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SUPERVISING RELATED PARTY TRANSACTIONS IN JOINT STOCK COMPANY

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  • SUPERVISING RELATED PARTY TRANSACTIONS IN JOINT STOCK COMPANY

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NGUYEN HOAI BAO MINISTRY OF EDUCATION AND TRAINING HO CHI MINH CITY UNIVERSITY OF LAW -*** -MANAGING BOARD OF SPECIAL TRAINING PROGRAMS NGUYEN HOAI BAO BACHELOR‟S THESIS SUPERVISING RELATED PARTY TRANSACTION IN JOINT STOCK COMPANY BACHELOR THESIS COMMERCIAL LAW MAJOR Academic year : 2013 - 2017 HO CHI MINH CITY 2017 2017 MINISTRY OF EDUCATION AND TRAINING HO CHI MINH CITY UNIVERSITY OF LAW -*** -MANAGING BOARD OF SPECIAL TRAINING PROGRAMS NGUYEN HOAI BAO SUPERVISING RELATED PARTY TRANSACTIONS IN JOINT STOCK COMPANY BACHELOR THESIS COMMERCIAL LAW MAJOR Academic year: 2013 - 2017 SUPERVISOR AUTHOR ID CLASS : LL.M NGUYEN HOANG THUY TRANG : NGUYEN HOAI BAO : 1353801011010 : CLC 38C HO CHI MINH CITY 2017 I hereby confirm that this thesis is my own study under the supervisor’s guidance All of the information other than my idea to be used or quoted has been acknowledged by means of complete references I would bear full responsibility for my commitments July 18th , 2017 Nguyen Hoai Bao LIST OF ABBREVIATIONS LOE Law on Enterprise No 60/2005/QH11 adopted by the National Assembly dated November 26th, 2014 LOB Law on Bankruptcy No 51/2014/QH13 adopted by the National Assembly dated June 19th, 2014 OEDC Organization Development IAS International Accounting Standards GMS General Meeting of Shareholders BD Board of Directors SB Supervisory Board for Economic Co-operation and TABLE OF CONTENT INTRODUCTION .1 CHAPTER 1: THEORETICAL ISSUES OF RELATED PARTY TRANSACTIONS AND SUPERVISORY MECHANISM OF THEM IN JOINT STOCK COMPANIES 1.1 Overview of related party transactions in joint stock companies 1.1.1 Definition of “related party transaction” 1.1.2 Characteristics of related party transactions in joint stock company 11 1.1.3 The necessity of supervising related party transactions 16 1.2 Supervisory mechanism of related party transaction 19 1.2.1 The internal regulation of the company 21 1.2.2 The national law .22 1.3 Principles for the effective supervisory mechanism of related party transactions .29 CONCLUSION OF CHAPTER 32 CHAPTER 2: REALITY OF SUPERVISING RELATED PARTY TRANSACTIONS IN JOINT STOCK COMPANIES IN VIET NAM AND SOLUTIONS FOR THE IMPROVEMENT OF THEM .33 2.1 Determination of related party transactions 33 2.2 Standard and conditions for the manager 37 2.3 Rights and obligations of shareholders and managers 42 2.4 Approval of related party transactions 46 2.5 Information disclosure 49 2.6 Remedies for violations of legal requirements for supervising related party transactions in joint stock company 52 2.7 Enforcement mechanism of the provisions of supervising related party transactions in joint stock company 54 CONCLUSION OF CHAPTER 57 CONCLUSION 58 INTRODUCTION Justification When Viet Nam opens the market and its economy integrates comprehensively, at an increasing depth, into regional and international economies, we deal with lots of challenges, one of them is increasing economic sectors As opposed to subsidy period with the core of state economy, at this time, our economic system is so complex and diversionary with a large number of companies Such changes also mean that Vietnamese companies have to face more ferocious competition pressure As a result, the government has to promulgate more and more regulations, in compliance with national regulations and in alignment with international best practice, to adjust new relations fairly and equitably But there are many difficulties that corporations have to face when trying adhere to good corporate governance standards One of the major problems is how to make sure that the entities on behalf of the company can not abuse their rights as well as powers and positions to expropriate companies resources, which normally is referred as related party transactions In general, companies are founded for the purpose of seeking profits, members play different roles in the operation of the companies and combine together for the purpose of maximizing company interest However, they also have better incentives to take advantage of their rights in transactions for their own interest rather than for company‟s In practice, related party transactions not always undermine the integrity of the market as well as are not per se violations of law In some specific circumstances, it can be the positive feature which companies should encourage because it aligns its interest with those of insiders and can be made for the company interest That is also the reason why no country finds it practical to prohibit these kinds of transactions altogether as well as not promulgating any provisions to supervise them because of its potential risks for the company as well as for stakeholders Therefore, provisions of supervising related party as well as corporate governance, especially in joint stock companies- the most popular type of the company in the market, is so necessary to improve in the current The legal and regulatory framework, as well as enforcement in this field, is also concerned in recent year, but it still has to face many difficulties With the reasons as mentioned, the topic “Supervising related party transactions in joint stock company” is chosen for the author‟s graduation thesis Because of limitation in time and experience, this thesis is not able to introduce all aspects of supervising related party in joint stock companies So any comments or advices from all reader are always received