On January 22, 2019, Ministry of Planning and Investment announced an Official Letter No. 363/BKHĐT-PC for the proposal of comments regarding the Draft amending and supplementing some articles of the Law on Investment and Law on Enterprise (hereinafter referred to as the “Draft”). VCI Legal has some preliminary comments as follows:

I. Regarding the revised Enterprise Law

  1. Legal Representative (Article 13.2)

It is necessary to note where “the legal representative appointed according to such Charter” in case the company has more than one legal representative with different scope of rights and obligations under the Charter, to be clearly stated in the Enterprise Registration Certificate and on the National Business Registration Portal, for the following reasons:

  • When determining the “legal representative of the company” to participate in a civil transaction, consideration should be given to the compatibility between the two sides: “authority” and “scope of representation”. If the legal representative appointed under the Charter does not have the competence to represent the company, his representation will be considered to be void within the company’s organizational structure, so that transaction signed by him may be declared invalid under Article 142 of the Civil Code 2015;
  • The Law on Enterprises 2014 does not separate authority between representatives with full authority under the law and those who represent the company in accordance with the Charter, so a third party may face difficulties if the representatives do not have the same point of view or, at the same time, deals with many representatives simultaneously due to the limited authority to represent the company in its field of activity, or transaction value;
  • It is more convenient for parties in civil transactions when it is easy to check who has full authority under the law to minimize the risk of civil transactions signed by an unauthorized party.

Recommendation for the Drafting Committee: Directly record the case of the legal representative appointed under the Charter on the Enterprise Registration Certificate and publish information on the National Business Registration Portal.

2. State-Owned Enterprise (Article 2.7)

a. Business in which the Government holds 100% of the Charter Capital must have consistency in the organizational structure in order to improve the effectiveness and efficiency of management and supervision over the operation of State-owned enterprises in accordance with Resolution No. 12-NQ/TW dated June 03, 2017 issued by the Central Committee of the Communist Party of Vietnam (“Resolution 12”). The model specified at Article 78.1.(a): “the Company’s President, Director/General Director and Supervisory Board” is obsolete and no longer relevant to the development and restructuring process of State-owned enterprises nowadays. This model belongs to the old state-owned enterprise management philosophy that promotes Business Corporations and General Companies.

Recommendation for the Drafting Committee: Business in which the Government holds 100% of the Charter Capital should only be organized as well as administrated in the form of model referred to in Article 78.1 (b) of Law on Enterprises 2014: “The Board of Members, Director/General Director and Supervisory Board”.

b. In order to specify the direction of Resolution 12, the Supervisory Board members must actually be an effective monitoring tool of the owner, operate independently and shall not be ruled as well as dominated by the Board of Members, the Board of Directors and the Executive Board of the enterprise. Therefore, it is necessary to stipulate that the Supervisory Board includes the Chairperson and members are not allowed to concurrently hold other titles in business in which the Government holds 100% of the Charter Capital.

Recommendation for the Drafting Committee: Article 105.1 of the Law on Enterprises 2014 should be supplemented as follows: “The Supervisory Board Chairperson and members may not concurrently hold other titles in the company.”

  1. Article 3.3.(d) of the Draft revising Article 172, Clause 1 of the Labor Code 2012

Article 172, Clause 1 of the Labor Code 2012, which revises the work permit for the legal representative of the enterprise shall create the following difficulties for the enterprise:

  • According to this draft amendment, if combined with Article 8 Clause 7 of the Law on Entry, Exit, Transit, and Residence of Foreigners in Vietnam as amended and Article 172 Clause 1 of the Labor Code 2012. Herein, the capital contributors are also foreign investors, who want to enter Vietnam can only apply for a DN visa. Because, as described in Section 2 above, if applied under the revised conditions at Article 3 Clause 3 Point (a) of this Draft, foreign investors may only apply for entry into Vietnam according to DN and LD visa. However, Article 3.3.(d) of this Draft limits the exemption of work permits for members of limited liability companies. If they are not exempt from a work permit, the application for entry of these members according to LD visa is only possible when a work permit is issued. If they are not eligible to apply for a work permit, they can only apply for entry into Vietnam under the DN visa. In fact, the visa for enterprises is granted with a short period of time (not exceeding 3 months). Therefore, foreign-invested legal entities of investors must carry out immigration procedures many times, and implementing the exit and re-entering of the territory of Vietnam to reactivate the new visa is troublesome and costly;
  • There are inequalities between capital contributing members being foreign individuals. The legal representative is a foreign individual of a limited liability company that must first be a capital contributing member. The difference between a legal representative and a capital contributor is the role, degree of responsibility, rights and obligations in operating and managing all activities of the company. However, it is not therefore limited to checking and monitoring the activities of the company’s members and is responsible for limiting their capital contribution to the company. Therefore, only exempting the work permit for the legal representative is indirectly limiting the participation of the management and supervision of their company’s activities;
  • Creating too many legal barriers to entry will greatly affect the business intentions of foreign investors because these barriers will hinder them in managing and monitoring their business activities and their investment portions in general.

Recommendation for the Drafting Committee: Revoke the amendment of Article 8, Clause 7 Law on Entry, Exit, Transit, Residence of Foreigners in Vietnam.

II. Regarding the revised Investment Law

Article 1, Part II of the Draft, amending Article 31 of the Law on Investment is a new regulation on the Prime Minister’s authority in investment screening endorsement. Accordingly, “Depending on the goal, nature and size of the project and socioeconomic conditions from time to time, the Prime Minister may delegate ministries, line agencies and municipalities to provide investment screening endorsement for the projects referred to in this Article”.

In order to create a fundamental legal basis to delegate authority to Ministries, line agencies and the municipalities, the law has to provide at least two criteria for the Prime Minister regarding the following interpretations: “depending on the goal, nature and size of the project and socio-economic conditions from time to time”.

The other issue is also not clarified, the decentralization procedures must be determined by the Prime Minister who shall issue a legal document which determines whether specific project decentralization belongs to the authority of the Ministry/Provincial Government or as a case-by-case decision.

Recommendation for the Drafting Committee:

  1. Provide criteria regarding the interpretation of: “Depending on the goal, nature and size of the project and socio economic conditions from time to time”;
  2. Provide specific process and procedures on the decentralization of the Prime Minister.

DISCLAIMER

This LBN newsletter are NOT legal advice. Readers are advised to retain a qualified lawyer, should they wish to seek legal advice. VCI Legal are certainly among those and happy to be retained, yet VCI Legal is not to be hold responsible should any reader choose to interpret/apply the regulations after reading this LBN without engaging a qualified lawyer.