A new Law on Cybersecurity (Luật an ninh mạng) (the CSL 2018) will come into effect from 1 January 2019 in Vietnam. Not only providing measures to secure the cyber-environment which to some extent has been regulated by the Law on Cyber-information Safety dated 19 November 2015, the CSL 2018 also includes various provisions to control the contents posted or published on the cyber-network. Below are some salient issues of the CSL 2018.
Scope of the CSL 2018
The CSL 2018 applies to all agencies, organizations and individuals involving in the protection of cybersecurity, which is broadly defined as the assurance that activities in cyberspace not causing harm to the national security, social order and safety, lawful rights and interests of agencies, organizations and individuals. In particular, the CSL 2018 will apply to overseas organisations, which have users residing in Vietnam such as Google or Facebook.
The CSL 2018 covers all networks of IT infrastructure, telecommunication, Internet, computer systems, databases, information processing, storage and controlling systems, and regulates activities of every enterprise providing services in cyberspace and Internet users including e-commerce, websites, online forums, social networking and blogs.
Operators of information system (Chủ quản hệ thống thông tin)
The CSL 2018 imposes various obligations on an operator of an information system. Under the Law on Cyber-information Safety according to which, an operators of information systems means any agencies, organizations or individuals having directly managing authority to an information system.
A new Law on Competition (Competition Law 2018) will take effect from 1 July 2019 in Vietnam. Some key changes in the Competition Law 2018 are as follows:
Broader scope of application: The Competition Law 2018 now governs any activities whether by Vietnamese or foreign entity or individual which have or may have the “competition restraining impact” to Vietnam market. Competition restraining impact means impact which excludes, reduces, distorts or hinders competition in the market. Under the Competition Law 2018, the competition authority of Vietnam now has clear authority to deal with offshore activities and transactions which has impact on Vietnam market. In addition, the Competition Law 2018 now also apply to public service units such as hospitals, or schools which are technically not enterprises.
Besides the principle of honesty, companies are required to compete with each other in accordance with the principles of justice and fairness.
Relationship with other laws: Contrary to the old competition law, the new Competition Law 2018 will not prevail other laws in case such other laws have regulations on action in restraints of competition, form of economic concentration, activities of and dealing with unfair competition.
Under the new Competition Law 2018, a State agency is prohibited not only from forcing but also from “requesting or recommending” enterprises or individuals or organisations to perform or not to produce and sell specific goods, provide and use specific service, or produce and sell goods to or provide and use services of specific enterprises.
Decree 71/2017 replaced Circular 121/2012 on corporate governance of public join-stock company (Public JSC) since 1 August 2017. Decree 71/2017 does not have its own criteria for being an independent director but refers to the criteria under the Enterprise Law 2014. The table below compares the old criteria of an independent director in a Public JSC with the new criteria under the Enterprise Law 2014. Although in some areas, the Enterprise Law 2014 provides stricter criteria, the Enterprise Law 2014 contains certain major omission (e.g., including omission to exclude managers of an affiliate or representatives or related persons of a major shareholder in a Public JSC from acting as an independent director of a Public JSC).
Under a recent announcement in Official Letter No. 4486/UBCK-GSDC dated 20 July 2018, the State Securities Commission of Vietnam (SSC) requires public companies, securities companies, asset management companies, and securities investment funds (quỹ đầu tư chứng khoán) (i) not to conduct any illegal offering, transaction or transaction brokerage relating to virtual money (tiền ảo) which should include cryptocurrencies like Bitcoin and to (ii) adhere to the legal regulations on anti-money laundering.
The above official letter was based on Directive 10/CT-TTg of the Prime Minister dated 11 April 2018. Both of them once again confirm the view of Vietnamese government on virtual money that was stated by the State Bank of Vietnam in its press release dated 27 February 2014 about Bitcoin in Vietnam:
(a) virtual money is not currency; and
(b) virtual money is not a legal tender.
