Legal representatives (đại diện theo pháp luật) play an important role in the operation of a company in Vietnam. This is because,
- under the Civil Code only the legal representative of a company or a person authorised by the legal representative can act on behalf and bind such company;
- details of the legal representative of a company are recorded in the business registration certificate (BRC) of such company. Government authorities tend only to recognise and deal with the individual whose details recorded in the BRC of a company; and
- there is no apparent authority doctrine under Vietnamese law. Therefore, the courts usually hold a contract signed by a person who is not properly authorised by the legal representative of a company enforceable against such company.
However, there are a few things that need to consider about the position of the legal representative:
- there is only one legal representative for a company. Therefore, it is important for a controlling member of a company to control the position of the legal representative;
- the legal representative is required to reside in Vietnam. A foreign investor who wishes to appoint a foreigner to run its subsidiary in Vietnam must send its employees in Vietnam. This may not be a problem when the subsidiary is already up and running. However, at the licensing stage when the investor applies to set up its subsidiary, the investor may need to send its manager to Vietnam and provide evidence of residence to the licensing authority;
- the legal representative of a company should be either the Chairman (of the Board of Management or the Members’ Council) or the General Director of the company; and
- during the course of implementation of a contract with a company in Vietnam, inevitably, there will be dealings with persons who are not the legal representative of such company. To establish the authority of such person, a contract signed with a company in Vietnam should probably have a clause under which the legal representative of such company expressly authorises other persons of such company to act on behalf of such company in the implementation of such contract.
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:
On 20 June 2018, the Ministry of Justice issued Circular 8 on the registration and provision of information on security interest and contracts (Circular 8/2018). Circular 8/2018 will replace Circular 5/2011 on the same subject from 4 August 2018.
Name of the object of the registration
The object of registration under Circular 5/2011 is secured transactions (giao dịch bảo đảm), which is in line with the Civil Code 2005. However, the term “secured transaction” is almost removed from the Civil Code 2015 and the registration is now the registration of security interest (biện pháp bảo đảm). Circular 8/2018 adopts such approach and determined the object of registration is security interest to be consistent with the new Civil Code 2015.
The Ministry of Finance has released a latest draft amendment to the Securities Law 2006 (https://tinyurl.com/ydc44zyd), which is scheduled to be passed in the second half of 2019. It looks like that any major law in Vietnam will need to undergo major changes in every 10 years whether or not the changes are necessary. The draft amendments include the following major changes regarding capital raising process:
In December 2018, the Government issues Decree 163/2018 to replace Decree 90/2011 on private issuance of corporate by Vietnamese companies from February 2019. Decree 163/2018 introduces certain new important points as follows:
· To be able issue bonds, a company is no longer required to be profitable in year before the proposed issuance. Instead, the company only needs to operate for at least one year and its financial statement is audited by a qualified auditor. Issuer who has undergone certain restructuring (e.g., merger, conversion or division) may rely on the historical operation of other related companies to meet the one year operating test;
· Secondary trading of privately-issued bonds is limited within up to 100 investors excluding “professional investors” within one year from the issuance date. The new limitation seems to aim at the practice of issuing bonds privately at the first place and reselling the same to public investors in secondary market;
Vietnamese banking regulations do not provide for a clear definition of a financial lease (cho thuê tài chính). The lack of a clear definition may result in unnecessary legal risks for parties to a cross-border lease transaction (e.g., an aircraft lease). For example, if a cross-border lease is regarded as a financial lease, then the lease may need to be registered with the State Bank of Vietnam as a foreign loan.
Under the Law on Credit Institution 2010, the act of finance leasing is defined to be (1) the extension of medium and long-term credit; (2) on the basis of a finance leasing contract; and(3) satisfying one of the following conditions:
upon expiry of the lease under the contract, the lessee may take over ownership of leased assets or may continue to lease them under the agreement of the parties; or
upon expiry of the lease under the contract, the lessee shall have the priority right to purchase the leased assets at a nominal value less than the actual value of the leased assets as at the date of purchase; or
the minimum term of the lease of any single asset must equal at least 60% of the period necessary for depreciation of such leased asset; or
the total rent for any single asset stipulated in the finance lease contract must be equal at least to the value of such asset at the signing date of the contract.