On 06th June 2017, the Government issued Decree No. 71/2017/ND-CP (“Decree 71“) replacing Circular No.121/2012/TT-BTC on public company management (“Circular 121“), which contains some noticeable regulations for public companies as hereunder.
From 01stAugust 2020, Chairperson of Board of Directors shall not be allowed to concurrently hold the position as Director (General Director)
In order to extremely prevent interest conflicts of the Board of Directors (“BOD“), Controllers, Directors (General directors), and other managers of public companies (collectively referred to as “Managers“), Decree 71 supplements the following provisions:
From 01st August 2019, a member of the BOD of a public company shall not be a member of the BOD of in excess of 5 other companies and from 01st August 2020, a chairperson of the BOD of a public company shall not concurrently hold the position as Director (General Director). These new regulations are also in line with international practices of corporate governance and contribute to improve the quality of corporate governance as well as ensure working efficiency of the BODs of the public companies.
In addition, the Managers of public companies shall publish the relevant benefits in accordance with regulation of Article 59.2 of the Law on Enterprise 2014, such as the information about the company in which they own capital or shares or information about the company in which their related persons jointly or separately own 10% or more of charter capital.
Loan transactions are allowed to be conducted among parent company – subsidiaries
Decree 71 provides a general condition that a public company as a credit institution is allowed to grant loans or issue guarantees to its shareholders and related persons of these shareholders. Particularly for the case where the shareholder as an organization and its related person as an individual, the organization must not have State share or capital contribution and currently possesses shares of the public company before 1st July 2015 according to the provisions of law. In another case, where the related person of the shareholder is an organization, beside the general condition, the public company and the organization shall be in the same group or operate under the form of a group including parent company and subsidiaries, economic group and the transaction shall be approved by the BOD or General Meeting of Shareholders under the regulations of the public company’s charter.
Furthermore, the loan transactions or guarantees resulting in the total value thereof accounting for from at least 35% of the total value of assets recorded in the latest financial statement between a public company and either (i) the Managers and their related persons; or (ii) a shareholder, authorized representative of a shareholder owning more than 10% of the total ordinary shares of the public company and their affiliated persons; or (iii) the enterprise in respect of the applicable subjects being related person as prescribed by the Law on Enterprise 2014 shall have been approved by the General Meeting of Shareholders of the public company.
Compulsory and public declaration to Director (General Director)’s salary
Regarding obligation of information publication of public company, beside certain information required to declare in Circular 121 (including the information on corporate governance, on transactions with related persons), Decree 71 supplements provisions on mandatory declaration relating to model of corporate organization and governance. Accordingly, the information on model of corporate organization and governance shall be submitted to the State Securities Commission, the Stock Exchange and published under the Law on Enterprise 2014. And if any change therein, the public company shall report to such authorities and publish information as provided within 24 hours from the time General Meeting of Shareholders’ decision. Apart from the information on model of corporate organization and governance to be declared, the information on corporate governance is also required to publicly update at the annual General Meeting of Shareholders and in the public company’s annual report in accordance with the Law on Securities 2006 (as amended in 2010). Furthermore, also relating to the obligation of information publication, as another method to secure the transparency in the public company, Decree 71 additionally provides that the salary of the Director (General Director) and other managers shall be recorded in a separate section in the public company’s annual financial statements and reported to the General Meeting of Shareholders in its annual meeting.
According to this Decree, public companies shall build and issue regulations on information declaration in accordance with regulations and shall have at least one employee in charge whose details including name and telephone number shall be public.
Decree 71 has come into force since 1st August 2017.