1. Where a member (the Conflicted Member) in a limited liability company with two or more members (the LLC) has an interest in a related-party transaction or contract (an RPT) with the Multi-Member LLC, the Enterprise Law 2014 requires the RPT to be approved by the Members’ Council (MC) of the LLC excluding the votes of the Conflicted Member. However, relating to the approval process, the Enterprise Law 2014 is not clear on the following issues:
1.1. whether the charter capital of the Conflicted Member should be excluded from the calculation of quorum of the MC’s meeting to approve the RPT? and
1.2. if the Conflicted Member is the chairman of the MC, whether the Conflicted Member can still preside over the MC’s meeting?
Vietnamese banking regulations do not have clear mechanics for transfer of loan commitments between banks or credit institutions in Vietnam. In particular:
Under Circular 9/2015 of the State Bank of Vietnam (SBV) on loan transfer, loan transfer is defined to mean the transfer of “the right to collect loan” arising from the lending operation by a bank (the Original Bank) to a loan purchaser, which may or may not be a bank. The definition of loan under Circular 9/2015 does not include loan commitment where a bank only commits to lend to a borrower but has not actually disbursed the loan. Accordingly, all the loan transfer mechanics under Circular 9/2015 do not directly apply to transfer of loan commitment.
One way for banks to overcome the lack of regulations on transfer of loan commitment is for the Original Bank to actually disburse the loan and then transfer such loan to another bank (New Bank) in accordance with Circular 9/2015. However, under Circular 9/2015, if the loan purchaser is a bank, then the SBV requires the New Bank to have a loan purchase license. Not all banks in Vietnam are granted a loan trading licence by the SBV.
Under the lending regulations (Circular 39/2016), a loan commitment could be understood to be an undertaking by a bank to handover to the client an amount of money to use. Therefore, it appears that a loan commitment is regarded as an obligation to lend by a bank (which, of course, is usually conditional on the borrower’s satisfying certain conditions precedent). Therefore, transfer of a loan commitment is regarded as a transfer of obligation and will require the consent of the borrower. Borrower’s consent is usually not a problem since any proper loan agreement will include a transfer clause which allows the bank to transfer any of its rights and obligations under the loan agreement to a third party.
On 15 May 2018, the Supreme Court issued Resolution 3 on expedited proceedings for disputes arising from handling of non-performing loans (NPL) and security assets of NPL (Resolution 3). Resolution 3 is an implementing legislation of Resolution 42 of the National Assembly on NPLs (Resolution 42). Resolution 3 takes effect from 1 July 2018 and will expire when Resolution 42 expires in August 2022. Resolution 3 will apply to claims (1) accepted for hearing by the courts before 1 July 2018 but have not been brought to trial; and (2) accepted during its term but still in process when it expires. Resolution 3 cannot be based on to protest against effective judgment under retrial and cassation.
Resolution 42 allows disputes relating to security asset of an NPL to be conducted under expedited proceedings. Resolution 3 further clarifies that:
Disputes on obligations to hand-over security assets of an NPL is clarified to be dispute relating to the case where the securing party or the party holding the security asset (1) does not hand-over the security asset, or (2) does not hand-over correctly according to the request of the secured party or the party having right to enforce the security asset; and
Dispute on right to enforce security asset of NPL is clarified to be dispute on the determination of person having right to enforce the security asset of an NPL.
In Vietnam, if a real estate investor (Investor) cannot Acquire A Land Area Through Common Options to implement its investment projects, it may consider entering into a business cooperation contract (BCC) with a local land user. Under a BCC structure, the parties do not establish an entity but usually cooperate to use their available resources (including land use rights) to do business. In this case, the party having land use rights (Landlord) retains the title over the land without transferring them to the Investor, but the Investor may obtain certificate(s) which evidence its title over assets attached to the relevant land area (generally, ownership certificate). There is a risk that a BCC contract may be regarded as a land sub-lease contract between the local land user and the Investor. However, a BCC structure is quite common in practice and there are certain legal basis for such a structure.