by the author and encourage the author to develop the analysis with the purpose of improving the Vietnamese laws on corporate governance more and more applicable and perfect Literature review After Viet Nam participates in WTO, the supervision of related party transactions has been mentioned in several research Some of them which are referenced most in this thesis are:  Le Dinh Vinh (2004), “Supervising related party transactions in companies under Enterprise law”, Article in Legal Journal No.1/2004, p 54-58;  Tran Thi Bao Anh (2010),“Handling the transactions with danger of leading to self-interest under the 2005 Law on Enterprise” (Kiem soat cac giao dich co nguy co phat sinh tu loi theo luat doanh nghiep 2005), Article in legal journal No.09/2010, p19-27;  Nguyen Hoang Duy (2015), “The supervision of related party transaction under LOE” (Kiem soat cac giao dich tu loi – nhin tu goc luat doanh nghiep 2014), Article in democratic and legal journal No.10/2015, p 31-33;  Ly Dang Thu (2011), Supervising related party transaction made by the manager of the company under Enterprise Law2005 (Kiem soat cac giao dich tu loi cua nguoi quan ly theo Luat Doanh Nghiep 2005), Master Thesis in Law, Ho Chi Minh University of Law;  Nguyen Thanh Ly (2014), Supervising related party transactions in joint stock companies under Vietnamese Law (Kiem soat cac giao dich co kha nang tu loi cong ty co phan theo phap luat Viet Nam), Master thesis in Law, Ha Noi National University;  Do Thi Thuy Duong (2014), Law on supervising related party transactions in joint stock company (Phap luat ve kiem soat giao dich tu loi cong ty co phan), Graduation thesis in Law, Ho Chi Minh University of Law All of them provide the issues of related party transactions by personal view However, it is just an overview and can not give readers an insight knowledge about the related party transaction at the moment For instance, two article of the authors “Le Dinh Vinh” and “Tran Thi Bao Anh” just mention about related party transactions cursorily without deep analysis of characteristics, effects, provisions, issues, solutions, etc Theses of the authors, “Ly Dang Thu”, “ Nguyen Thanh Ly” and “ Do Thi Thuy Duong” resolve weakness above by giving deeper analysis in related party transactions as well as provisions of supervising them by lots of manners under Enterprise Law2005 and other laws which are effective at that times Since LOE have been effective, it is just an Article of author “ Nguyen Hoang Duy” that researches this issues under LOE, but it is too short and general for readers to find information or knowledge of provisions of supervising related party transactions at the moment Up to now, there is still little research about the related party transactions in the scope of joint stock companies under LOE Therefore in the scope of this thesis, it will give readers an insight look on the legal framework of supervising related party transactions in joint stock company under LOE as well as the recommendation to improve its Purpose The purpose is providing issues of related party transactions‟s theories and regulations adjusting them in joint stock companies In addition, illustrating or estimating current regulations and applications them in supervising related party transactions in joint stock companies would help us find out the directions or solutions to perfect the laws in supervising related party transactions in joint stock companies in Viet Nam The main purposes include:  Analysing theoretical issues of related party transactions  Analysing provisions of supervising related party transactions in joint stock company, as well as the enforcement of them, under LOE Accordingly, the defects of such provision will help improve the corporate governance in Viet Nam  Giving recommendations as well as suggestions for the improvement of the supervisory mechanism of related party transactions in joint stock company in Viet Nam Objects and scope Comment [TN1]: The objects of this thesis are related party transactions and the supervisory mechanism of them in joint stock company under LOE Because of time and material limitation, the scope of this thesis concentrates on joint stock company and its supervisory mechanism of related party transactions under LOE Some relevant laws, as LOB, are only mentioned under minimum degree to help readers have an overview of the relevance of LOE and other current Laws in the supervisory mechanism of related party transaction Furthermore, some foreign rules as well as international standards, or provisions, are also referenced, especially provisions of UK- a country with modern economy and as a representation of common law legal system, to clarify some theoretical issues of related party transactions and to improve the supervisory mechanism of related party transactions in joint stock company, more consistent with the international practice Methodologies Some following methods are used to gain the purposes of this thesis as mentioned above Firstly, the traditional legal analysis method is used to illuminate and systemize provisions of law in the supervisory mechanism of related party transactions in joint stock companies Thanks to that, defects of them will be found and referenced for the improvement of themselves Secondly, the comparative method is used to evaluate or demonstrate for the analysis as well as the arguments and the point of view in this thesis Especially this method, in the Sections of theoretical issues, plays an important role when approaching to both national and international materials Thirdly, the inductive method helps to draw the common views, as well as the conclusion after two