Some of Viet Nam’s WTO commitments relate to corporate governance of enterprises in Viet Nam, significantly altering in some instances corporate governance rules set forth in the nation’s 2005 Law on Enterprises.

The Law on Enterprises, which took effect on July 1 of this year, applies to all domestic, foreign-invested and State-owned enterprises established in Viet Nam and specifies voting procedures and quorum requirements in both limited liability companies and joint stock companies.

In a nutshell, the law requires that ordinary resolutions of the members council in a limited liability company must be approved by members representing 65 per cent of chartered capital. Similarly, in joint stock companies, ordinary resolutions of the shareholders general meeting must be approved by shareholders representing at least 65 per cent of participating voting shares. For certain special resolutions, the required percentage increases to 75 per cent.

The Enterprise Law also specifies various measures which require approval by the members council or shareholders general meeting and which cannot be left to the board of management or the general director.

The practical effect of these provisions is that an investor requires at least a 65 per cent stake to fully control an enterprise.

However, many of the commitments on services negotiated with individual WTO trading partners were based on an understanding that simple majority ownership (i.e., 51 per cent) would be sufficient to ensure management control of a company, consistent with the previous Law on Foreign Investment.

Recognising the problem, Viet Nam made commitments to WTO members to allow investors the flexibility to determine their own voting and quorum rules in their company charters, making the provisions in the Law on Enterprises into default rules.

Specifically, paragraph [502] of the WTO Working Party Report obliges Viet Nam to allow "investors establishing a commercial presence as a joint venture" to specify, through the enterprise’s charter, all the types of decisions that have to be submitted to the members council or shareholders general meeting for approval; the quorum rules (if any) that would govern voting procedures; and the precise percentages of voting majorities necessary to make decisions.

In paragraph [503] of the Working Party Report, Viet Nam committed that existing joint ventures would be permitted the same flexibility to determine governance rules by amending their charters within two years from the entry into force of the Enterprise Law (i.e., until July 1, 2008).

Although the Working Party commitment only applies to "investors establishing a commercial presence as a joint venture", Resolution No 71 extends this flexible treatment to all enterprises, purporting to allow all limited liabilty companies and joint stock companies as well to determine their own quorum rules and voting procedures in their charters, as well as issues under the decision authority of the members council or shareholders general meeting.

As a practical matter, the broad approach adopted by Resolution No 71 is preferable to the narrow exception granted in the Working Party Report as it retains the principle of uniform treatment of all domestic, foreign-invested and State-owned enterprises. However, this approach effectively represents an amendment of the Law on Enterprises and it is unclear on what legal basis a resolution can amend a law. Formal amendment of the Law Enterprises is necessary to put the changes on a solid legal footing.

By Vilaf Hong Duc
Source: VNA