65% or 51% simple majority voting?

December 5, 2012 Nguyen Quang Vu

Under the Enterprise Law, the quorum for a meeting of the Shareholders Meeting is met when the number of shareholders present in person and by proxy represents at least 65% of all voting shares. A decision of the Shareholders Meeting on matters which are not a super majority issue can only be passed if it is approved by a number of shareholders holding more than 65% of the number of shares entitled to vote.

Resolution 71 approving Vietnam ’s accession to the WTO (Resolution 71) provides that “[A] shareholding company is entitled to provide in its charter … the number of members [of the company] required for holding a shareholder meeting [and] … the majority vote necessary (including 51% majority) in order to pass decisions … of the shareholder meeting”.

Resolution 71 is stated to implement Vietnam ’s WTO Commitments, which provides that “… notwithstanding the requirements in the 2005 Enterprise Law, investors establishing a commercial presence as a joint venture under the commitments in Viet Nam's Schedule of Specific Commitments would have the right to establish, through the enterprise's charter, all the types of decisions that had to be submitted to the Members' Council or Shareholders' Meeting for approval; the quorum rules, if any, that governed voting procedures; and the precise percentages of voting majorities necessary to make all decisions, including a simple majority of 51 per cent. … Viet Nam would give legal effect to these provisions of such enterprises' charters.”

While the WTO Commitments only refer to “joint venture companies”, Resolution 71 appears to refer to all shareholding or limited liabilities companies. This has resulted in different views on how Resolution 71 should be interpreted:

(i) The conservative view is taken by the Working Group Implementing the Enterprise Law and the Investment Law (Working Group). The Working Group takes the view that because Resolution 71 is “different” from the WTO Commitments (presumably by expanding the scope of the WTO Commitments), the WTO Commitments should prevail Resolution 71 (see yesterday post). Accordingly, as the WTO Commitments only refer to joint venture companies, Resolution 71 should only apply to (1) joint venture companies, which operate in the service sectors committed by Vietnam in the WTO Commitments but not to domestic companies and (2) joint venture companies established before 11 January 2007 and choose to amend their charters before 1 July 2008; and

(ii) The more liberal view is that Resolution 71 replaces the relevant quorum and voting requirements under the Enterprise Law and applies to all shareholding or limited liability companies (or at least those with foreign investors).

The following arguments support the liberal view:

(iii) Resolution 71 was published in the Official Gazette and was promulgated by the President pursuant to the Law on Legislative Documents. This suggests that Resolution 71 is a legislative document in its own right rather than a specific resolution approving an international undertaking. Accordingly, Resolution 71 should be applied in accordance with its own wording rather than by reference to the WTO Commitments; and

(iv) The fact that Resolution 71 expands the scope of the WTO Commitments should not be considered as a violation of the WTO Commitments. This is because logically the WTO Commitments are only the minimum (but not maximum) requirements that Vietnam has to satisfy. Accordingly, Vietnam should be able to adopt measures more favourable or broader than its own commitments. Indeed, Article 3.2 of Decree 108 provides that in the case where a law of Vietnam being issued after Vietnam became a member of any international treaty contains provisions, which are more favourable than such international treaty, investors will be entitled to choose the application of the international treaty or the law of Vietnam. This provision should allow an investor to choose to apply Resolution 71 rather than the WTO Commitments.