An M&A deal priced on enterprise value minus net debt. Post-closing audits uncover numerous “debt-like items” absent from reports: hidden tax liabilities, unaccrued employee payables, product-warranty commitments, misaccounted finance leases… VND 30 billion in “debts” nobody modeled. Can buyers deduct from the price? Debt-like-item mechanics.
Legal basis
- Civil Code 2015, Articles 385, 401: contract content is party-agreed — debt-like definitions and price-adjustment mechanics turn on the SPA.
- Accounting Law 88/2015/QH13 and VAS: liability and provision recognition bases.
- Tax Administration Law 108/2025/QH15 (effective 01/7/2026, replacing Tax Administration Law 38/2019/QH14): hidden tax duties — prior-year reassessments are classic debt-like items.
What debt-like items are — 6 common types
Debt-like items are debt-like economic obligations unrecorded (or under-recorded) in balance-sheet payables:
1. Hidden tax liabilities: prior-year reassessments and late-payment penalties unprovided — the most common in Vietnam.
2. Unaccrued employee payables: 13th-month salaries, bonuses, severance under-booked.
3. Warranty provisions: product-warranty commitments unprovided per VAS.
4. Finance leases: asset leases booked as operating leases to “hide” debt.
5. Unrecorded overdue supplier payables: off-book “hanging” debts.
6. Investment/sponsorship commitments: committed but unperformed capital contributions and sponsorships.
Deducting from price — 3 paths
Path 1 — closing-accounts price adjustment: if SPAs define debt-like items for working-capital/net-debt adjustments, buyers deduct directly (see EXP-6209). Cleanest — but requires upfront SPA definitions.
Path 2 — R&W claims: if debt-like items breach warranties (e.g., “no undisclosed liabilities”, “truthful financials”), buyers claim per R&W procedures (see EXP-6211) — within caps, de minimis, survival periods.
Path 3 — specific indemnity: good SPAs separately indemnify diligence-identified risks (e.g., “seller indemnifies all pre-closing-year tax reassessments”) — free of de minimis/basket, with higher separate caps.
Diligence prevention — 5 actions
1. Deep tax diligence: 5-year filing reviews, at-risk expense items, incentive eligibility — hidden tax is the biggest debt-like item. 2. HR diligence: reconcile compensation policies against bookings — catch unaccrued employee payables. 3. Contract reviews: leases, warranty commitments, guarantees… — hunt “hidden” duties. 4. SPA debt-like definitions: detail each type, calculation, document sources — detail kills disputes. 5. Specific indemnities for known risks: diligence findings shouldn’t just be “noted” — specific-indemnify them with separate caps.
How do debt-like items differ from balance-sheet payables?
Balance-sheet payables are accounting-recorded duties. Debt-like items are economic duties that should have been recorded but weren’t (or were under-recorded) — enterprise-value pricing assumes complete net debt; debt-like items falsify that assumption, hence price deductions.
Seller says “normal operating costs, not debt”?
Common qualitative dispute. Distinguish: future operating costs (arising post-closing for post-closing operations) aren’t debt-like; duties arisen from pre-closing operations but unpaid/unbooked are. The divider is closing — duties belonging to the seller’s “past”.
Are debt-like deductions cap-limited?
Path-dependent: closing-accounts deductions (path 1) are typically uncapped as price adjustments, not damages — a major advantage. R&W claims (path 2) face caps. Buyers should therefore prioritize closing-accounts mechanics for debt-like items in SPA negotiations.
Found after price-adjustment deadlines?
R&W (if survival remains) or specific indemnity still avail. Hence SPAs should carry both: price adjustments for early-found debt-like items + R&W/specific indemnity for late discoveries.
Who finds debt-like items in diligence?
Auditors (financial due diligence) lead — but with explicit “find debt-like items” scope, not generic “financial review”. Combined with lawyers (legal duties: tax, labor, contracts) and tax specialists. Cheap cursory diligence is the number-one cause of “slipped-through” debt-like items.
Contact FLAT Law Firm
FLAT Law Firm advises M&A buyers: designing SPA debt-like mechanics, coordinating financial–tax–legal diligence, and handling post-closing hidden-debt discoveries. Engage from diligence — diligence-found debt-like items are “gold”; post-closing discoveries are “bitter medicine”.
This article has been quality-reviewed by the FLAW AI Legal Council
