Having corporate operational flexibility through company charters in Vietnam

The charter (Điều lệ) (akin to the Articles of Association ) is probably the most an important corporate document of a Vietnamese company. However, many company charters in Vietnam simply just reflect (sometimes word-by-word) standard provisions of the Enterprise Law and its implementing regulations. Following the law in the charter may ensure that the company will have a charter that complies with the law. However, by doing so the shareholders/members of the company may not take advantages of the flexibilities in operation allowed by the Enterprise Law. Below is some examples:

• The Enterprise Law provides that assets that can be used for capital contribution in a company in Vietnam include cash, gold, foreign currencies, land user rights, intellectual property rights and “other assets specified in charter”. So if a company wants to receive other assets as a capital contribution (e.g. shares in other companies, cars), it should specify those other assets in its charter;
• The Civil Code provides that a legal person has the capacity to perform the rights and obligations consistent with its “operational objectives”. The operation objectives of a legal person are provided in the charter of such legal person. As such, having a broad operational objectives in the company’s charter would somehow provide a legal ground (or defense) for a company to perform many activities which are not clearly provided by law;
• The Enterprise Law requires certain matters in a joint stock company to be approved at a physical meeting of the general meeting of shareholders unless otherwise provided by the charter. A joint stock company may therefore opt out of this requirement if it considers having a physical meeting of the shareholders is cumbersome; and
• The Enterprise Law requires the collection of written opinions from shareholders by a joint stock company to follow a quite complicated procedures unless otherwise provided by the charter.  A joint stock company may therefore opt out of these complicated procedures if it considers these procedures cumbersome.

Vietnamese State Owned Economic Groups and State Owned Corporations

Many current problems of Vietnam economy come from large  State-owned Economic Groups (SOE Group)  (Tập đoàn kinh tế nhà nước) and State-Owned Corporation (SOE Corp) (Tổng công ty nhà nước) such as Vinashin and Vinalines. In an effort to restructure these large State-owned enterprises, the Government just issued Decree 69/2014 in July 2014. Decree 69/2014 contains some important points on the management and structure of an SOE Group or SOE Corp as follows:

• The group structure of a SOE Group and SOE Corp can only extend to up to three levels including the highest level being the parent company of the SOE Group or SOE Corp. This requirement would probably require current SOE Groups and SOE Corps to divest from subsidiaries which are not under direct control of the parent company or a direct subsidiary of the parent company within a SOE Group and SOE Corp. Decree 69/2014 sets a deadline of 1 September 2016 for the current SOE Groups and SOE Corps to do so;

• The parent company of a SOE Group now must have a charter capital of VND 10,000 billion (about US$ 480 million). So a few small SOE Groups (e.g. Vinatex or Bao Viet) must either raise its charter capital by September 2017 or lose the status of an SOE Group;

• Decree 69/2014 also requires a SOE Group to operate in both in Vietnam and foreign countries;

• At least 50% of the subsidiaries within an SOE Group must operate within its core business and must account for at least 60% of the capital invested by the parent company to all subsidiaries of an SOE Group;

• A member of the Members’ Council of the parent company in a SOE Group or SOE Corp must not be “leaders” within the State organisation, political or social organisation or subsidiaries of the parent company. It is not clear if this requirement is intended to prevent a manager of an SOE Group from holding concurrent offices in other State authorities or political organisations (including the Communist Party?); and

• Decree 69/2014 provides that an Advisory Committee will be set up to provide “objective opinions and advices” on decisions to be made by an SOE Group or SOE Corp. The Advisory Committee may include experienced researchers or experts in related academic institutions. The Advisory Committee may provide some independent input and monitoring to operation of an SOE Group or SOE Corp. However, its advice is not binding and it is not clear whether members of the Advisory Committee are subject to any confidentiality or fiduciary obligations.    