In March 2018, the Government issued a new Decree (Decree 40/2018) on multiple level marketing (MLM) activities. Decree 40/2018 takes effect from 2 May 2018 replacing Decree 42/2014. In general, Decree 40 inherits many regulations of Decree 42/2014 and its implementing Circular (Circular 24/2014). That said, Decree 40/2018 introduces various new and stricter requirement on MLM activities. In particular,
A MLM enterprise must now register its activities with provincial competent authorities, where there are MLM activities conducted by its consultants. A MLM enterprise must appoint an individual representative in each province where it does not have branch or representative office. Under Decree 42, a MLM enterprise only needs to notify provincial competent authorities where there are MLM activities conducted by its consultants.
A MLM company must now make an escrow deposit of VND 10 billion or 5% of the charter capital, whichever is higher instead of VND 5 billion with a local bank or a foreign bank branch in Vietnam. The deposit is to secure for the MLM company’s obligations with respect to the members of the MLM network.
A shareholder (especially a foreign shareholder) in a Vietnamese joint stock bank (VN Bank) must know how much its shareholding in the VN Bank is. This is because (1) there are ownership caps applicable to a single shareholder or a group of related persons, and (2) a “major shareholder” is required to obtain an approval from the State Bank of Vietnam (SBV). Since the Law on Credit Institutions 2010 (LCI 2010) and Decree 1/2014 introduces the concept of “indirect ownership”, it may be difficult to determine the exact shareholding ownership of a shareholder in a VN Bank for the purpose of (1) and (2) above. Indirect ownership is defined as an organization or individual owning the charter capital or shareholding capital of a credit institution via a related person or trust investment.
Given the lack of clarity on tender offer rules and the difficulty in enforcing such rules in practice, it is not so difficult for an investor to accumulate significant stake in a public joint stock company (target company) in Vietnam. However, if such investor is not supported by the Board of the target company, then the unwelcomed investor may find a hard time to participate in the management of the target company even if the investor can acquire control of the target company at shareholder level. This is because:
In March 2018, the Government issued Decree 32/2018 containing major amendments to the regulations on sale of State capital in State-affiliated enterprises. The amendments will take effect from 1 May 2018. State-affiliated enterprises are joint stock companies (State-owned JSC) or limited liability companies with two members or more (State-owned LLC) a part of which is owned by the State or by a wholly State-owned enterprises (Wholly SOE). New amendments under Decree 32/2018 include:
Stricter pricing control
· Decree 32/2018 requires the State-seller to retain licensed valuer to value the State’s capital and to determine an asking price before commencement of the sale process even if the State-affiliated enterprises are listed companies. Under Decree 91/2015, it appears that if a State-affiliated enterprise is a listed company, then there is no need to retain a licensed valuer. Decree 32/2018 also provides that the asking price is only valid for a period of six months from the date of the valuation report. This suggests that a re-valuation is required if a sale is not completed within six months of the date of the valuation report.
· For a listed State-affiliated company, if the asking price determined by the valuer is lower than the average share price of the company during the period of 30 consecutive trading days before public announcement of the sale, then such average share price will be used as the asking price. It is not clear if the average share price is a arithmetic average or weighed average (which takes into account the trading volume each trading day).
· The licensed valuer when valuing the State’s capital must take into account the value of land leased by the State-affiliated enterprise and “history” of such State-affiliated enterprise. Decree 91/2015 only requires the value of land granted (not leased) to the State-affiliated enterprise to be taken into account. However, Decree 32/2018 does not specifically require the valuer to take into account whether the sale stake is a minority stake or a control stake.
Under the Law on Credit Institution 2010,
- a major shareholder of a joint stock commercial bank in Vietnam (VN Bank) is a shareholder, who owns directly or indirectly at least 5% of the total voting shares of the VN Bank. Indirect ownership is defined as an organization or individual owning the charter capital or shareholding capital of a credit institution via a related person or trust investment; and
- a SBV’s approval is required for “transfer of shares by a major shareholder” or “transfer of shares resulting in a major shareholder becoming a non-major shareholder and vice versa”.