methods above, are utilized for the analysis and comparison of materials And finally, the synthetic method plays the most important role in this thesis because it helps exploit from both legal and academic materials including books, legal journals and even from websites on the internet, that means all relevant information from different sources are collected to draw the remarkable conclusion Structure: Comment [TN2]: Chapter Theoretical issues of related party transactions and supervisory mechanism of them in joint stock companies Chapter Reality of supervising related party transactions in joint stock companies in Viet Nam and solutions for the improvement of them 46 PJICO Joint Stock Company84, PJICO is one of the most company in insurance business- founded in 1995 However, its reputation has been affected negatively and seriously because of the bribery behaviors of its General Director and Vice General Director In practice, the managers are not obligated to their fiduciary duties and the company by itself can not find out such violations unless they are found and penalized by major Laws, especially the Criminal Code Therefore, LOE should clarify the obligations of the manager more specifically, maybe through out new provisions or precedents, particularly precedents could be a new effective tool to apply in the current Furthermore, regulating for the manager the responsibility to explain when having been requested by the company or government authorities The explanation will make the manager hesitate prior to making transactions, and create an effective tool for members of the company when they are suspicious of transactions which made by the managers 2.4 Approval of related party transactions As mentioned above, LOE considers related party transactions as transactions between the company and its related parties and big value transactions Both of them has to be approved by GMS or BD and each of transactions has particular provisions of approval Firstly, with big value transactions, Point d Clause Article 135 of LOE states that GMS is entitled to “decide investment or sale of assets of which the values are equal to or higher than 35% of the total asset value written in the latest financial statement of the company, unless a smaller rate is prescribed by the company’s charter” And Point h, Clause Article 149 of LOE stated that BD is entitled to “approve sale, loan, borrowing contracts, and other contracts of which the values are equal to or higher than 35% of the total asset value written in the latest financial statement of the company, unless another rate is prescribed by the company’s charter This Point does not apply to the contracts and transactions mentioned in Point d Clause Article 135, Clause and Clause Article 162 of this Law” That means in joint stock company, the transactions whose values are equal or higher than 35% of the total asset value written in the lastest financial statement of the company have to be approved by GMS or BD The percentage of the total votes of all attending shareholders to be approved by GMS is at least 65 84 “PJICO case”, Tuoi Tre Newspaper, 16/05/2005 47 percent with the resolutions on contents prescribed in Clause Article 141 of LOE, or at least 51 percent with other resolution (the specific percentage shall be provided in the company charter)85 However, with transactions of this type, it is so difficult to determine when GMS is entitled to and vice versa According to Point h, Clause Article 149 of LOE, BD is not entitled to approve the transactions which are with the jurisdiction of GMS under Article 135 However, the differences between the transactions prescribed under Article 135 and Article 149 of LOE are still not clear For instance, the sale contract, whose values are equal to or higher than 35% of the total asset value written in the latest financial statement of the company, is prescribed in both Article 135 and Article 149 of LOE Some of views state that BD will be not entitled to approve because it is within the jurisdiction of GMS However, if it is true, why LOE also regulates such transactions within the jurisdiction of BD Furthermore, whether all such transactions will be approved by GMS or not in the practice, we have to know that GMS does not operate regularly and the sales contract, or purchase contract, need to be fast and fit in the market economy Therefore, the Law should regulate or guide more concretely so that the application of such provisions will be more accurate and appropriate Secondly, with transactions between the company and its related parties, Article 162 of LOE requires transactions between the company and subjects prescribed under Clause of this Article shall be approved by GMS or BD and Clause and of this Article regulate the jurisdiction of them as follow:  In clause 2: “BD shall approve contracts and transactions valued at less than 35 percent of the total value of the company’s assets as recorded in the latest financial statement or a smaller percentage provided in the company charter In this case, the person representing the company to sign the contract or transaction shall notify the members of BD and supervisors of the persons related to such contract or transaction; the notice shall be enclosed with the draft contract or main contents of the transaction BD shall decide on the approval of the contract or transaction within 15 days after receiving the notice, unless another time limit is provided in the 85 LOE Art 144 48 company charter; members with related interests not have the right to vote.”  