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.
A new Law on Cybersecurity (Luật an ninh mạng) (the CSL 2018) will come into effect from 1 January 2019 in Vietnam. Not only providing measures to secure the cyber-environment which to some extent has been regulated by the Law on Cyber-information Safety dated 19 November 2015, the CSL 2018 also includes various provisions to control the contents posted or published on the cyber-network. Below are some salient issues of the CSL 2018.
Scope of the CSL 2018
The CSL 2018 applies to all agencies, organizations and individuals involving in the protection of cybersecurity, which is broadly defined as the assurance that activities in cyberspace not causing harm to the national security, social order and safety, lawful rights and interests of agencies, organizations and individuals. In particular, the CSL 2018 will apply to overseas organisations, which have users residing in Vietnam such as Google or Facebook.
The CSL 2018 covers all networks of IT infrastructure, telecommunication, Internet, computer systems, databases, information processing, storage and controlling systems, and regulates activities of every enterprise providing services in cyberspace and Internet users including e-commerce, websites, online forums, social networking and blogs.
Operators of information system (Chủ quản hệ thống thông tin)
The CSL 2018 imposes various obligations on an operator of an information system. Under the Law on Cyber-information Safety according to which, an operators of information systems means any agencies, organizations or individuals having directly managing authority to an information system.
A new Law on Competition (Competition Law 2018) will take effect from 1 July 2019 in Vietnam. Some key changes in the Competition Law 2018 are as follows:
Broader scope of application: The Competition Law 2018 now governs any activities whether by Vietnamese or foreign entity or individual which have or may have the “competition restraining impact” to Vietnam market. Competition restraining impact means impact which excludes, reduces, distorts or hinders competition in the market. Under the Competition Law 2018, the competition authority of Vietnam now has clear authority to deal with offshore activities and transactions which has impact on Vietnam market. In addition, the Competition Law 2018 now also apply to public service units such as hospitals, or schools which are technically not enterprises.
Besides the principle of honesty, companies are required to compete with each other in accordance with the principles of justice and fairness.
Relationship with other laws: Contrary to the old competition law, the new Competition Law 2018 will not prevail other laws in case such other laws have regulations on action in restraints of competition, form of economic concentration, activities of and dealing with unfair competition.
Under the new Competition Law 2018, a State agency is prohibited not only from forcing but also from “requesting or recommending” enterprises or individuals or organisations to perform or not to produce and sell specific goods, provide and use specific service, or produce and sell goods to or provide and use services of specific enterprises.
Decree 71/2017 replaced Circular 121/2012 on corporate governance of public join-stock company (Public JSC) since 1 August 2017. Decree 71/2017 does not have its own criteria for being an independent director but refers to the criteria under the Enterprise Law 2014. The table below compares the old criteria of an independent director in a Public JSC with the new criteria under the Enterprise Law 2014. Although in some areas, the Enterprise Law 2014 provides stricter criteria, the Enterprise Law 2014 contains certain major omission (e.g., including omission to exclude managers of an affiliate or representatives or related persons of a major shareholder in a Public JSC from acting as an independent director of a Public JSC).
Under a recent announcement in Official Letter No. 4486/UBCK-GSDC dated 20 July 2018, the State Securities Commission of Vietnam (SSC) requires public companies, securities companies, asset management companies, and securities investment funds (quỹ đầu tư chứng khoán) (i) not to conduct any illegal offering, transaction or transaction brokerage relating to virtual money (tiền ảo) which should include cryptocurrencies like Bitcoin and to (ii) adhere to the legal regulations on anti-money laundering.
The above official letter was based on Directive 10/CT-TTg of the Prime Minister dated 11 April 2018. Both of them once again confirm the view of Vietnamese government on virtual money that was stated by the State Bank of Vietnam in its press release dated 27 February 2014 about Bitcoin in Vietnam:
(a) virtual money is not currency; and
(b) virtual money is not a legal tender.
1. Where a member (the Conflicted Member) in a limited liability company with two or more members (the LLC) has an interest in a related-party transaction or contract (an RPT) with the Multi-Member LLC, the Enterprise Law 2014 requires the RPT to be approved by the Members’ Council (MC) of the LLC excluding the votes of the Conflicted Member. However, relating to the approval process, the Enterprise Law 2014 is not clear on the following issues:
1.1. whether the charter capital of the Conflicted Member should be excluded from the calculation of quorum of the MC’s meeting to approve the RPT? and
1.2. if the Conflicted Member is the chairman of the MC, whether the Conflicted Member can still preside over the MC’s meeting?
Vietnamese banking regulations do not have clear mechanics for transfer of loan commitments between banks or credit institutions in Vietnam. In particular:
Under Circular 9/2015 of the State Bank of Vietnam (SBV) on loan transfer, loan transfer is defined to mean the transfer of “the right to collect loan” arising from the lending operation by a bank (the Original Bank) to a loan purchaser, which may or may not be a bank. The definition of loan under Circular 9/2015 does not include loan commitment where a bank only commits to lend to a borrower but has not actually disbursed the loan. Accordingly, all the loan transfer mechanics under Circular 9/2015 do not directly apply to transfer of loan commitment.
One way for banks to overcome the lack of regulations on transfer of loan commitment is for the Original Bank to actually disburse the loan and then transfer such loan to another bank (New Bank) in accordance with Circular 9/2015. However, under Circular 9/2015, if the loan purchaser is a bank, then the SBV requires the New Bank to have a loan purchase license. Not all banks in Vietnam are granted a loan trading licence by the SBV.
