Environmental Liability Upon Exit in Vietnam: Does the Seller Remain Liable — Two years after the factory was sold, the buyer discovers chemical contamination from the old operating period and demands that the seller share remediation costs running into tens of billions of dong. The central question: does environmental liability follow the historical polluter or the current owner of the site?
The legal backbone of the matter
The Law on Environmental Protection 72/2020/QH14 places the duty to remediate pollution and restore the environment on the organisation or individual that caused it, while the current facility owner must perform the environmental obligations attached to the site’s environmental licence and impact assessment. The polluter-pays principle also grounds state action to impose administrative liability and claim damages under the Civil Code 91/2015/QH13. Between seller and buyer, cost allocation is a matter for the sale and purchase agreement (SPA), but that agreement does not bind the State when it pursues liability.
How this differs from neighbouring cases
This article covers only environmental liability on exit. Unlike the dissolution-with-debts articles, the liability here may not exist on any balance sheet and surfaces only through soil and groundwater testing after closing. The focus is the line between liability to the State and risk allocation inside the SPA, plus the role of pre-signing environmental due diligence.
Questions investors and businesses often ask
After selling the company, is the seller still liable for the environment?
Toward the State, possibly yes: remediation liability attaches to the polluting conduct during the seller’s operating period and does not automatically end on transfer. Toward the buyer, liability follows the SPA: with environmental representations and an indemnity clause, the buyer can claim from the seller the costs of contamination arising before closing, within the agreed survival period and indemnity cap.
If contamination is found only after the purchase, who pays for cleanup?
The environmental authority will first require the current site owner to stop the source and remediate, because it controls the facility. The buyer then claims back from the seller under the SPA indemnity if it can prove the contamination predates closing, normally with phase 1 and phase 2 environmental assessments (soil and groundwater sampling) done before or right after the purchase. Without that baseline data, proving the origin of contamination is nearly impossible.
Which SPA clauses protect both sides on the environment?
Four are central: seller representations on environmental compliance and absence of undisclosed contamination; a dedicated environmental indemnity with a longer survival period than ordinary representations; an escrow holdback reserved for environmental risk; and the buyer’s right to pre-signing environmental diligence with a condition precedent that sampling results stay within permitted thresholds. Sellers should cap the indemnity and require the buyer to mitigate loss.
Can insurance transfer environmental risk on exit?
Partly: environmental liability insurance can cover remediation and third-party damages for incidents discovered within the policy period, but it usually excludes known contamination. Insurance is therefore a supplementary layer behind diligence and indemnities, not a substitute for baseline sampling. A fully exiting seller often negotiates tail coverage for its own operating period where the insurance market accepts it.
Recommended course of action
Practical steps: run a two-phase environmental assessment and archive the sampling file as a time marker before signing the SPA; honestly disclose known environmental incidents in the disclosure schedule; draft a separate environmental indemnity with a matching escrow; and in the later dissolution or exit file, retain all environmental records at least for the limitation period within which the State may still pursue liability.
This article has been quality-reviewed by the FLAW AI Legal Council