In clause 3: “GMS shall approve contracts and transactions other than those provided in Clause of this Article In this case, the person representing the company to sign the contract or transaction shall notify BD and supervisors of the persons related to such contract or transaction; the notice shall be enclosed with the draft contract or main contents of the transaction BD shall submit the draft contract or explain the main contents of the transaction to GMS or collect written opinions from shareholders In this case, shareholders with related interests not have the right to vote; the contract or transaction shall be approved when it is voted for by shareholders representing 65 percent of the total remaining votes, unless otherwise provided in the company charter.” That means BD shall approve contracts and transactions valued at less than 35 percent of the total value of the company‟s assets as recorded in the latest financial statement or a smaller percentage provided in the company charter, and GMS shall approve other transactions, in other words, are equal or higher than 35% The percentage to be approved by GMS, in this case, is 65 percent or otherwise provided in the company charter after eliminating the voting rights of shareholders with related interest, which is reasonable to exclude the potential of controlling shareholders for personal interest Furthermore, we have to note that, with the normal transactions, the condition of approval only occurs when the values of them are equal or higher than 35% of the total asset value written in the latest financial statement of the company But with the transactions prescribed under Article 162 of LOE, they must be approved under any circumstances Such regulations make supervisory mechanism more effective and applicable in the practice However, LOE does not regulate the duration for approval when it is in the jurisdiction of GMS in Clause Article 162 of LOE Furthermore, the measure for such transaction under Article 162 without any disapproval, when the duration is out of date, is also not stated by the law For instance, a transaction is submitted for the approval of GMS according to Clause Article 162 of LOE, but the time for this approval is one year or even more, or whether we can understand that the silence for a long time is the disapproval or not, and if it is how long will be 49 considered as disapproval The law should establish a procedure as well as measures for the transactions which have to be approved by BD or GMS with specifics terms or remedies for the silence of authorities One more point should be considered is that unilateral transactions are still not regulated in the scope of provisions of approval and it has decreased the effectiveness of the supervisory mechanism For instance, Director can decide to defer debts until a later time for their own interest, as bonuses or incentives from the debtor If the value of such debts is high, it could cause serious damage to the company as loss of challenges to reinvest Therefore, extending the scope of transactions for unilateral transactions is also necessary to improve the supervisory mechanism of related party transactions in joint stock company 2.5 Information disclosure LOE requires the obligation of information disclosure of joint stock company The joint stock company has to publicize information to ensure the supervision of related party transactions or other issues which may influence the interest of the company negatively Accordingly, the company have obligations to disclose following information:  Contents of enterprise registration: “After being granted an enterprise registration certificate, an enterprise shall publicly announce the enterprise registration on the National Enterprise Registration Portal” and “In case of a change in the contents of enterprise registration, such change shall be publicly announced on the National Enterprise Registration Portal within 30 days from the starting date of announcement86.”  The minutes, resolutions of GMS and of BD87  Register of shareholders88  Related interests89  Annual reports90  Submitting annual financial statements approved by GMS to competent state agencies and disclosing on their websites (if any) the following 86 LOE Art 33 LOE Art 114.(1).(e) and Art 114.(2).(b) 88 LOE Art 121 89 LOE Art 159 and Art 160 90 LOE Art 170 87 50 information91: company charter; curriculum vitae, educational qualifications and working experience of members of BD, supervisors and director or director general of the company; annual financial statements approved by GMS and Annual operation evaluation reports of BD and SB There are a lot of information as listed above, however, one of the most important information needed to be considered in the supervisory mechanism of related party transactions is information of related interest under Article 159 and 162 of LOE According to Article 159 of LOE, the company are obligated to “prepare and update the list of affiliated persons of the company as provided in Clause 17, Article of this Law and their respective transactions with the company” and members of BD, Supervisors, Directors/General Directors and other managers of the company are obligated to declare their related interest to the company, including:  Name, identification number, head office address and business lines of the enterprise in which they own capital contributions or shares; ratio and time of ownership of such capital contributions or shares;  Name, identification number, head office address and business lines of the enterprise in which their affiliated persons jointly or separately own capital contributions or shares of more than 10 percent of charter capital It is reasonable when LOE requires the company to make a list of its related