Legally the number of shares authorised for sale (số cổ phần được quyền chào bán) (Authorised Shares) is an important concept in corporate law in Vietnam. It is used repeatedly in the Enterprise Law. In particular, the number of Authorised Shares of a joint stock company must be recorded in the Charter, the Shareholder Register and the Business Registration Certificate of a joint stock company. Any change to the number of Authorised Shares requires approval of the General Meeting of Shareholders (GMS) and registration with the business registration authority.
Despite the important role of Authorised Shares, the Enterprise Law and its implementing regulations fail to clearly define Authorised Shares. There is no definition of Authorised Shares. So one would need to imply from various provisions of the Enterprise Law and its implementing regulations to determine what Authorised Shares are. Below are some provisions under the Enterprise Law and its implementing regulations which relate to Authorised Shares:
- Article 84 of the Enterprise Law provides that the founding shareholders of a joint stock company must together subscribe for at least 20% of the total number of Authorised Shares being ordinary shares. If the founding shareholders do not subscribe all of the number of Authorised Shares then the remaining Authorised Shares must be offered for sale and sold within three years from the date of incorporation.
- Article 92 of the Enterprise Law provides that shares which are bought back by a joint stock company are considered withdrawn shares and belong to the number of Authorised Shares.
- Article 96 of the Enterprise Law provides that approval by the GMS is required for deciding the total number of Authorised Shares.
- Article 96 of the Enterprise Law provides that it is not necessary to have the GMS to approve an increased Charter Capital if the Charter Capital is increased by issuing “new shares” within the number of Authorised Shares.
- Article 108 of the Enterprise Law provides that the Board of Directors (Board) is entitled to decide to issue new shares within the number of Authorised Shares.
- Article 6 of Decree 102/2010 provides that the number of shares authorised for issue (sổ cổ phần được quyền phát hành) of a joint stock company is the number of shares that the GMS decides to issue to mobilise new capital. It is not clear if “shares authorised for issue” under Decree 102/2010 are the same as “shares authorised for sale” under the Enterprise Law. For the sake of simplicity, let’s assume that “shares authorised for issue” are Authorised Shares.
- Article 6 of Decree 102 provides that the number of Authorised Shares at the time of incorporation of a joint stock company includes (1) the number of shares that have been subscribed by shareholders of the company at the time of incorporation and (2) the number of shares that will be issued within three years from the date of incorporation.
- Article 40 of Decree 43/2010 provides that the charter capital of a joint stock company does not include “value of” the Authorised Shares.
Decree 40/2019 amending four separate decrees on environment protection takes effect from 1 July 2019. Below are some of the key amendments introduced by Decree 40/2019:
· The term “Industrial zones” is expanded to include all kinds of zones, such as export processing zones, high-tech zones, or industrial areas.
· “Main works or items of a project” is the main project component specified in the feasibility study of the project.
· List of projects subject to environmental impact assessment (EIA) is adjusted. For example, investment in a golf course is now subject to EIA. Certain projects which do not have wastewater treatment work or waste treatment work are exempted from post-construction examination. Only residential projects with capacity of 2000 (instead of 500) or more inhabitants are subject to EIA. Only hotel projects with capacity of 200 rooms (instead of 50) are subject to EIA.
· Industrial manufacturing is classified in various sectors with different level of risks to the environment. Development of manufacturing projects with very high risks to the environment is subject to consultancy with environmental experts and scientists, and appraisal of EIA reports of these projects must be conducted by an appraisal panel.
Various provisions of the Enterprise Law 2014 can now allow parties to an M&A deal in Vietnam to have more flexibility in designing a closing mechanics. In particular,
· Multiple legal representatives – In a M&A deal involving a change of control, the buyer would want to control the legal representative position on the closing date. But this involves registration with the Business Registration Authority. Many sellers are reluctant to change the legal representative position before closing without receiving payment of the purchase price.
In the past, a company can only have one legal representative. However, under the Enterprise Law 2014, a company can have two or more legal representatives. As such, the parties can agree that the target company will have two legal representatives appointed by the seller and the buyer. The legal representative appointed by the seller will continue to run the target company up until closing and will resign on closing. The legal representative of the buyer will assume control on closing. And after closing, the target company will deregister the legal representative appointed by the seller.
