Collective actions by bondholders in Vietnam

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:

  • it is not clear if the terms and conditions of a bond could constitute a contract among bondholders similar to the way the charter of a company being a contract among its shareholders. This is because there is no statutory requirement that a bondholder must comply with the terms of a bond and a decision of the bondholder meeting. In addition, it is arguable that the terms and conditions of a bond constitute a contract between the issuer and the bondholder but not among the bondholders. It is important to ensure that there is a valid contract among bondholders (e.g. to determine if there is an arbitration agreement among bondholders when disputes between bondholders arise and the parties want to settle the dispute by arbitration);

  • under Decree 163/2018, a bondholder investing in bonds issued under a private offering has the right to be ensured that the issuer will pay in full and on time all principal and interest of the bond and will perform rights attached to the bonds. An issuer of a public offering of bonds must undertake to perform obligations which have committed with the investors and to ensure rights and benefits of the investors. If the terms of a bond does not include an express waiver of the investors of these rights then arguably, a decision of a bondholders meeting cannot change these rights without consent of the minority bondholders; and

  • Decree 58/2012 requires the representatives of bondholders to represent the interests of bondholders. This provision can arguably be interpreted to mean interests of “all bondholders”. In addition, the Civil Code 2015 and the Commercial Law 2005 generally require an agent to act under the instruction of the principal and for the interest of the principal. Therefore, a representative of bondholders acting against an objection by a minority bondholder to a decision of the bondholders meeting may arguably be considered as not acting in the interest and under the instruction of the minority bondholder.