Director duties in Vietnam - Business judgement rules

In certain jurisdiction, a Board director is protected by the “business judgement rules” whereby an officer of a company is entitled to the presumption that he or she acted in good faith, and absolves the officer of personal liability unless it is established that he or she engaged in fraud, bad faith or an abuse of discretion. The business judgment rule protects officers from liability when they make good faith business decisions in an informed and deliberate manner.

Vietnamese law does not expressly provide for a “business judgment rules” for a Board director of a joint stock company (JSC). However, in the context of a Public JSC, Article 36.2 of the Public JSC Model Charter provides that “the company shall pay compensation to a person who has been, is or is likely to become a party involved in a claim, suit or legal proceeding … where such person was or is a member of the Board of Directors, a manager … provided that such person has acted honestly, carefully, and diligently in the interests or not contrary to the best interests of the Company, and on the basis of compliance with law and on condition that there is no discovery or confirmation that such person breached his/her obligations.” The wording of Article 36.2 of the Public JSC Model Charter suggests that a Director who makes a erroneous business decision may be protected from liability if he/she can prove that he/she has exercised his/her duty of care, and duty to act honestly. This is quite close to the business judgment rules except that the burden of proof belongs to the director (who must prove that he/she has acted with duty of care and honestly and complied with law) not the company. Arguably, the wording of Article 36.2 of the Public JSC Model Charter could be used in charters of both Public JSCs and non-Public JSCs to provide business judgement rules protection to Board directors of a JSC.