Article 79.2(a) of the Enterprise Law provides that a shareholder (10% Major Shareholder) or a group of shareholders (10% Group Major Shareholder) holding more than 10% of the total ordinary shares for a consecutive period of six months or more, or holding a smaller percentage as stipulated in the charter of a joint stock company (JSC) will have the right to nominate candidates to the Board of Director of the JSC (the Board).
Both Decree 102/2010 and the Enterprise Law do not set out a clear mechanism for implementing the nomination right of a 10% Major Shareholder or a 10% Group Major Shareholder in the context of a JSC. In particular,
- Article 79.4 of the Enterprise Law provides that except where otherwise stipulated in the charter of the company, the shareholders forming a 10% Group Major Shareholder must notify other attending shareholders of the formation of the 10% Group Major Shareholder no later than the beginning of a meeting of the General Meeting of Shareholders (GMS). Article 29.2 of Decree 102/2010 allows the formation of a 10% Group Major Shareholder to occur before and during a meeting of the GMS. From the 10% Group Major Shareholders’ perspective, the provisions of the Enterprise Law and Decree 102/2010 could allow a group of shareholders to have maximum flexibility in exercising the rights of a 10% Group Major Shareholder. On the other hand, other shareholders or the JSC would likely want to know as early as possible if there is any 10% Group Major Shareholder who intends to exercise its nomination rights in the JSC to manage the operation of the company. A JSC (especially a public JSC) which wants to avoid a surprised proxy contest or hostile take-over may consider setting up a mechanism to require a 10% Group Major Shareholder to notify the JSC well in advance (even at the beginning of the six-month period) before exercising the rights of such 10% Group Major Shareholder.
- It is not clear if during a six-month holding period, internal transfers among the shareholders constituting a 10% Group Major Shareholder will affect such 10% Group Major Shareholder’s nomination rights. For example, at the beginning of the six-month shareholding period, a 10% Group Major Shareholder comprises of Shareholder A and Shareholder B holding 10% and 5% shares respectively. During the six-month shareholding period, A sells 2% shares to B. As such, at the time, the 10% Group Major Shareholder exercises its nomination rights, the 10% Group Major Shareholder still comprises of A and B but the shareholding ratios are different (being 8%/7% instead of 10%/5%). It is not clear if the 10% Group Major Shareholder at such time is still regarded as the same 10% Group Major Shareholder and is entitled to exercise the nomination right under Article 79.2 of the Enterprise Law.
- Similarly, it is not clear if any increase in the number of shares held by a 10% Group Major Shareholder during a six-month holding period would be entitled to the same nomination rights attached to the original number of shares. For example, at the beginning of the six-month shareholding period, a 10% Group Major Shareholder holds 11% shares in the JSC which empowers them to nominate one candidate for Board member if they were to continue to hold the same number of shares. Two month later during the six-month shareholding period the 10% Group Major Shareholder increases its shareholding to 31% which empowers them to nominate three candidates for Board members at the end of the six-month shareholding period. However, the question is whether the JSC can refuse the nomination rights attached to the 20% increased during the six-month shareholding period on the ground that the actual holding period for such increased shareholding is less than six month.
- The provisions of the Enterprise Law and Decree 102/2010 do not limit how many times during the term of the Board the nomination rights of a 10% Major Shareholder or a 10% Group Major Shareholder could be exercised. Therefore, to maintain control of the Board and to avoid the effect of cumulative voting requirement, a controlling shareholder may “divide” the election of Board members into smaller lots. In particular, under cumulative voting principle, whenever a JSC elects new Board members, each shareholder will have a number of votes equal to the number of new Board members to be elected times the number of voting shares held by such shareholder and such shareholder may cash all or some of his/her votes for any candidate. As such, the smaller the number of new Board members to be elected, the lesser the chance that a minority could win a Board seat.
