Treatment of a Board Chairman with related interests in a Vietnamese company

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.

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Written by Nguyen Quang Vu On In

Contract Structure for Senior Managers in Vietnam – Part 2

When a company hires a senior manager, it usually wants to (1) hire the manager for a fixed term only, and (2) have the flexibility to fire the senior manager if he/she does not perform as expected. However, under the Labour Code 2012, a fixed-term contract is limited to three years, and to fire or to change the work of an employee, the employer must satisfy various strict conditions.

To overcome these restrictions, the employer may specify in the employment contract with the senior manager that the senior manager is employed to work for two different jobs. These two jobs are:

·         The senior-level job that the employee is recruited for. The senior-level job will provide the senior manager with all the salaries and benefits associated with such job; and

·         an entry-level job with minimum wage and benefit.

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Written by Nguyen Quang Vu On In

Contract Structure for Senior Managers in Vietnam - Part 1

A good employment contract for a senior position, like any other employment contract, is the one that can balance the needs of the employer and the employee. A senior-level employee usually seeks attractive salary, incentives, benefits, while problems like non-competition and non-disclosure are the major concerns of an employer. On the other hand, both sides may want certain same things in an employment contract, for example, long-term contract (fixed or indefinite term), ability to terminate the contract without cause, indemnification for wrongful termination of employment contract, and so on.

Unfortunately, under Vietnamese employment laws, there are certain restrictions that prevent the parties, especially the employer side, from having an employment contract that can reflect accurately their commercial needs. This is because Labor Law 2012 is drafted in favor of the employee side due to the view of the State that the employee is the one who is in a weaker position in a labor relationship.

One potential solution to overcome the restrictions under the Labour Code 2012 for contract with a key personnel is to have a separate “civil contract” between the key personnel and the key shareholder or director of the employer in addition to the normal employment contract.

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Written by Nguyen Quang Vu On In

Rights to claim for reflective loss under Vietnamese Enterprises Law 2014

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;

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Written by Nguyen Quang Vu On In ,