For many M&A lawyers in Vietnam, the changes in the pre-emptive rights of existing shareholder in (at least non-public) joint stock companies (JSCs) come as a surprise. For 20 years, the Enterprise Law always provides that a shareholder has priority rights to purchase new shares issued by the JSC in proportion to its shareholding. However, under earlier versions of the Enterprise Law, the provisions on private placement of shares or public offering of shares by a JSC, where the JSC may issue new share to third party investors, do not require a waiver of preemptive rights by existing shareholders. Therefore, it becomes a market practice that private place of shares or public offering of shares (or convertible equities) do not require waiver of (or compliance with) preemptive rights by existing shareholders (see further discussions here and here).

The provisions on private placement of shares by non-public JSC under the new Enterprise Law 2020 changes all this by requiring a non-public JSC planning to conduct a private of shares to (1) offer such shares first to existing shareholders, and (2) sell unsold shares at (1) to a third party investor at terms not more favourable than those offered to existing shareholders at (1), unless otherwise decided by the shareholders meeting. While the new private placement mechanics provide more clarity about pre-emptive rights of existing shareholders, it raises several questions:

• It is not clear if public offering of shares by a JSC or private placement of shares by a public JSC should now comply with pre-emptive rights of existing shareholders. The Enterprise Law 2020 does not regulate such issues probably because they should be regulated by the securities regulations. However, the securities regulations remain silent on these issues. Given the new approach under the Enterprise Law 2020 which applies to public JSCs as well, it may be prudent for public offering of shares by a JSC or private placement of shares by a public JSC to comply with pre-emptive rights of existing shareholders.

• It is not clear if and how issuance and conversion of convertible equities should comply with pre-emptive rights of existing shareholders. For example, it is not clear if existing shareholders should exercise their pre-emptive rights when the convertible equities are issued and/or converted.

• It is not clear if the existing shareholders who approve the private placement plan can waive step (1) above.

• It is not clear the Shareholders Meeting may decide to offer new shares to a third-party investor at a price lower than the price offered to existing shareholders at step (1) in advance.

This post is written by Nguyen Quang Vu.