Under the definition of a “major shareholder”, a holding company (Parent Co), which indirectly owns shares in a VN Bank through one of its subsidiaries (Sub Co) could be considered as a major shareholder of the VN Bank if the aggregate shareholding is 5% or more. However, in that case, it is not clear:
- whether Sub Co or Parent Co or both are considered as major shareholders of the VN Bank. And if the Parent Co only owns a part of Sub Co, then whether the indirect shareholding of the Parent Co in the VN Bank should be calculated with reference to the shareholding of the Parent Co in Sub Co; and
- whether a transfer of shares in Sub Co by a Parent Co is considered as a transfer of shares in VN Bank and is subject to SBV’s approval.
According to Social Insurance Law 2014, from 1 January 2018, any employee working under a labor contract with a term of from one month to three months must participate in the compulsory social insurance scheme (SI Requirement). The social insurance contributions are paid by both employer and employee subject to the contribution rate, of which the employer usually pays larger part. However, it is not clear whether an employee working under a “probation labour contract” (hợp đồng thử việc) with a term of from one to two months (Probationary Contract) must comply with the SI Requirement. There are various views on this issue.
Under the Law on Credit Institutions 2010 (as recently amended), a bank is subject to several limitations when extending a loan and other forms of credit to a borrower including the following:
(a) the aggregate outstanding credit extended to (1) a single client and (2) a single client and its related persons must not exceed 15% and 25% of the equity capital of the bank respectively. The outstanding credit includes, among other things, (1) bonds issued by the client and its related persons, (2) loans to clients being other credit institutions or loans secured by guarantees by other credit institutions, (3) loans secured by individual saving deposits, and (4) loans financed by funds entrusted by the Government, organizations or individuals. The Prime Minister may decide to waive this limitation subject to a limitation of 400% of the equity capital of the bank;
(b) a commercial bank must not extend credit to (1) board member, member of member council, member of board of controllers, general director, director, deputy director, deputy general director and equivalent positions in the commercial bank, legal entities being a shareholder whose representative of the capital contribution portion is a board member or member of board of controllers; and (2) a parent, spouse or child of a board member or member of board of controllers or of general director, director or deputy general director, deputy director and equivalent positions.
A bank must not extend credit to a borrower on the basis of security provided by any of the persons specified at (b);
(c) a bank must not extend credit without security or under preferred conditions to following persons: (1) auditing organization and auditor currently conducting an audit at such bank or inspector currently conducting an inspection at such bank; (2) chief account of such commercial bank; (3) major shareholders and founding shareholders of such bank; (4) companies of which more than 10% of charter capital is owned by one of the persons specified in (b); (5) people conducting appraisal and approval of loans; and (6) subsidiaries or affiliates of such bank or of an enterprise controlled by such bank.
The total outstanding credit balance extended by a bank to all borrowers specified at (1) to (5) must not exceed 5% of equity capital of such bank. Such outstanding credit balance includes the total of the investment and purchase of bond issued by the borrowers (if applicable).
The total outstanding credit balance extended by a bank to a single borrower specified at (6) must not exceed 10% of equity capital of such bank and to all borrowers specified at (6) must not exceed 20% of equity capital of such bank. Such outstanding credit balance includes the total of the investment and purchase of bond issued by the borrowers.
Decree 163 of the Government on logistics services was issued on 30 December 2017 (Decree 163/2017). It is going to take effect on 20 February 2018 and replace Decree 140 of the Government on logistics services dated 5 September 2007 (Decree 140/2007). Below are salient changes in Decree 163/2017.
Decree 163/2017 no longer requires the logistics services providers to meet the condition of adequate equipment and personnel. That condition was applied to some logistics services, but under Decree 163/2017, the logistics services providers have only to meet conditions specific to the logistics service that they provide.
Decree 163/2017 allows foreign investors to apply, at their discretion, investment conditions regarding logistics services under an international treaty where multiple treaties are applicable.