parties and their respective transactions with the company However, there are not any sanctions, as well as remedies, for them if they breach of this obligation Furthermore, the obligation to declare the related interest of themselves is only limited for members of BD, supervisors, the director or director general and other managers of the company However, Article 162 of LOE requires that “shareholders with related interests not have the right to vote92”, so the question here is how we can determine the shareholders with related interest Why LOE does not regulated that their own shareholders, especially controlling shareholders, are in the scope of Clause Article 159 of LOE In practice, the mechanism to manage the information of related parties or related interest of the representatives is really not effective Therefore, extending the scope of the subjects having to disclose their 91 92 LOE Art 171 LOE Art 162.(3) 51 own related interest for the company by themselves, especially the controlling shareholders, is also a measure for the effective enforcement of the supervisory mechanism In addition, the contents of the disclosure are just information of enterprise in which members of BD, supervisors, the director or director general, other managers of the company and related party of them own contributions or shares; ratio and time of ownership of such capital contributions or shares It does not cover all the “related interest” because apart from these sectors which are prescribed that must be disclosed as related interest under Article 159 of LOE, there are some sectors which are needed to be concerned such as remuneration, bonus, etc For instance, when representatives get incentives from other company any individuals, whether they have to be disclosed with their company in which they are the representative In Australia and Malaysia, these sectors are stipulated as information having to be disclosed as related interest 93 Therefore apart from the dividends from the companies in which the manager or their related parties hold the share, the subjects of the provision under Article 159 should be expanded more in the future According to Clause and Article 162 of LOE: “The person representing the company to sign the contract or transaction shall notify” It is unreasonable because in case that the manager deliberately makes a related party transaction and they themselves are obligated to notify these related sectors for BD or Supervisors and for approval, whether the information of such transactions will be complete and correct or not, or even it will be hidden by obligatory persons This provision made it so difficult to supervise and prevent the related party transactions in practice or furthermore create more opportunities for the manager or representatives to make related party transactions Therefore, the law should require the company to establish an effective supervisory mechanism which majors in supervising and preventing the violation of information disclosures The new step of disclosure information under LOE is that it requires public information on company website 94 However, the information of shareholders as well as of the manager about their relations such as their family relation ship, company where they are the owners and so on still does not requires posting on the 93 94 Singapore Journal of International & Comparative Law (1999), p 108-133 LOE Art 171 52 website when the law has required information disclosure of related party under Article 159 of LOE, why it does not also require such information to be publicized on the website for more effective in the enforcement If the company hesitate to that because it also discloses the company secret, an internal website will be an appropriate measure in this case Therefore, the Law should add more information, which has to be publicized on the website such as related parties, related party transactions, related interest, etc, to help the mechanism of related party transactions in joint stock company is more convenient and effective Furthermore, the scope of subjects and their information, that are supposed to be possible to result in related interest such as Deputy Directors, Deputy General Director, Chief Accountant, etc, also should be considered to regulate in the Law 2.6 Remedies for violations of legal requirements for supervising related party transactions in joint stock company LOE stipulates remedies for violations of legal requirements for supervising related party transactions in joint stock company in many ways With related party transactions, according to Clause Article 162 of LOE: “Contracts and transactions which have been signed or performed without approval under Clause or of this Article, causing damage to the company, must be invalidated and handled in accordance with law.” The legal consequences of invalid transactions will be interpreted in accordance with the law, by which the company will not be responsible for the obligations prescribed in related party transaction and also can restore its assets LOE also regulated remedies for entities who may lead to the loss of company because of related party transactions Accordingly, Clause Article 162 of LOE regulates that: “The persons signing the contracts, shareholders, members of BD or director or director general concerned must be jointly liable for compensating for the damage caused and shall return to the company any benefits gained from the performance of such contracts or transactions.” And Clause Article 159 states that: “Members of BD, director or director general who perform work in all forms on behalf of themselves or others within the scope of business