Proposed changes to the treatment of deemed foreign investors under the Investment Law 2014

The Ministry of Planning and Investment (MPI) has just released various draft amendments to the Investment Law 2014 (https://tinyurl.com/y8tnwkkt). Regarding deemed foreign investors,

·        The MPI proposes that an economic organisation controlled by foreign investors (a Foreign Controlled Organisation) must comply with investment conditions applicable to foreign investors when the Foreign Controlled Organisation establishes a new company, or acquires equity interests in another company.

·        A Foreign Controlled Organisation is a company in Vietnam of which foreign investors (1) own more than 50% charter capital or ordinary shares of such company; or (2) directly or indirectly have the right to appoint members of the Board[,] the legal representative of such company; or (3) have the right to decide to amend the charter of such company.

This approach is broader and more logical than the approach under the current Investment Law 2014. Under the Investment Law 2014, the following foreign invested companies will be subject to the investment conditions applicable to foreign investors when setting up a new company or acquiring equity interests in another company:

(a)    Companies, 51% or more of its chapter capital is held by a foreign investor(s);

(b)    Companies, 51% or more of its chapter capital is held by an economic organization(s) prescribed in paragraph (a); and

(c)     Companies, 51% or more of its chapter capital is held by a foreign investor(s) and an economic organization(s) prescribed in paragraph (a).

The current approach may allow investors to use various structures to circumvent the restrictions (see https://tinyurl.com/ybyv49qf). If the new amendment is adopted then such structures may no longer work.

Determination of a contract term under Vietnamese Civil Code 2015

Commonly, a contract would contain a clause defining the effective term of such contract (thời hạn có hiệu lực của hợp đồng). In such clause, the moments the contract take effect and cease to have effect are determined, whether by a certain period or an occurrence. Nonetheless, the Civil Code 2015 does not have any provisions on the “term” of contracts. Instead, the Civil Code 2015 has separate provisions for (i) the term or time-limit, and (ii) the moment when a contract takes effect and the circumstances where a contract is terminated.

Under the Civil Code 2015, by default, the commencement of a term by reference to an event would start on the day immediately following the date of such event but not the date of the event itself. Therefore, if the term of a contract is defined to commence on the signing date, the contract would actually take effect on the day after, which might not be what the parties intended. Due to this, a contract could be effective on the signing date if (1) so provided by law or (2) the parties agreed on a different method for calculating a term.

Regarding (1), one might argue that the provisions specific to contracts under the Civil Code 2015 should be deemed as a “different regulations” of the law. According to Article 401.1 of the Civil Code 2015, the commencement of the term of the contract would be the moment such contract is executed or otherwise agreed by the parties. However, Article 401.1 of the Civil Code 2015 also provides an exemption of “otherwise provided by relevant law”, which could cause a confusion as to which provision would prevail to govern the term of a contract.

Regarding (2), as mentioned above, the parties can agree on a different method for calculating a time-limit, which could resolve the confusion in case both provisions are applied to govern a term of a contract. For example: “The term of this Agreement shall be 2 years from the signing date of this Agreement inclusive.” In this example, the parties agree that the signing date would also count towards the term of the Agreement, which arguably could be considered as an agreement on a different method for calculating the term of the Agreement.

This post is contributed by Le Thanh Nhat, a trainee at Venture North Law.

Timing of a reconvened Board meeting in a Vietnamese joint stock company

Under Article 153 of Enterprise Law 2014, the Chairman of Board of Director (BOD Chairman) must convene the meeting of BOD within 7 days as from the date of receiving a request for an irregular meeting. In case the first meeting is not attended by three quarter or more of total BOD members, the second meeting must be convened within seven days as from the intended date of the first meeting unless a shorter time limit is provided in the company charter.  

According to the above regulations, there may be a dispute as to time for “convention” of the second meeting. One may argue that the second meeting of BOD must be held within 7 days or a shorter period provided in the company charter.

On the other hand, one may argue that the BOD Chairman only need to send notice of convening the BOD meeting within seven days or shorter period specified in the company charter. The second meeting may be held at any time provided in the notice sent by the BOD Chairman which may not be within the time limit as provided in Article 153 of Enterprise Law 2014.

If the latter understanding applies to the convention of the BOD second meeting, it appears that there is no time limit for organizing and conducting the second meeting. Based on the wording of laws and the company charter, the BOD Chairman may take advantage of this provision to prolong the organizing time of the second meeting if he/she considers that the request for BOD irregular meeting is not beneficial for him/her.

This post is contributed by Le Minh Thuy, a trainee at Venture North Law.