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Posted in: Corporate
On 26 November 2019, the National Assembly of Vietnam adopted the new Law on Securities (Securities Law 2019) to replace the Securities Law 2006. The Securities Law 2019 will come into effect from 1 January 2021. Here (click to download) are some notable points of the Securities Law 2019. This post is written by Nguyen Bich Ngoc.
To control contracts between a Vietnamese joint stock company (JSC) with its related persons, the Enterprise Law 2014 requires such a contract to be approved by the Board or the Shareholders Meeting of the JSC. If the related party contract is to be approved by the Board, the law prohibits a Board member with related interests from voting on such contract. However, if the Board Chairman is the Board member with related interests, the law does not make clear that the Board Chairman should also not involve in other steps relating to approval of the related party contract. These other steps include preparing the draft Board resolutions, convening and chairing the Board meeting to consider the contract. These steps could be key to decide whether the related party contract could be approved.
If a director of a joint stock company (the Company) breaches his/her fiduciary duties and causes damage to the Company, under Article 161.1 of the Enterprises Law 2014, a shareholder or group of shareholders holding 1% or more ordinary shares for six consecutive months (1% Shareholder) can on its own behalf or on behalf of the Company to make a civil claim against the director. However, it is unclear whether (1) the 1% Shareholder can request the director to pay compensation directly to the 1% Shareholder or (2) the 1% Shareholder can only request the director to pay compensation to the Company. In other words, it is not clear if the 1% Shareholder can claim the director for reflective loss (e.g., the diminution of the value of such Shareholder’s shareholding in the Company).
The following arguments support the view that the 1% Shareholder cannot claim for reflective loss:
· Under the Enterprises Law 2014, a shareholder is not allowed to withdraw capital from the Company in any form. If a claim for reflective loss is permitted then the 1% Shareholder is indirectly allowed to withdraw capital from the Company which is contrary to the principle provided by the Enterprises Law 2014;
A notable change of the new Anti-Corruption Law 2018, among other things, is that the Anti-Corruption Law 2018 applies to not only State agencies, organizations, units and public officials, but also to non-state enterprises, organizations, and officials. However, a closer reading of Article 22 on the giving and receipt of gifts under Anti-Corruption Law 2018 may indicate otherwise. In particular,
(a) Article 22.2 provides: “Agencies, organizations, units, and public officials are not allowed to directly or indirectly receive gifts in any form from agencies, organizations, units, individuals which are relating to the affair which they are handling or fall under their management”; and
(b) Article 3.9 of the Anti-corruption Law 2018 defines “agencies, organizations, units” under the Anti-corruption Law 2018 as agencies, organizations, units of the State.
Based on the definition in Article 3.9 and the wording of Article 22.2, it is arguable that the regulations and restrictions regarding gifts-giving under the Anti-corruption Law 2018 only apply to State-owned enterprises, state agencies, organizations, units, and public officials but not to non-state enterprises, organizations, and officials.