operations of the company shall report the nature and content of that work to BD and SB, and may only perform this work if it is approved by the majority of the remaining members of BD; if they perform the work without reporting to or 53 approval from BD, all incomes earned from that work must belong to the company.” That means members of BD, directors or general directors or other persons who sign the contracts have to be liable for the damage and shall return the benefits from the related party transactions Supervisors are also personally or jointly responsible for damage caused by their obligation under Article 168 of LOE: “if violating the provisions of Clause 1, 2, or of this Article and causing damage to the company or to other persons, to bear personal or joint responsibility for compensating for such damage To return all incomes and other benefits they have earned to the company.” Furthermore, there are other remedies, according to Clause Article 210 of LOE: “Agencies, organizations and individuals committing violations of this Law shall, depending on the nature and seriousness of their violations, be disciplined or administratively sanctioned, and pay compensation for any damage caused; individuals may be examined for penal liability in accordance with law.” That means persons or the company also can be handled with other liabilities rather than restoring the assets In general, it is reasonable for LOE to regulated such remedies as above for violations of supervising related party transactions However, such provisions only limit in the entities that take part in the management and administration of operation in joint stock company For instance, under Clause Article 162 of LOE as mentioned above, the responsibilities are only regulated for persons on behalf of the company making the transactions, not for other parties who also take part in transactions In practice, the interest of the company is not only transferred to the representatives but also for their related party in a transaction For instance, Directors sell goods for their related parties with a lower price than in the market and take the bonuses from them In this case, both the representatives and their related parties get the interest, so it is not reasonable for the Law to only requires the liability for the representatives Furthermore, the remedies for the violations of supervising related party transactions under LOE are so common and mostly cite to the other specialized Laws The remedies or sanctions for the violations of standards and conditions for manager and Supervisors, of disclosure information, of rights of the shareholders only, concentrate on administrative remedies However, it is not strong enough for violators to hesitate to breach their obligations Therefore, Legislator should consider the liability of subjects in related party transactions 54 Accordingly, the subjects should be extended for all parties of the transactions rather than only for the representatives making the transactions on behalf of the company In that case, the “fault” could be affected to determine the liability and ensure the equity among parties taking part in the related transactions 2.7 Enforcement mechanism of the provisions of supervising related party transactions in joint stock company There are a few gaps of provisions in the supervisory mechanism of related party transactions Beside that, the enforcements, as well as applications of such provisions, are also big issues in the supervisory mechanism The measures for them are the role of public and private mechanism, as well as the information disclosure mechanism, in the enforcement of supervisory mechanism of related party transactions in joint stock company With the public mechanism, we should promote the role of government agencies in supervising related party transactions in joint stock company, especially the registration in providing information of companies for shareholders, creditors and other entities upon request Intensifying the obligations and supports among agencies whose functions are inspection, supervision and handling the violations is also very important in enforcement The officials should not only improve the knowledge but also the culture and ethics With the private mechanism, we have to accept that the internal supervisory mechanism of the company is really not effective in supervising related party transaction because of many reasons, but the best answer for that ineffectiveness is that the role of SB or Supervisors, which, as a part of the internal supervisory mechanism of the company, is prescribed in law with the function of supervising activities of BD and of Director/General Directors According to LOE, SB is only compulsory for a joint stock company having more than 11 shareholders and the institutional shareholders own equal or higher than 50 percent of the total number of shares of the company95 It has from to members and its members are appointed by GMS Supervisors shall elect one of them to be the head of SB on the majority principle The rights and obligations of the head of SB shall be provided in the company charter SB must have more than half of its members permanently residing in Vietnam The head of SB must be a professional accountant or auditor and work 95 LOE Art 134 55 on a full-time basis in the company, unless higher qualifications are required in the company charter96” Rights and obligations of them are prescribed in Article 136 with rights to convene GMS, Article 165 with common rights, Article 166 with rights to be provided with information The legislators also stipulate responsibilities for Supervisors under Article 168 of LOE