Detailed foreign exchange regime for Foreign Invested Enterprises in Vietnam

Circular 19/2014 issued this week is a major regulations on foreign exchange management of foreign-invested enterprises in Vietnam. Circular 19/2014 has filled much of the vacant left by Circular 4/2001 on the same subject. Before Circular 19/2014, foreign invested enterprises (FIEs) can only rely on a few general provisions of Decree 160/2006. Under Circular 19/2014

• It now seems that Circular 19/2014 only applies to FIEs that have been granted an Investment Certificate. A foreign investor which acquires shares in a Vietnamese company and participates in the management of such company does not need to comply with Circular 19/2014 if the acquisition is not subject to issuance of an Investment Certificate. Instead, in that case, the foreign investor will comply with Circular 5/2014 on foreign exchange regime applicable to “indirect” investment. This is an encouraging news for many M&A lawyers who can now advise with more certainty which bank accounts should be used for acquisition of a domestic companies;
• Circular 19/2014 also repeals the requirements under Circular 5/2014 that a foreign investor must convert into compliance with the foreign exchange regime applicable to foreign direct investment once the indirect investment by the foreign investor becomes a direct investment.
• Similar to Decree 70/2014, Circular 19/2014 repeatedly require “an FIE and the foreign investors in such FIE” to open direct investment capital accounts (tài khoản vốn đầu tư trực tiếp) (one in VND and one in foreign currency). 

• Circular 19 expressly requires all payment for transfer of capital in an FIE to be made through the direct investment capital account. In the past, some foreign investors have preferred to by passing the direct investment capital account and receiving payment for capital transfer offshore. 

• The direct investment capital account now also receives proceeds from domestic loans both in Vietnamese Dong and foreign currencies. Under the old regulations, this account only receives proceeds from foreign loans. This requirement may restrict the banking operation of many FIEs in case these FIEs have multiple domestic loans at different banks. This is because an FIE can only have one direct investment capital account for each currency;

• The VND direct investment capital account can receive capital contribution in VND by both foreign investors and Vietnamese investors;

• The direct investment capital account must be used to transfer proceeds from sale of shares or capital contribution in an FIE by a foreign investor unless the sale of shares or capital contribution results in a “change in the legal entity” of the FIE. It is not clear what change in the legal entity means;

• Any foreign currencies converted from VND by a foreign investor must be remitted out of Vietnam within 30 working days from the date of conversion. Presumably, this provision is to prevent foreign exchange speculation by foreign investors in Vietnam;

• A foreign investor is expressly allowed to bring in foreign currency for the preparation of an investment project even before issuance of the Investment Certificate; and

•  By March 2015, all special foreign currency capital accounts (tài khoản tiền gửi vốn chuyên dùng bằng ngoại tệ) opened under Circular 4/2001 must be closed and converted into direct investment capital account under Circular 19/2014. 

Auction and sale of “.vn” Internet domain names

After more than 5 years, a regulations on auction and sale of Internet domain names in Vietnam is finally issue last month. In 2009, the Law on Telecommunications first contemplate the ability to transfer internet domain names in Vietnam. However, due to lack of implementing regulations, few transfers have occurred. Under Decision 38/2014 of the Prime Minister. 

Auction of the rights to use Internet domain name

• Internet domain name subject to auction are those having high demand for usage and subsequently approved by the MIC. Auction of the rights to use Internet domain name may be conducted directly or via the specific website established by the MIC for auction (“the Website”). Registrations to auction must be made via the Website.

• Before making a bid, participating individuals and organizations are required to pay a deposit amounted from 1% - 15% of the starting price as specified in the auction invitation notification and announced on the websites of MIC and Vietnam Internet Network Information Center. Only those having paid the deposit at least 15 working days before the auction date are allowed to make a bid at the auction.

• Payment of the winning price (after deduction of the deposit) must be paid to designated account of MIC within 15 working days from the date of notification of auction result.

Transfer of the right to use Internet domain name

• Restrictions on transfer are applied to (i) domain names being the names of state agencies, Party organizations or other domain names relating to national interests as specified by the MIC, and (ii) domain names under disputes or temporary suspension from usage.

• Transfer of Internet domain names are completed through relevant internet domain service providers in accordance with regulations of the MIC.

•  Transfer of Internet domain names which have been auctioned by the MIC must be approved by the MIC.