Circular 213/2012 on activities of foreign investors on Vietnamese securities market

In December 2012, the Ministry of Finance (MOF) issued Circular 213/2012 on activities of foreign investors on Vietnamese securities market (Circular 213/2012). Circular 213/2012 will take effect from 15 February 2013 replacing Decision 121/2008 of the MOF on the same subject. The salient points of Circular 213/2012 include:

• Not applicable to non-public companies: Circular 213/2012 does not apply to (1) direct investment by way of share purchase or capital contribution and merger and acquisition, (2) trading of shares by non-public companies, and (3) trading of capital contribution in limited liability companies. On the other hand, Decision 121/2008 applies to, among other things, (1)  purchase unlisted shares which may include shares of non-public companies and (2) making capital contribution in Vietnamese companies which may include capital contribution of limited liability company. The reduced scope of application of Circular 213 may allow a foreign investor investing an a non-public company without having to obtain a securities trading code from the Vietnam Security Depository Center (VSD);
• Member funds established in Vietnam with more than 49% foreign capital is regarded as a “foreign investor”. Under Decision 121/2008, only member funds with more than 100% foreign capital is regarded as a “foreign investor”;
• Disclosure obligation for “related foreign investors”: A group of related foreign investors include (1) a group of foreign funds managed by the same fund manager, (2) sub-funds of the same master fund, (3) multiple investment managers fund, and (4) funds having the same trading representative in Vietnam. A group of related foreign investors must designate the single contact point to make public disclosures about its trading activities in Vietnam. In addition, a group of related foreign investors is prohibited from manipulating trading activities; and
• Issuance of Securities Trading Code before submission of legalized copies: Many foreign investors have complained that the requirement to have legalized copies of documents submitted to the VSD is cumbersome and takes time. Responding to the complaint, Circular 213/2012 now allows certain foreign investors to be issued a Securities Trading Code before submitting the required legalized copies of documents. 

Free download of Vietnamese law books for one day

My recent two books: A Brief Introduction On Vietnam's Legal Framework and Equitisation of Vietnamese State-owned Enterprises are available for download for free from Amazon Kindle Store. The free promotion will start on 12:00 AM Pacific Standard Time tomorrow (15 Jan 2013) and last for one day. If you are interested and have an active Amazon account, you may try to download the books into your Kindles, smartphones, Ipads or other Android tablets or may read the books online using web browsers such as Google Chrome or Firefox. 

Boiler plate clauses for Vietnamese law contracts?

Boiler plate clauses deal with common issues in most contracts (e.g. severability, counterparts, entire agreement). In Vietnam, most commercial lawyers use boiler plate clause precedents from contracts drafted by international law firms. These precedents are generally useful and in many cases are relevant in Vietnamese context. However, I believe that there should be specific boiler plate clauses developed for contracts governed by Vietnamese law. Below are two examples:

• Article 282 of the Civil Code provides that, among other things, the subject matter of civil obligations must be tasks which can be performed and must be defined precisely. As such, to avoid potential future arguments between the contracting parties about whether a contractual obligation satisfies the requirements of Article 282 of the Civil Code, a statement in this regard should be included in every contract.
• Article 408 of the Civil Code provides that if the terms and conditions of the appendices contradict the terms and conditions of the contract, the former terms and conditions shall be ineffective unless otherwise agreed. It is common for a commercial contract to have schedules and appendices. As such, a draftsman should have a clause addressing the potential inconsistencies between schedules and appendices of a contract and the body of such contract.

Is “business transfer” a “share transfer”, “project transfer” or “assets transfer”?

A business transfer can generally understood as the transfer of, among other things, the assets, employees, contracts, clients and goodwill associated with a particular business. However, “business transfer” is not clear legal concept under Vietnamese law. In Vietnam, when one mentions "business transfer", it is not clear whether it refers to the transfer of (1) shares of the company that runs such business or (2) the assets and other components that constitute such business.

In case of (1), then a business transfer should probably better called as a share transfer transaction. In case of (2), commercially, a business transfer could be structured as the transfer of an “investment project” (see earlier post here) as provided under Article 66 of Decree 108/2006. However, there is no clear procedures under Decree 108 for a "project transfer" transaction which does not involve the transfer of shares of the project company. In particular,

• Article 66.2 of Decree 108 provides that in the case of assignment of a project of an economic organization not associated with the termination of operation of the assigning economic organization, the assignment of the project will comply with the conditions and procedures for assignment of capital;
• Article 66.3 of Decree 108 provides that in the case of assignment of a project of an economic organization associated with the termination of operation of the assigning economic organization, the assignment of the project shall comply with the conditions and procedures for merger with or acquisition of an enterprise;
• Article 66.4 of Decree 108 provides that in the case of assignment of an investment project associated with the termination of operation of the assigning organization and the assignee establishing an economic organization to continue implementation of the project, the investment procedures stipulated by this Decree must be carried out.

A “project transfer”, which is not a share transfer, is not associated with the termination of the assigning organization so Articles 66.3 and 66.4 of Decree 108 are not applicable. However, Article 66.2 of Decree 108 requires a transfer of project not associated with the termination of the assigning organization to follow procedures for assignment of capital. It is not clear how a project transfer by way of selling assets could comply with the procedures for assignment of capital.

As such, in case of (2), to avoid all the complications of a project transfer regulations, the parties can just structure a business transfer as a transfer of assets and other components of the transferred business.