- The provisions of the Enterprise Law and Decree 102/2010 do not contemplate the nomination procedures where the nomination and selection of Board Members is conducted through obtaining written opinions from shareholders rather than through physical meetings of the GMS.
provisions of the Enterprise Law and Decree 102/2010 do not have any
restriction for one shareholder to participate in the formation of more than
one group of 10% Major Shareholders.
- The Enterprise Law and Decree 102/2010 do not contemplate whether and how a 10% Major Shareholder or a 10% Group Major Shareholder needs to present evidence that it satisfies the holding period requirement under Article 79.2 of the Enterprise Law. Under the Enterprise Law, the shareholders register (Sổ đăng ký cổ đông) provides conclusive evidence of ownership over shares. For a public JSC, whose shareholders register is maintained by the Vietnam Securities Depository Centre (VSD), the public JSC may not be able to confirm whether a 10% Major Shareholder or a 10% Group Major Shareholder is holding a number of shares consecutively during a period of time without the VSD’s cooperation and confirmation.
To avoid confusion and potential disputes, the Charter of a JSC should address the various uncertainties regarding the right of a 10% Major Shareholder or a 10% Group Major Shareholder to nominate Board Members candidate under the Enterprise Law and Decree 102/2010.
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;
On 11 January 2019, the Supreme Court issued Resolution 1 guiding the application of several regulations on interest, interest rate and relevant penalty (Resolution 1/2019). Resolution 1/2019 will take effect from 15 March 2019. Below are some salient points of Resolution 1/2019
Resolution 1/2019 clearly states that the interest rate caps of the Civil Code 2005 and 2015 will not apply to credit contracts between banks and its customers. In the past, there has been long debate regarding whether the interest rate caps of the Civil Code 2005 and 2015 will apply to credit contracts.
If the interest rate, overdue interest on principal and overdue interest on interest are higher than the permitted cap, the exceeding interest which has been paid will be deducted from the principal of the loan.
Collective action mechanism among bondholders is one of the common features in terms and conditions of a corporate bond. Two important features of collective action mechanism are:
· the use of a bond trustee to act for the benefit of bondholders; and
· the use of bondholders’ meeting to allow a decision of a majority (or super-majority) of bondholder regarding the bond (e.g. changing the terms of the bond) to bind minority bondholders who disagree with such decision.
Arguably, if the provisions of bondholders’ meeting are included in the terms of the bond and a bondholder agrees to such term then the provisions on a civil transaction under Civil Code 2015 may allow the use of bondholders’ meeting in Vietnam. However, the validity of a decision of a bondholders’ meeting which is not approved by all bondholders is still questionable under Vietnamese law. This is because:
Under the Law on E-Transactions, an e-signature (chữ ký điện tử) is defined as being created in the form of words, script, numerals, symbols, sounds or in other forms by electronic means, logically attached or associated with a data message, and being capable of identifying the person who has signed the data message, and being capable of identifying the consent of that signatory to the contents of the signed data message.
According to Article 24.1 of the Law on E-Transactions, an e-signature of an individual affixed to a data message will be legally equivalent to the signature of such individual affixed to a written document if:
· the method of creating the e-signature permits to identify the signatory and to indicate his/her approval of the contents of the data message; and
· such method is sufficiently reliable and appropriate to the purpose for which the data message was originated and sent.
Accordingly, if an user being an individual of an e-commerce website, who can be identified by his/her username, password, and other means of verification (e.g., OTP code), clicks on a confirmation button of an online order then such action can be regarded as creating and affixing an e-signature to the online order by the individual user. This is because:
On 28 December 2018, the State Bank of Vietnam (SBV) issued Circular 42 amending current foreign currency borrowing regulations (in Circular 24 of the SBV dated 8 December 2015, as amended from time to time (Circular 24/2015)) (Circular 42/2018). Circular 42/2018 will take effect from 1 January 2019.
Changes to permitted lending purpose
Vietnamese banks only lend in foreign currency for a few limited purposes. Circular 42/2018 has following changes to these purposes: