In December 2020, the Government issued one of its most comprehensive Decrees, Decree 155/2020 implementing the Securities Law 2019. Decree 155/2020 has 311 articles and is 140 page long. We will cover parts of Decree 155/2020 in a series of blog posts. In this post, we cover new issues concerning public companies in Vietnam.
Meetings of the General Meeting of Shareholders (GMS) - Decree 155/2020 now requires members of the Board of Directors (Board) and the Inspection Committee to attend the annual GMS meetings to answer shareholders’ questions (if any). If there is an emergency event that a member of the Board and the Inspection Committee cannot attend, such member will have to report in writing to the Board and the Inspection Committee.
The representative of the auditor of a public company also has the responsibility to attend the annual GMS meeting of the company, if there are material qualifications regarding the annual audited financial statement of the company.
Information of candidates for the Board - Other than the information about name, date of birth, and qualifications, Decree 155/2020 also requires the public company and the candidates of the Board to publicize information about other managerial titles (including the title of Board member at other companies), and interests relating to the company and the company’s related parties of the candidates.
Number of independent Board members in listed companies - Decree 155/2020 removes the requirement that the structure of the Board must ensure the balance between the members having knowledge and experience in laws, finance, the company’s business and must consider the gender element.
Previously, the number of independent Board members of a listed company must account for at least a third of the total number of Board members. Decree 155/2020 now provides an exact number of independent Board members required in a listed company as follows: (i) at least one independent member, in case there are three to five Board members; (ii) at least two independent members, in case there are six to eight Board members; and (iii) at least three independent members, in case there are nine to 11 Board members.
More obligations for Board members - The obligations of Board members provided under Decree 155/2020 are similar to those under Decree 71/2017, but include one new obligation: a Board member must report to the Board at the nearest meeting about transactions between: (i) (a) the public company, its subsidiaries, or companies having 50% or more of their capital controlled by such public company, and (b) such Board member and their related persons; and (ii) (a) the public company, and (b) companies in which such Board member has held the position of founder or company manager within the last three years before the time of the transaction.
An independent Board member of a public company must prepare a separate report on the company’s operation. This requirement could impose more liabilities on an independent Board member in a public company.
More obligations for the Board - Decree 155/2020 also provides more responsibilities and obligations for the Board as a whole. In particular, the Board has to, among others, (i) supervise and prevent conflict of interest of the Board members, members of the Inspection Committee, General Director (Director) and other managers, including the misuse of company assets and abuse of related party transactions; and (ii) appoint a person in charge of corporate governance.
Regulations on the Audit Committee and the Inspection Committee - While Decree 71/2017 is silent on the Audit Committee, Decree 155/2020 includes detailed provisions on the component, rights and obligations of the Audit Committee of a public company. Among other things, (i) the Audit Committee must have at least two members, with the Chairman being an independent Board member, and other members being non-executive Board members; and (ii) the Audit Committee must have its own Operation Rules approved by the Board.
Inspection Committee - Under Decree 155/2020, (i) the Head of the Inspection Committee only needs to hold undergraduate degrees in certain relevant majors, and is no longer required to be a full-time professional accountant or auditor at the company, unless otherwise provided by the company charter; and (ii) the Inspection Committee must also have its own Operation Rules approved by the GMS.
Changes in requirements on publication of information - In addition to the salary of the General Director (Director) and other managers, the remuneration of each Board member is now required to be recorded as a separate item in the annual financial statement of the company and must be reported to the GMS at the annual GMS meeting.
Decree 155/2020 removes the requirement that public companies must have at least one information publication staff. Either the legal representative or the person authorized to publicize the company’s information can publicize the company’s information.
Related party transactions (RPTs) between public companies and their shareholders and managers – In addition to the RPTs provided in Decree 71/2017, Decree 155/2020 requires an approval by the GMS for a series of transactions within 12 months of the first transaction which is at least equal to 35% of the total assets between (1) the public company and (2) Board members, members of the Inspection Committee, General Director (Director), other managers and their related persons; or shareholder, authorized representative of shareholder holding 10% or more of the total ordinary shares of the company and their related persons; or enterprises relating to the entities. Contracts, loan transactions, sale of assets having value of more than 10% of the total value of assets recorded in the latest financial statement between the public company and the shareholder owning 51% or more of the total shares with voting rights or such shareholder’s related persons will be subject to approval by the GMS of the public company.
Written by Nguyen Thuc Anh and edited by Nguyen Quang Vu.