similarly to that of the manager as honesty, prudence, loyalty and fiduciary duty Furthermore, Article 167 stipulates for the salaries and other benefits of supervisors to ensure them will carry out their duty in the best manner for the interest of the company like the managers In general, such provisions of rights make it so good for SB to supervise the violations of related party transactions in joint stock company However, it is so popular in the company that the supervisors are also the employees without any professional qualifications while their duties are supervising the activities of BD, Director/ General Director, so they are not independent in supervisory functions Therefore, the company should improve their internal supervisory mechanism by many ways such as regulating that the Supervisors must be independent individuals, the appropriate remunerations for the Supervisors when they find the violations, etc Furthermore, the company should establish the internal rules, apart from the state law, through company charter, labour agreement, workplace regulation, etc Because only the companies could understand characteristics of their business activities and establish the most appropriate mechanism for themselves In addition, the management of the information disclosure mechanism is so critical for the development of the company or the country, but it requires the cooperation of both public and private mechanism The disclosure information mechanism of “related party transactions” in the company should be improved by following manners:  Regulating that the manager, controlling shareholders and Supervisors are obligated to declare their related party annually, and appropriate sanctions in case of violations that obligations;  Raising awareness of minority shareholders about their rights and roles in supervision;  Encouraging and creating conditions for the employee in supervisions; 96 LOE Art 163 56  SB is obligated to collect, make a list of related parties of the company and update that list after specific term Besides, the company should make a list of transactions between the company and that related party with specific conditions, and storage its in headquarter;  Improving the standards for the report of the company Lastly, raising the legal awareness of the citizens will be the basis for two elements above The legal awareness plays an important role in enforcement and protections of the law If the citizens have a high level of legal awareness, they will apply the law naturally in their life, their environment, their country themselves That means although there are many gaps of provisions, the citizens still apply the law in the best manner that results in the best benefits for society whereas how perfect the law is, there still lead to bad consequences The reality that the legal awareness of Vietnamese is still too low to apply the law effectively in the supervision because of the lack of knowledge or information in some remote areas, therefore we should raise the legal awareness of the citizens by many three elements: (1) raising the level of education; (2) Economic development: (3) Providing information by many ways such as promoting knowledge of the law for the citizen, opening the training class, references, etc in addition, disclosing the violations of supervising related party transactions on mass media (Radio, television, Website, etc.) A society or a country could reach the high level in management only when its citizens reach a certain standard in the awareness, especially legal awareness 57 CONCLUSION OF CHAPTER Chapter provides the Vietnamese provisions of supervising related party transactions in joint stock companies In general, the law has established a supervisory mechanism of related party transactions in joint stock companies by the provisions of approval, standards and conditions for the manager, rights and obligations of shareholders as well as managers, information of disclosure and remedies for violations of rules in the supervisory mechanism of related party transactions However, it still remains some defects in provisions as well as the enforcement of them There are not any specific definitions of “related party transactions” in LOE and it makes the supervisory mechanism difficult to apply in the practice as well as the defects in provisions of the supervisory mechanism of related party transactions make itself ineffective in many cases The analyses of them will give us an insightful knowledge about the supervisory mechanism and find out the defects of them Thesis also provide specific recommendations, as well as suggestions to improve the supervisory mechanism of related party transactions, as the consideration of regulating a specific definition of “related party transaction”, of extending the scope of entities as well as their rights and obligations in provisions or the content of information which have to be disclosed Especially, enforcement mechanism of the provisions of supervising related party transactions in joint stock company should be considered more with the role of SB and the management of information in joint stock company In conclusion, this chapter will be references as well as the basis for readers to study and support for the improvement of the supervisory mechanism of related party transactions 58 CONCLUSION Around the world, related party transactions which the leaders of the companies utilize to expropriate resources or benefits of the company is viewed as a big issue in the corporate governance even though it is seldom prohibited Rather, the jurisdictions often seek to put in place a number of mechanisms to minimize the negative