The Law on Enterprise in 1999 introduced the first legal framework on corporate governance in Vietnam. Since then, a number of other legal regulations have been issued, including the Law on Securities in 2006, the Corporate Governance Code in 2007, as amended in 2012, and Disclosure Rules in 2012, 2015 (for listed companies). Most recently, Law on Enterprise 2014, Decree No.71/2017/ND-CP providing guidelines on corporate governance of public companies and Circular 95/2017/TT-BTC, issued in order to further improve the legal framework for corporate governance and requirements on disclosure of information and transparency of securities markets to satisfy requirements for the development of capital markets and international integration. New Securities Law are expected to be submitted and discussed in the National Assembly of Vietnam at 6th Session, XIV by October 2018.
We outline below certain key progress and upcoming changes in corporate governance and accounting rules of Vietnam:
Corporate Governance encouraging investments
Good corporate governance reduces emerging market such as Vietnam vulnerability to financial crises, protects property rights, reduces transaction costs and the cost of capital, and promotes capital market development. Other words, weak corporate governance reduces investor confidence and discourages outside investment.
I. 2016, International Finance Corporation (IFC) published a research named Corporate Governance Success Stories in Vietnam, which expressly praised Vietnam’s improvements on corporate governance. Based on the latest corporate governance assessment conducted by Asian Development Bank in 2013, the corporate governance score for Vietnam in 2013 has risen 19.2%, compared to that scored in 2012.
I. confirmed its ongoing effort to raise greater awareness of merits of corporate governance through several programs working and coordinating with Ministry of Finance of Vietnam, State Securities Commission of Vietnam (“SSC”) and other state authorities to improve corporate governance (especially for public companies) in Vietnam.
New Decree 71 and Circular 95 continuously promoting good Corporate Governance for Public Companies
On 6 June 2017, the Government issued Decree No. 71/2017/ND-CP providing guidelines on corporate governance applicable to public companies (“Decree 71”). Decree 71 became effective on 1 August 2017 and replaced Circular No. 121/2012/TT-BTC issued by the Ministry of Finance on 26 July 2012 (“Circular 121”).
On 22 September 2017, the Ministry of Finance issued Circular No. 95/2017/TT-BTC (“Circular 95”) guiding the implementation of some articles of Decree 71 on corporate administration of public companies.
We highlight the key provisions of Decree 71 as follows:
1. it clarifies and provides detail restriction on intercompany loans and guarantees from the public company to the company’s shareholders and shareholders’ related persons;
2. it provides 2 options for organization of the public companies: (x) General Meeting of Shareholders, Board of Management, Board of Controllers, and General Directors, or (y) General Meeting of Shareholders, Board of Management and General Directors;
3. it provides new conditions and qualification of an independent member of the Board of Management;
4. it provides stricter qualifications and conditions to prevent conflict of interest in public companies such as (x) chairman of Board of Management cannot be the General Director (effective 1 August 2020), (y) members of Board of Management of a public company cannot be member of board of management of more than other 5 companies (effective 1 August 2019), and (z) transactions between a public company and its controllers, any management personnel and their related persons to be approved by the General Meeting of Shareholders or the Board of Management;
5. it provides more detail disclosure requirements: for example, salary of general director and other management members are required to be separately stated on annual financial statements of the company and reported to the General Meetings of Shareholders at the annual meeting; and
6. it and Circular 95 provide a new template of charter for public companies. It is not expressly compulsory for public companies to use the sample charter or the sample internal regulations but they are encouraged to use them for the purpose of ensuring compliance with the corporate governance requirements provided for under Decree 71, the Law on Securities and the Law on Enterprises.
Draft New Securities Law on Restructuring Securities Market
On 11 January 2017, the Ministry of Finance of Vietnam published a draft new Securities Law for collecting public opinions and comments (“Draft Law”). The Draft Law is expected to be finalized, submitted and discussed in the National Assembly of Vietnam at 6th Session, NA XIV by October 2018.
The Draft Law aims at (i) creating more efficient framework for regulating securities and securities market, (ii) developing Vietnamese securities market in line with international regulations, practice and norms in order to promote Vietnam’s securities market from a frontier to an emerging market, and (iii) diversifying securities products and reforming procedures for attracting investors.
We highlight the key changes of the new Draft Law as follows:
1. Increasing powers for State Securities Commission of Vietnam to effectively govern the securities market and address promptly the wrongdoings: for example, SSC will be authorized to require persons to provide information / documents in relation to wrongdoings; require the credit institutions to provide relevant information about transactions made via banks; and summon the relevant parties to meet and work with the SSC;
2. Enabling more qualified goods to be available for the securities market: for example, qualifications for determining public companies will be improved to target medium and large size enterprises (not including small size enterprises), more securities products such as derivatives will be available for trading in the securities market, OTC regulations will be adopted, etc.;
3. Restructuring the securities market: for example, Hanoi Securities Stock Exchange and Ho Chi Minh Securities Stock Exchange will be merged to establish the national securities stock exchange in the form of a single member state-owned limited liability company to control and regulate the whole national securities market;
4. Restructuring the Vietnam Securities Depository: for example, increasing the powers and activities of Vietnam Securities Depository such as registration of securities offsetting, mortgage and pledge, etc.;
5. Revising current policy to attract foreign investments in securities market: for example, removing restriction of maximum ratio of 49% foreign invested capital applicable to conditional sectors (not committed under WTO services schedule of Vietnam); and
6. Improving the quality and time of information disclosure obligations, increasing the transparency of the securities market.
Notable comments on Vietnam’s adoption of international accounting rules
Currently, 93 per cent (133 of 143 jurisdictions) around the world have publicly confirmed International Financial Reporting Standards (IFRS) adoption and implementation, and 83 per cent (119 of 143 jurisdictions) require all or most domestic public companies to comply with IFRS. Adopting IFRS standards in a comprehensive way often takes 5 to 10 years depending on the conditions and ability of each country.
Vietnamese Ministry of Finance representative reported the latest changes in accounting standards as contained in Circular 200/2014/TT-BTC (as amended), which was mostly up-to-date, practical and in increased accordance with international standards.
Regarding the roadmap for Vietnam, it is planned by the state authorities that during 2018 – 2020, 10 to 20 simple IFRS standards will be selected to be put into practice, and officially applied for all the firms listed on the stock market from 2020.
All other businesses that have sufficient conditions and wish to apply IFRS are also encouraged to. But from 2023 to 2025, all firms within the country will have to complete their conversion process.
Conclusion
Although corporate governance in Vietnam has made a certain progress, however, it remains lower than the good regional and international standards and practices. We strongly believe that our long-term cooperation and coordination with international organizations and State authorities on reforming and developing corporate governance and other investment and compliance rules will help investors to understand and plan properly their strategy in Vietnam’s securities market.
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Please do not hesitate to contact Dr. Oliver Massmann and Tran Minh Thanh under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director and Tran Minh Thanh is Vietnamese lawyer of Duane Morris Vietnam LLC.
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