What Is the Scope of the Redemption Right of Ordinary Shareholders in Vietnam?
Under the Enterprise Law 2020, a minority ordinary shareholder voting against certain important decisions of the General Meeting of Shareholders may request the relevant joint stock company to redeem the shares held by such dissenting shareholder. However, the law is not clear about the scope of this redemption. In particular,
It is not clear whether the redemption right covers both ordinary shares and preference shares held by the dissenting shareholder. The law provides that in the request for redemption, the shareholder will specify the number of shares of each class. This suggests that the redemption right covers preference shares in addition to ordinary shares.
A conflict arises if the redemption right is found to cover preference shares, but the terms of those shares (as defined in the charter) do not permit redemption. In this situation, it is not clear whether the company can lawfully refuse the request. Since a shareholder needs to comply with the charter which contains the terms of the preference shares, the dissenting shareholder cannot require the company to redeem the relevant preference shares. On the other hand, since the provisions on the content of a redemption request do not clearly exclude shares which cannot be redeemed, the dissenting shareholder can argue that it has the right to specify all the shares (including non-redeemable preference shares) in the redemption request.
It is not clear whether the dissenting shareholder can request the company to redeem only a part (not all) of the shareholder’s shareholding. The law requires the redemption request to specify the number of shares to be redeemed but does not require that number to be equal to all of the shares held by the dissenting shareholder. Logically, a dissenting shareholder in most cases will request the company to redeem all of its shares. There are cases where the dissenting shareholder only wants to make a partial redemption request (e.g., the dissenting shareholder is a joint venture between two investors).
This post is written by Nguyen Quang Vu.