Decree 163/2017 classifies logistics services in accordance with Vietnam’s commitments to the WTO. By contrast, Decree 140/2007 has its own classification of logistics services which is not consistent with the description of logistics services under the WTO Commitments. And the investment conditions and foreign ownership limit provided in Decree 163/2017 are generally consistent with the WTO Commitments. Therefore, it is easier to compare the Decree 163/2017 with the WTO Commitments.
The table below sets out the applicable foreign ownership limit under Decree 163/2017, to the extent possible, in comparison with Decree 140/2007:
From 15 January 2018, Decree 8/2018 has simplified the conditions for obtaining a licence to import petrol for domestic distribution under Decree 83/2014 as below:
On 15 January 2018, the Government issued Decree 9/2018 on sale and purchase of goods and other directly-related activities by FIEs. Decree 9/2018 took effect immediately and replaces the outdated Decree 23/2007. Several issues arise from this Decree 9/2018. Unfortunately, most of these issues will likely make the operation and investment by FIEs in the sectors covered by Decree 9/2018 more (sometimes much more) challenging. In particular,
In November 2017, the National Assembly passed various amendments to the Law on Credit Institutions 2010 (LCI Amendments). About two-thirds of the LCI Amendments focus on restructuring, rescue, and liquidation of a credit institution. This probably explains the relatively short period between the issuance of the LCI Amendment and its effective date. The LCI Amendments will take effect from 15 January 2018, less than two months after issuance. The National Assembly usually give a new law six months to one year to take effect. This seems to indicate a sense of urgency by the State Bank of Vietnam (SBV) in dealing with various banks which have been rescued by the SBV for the last couple of years.
In addition to the provisions on restructuring, rescue, and liquidation of a credit institution, the LCI Amendments contain a host of other amendments which aim to improve the governance and operation of a credit institution. These amendments include:
Decree 126/2017 replacing Decree 59/2011 on equitisation of State-owned enterprises introduces various new requirements for a strategic investor who invests during the equitisation of a State-owned enterprise (equitised SOE). These new requirements (especially the pricing requirement) are more difficult for a strategic investor to satisfy. In particular,
- The equitized SOE must decide to select the strategic investor and the strategic investor must commit to invest before publication of the public offering document for the public auction. Under Decree 59/2011, the strategic investor may decide to invest either before or after the public auction;
- Despite being required to commit to invest before the public auction, in most cases, the strategic investor must pay a price not lower than the average bidding price at the public auction. Under Decree 59/2011, there is no such requirement and the minimum price is the lowest successful bidding price. This requirement under Decree 126/201 seems to repeat the mistake under Decree 109/2007. There is unlikely any sensible investor who will commit to invest without knowing the price that it has to pay first;
The Sabeco – ThaiBev transaction announced on Monday is no doubt the biggest equity deal in Vietnam so far. The deal structure (see below) as reported by newspaper involves Vietnam Beverage acquiring 53.59% shares in Sabeco. Vietnam Beverage is wholly owned by Vietnam F&B Alliance Investment. Thai Bev, in turn, owns 49% of Vietnam F&B Alliance Investment. From the look of it, it appears that ThaiBev is investing in Sabeco by setting up a “non-foreign” investor through various corporate layering.
Under the Labour Code 2012, a labour contract means an agreement between an employee and an employer on a paid job, working conditions, and rights and obligations of each party to the labour relationship. A labour contract between an employer and its employee can fall into one of the following types:
- Seasonal Contract: a seasonal contract (or contract for a specific job) is a labour contract with the duration of less than 12 months;
- Definite Term Contract: a definite term contract means a labour contract with the duration of between 12 months and 36 months. The term of a definite term contract can be extended one time only. Thereafter, the employer must enter into an Indefinite Term Contract (see below); and
- Indefinite Term Contract: an indefinite term contract means a labour contract in which the two parties do not fix the term nor the time of termination of the contract.