotiation minutes, representations and warranties, and due diligence materials reflecting the information provided by the seller.
• Second, the acquirer should gather evidence demonstrating misrepresentation or concealment, such as adjusted financial statements, internal accounting records, email correspondence, documents evidencing undisclosed liabilities or obligations, and materials demonstrating the manipulation of financial or operational data.
• Third, the acquirer should assemble evidence of actual losses, including company valuation reports, post-acquisition financial statements, documents evidencing impairment of investment value, cash flow losses, and additional costs incurred as a consequence of inaccurate or misleading information.
• Finally, evidence should be obtained to establish the causal relationship between the fraudulent conduct and the damages suffered, demonstrating that the acquirer made the investment decision based on the inaccurate or misleading information provided.

3. How are damages assessed and compensation calculated in civil lawsuits involving fraud in mergers and acquisitions (M&A)?

Damages arising from fraud in M&A transactions are assessed and compensated in accordance with the principles governing compensation for damages under Articles 13, 360, and 585 of the Civil Code 2015. Such damages must be actual, direct, and capable of being substantiated by evidence.

Accordingly, the injured party should identify:

• The difference between the value of the target enterprise as represented during the transaction and its actual value at the time of the transaction;
• Reasonable expenses incurred in mitigating or remedying the consequences of the fraudulent conduct, including legal fees, due diligence expenses, debt resolution costs, and corporate restructuring expenses; and
• Lost profits or lost benefits, provided that a direct causal connection between such losses and the fraudulent conduct can be established.

The amount of compensation is determined by aggregating the legally recoverable losses described above. The claimant must also demonstrate a causal connection between the fraudulent conduct and the damages suffered in accordance with the evidentiary requirements under the Civil Procedure Code 2015, as amended in 2025.

4. What legal remedies are available when a share seller intentionally conceals litigation, contingent liabilities, or potential debts in an M&A transaction?

Where a seller intentionally conceals information regarding litigation, financial obligations, or contingent liabilities in an M&A transaction, such conduct may constitute a breach of the duty to provide truthful information during the negotiation and performance of contracts under Articles 3, 385, 398, and 407 of the Civil Code 2015, thereby leading to legal liability on the part of the seller.

Upon discovering the fraud, the purchaser may pursue several legal remedies, including:

• Requesting that the transaction be declared invalid due to deception under Article 127 of the Civil Code 2015;
• Seeking rescission or termination of the agreement where contractual representations, warranties, or undertakings have been breached;
• Initiating legal proceedings to recover damages under Articles 13 and 585 of the Civil Code 2015.

If substantial losses have occurred and there is evidence that the fraudulent conduct was intended to unlawfully appropriate property, criminal liability may also arise depending on the circumstances of the case.

5. To what extent may a person take criminal liability if he or she approved the transaction in principle but did not directly sign the relevant documents?

The criminal liability of a person who did not directly sign transaction documents but approved the transaction in principle is determined in accordance with the rules governing accomplice liability and the participant’s role in the commission of the offence, as prescribed under Articles 17 and 58 of the Criminal Code 2015 (as amended and supplemented in 2017 and 2025).

Accordingly, if the approving individual was aware of the unlawful or fraudulent conduct and nevertheless directed, authorized, or facilitated its implementation, such individual may still be held criminally liable as:

• An organizer or instigator, if such a person played a leading role in planning, directing, or encouraging the commission of the offence; or
• An aider or abettor, if such a person provided mechanisms, resources, approvals, or other support essential to the commission of the offence.

Conversely, if the individual merely approved the transaction in the ordinary course of management, without knowledge of the unlawful conduct and without any obligation to have known of it, criminal liability would generally not arise.

V. Are you looking for a reputable legal expert to assist with issues relating to fraud in mergers and acquisitions (M&A)?

In mergers and acquisitions (M&A) transactions, risks associated with financial, legal, and corporate information fraud may result in significant losses if not properly identified and managed during the due diligence and negotiation stages. Therefore, engaging an experienced legal advisor is essential to help businesses identify potential risks at an early stage, structure transactions securely, and safeguard their interests throughout the transaction process.

NPLaw provides legal advisory services in the areas of corporate law and M&A transactions, assisting clients with legal due diligence, contract review, transaction structuring, and dispute resolution. Through its comprehensive legal services, NPLaw helps clients minimize fraud-related risks and ensure legal certainty throughout the lifecycle of M&A transactions.

The information provided above is for reference purposes only. Should you require detailed legal advice regarding a specific matter, please contact NPLaw for prompt assistance.