Under the lending regulations (Circular 39/2016), a loan commitment could be understood to be an undertaking by a bank to handover to the client an amount of money to use. Therefore, it appears that a loan commitment is regarded as an obligation to lend by a bank (which, of course, is usually conditional on the borrower’s satisfying certain conditions precedent). Therefore, transfer of a loan commitment is regarded as a transfer of obligation and will require the consent of the borrower. Borrower’s consent is usually not a problem since any proper loan agreement will include a transfer clause which allows the bank to transfer any of its rights and obligations under the loan agreement to a third party.
On 15 May 2018, the Supreme Court issued Resolution 3 on expedited proceedings for disputes arising from handling of non-performing loans (NPL) and security assets of NPL (Resolution 3). Resolution 3 is an implementing legislation of Resolution 42 of the National Assembly on NPLs (Resolution 42). Resolution 3 takes effect from 1 July 2018 and will expire when Resolution 42 expires in August 2022. Resolution 3 will apply to claims (1) accepted for hearing by the courts before 1 July 2018 but have not been brought to trial; and (2) accepted during its term but still in process when it expires. Resolution 3 cannot be based on to protest against effective judgment under retrial and cassation.
Resolution 42 allows disputes relating to security asset of an NPL to be conducted under expedited proceedings. Resolution 3 further clarifies that:
Disputes on obligations to hand-over security assets of an NPL is clarified to be dispute relating to the case where the securing party or the party holding the security asset (1) does not hand-over the security asset, or (2) does not hand-over correctly according to the request of the secured party or the party having right to enforce the security asset; and
Dispute on right to enforce security asset of NPL is clarified to be dispute on the determination of person having right to enforce the security asset of an NPL.
In Vietnam, if a real estate investor (Investor) cannot Acquire A Land Area Through Common Options to implement its investment projects, it may consider entering into a business cooperation contract (BCC) with a local land user. Under a BCC structure, the parties do not establish an entity but usually cooperate to use their available resources (including land use rights) to do business. In this case, the party having land use rights (Landlord) retains the title over the land without transferring them to the Investor, but the Investor may obtain certificate(s) which evidence its title over assets attached to the relevant land area (generally, ownership certificate). There is a risk that a BCC contract may be regarded as a land sub-lease contract between the local land user and the Investor. However, a BCC structure is quite common in practice and there are certain legal basis for such a structure.
In March 2018, the Government issued a new Decree (Decree 40/2018) on multiple level marketing (MLM) activities. Decree 40/2018 takes effect from 2 May 2018 replacing Decree 42/2014. In general, Decree 40 inherits many regulations of Decree 42/2014 and its implementing Circular (Circular 24/2014). That said, Decree 40/2018 introduces various new and stricter requirement on MLM activities. In particular,
A MLM enterprise must now register its activities with provincial competent authorities, where there are MLM activities conducted by its consultants. A MLM enterprise must appoint an individual representative in each province where it does not have branch or representative office. Under Decree 42, a MLM enterprise only needs to notify provincial competent authorities where there are MLM activities conducted by its consultants.
A MLM company must now make an escrow deposit of VND 10 billion or 5% of the charter capital, whichever is higher instead of VND 5 billion with a local bank or a foreign bank branch in Vietnam. The deposit is to secure for the MLM company’s obligations with respect to the members of the MLM network.
A shareholder (especially a foreign shareholder) in a Vietnamese joint stock bank (VN Bank) must know how much its shareholding in the VN Bank is. This is because (1) there are ownership caps applicable to a single shareholder or a group of related persons, and (2) a “major shareholder” is required to obtain an approval from the State Bank of Vietnam (SBV). Since the Law on Credit Institutions 2010 (LCI 2010) and Decree 1/2014 introduces the concept of “indirect ownership”, it may be difficult to determine the exact shareholding ownership of a shareholder in a VN Bank for the purpose of (1) and (2) above. Indirect ownership is defined as an organization or individual owning the charter capital or shareholding capital of a credit institution via a related person or trust investment.
Given the lack of clarity on tender offer rules and the difficulty in enforcing such rules in practice, it is not so difficult for an investor to accumulate significant stake in a public joint stock company (target company) in Vietnam. However, if such investor is not supported by the Board of the target company, then the unwelcomed investor may find a hard time to participate in the management of the target company even if the investor can acquire control of the target company at shareholder level. This is because:
In March 2018, the Government issued Decree 32/2018 containing major amendments to the regulations on sale of State capital in State-affiliated enterprises. The amendments will take effect from 1 May 2018. State-affiliated enterprises are joint stock companies (State-owned JSC) or limited liability companies with two members or more (State-owned LLC) a part of which is owned by the State or by a wholly State-owned enterprises (Wholly SOE). New amendments under Decree 32/2018 include:
Stricter pricing control
· Decree 32/2018 requires the State-seller to retain licensed valuer to value the State’s capital and to determine an asking price before commencement of the sale process even if the State-affiliated enterprises are listed companies. Under Decree 91/2015, it appears that if a State-affiliated enterprise is a listed company, then there is no need to retain a licensed valuer. Decree 32/2018 also provides that the asking price is only valid for a period of six months from the date of the valuation report. This suggests that a re-valuation is required if a sale is not completed within six months of the date of the valuation report.
· For a listed State-affiliated company, if the asking price determined by the valuer is lower than the average share price of the company during the period of 30 consecutive trading days before public announcement of the sale, then such average share price will be used as the asking price. It is not clear if the average share price is a arithmetic average or weighed average (which takes into account the trading volume each trading day).
· The licensed valuer when valuing the State’s capital must take into account the value of land leased by the State-affiliated enterprise and “history” of such State-affiliated enterprise. Decree 91/2015 only requires the value of land granted (not leased) to the State-affiliated enterprise to be taken into account. However, Decree 32/2018 does not specifically require the valuer to take into account whether the sale stake is a minority stake or a control stake.