Unclear definition of 51% FIE
Under Circular 6/2019, enterprises with foreign direct investment (FIEs), which must open DICA include (1) enterprises which are established by foreign investors (with or without local partners) (Incorporated FIEs); and (2) enterprises which do not fall under (1) but 51% of which are owned by foreign investors (51% FIEs). Normally, one would expect that a 51% FIE must be a FIE, 51% of which is actually owned by foreign investors (Actual 51% FIEs). However, Circular 6/2019 provides that a 51% FIE include enterprises which have foreign investors making capital contribution or purchasing shares resulting in foreign investors’ owning 51% of the FIE. The use of the words “resulting in” suggests that a 51% FIE could be a 100% locally-owned company, which has potential foreign investors who may acquire 51% or more of its charter capital (Future 51% FIEs).
A closer look at Circular 6/2019 of the State Bank of Vietnam (SBV) reveals that it could create more problems than it solves. The key issue under Circular 6/2019 is the broader use of the “direct investment capital account” (normally referred to as DICA).
To understand the issue, one would need to know how DICA works. Under the foreign exchange regulations, DICA must be opened by a company in Vietnam, which has “foreign direct investment” (the FIE). Foreign investor/shareholders of an FIE will contribute capital to the FIE by transferring monies to DICA. Foreign investors/shareholders will get their monies back from Vietnam also by transferring monies from DICA to their own bank accounts (even in case the foreign investor/shareholder sells its investment to another investor). This simple arrangement works well for simple foreign direct investment activities in the 1990s where there is limited M&A activities and foreign investors are mostly foreign manufacturers who do not plan to sell their investment down the road.
On 8 July 2019, the State Bank of Vietnam (SBV) expresses its view and recommendation to credit institutions in Vietnam (CIs) on peer-to-peer lending activities (P2P Lending). The SBV’s view is as follows:
· P2P Lending is built on a digital platform which connects borrowers and lenders without having to go through financial intermediaries (such as CIs). All lending activities will be recorded on the platform.
· The SBV acknowledges that P2P Lending is not specifically regulated by current regulations.
· Besides its potential to create additional way to mobilize capital, P2P Lending can give rise to the following risks: (1) misleading information provided by P2P Lenders about the product’s safety, (2) the lack of oversight on P2P Lending’s platform in terms of cybersecurity, (3) P2P Lenders’ using customer information for predatory lending activities, and (4) P2P Lending being considered as activities of CI.
Since the end of 2018, the Commission for the Management of State Capital at Enterprises (CMSC) will become the new Owner Representative Agency (Cơ quan đại diện chủ sở hữu) of 19 large SOEs including State Capital Investment Corporation (SCIC), Petro Vietnam (PVN), Vietnam Electricity (EVN), Vietnam National Petroleum Group (Petrolimex). This change causes some SOEs to have CMSC as the common Owner Representative Agency, which may cause these SOEs to become related persons according to the Enterprise Law 2014, because:
The Ministry of Finance has recently released draft amendment to the current regulations on duty-free goods under Decree 167/2016. We discussed below some proposed amendments:
· The definition of “goods temporarily imported to Vietnam” is amended to include goods temporarily imported from “non-tariff zones and bonded warehouses”. Under existing regulations, it is not clear whether or not goods from non-tariff zones and bonded warehouses can be sold in duty-free stores.
· Bags, packaging for the purpose of carrying duty-free goods are now also considered duty-free goods.
M&A lawyers in Vietnam usually spend a great deal of time (and client’s monies) to figure out how and when payment for an M&A transaction should be made. This is partly due to the fact that the SBV has not issued any guidance on foreign exchange control for investment activities under the Investment Law 2014 since 2015. From September 2019, hopefully, the situation will be significantly improved thanks to the new Circular 6/2019 of the SBV. Under Circular 6/2019,
· Foreign-invested enterprises, which must open a Direct Investment Capital Account (DICA), include, among others, (1) enterprises which are incorporated by, among others, foreign investors and are issued an Investment Registration Certificate (IRC), and (2) enterprises which are first incorporated by Vietnamese investors but are later acquired by foreign investors who own 51% or more of the charter capital of such enterprises. Previously, enterprises under (2) are not required to open a DICA if they do not have an Investment Registration Certificate. However, it appears that an enterprise, which is a subsidiary of a DICA enterprise, is not required to open a DICA.
· The DICA is used by a DICA enterprise to handle fund transfers for capital transactions such as capital contributions by shareholders/members of the DICA enterprise or loans from foreign lenders. For M&A transactions including secondary transfer of shares/capital contribution, the DICA plays an important role because the SBV requires payment for secondary transfer of capital in a DICA enterprise to be made via DICA. The bank which operates DICA could require various supporting documents in order to allow monies can be transferred in or out of the DICA.
