An extract from The Corporate Governance Review, 11th Edition


i Shareholder rights and powers

Shareholders exercise their ownership rights generally through the GMS – the highest decision-making body of a company. Shareholders may attend and vote at a GMS in person or by proxy. Voting thresholds are generally more than 50 per cent for basic matters, and at least 65 per cent for certain specified matters. Resolutions passed by way of collecting written opinions are decided by more than 50 per cent. In principle, each ordinary share is granted only one vote. Companies may issue voting preference shares with greater voting rights. However, these may be issued only to founding shareholders or shareholders that are government entities or government-authorised entities. Companies may also issue shares with preferential dividend or redemption rights. In the past, holders of these preference shares previously could not vote, but the Law on Enterprises now allows shareholders holding preferred dividends and redeemable preferred shares to attend and vote on matters that adversely affect the rights and obligations attached to preference shares.

A shareholder or a group of shareholders holding at least 5 per cent of shares of a company may call a GMS meeting if they consider the BOD to have acted in material violation of shareholders' rights, managers' duties or has decided matters that are outside its authority. The matters that must be submitted to shareholders for approval include the amount of dividend to be paid, the redemption of more than 10 per cent of issued shares, and investment or sale of assets valued at 35 per cent or more of the total asset value.

Shareholders may request a competent court to prevent the BOD from implementing or to annul any BOD decision or resolution that is or has been passed contrary to law, the company's charter or GMS resolutions. Furthermore, shareholders holding at least 1 per cent of the total ordinary issued shares of a company have the right to directly, or on behalf of the company, pursue a direct derivative suit against a BOD member or the GD under certain circumstances in which that individual has failed to fulfil his or her duties. In the past, shareholders were required to hold this 1 per cent threshold for six consecutive months prior to being able to pursue this claim, but this limitation has been removed.

There have been instances of shareholders using the derivative suit to pursue claims against BOD members. A notable example is the suit pursued by the shareholders of Mon Hue against abuse of power of the managers when appropriating the company's properties. The new procedure under the Law on Enterprises was streamlined and now, in combination with the aforementioned removal of a six-month holding period, empowers shareholders to take action more easily. The changes were made against the backdrop of commentators' concerns that this would result in a flood of frivolous lawsuits by one-day shareholders with the aim of disrupting a company's business. The changes in law show a clear intention of lawmakers to encourage corporate governance and shareholder activism in Vietnam. We note that Vietnamese law does not currently provide for a clear legal basis for an indirect corporate derivative suit (save where a minority shareholder may pursue a claim against a parent company on behalf of a subsidiary).

ii Shareholder duties and responsibilities

Shareholder duties as provided in Vietnamese law are very basic. They include the obligation to contribute the registered charter capital, not to withdraw contributed capital from the company, to comply with the company's charter and internal regulations, to comply with GMS and BOD resolutions and to keep information provided by the company in confidence in accordance with the company's charter and the law. Vietnamese law does not expressly require a shareholder to act in the interests of the company and there is no, by way of example, explicit duty of loyalty imposed on shareholders as there is on BOD members.

Should a company become controlled by a shareholder (i.e., a parent company), then the parent company may not unduly exert itself to force the subsidiary to conduct business outside the subsidiary's ordinary course, or engage in non-profit-making activities and cause loss to the subsidiary. The parent company may be held liable for loss sustained and a shareholder may bring a claim against the parent to compensate the subsidiary. Additionally, under the Law on Securities, major shareholders of a public company that directly or indirectly hold at least 5 per cent or more of voting shares are obliged not to use their influence to cause any damage to the rights and benefits of the company and other shareholders. This would seem to emphasise the principle of equality between shareholders rather than impose any general duty on shareholders.

iii Shareholder activism

Shareholders have, as a result of Vietnamese law gravitating towards greater corporate governance and shareholder rights, become increasingly active in corporate governance. Within the shareholder toolbox, the GMS decides remuneration and bonuses of the BOD and the SB. As mentioned, holders of 5 per cent of ordinary shares may call a GMS to deal with BOD malfeasance. If the BOD fails to do so, the SB can call the GMS and, failing which, the relevant shareholders may themselves call the meeting. Attempts to call a GMS have been made by shareholders although most, if not all, ended in failure. For this reason, a change in the Law on Enterprises resulted in a reduction of the minimum shareholding requirement for calling a GMS from 10 per cent to 5 per cent, once again signalling the state's desire to encourage shareholder activism and involvement in corporate governance.

iv Takeover defences

Vietnamese law does not apply a takeover regime that distinguishes between friendly and hostile takeovers. Besides, hostile takeovers remain rather muted although proxy fights do take place in practice.

The most prominent safeguard to hostile takeovers is the requirements of public tender offers. The Law on Securities requires an acquirer to launch a public tender offer for, among other things, any acquisition of 25 per cent or more of the voting shares of a public company (and which then regulates the acquisition). The acquirer must register the public tender offer with the SSC and notify the BOD of the target company of the proposed public tender offer. The target company is obliged to disclose the receipt of the public tender offer on its website within three days. The BOD must, within 10 days of receipt, deliver its opinion on the public tender offer to the SSC and all shareholders.

Defensive devices that are common in developed jurisdictions, such as the shareholders' right plan (i.e., poison pill), staggered board appointments, the acquisition or disposal of an asset (which may require GMS sanctioning), and preference voting shares (subject to described limitations) are present in Vietnam though highly exceptional. As is the case elsewhere, these aim to dissuade and increase the cost of a takeover.

v Contact with shareholders

Shareholders holding 5 per cent or more of the ordinary shares of a company are entitled to access and extract the minutes of meetings, resolutions and decisions of the BOD, semi-annual and annual financial statements, reports of the SB, contracts and transactions subject to approval by the BOD and other documents (except those that involve the company's business secrets). Proactive exercise of these information rights is not popular as a matter of practice.

On a related note, the CG Code recommends that the BOD should ensure the equitable treatment of all shareholders, including minority and foreign shareholders, and that the company has a system of registering shareholder complaints and effectively regulating corporate disputes. The company should also disclose the ultimate beneficial ownership of 5 per cent or more of its shares. This is the first instance of the use of the term 'ultimate beneficial ownership'. Although not prescribed under any law or regulation, this requirement represents an important development of the Vietnamese corporate governance framework towards greater transparency and effective shareholder involvement.