To control contracts between a Vietnamese joint stock company (JSC) with its related persons, the Enterprise Law 2014 requires such a contract to be approved by the Board or the Shareholders Meeting of the JSC. If the related party contract is to be approved by the Board, the law prohibits a Board member with related interests from voting on such contract. However, if the Board Chairman is the Board member with related interests, the law does not make clear that the Board Chairman should also not involve in other steps relating to approval of the related party contract. These other steps include preparing the draft Board resolutions, convening and chairing the Board meeting to consider the contract. These steps could be key to decide whether the related party contract could be approved.

While the law is not clear, the Board Chairman with related interest should not be able to involve in the steps relating to approval of the related party contract. This is because:

· Article 152.4 of the Enterprise Law 2014 provides that where the Board Chairman is not able to perform his or her duties (nhiệm vụ), he or she must authorize another member to exercise the rights and perform the obligations of the Board Chairman. If no person is so authorized, the remaining members of the Board must elect one of them to temporarily hold the position of the chairman of the Board;

· Under Article 153.9 of the Enterprise Law 2014, the Chairman has the casting vote in case of a tied vote in a Board meeting. Arguably, it is the Chairman's duty to resolve a tied vote in a BOD meeting; and

· As the Chairman is not able to vote on the related party transaction, he or she cannot perform his or her duties to resolve a tied vote in a BOD meeting. Accordingly, another member of the Board who has the right to vote on such transaction should be authorized or elected to temporary exercise the rights and perform the obligations of the Chairman in such Board meeting, which include hosting the meeting.

Furthermore, a public joint stock company (Public JSC) is required to take necessary measures to (i) prevent related persons from interfering with the operation of the company and damaging the interests of the company via controlling, among others, the transactions of the company; and (ii) prevent shareholders and their related persons conducting transactions which cause loss to the capital, assets and other resources of the company. Accordingly, by not letting the Chairman hosting the relevant Board meeting, the Public JSC is complying with the above requirements, especially when considering that the chairman of a Board meeting in a Public JSC has the right to decide whether a Board member has related interests in the transactions or not.

This post is written by Le Thanh Nhat and edited by Nguyen Quang Vu.

Vietnam Business Law