From January 2021, under the Enterprise Law 2020, if a member of the board of directors (the Board) hands in his/her letter of resignation to resign as a Board member in a joint stock company (JSC), he/she may not cease to be a Board member until approved so by the General Meeting of Shareholders (GMS) of the relevant JSC. To mitigate the potential issues arising from this provision, a JSC may consider providing that the GMS must dismiss a Board member when he/she tenders his/her resignation. In addition, the resigning Board member should give authorisation to another appropriate person until he/she is officially dismissed.

Article 160.1(b) of the Enterprise Law 2020 provides that "the General Meeting of Shareholders will dismiss a member of the Board of Directors" if "there is a letter of resignation which is approved". On the other hand, the previous Enterprise Law 2014 provides that "a member of the Board of Directors will be dismissed" if "there is a letter of resignation" which suggests that a Board member could immediately cease being a Board member upon submitting his/her resignation letter. Article 26.4 of the model charter for public JSC issued under Circular 116/2020 of the Ministry of Finance seems to confirm the above interpretation of Article 160.1(b) of the Enterprise Law by stipulating that: "A member of the Board of Directors shall no longer bear the title of a member of the Board of Directors in case he/she is dismissed, removed, replaced by the General Meeting of Shareholders in accordance with Article 160 of the Enterprise Law".

The approach under the Enterprise Law 2020 is not without a problem. It would be unusual for the law to “force” a person to do a job that he/she no longer wishes to do. This could be detrimental to both the resigning Board member and the JSC that he/she serves. To mitigate this issue, the charter of the JSC could provide that the GMS must dismiss a Board member if he/she tenders a resignation letter.

However, even this mitigation is adopted, there are two other issues:

The Enterprise Law 2020 requires the GMS to dismiss a Board member who submit an “approved” resignation letter without clarifying who will need to approve the resignation letter before the dismissal decision is issued. Accordingly, to solve this issue, the shareholders may have to approve the resignation letter before dismissing the resigning Board member.
It usually takes time for a GMS to take a decision. As such, the Resigning Board member still has the capacity of a Board member from the date of his/her resignation letter until the GMS has dismissed him/her. A JSC may not want the resigning Board member to continue to involve to its business during the transition period. The transition period might be lengthy, especially in the case of a public JSC. Therefore, to mitigate such issue, the JSC (or the relevant new shareholder) might consider requiring the resigning Board member to authorise another appropriate person to act as a proxy for the resigning Board member during the transition period. Such authorisation will be effective if approved by the majority of the Board.

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

Vietnam Business Law