potential of negative potential of related party transactions However, the impact of different legal mechanism on related party transactions differs widely across the economies and across size classes of the company Back to the situations of Viet Nam, the provisions of supervising related party transactions have been gradually developed and amended for many years, especially the most recent achievement is LOE Accordingly, Vietnamese law provides more and more appropriate mechanism for supervising related party transactions However, from what having analyzed above, many limitations still remain Therefore, it is so important to improve legal mechanism to supervise related party transactions in order to protect effectively the benefits of the shareholder and the company Because an amount of research on improvement to good corporate governance for joint stock companies and to perfect the supervisory mechanism of related party transactions has been made, but there is still little research studied under the LOE on this fields, in this thesis the author only provides the fundamental overview of ex-ante and ex-post protections or provisions which help to constrain directly related party transactions and gives some recommendations for some major loophole under the LOE However, Vietnam needs to make more effort into fulfilling obvious gaps between law and enforcement so as to make such mechanism effective, especially since our economy has integrated comprehensively, at an increasing depth, into regional and international economies In addition, the shareholders and the company should also proactively protect their benefits by establishing the internal mechanism and utilizing their rights effectively in practice BIBLIOGRAPHY I LEGAL DOCUMENTS Vietnamese Law on Bankruptcy No 51/2014/QH13 adopted by the National Assembly dated June 19th, 2014 Law on Enterprise No.60/2005/QH11 adopted by the National Assembly dated November 26th, 2014 II REFERENCES English Adriana Tiron Tudor (2006), Disclosure of Related Party Transactions in some European countries, Studia Universitatic Babes-BOLYAI, NEGOTIA, LI, Chu-Yang Chien and Joseph C.S.Hsu (2010), The Role of Corporate Governance in Related Party Transactions ElizaBeth A GordoVietn and Elaine Henry (2005), Related party transactions and earning management, p.4 ISSC Zaharaddeen Salisu Maigoshi-Rohaida Abdul Latif-Hasnah Kamardin (2016), Related party transactions and earning managemnent Johnstone and Bedard (2004) Include The Existence of Related Party Transactions in Their Audit Risk Measure Laura Luputi (2004), Reporting Related Party Transactions and Conflicts of Interest Mark Kohlbeck and Brian Mayhew (2004), Related Party Transactions 10 Melvin Aron Eisenberg (1988), Self-interested Transactions in Corporate Law, Journal of Corporation Law,13,997-1009 11 Michael C Jensen (1994), Self-interest, Altruism, Incentives, and Agency Theory 12 OEDC (2001), The Principle Fiduciary Duties of Boards of Directors 13 OEDC (2013), Supervision and Enforcement in Corporate governance 14 OEDC (2014), Related Party Transactions: International Experience and Russian Challenges 15 Ruth V Aguilera, Kurt A Desender and Luiz Ricardo Kabbach de Castro (2011), Perspectives on Comparative Corporate Governance 16 William M Lafferty, Lisa A Schmidt, & Donald J Wolfe, Jr (2012), A Brief Introduction to the Fiduciary Duties of Directors Under Delaware Law, 116 Penn St L Rev 837 Vietnamese 17 Do Thi Thuy Duong (2014), Law on supervising related party transactions in joint stock company (Phap luat ve kiem soat giao dich tu loi cong ty co phan), Graduation thesis in Law, Ho Chi Minh University of Law 18 Le Dinh Vinh (2004), “Supervising related party transactions in companies under Enterprise law”, Article in Legal Journal No.1/2004, p 54-58; 19 Ly Dang Thu (2011), Supervising related party transaction made by the manager of the company under Enterprise Law 2005 (Kiem soat cac giao dich tu loi cua nguoi quan ly theo Luat Doanh Nghiep 2005), Master Thesis in Law, Ho Chi Minh University of Law 20 Nguyen Hoang Duy (2015), The supervision of related party transaction under Enterprise Law 2014” (Kiem soat cac giao dich tu loi – nhin tu goc luat doanh nghiep 2014), Article in democratic and legal journal No.10/2015, p 31-33 21 Nguyen Thanh Ly (2014), Supervising related party transactions in joint stock companies under Vietnamese Law (Kiem soat cac giao dicj co kha nang tu loi cong ty co phan theo phap luat Viet Nam), Master thesis in Law, Ha Noi National University 22 Tran Thi Bao Anh (2010),“Handling the transactions with danger of leading to self-interest under the 2005 Law on Enterprise” (Kiem soat cac giao dich co nguy co phat sinh tu loi theo luat doanh nghiep 2005), Article in legal journal No.09/2010, p19-27 III WEBSITES 23 http://ssrn.com/ 24 http://thelawdictionary.org/ 25 http://www.businessdictionary.com/ 26 http://www.investopedia.com/ 27 http://www.oecd.org/ 28 https://definitions.uslegal.com 29 https://www.law.cornell.edu ... in supervising related party transactions in joint stock companies would help us find out the directions or solutions to perfect the laws in supervising related party transactions in joint stock. .. companies in Viet Nam The main purposes include:  Analysing theoretical issues of related party transactions  Analysing provisions of supervising related party transactions in joint stock company, ... THEORETICAL ISSUES OF RELATED PARTY TRANSACTIONS AND SUPERVISORY MECHANISM OF THEM IN JOINT STOCK COMPANIES 1.1 Overview of related party transactions in joint stock companies A joint- stock company is a
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