Amendment to Law on Enterprises 2005: Single Unit Mechanism for Business Registration System Management Is Essential

 

This is the opinion by Mr Mai Dinh Manh, General Secretary of the Vietnam Electrotechnical Industry Association (Velina), at a seminar entitled “Collecting opinions of business community and experts on shortcoming issues of the Law on Enterprises 2005 that need to be amended” organised by the Vietnam Chamber of Commerce and Industry (VCCI) in Hanoi.

 

Mr Manh said the Law on Enterprises 2005 has a lot of inadequacies that need in-depth research to be resolved. A lot of overlapping contents of this law with other ones have been identified, particularly the contents on business line registration and business establishment registration in the Law on Investment, the Law on Securities and the Law on Insurance. The interpretation of instructive bylaws differs from one person to another. To fix these shortcomings, many regulatory documents have been issued but these moves confuse both businesses and governmental agencies.

 

He added that the Law on Enterprises 2005 has a lot of loopholes. For example, it is now impossible to identify whether a company has the correct registered capital as it has announced or not, because it may withdraw its paid-up capital from banks after it receives business establishment and operation permits. It can register any business scopes except for conditionally restricted ones. However, when it asks for business lines after it is transformed, some places require its CEO to have certain certificates for its business lines. This is a tough difficulty.

 

So, lawmakers need to revise specialised laws to have proper and consistent supplements and amendments to the current legal system to enhance their effectiveness and develop the economy more strongly, more rapidly and more sustainably.

 

Lawyer Cao Ba Khoat from K Consulting Co., and Associates said the regulatory scope of the Law on Enterprises is the establishment, management and operation of enterprises (Clause 1, Article 3, Law on Enterprises) and the scope of the Law on Investment concerns business-intended investment activities, but when these two laws came into effect, they overlapped. Indeed, the Law on Investment only needs to regulate the Investment Register Certificate but it in reality also governs Business Register Certificate, as Article 20 of the Law on Enterprises 2005 provides that the Investment Register Certificate is also the Business Register Certificate. This provision has led to overlapping of functions of business register authorities.

 

In addition, enterprise registration is the formality to give birth to an enterprise originating from the idea of forming a business but how the enterprise operates or invests is the process of developing the business idea. Hence, he said there is a need for a single-unit mechanism for business registration system management.

Agreeing on the above points of view, Dr Nguyen Thi Yen of Economic Law Department, Hanoi Law University, said when entrepreneurs want to set up a business of any field, they will apply for the Business Register Certificate at a competent business registration agency. After having the legal status, they are entitled to start up the business immediately if their business is assigned ordinary business. If their businesses are assigned conditional businesses, they must satisfy requirements of specialised management agencies. Obviously, these specialised management agencies do not lose their power over enterprises operating in business fields they manage. Moreover, they also perform their right functions and do not infringe on the power of business registration agencies of giving birth to the legal status of enterprises. Such regulations also put an end to unnecessary troubles for foreign investors when they are granted investment certificates which also function as business registration certificates because when they need to make changes to their businesses, they must go to the provincially levelled People's Committees or special economic zone management boards to register for the changes in investment certificates. This procedure is more complicated than go to business registration agencies.

 

However, this solution may force enterprises engaged in special fields to deal with two procedures: Business registration procedures and business licensing procedures, she said. Therefore, regulations on business registration procedures applied to special fields need to be as simple as those applied to ordinary fields. Specialised management agencies will keep the closer lid on business licensing procedures to ensure the legal status as ordinary enterprises but still meeting required conditions.

 

Dr Yen said dissolution of a business corporation is the procedure for voluntary termination of enterprises. So, when they file for dissolution, it is important that the laws must provide that the end of this activity does not affect the interests of relevant stakeholders, particularly creditors. In particular, conditions for the dissolution of business corporations are the guarantee to the complete payment of debts and other property obligations (Clause 2, Article 157 of the Law on Enterprises). Dissolution procedures must comply with Article 158 of the Law on Enterprises). However, the question is whether State agencies are entitled to make an intervention if enterprises fail to meet dissolution conditions but they still voluntarily terminate operations. What if dissolved enterprises fail to pay all debts and other property obligations or do not follow legal procedures? It seems sanctions applicable to these cases are not stated. So, do the strict regulations above have any meaning?

She said the law needs to be more flexible with the handling of corporate dissolution. Specifically, when enterprises terminate operations in accordance with dissolution procedures, they, in principle, have to satisfy all conditions above. In addition, the Law on Enterprises should provide the second mechanism, that is, enterprises will negotiate with creditors and stakeholders concerned liability repayment obligations, repayment methods and repayment periods based on financial situations of enterprises. For example, the total value of assets of a company at the time of dissolution is VND3 billion but its debt is VND7 billion. In principle, it is disqualified for dissolution and it must file for bankruptcy in accordance with the Law on Bankruptcy 2004. However, what will creditors get from bankruptcy? Are they paid more than when the company files for dissolution? It is certainly not because the expenditure for bankruptcy procedures is much greater than that used for dissolution procedures. In the meantime, the company only has that amount of money. In this case, do the company and its creditors have the right to negotiate about dissolution contents? If they do, do they violate the Law on Enterprises? If they do not, the interests of creditors may be negatively affected when the company follow bankruptcy proceedings. So, if creditors and the company reach agreement on repayment issues, the Law on Enterprises should allow them to perform dissolution procedures which are more simple and cost-effective than bankruptcy proceedings.

 

In practice, when many businesses default, they deliberately disconnect with outsiders. Or in other words, when they terminate operations, they disappear from the market without conducting any procedures. This reality is partially attributed to complex, cumbersome legal requirements on dissolution and bankruptcy.

For that reason, according to Dr Yen, dissolution procedures need to be legally simplified to facilitate enterprises to leave the market orderly and cause least effect on the market and their stakeholders.

 

The Articles of Association or the Corporate Charter is not only the company’s constitution enforceable to all employees, shareholders and the company itself but also the “legal document that individualises the company in the capacity of an independent and specific legal entity (or an independent entity) in social relations". In addition, in many cases, with the certain degree and scope, the Corporate Charter also binds stakeholders and business partners. Hence, all members, shareholders and stakeholders are entitled to receive full and accurate information about the company, displayed in the Charter.

 

Therefore, the Law on Enterprises 2005 (amended) needs to supplement the following provision: Upon the request of members, shareholders and stakeholders, enterprises shall, in a reasonable time, provide the Charter, including amendments and supplements (if any) for the person(s) request at a reasonable fee. In case the Charter is amended and supplemented, such Charter is only effective to third parties after it is registered with business registration offices.

 

Foreign investors have the right to contribute capital and purchase shares. When they purchase shares or contribute capital to engage in investment management activities and their investing is called “direct investment." If they do not get involved in investment management, it is called “indirect investment.”