It is not clear whether voting rights of members of the Member’s Council of a Single LLC is based on (1) the amount of charter capital that such member represents, or (2) principle one person-one vote. Article 75.5 of the Enterprises 2014 provides that unless otherwise provided in the charter, each member of the Members’ Council of a Single LLC has one vote. This provision suggests that in the charter of the Single LLC, the owner of a Single LLC can allocate different voting rights to members of the Members’ Council who are usually the representatives of the owner in the Single LLC. The most common criteria is based on the amount of charter capital of the Single LLC represented by each member. The ability to allocate different voting rights to different members of a Single LLC is important since the owner of a Single LLC may have different shareholders who want to directly manage the Single LLC.
In the latest draft amendment to the Securities Law 2006, compared with the earlier draft, the following new points , among others, are introduced :
· “Indirect ownership” of securities is defined to mean holding securities through a “related person” or an entrustment arrangement.
· The criteria of a professional investor is reduced. A company with a paid-up charter capital of VND 100 billion (about US$ 4.5 million) instead of VND 1,000 billion can now qualify as a professional investor. An individual with a portfolio of VND 2 billion (instead of a trading volume of VND 2 billion per month) or annual taxable income of VND 1 billion can now qualify as a professional investor. Qualifying as a professional investor is important since only a professional investor or a strategic investor could participate in a private placement of shares by a public company.
· Major customers or counterparties are no longer considered as a related person of a public company.
· The latest draft amendment seems to allow for issuance of shares at a price below par value if the current trading price of the issuer is lower than par value.
Below is a list of key approvals and contracts required for a wind farm project in Vietnam (the Project):
Permission by provincial People’s Committee for the Project to carry out wind measurement;
Report on wind measurement result to the provincial People’s Committee;
Approval of the Pre-Feasibility Study of the Project;
Approval of the basic design part of the Feasibility Study of the Project;
In-principle Approval of the Project under the Investment Law 2014;
For a project financing or limited recourse financing in Vietnam, a mortgage over shares (or equity capital) of the project company usually forms part of the security package due to the ease of creating and perfecting a mortgage over shares. That said, when an enforcement event occurs and if the borrower or the project company does not cooperate, the lenders (usually foreign lenders), who wish to immediately taking over the mortgaged shares, may find it difficult to actually enforce the mortgage due to the need to complete various licensing procedures for the sale or transfer of the mortgaged shares.
Thanks to the flexibility offered by the Enterprises Law 2014 and the Investment Law 2014, lenders may now consider taking some extra measures to increase their ability to enforce the mortgaged over shares of a project company in Vietnam. In particular,
On 29 March 2019, the State Bank of Vietnam (SBV) issued Circular 3/2019 to amend and supplement some articles of Circular 32 of the SBV dated 26 December 2034 on restrictions in using foreign exchange within the territory of Vietnam (Circular 32/2013). Circular 3/2019 will take effect from 13 May 2019.
First, a bit of background, under the Foreign Exchange Ordinance, “in the territory of Vietnam” all transactions, payment, price denomination must not be made in foreign currencies except as permitted by the SBV. The SBV usually takes quite a restrictive (and, in our opinion, not reasonable) on what transactions are considered to occur “in the territory of Vietnam”.
The following is a non-exhaustive list of licenses, permits and requirements on environment which an industrial park in Vietnam need to comply with.
1. Environment impact assessment report (EIAR – Báo cáo đánh giá tác động môi trường) or environment protection plan (EPP – Kế hoạch bảo vệ môi trường).
2. Confirmation on completion of the environmental protection works (Xác nhận hoàn thành công trình bảo vệ môi trường).
The following is a non-exhaustive list of licenses, permits and requirements on firefighting and prevention applicable for an industrial park in Vietnam which are subject to the monitor of firefighting and prevention and may pose a risk of fire and explosion.
1) Appraisal of firefighting and prevention design (Thẩm duyệt thiết kế về phòng cháy chữa cháy) by the competent authority before commencing the construction.
2) Acceptance of firefighting and prevention (Nghiệm thu về phòng cháy và chữa cháy) by the competent authority before putting the construction works into operation.
3) Compulsory fire and explosion insurance for the properties of the industrial park.
Foreign banks located outside of Vietnam extending cross-border loans to borrowers in Vietnam should be aware of the following:
Under WTO commitments, Vietnam gives an “unbound” commitment regarding cross-border lending services. The Comprehensive and Progressive Agreement for Trans-pacific Partnership (CPTPP) also does not open for cross-border lending services. This means that the Vietnamese Government has discretion to allow or disallow cross-border lending;