minority shareholders protection in shareholding companies a comparison between vietnamese enterprises law and the united kingdom company law

2.2 Why minority shareholders should be protected 2.2.1 Minority shareholders suffer from actual and potential oppression caused by managerial power and majority rule 11 2.2.2 Minority

Joint Swedish-VietnameseMaster’s Programme

MASTER’S THESIS

MINORITY SHAREHOLDERS PROTECTION IN

SHAREHOLDING COMPANIES

A COMPARISON BETWEEN VIETNAMESE ENTERPRISES LAW AND

THE UNITED KINGDOM COMPANY LAW

SUPERVISORS:

Supervisor 1: Professor Christina MoellSupervisor 2: Professor Bui Xuan Hai

First of all, I would like to thank my supervisors, Professor Christina Moelland Professor Bui Xuan Hai, for saving the time in their very busy work tosupervise my thesis as well as instruct me for further studying

I am grateful to Professor Christopher Wong for his continuous support andguidance during the course

I would like to acknowledge the generous support from Ho Chi Minh CityUniversity of Law and the Faculty of Law, Lund University

I would like to thank to Sida (the Swedish International DevelopmentAgency) for its fund in the project

Last but not least, I am always indebted to my parents and my husband fortheir wholehearted support during the years of my studies

1 1 The need for this research

1 2 The situation of the research

1 3 Purposes

1.4 Methodology

1 5 Delimitation

1 6 The structure of the thesis

PART 2 THEORETICAL ISSUES ON MINORITY

SHAREHOLDERS PROTECTION

2.1 Who is a minority shareholder?

2.2 Why minority shareholders should be protected

2.2.1 Minority shareholders suffer from actual and potential oppression

caused by managerial power and majority rule 11

2.2.2 Minority shareholder protection is a significant factor that can

encourage investment and support the development of financial markets and economic growth 14

2.3 Principles of minority shareholder protection

2.3.1 Maintaining the effect of majority rule

2.3.2 Equitable treatment of shareholders

PART 3 COMPARATIVE STUDY OF MINORITY

SHAREHOLDERS PROTECTION IN VIETNAMESE AND

UNITED KINGDOM COMPANY LAW

3.1 Sources of law

3.2 The rights of minority shareholders regarding the general meeting

3.2.1 Calling for a general meeting

3.2.2 Attending the general meeting

3.2.3 Getting items on the agenda

3.2.4 Raising a motion at the general meeting

3.3 The right to appoint directors

3.4 Shareholders’ remedies

28

31

Official Reports and other Documents

The United Kingdom

AGM Annual general meeting

Abbreviation

Part 1 Introduction

1 1 The need for this research

Minority shareholder protection is one of the fundamental concepts within thedomain corporate governance It has also become in recent years an importantindicator for the World Bank when it evaluate a country’s business environment1.Among many types of business, shareholding company is typically characterized

by the separation between the ownership evidenced by the possession of sharesand the management of the company

Depriving from separation above, no shareholder especially a minority

shareholder, is capable of directly participating in the managerial activities andsupervision of the company in a significant and effective way The minorityshareholders are however investors in and also co-owners of the company andthey do reserve the right to perform their rights and duties as shareholders

However, because of the typical characteristics of the corporate governance of ashareholding company, minority shareholders often challenge with the potentials

of dual oppression and face unfair treatment from both the majority shareholdersand the management Consequently, their rights become unsubstantial and theposition of their capital, too, is often abused by majority shareholders and

damaged consequentially Owing to their inherently weak position, the laws ofmost countries provide some protection for them However, these provisions arenot perfect and the more important point in the protection of minority

shareholders is the mechanism for enforcing them The reality in Vietnam has, inrecent years indicated two concerns and problems: first, the legal provisions onminority shareholders protection are themselves defective and the enforcement isineffective which also lead to negative results for such investors in particular andthe business environment in general

From the totality of issues relating to minority shareholders, the author selects thetopic “MINORITY SHAREHOLDERS PROTECTION IN SHAREHOLDINGCOMPANY – A COMPARISON BETWEEN VIETNAMESE ENTERPRISESLAW AND THE UNITED KINGDOM COMPANY LAW” for her master thesis

1 2 The situation of the research

In Vietnam, the issue of minority shareholder protection has been discussed bythe following authors in the following studies and articles:

1 According to Report on Business Environment 2008 by World Bank (WB) and International Finance Corporation (IFC), Vietnam was ranked 91 among 178 countries in the world

(this rank in 2007 was 104/175) Among 10 investigated criteria, 4 of them were dropped back, including: issuing business license; investors protection which comprises

transparency, directors’ liability and shareholders’ ability to bring suits against directors and managers; business dissolving and paying taxes See ”Nhà đầu tư nhỏ chưa được bảo vệ.” (Small investors have not been protected) http://www.ktdt.com.vn/newsdetail.asp? CatId=11&NewsId=25760 , accessed on 12 December 2008.

-Chau Quoc An (2006), Chế độ pháp lý về quản trị công ty theo quy định của

Luật doanh nghiệp, (The legal regime on corporate governance under

Enterprise Law) Master thesis;

Nguyen Ngoc Bich (2004), Luật doanh nghiệp – Vốn và quản lý trong công

ty cổ phần, (Enterprise Law – Capital and management in shareholding

companies), Young Publisher;

Cao Đinh Lanh, ”Xung đột các nhóm lợi ích trong công ty cổ phần”

(Conflicts between interest groups in shareholding companies), The Journal

of Democracy and Law, No 3/2007;

Tran Quoc Hoai, (2006), Pháp luật về bảo vệ nhà đầu tư trên thị trường

chứng khoán, (Law on protection of investors’ interest in security market),

Master thesis;

Tran Viet Khoa (2007), Luật Doanh nghiệp Việt Nam trong xu thế hội nhập

kinh tế quốc tế, (Vietnamese Enterprise Law in the tendency of

internationally economic integration), Master thesis;

The Institute of international economy (1991), Công ty cổ phần ở các nướcphát triển – Quá trình thành lập, tổ chức và quản lý, (Shareholding

companies in developed countries – The process of establishment,

organization and management, Social Science Publisher, Hanoi;

Farrukh Iqbal and Jong – II You (2002), Kinh tế thị trường dân chủ và phát

triển – Từ góc nhìn Châu Á, (Democratic market economy and development

– From the Asia view), The World Publisher

However, these works above mainly focus on corporate governance The issue ofminority shareholders protection was only mentioned to the extent of listing somelegal provisions and pointing out the rights of minority shareholders under them

Up to now, there has been no independent and specialized research on minorityshareholders protection in Vietnam, especially from the comparative perspective

1 3 Purposes

My research has two main purposes: (i) studying theoretical issues on minorityshareholders protection and, (ii) making a comparative study of minority

shareholders protection under the UK and Vietnamese Company law which leads

to conclusions on minority shareholders protection in Vietnam My research firstintends determine who are the minority shareholders and the reasons why theyshould be protected As to the second purpose, the comparative study of minorityshareholders protection in the UK and in Vietnam aims at drawing conclusionsabout the merits and demerits of the Vietnamese treatment of such protection

1.4 Methodology

To carry out the research, the following methods will be used in the thesis:

- Comparative method: this method will be used to compare and collatethe issues arising in the UK and Vietnamese company law with the aim

of establishing their similarities and differenties and explaining thereason for them The result of this method will serve the purposes of thethesis Particularly, this method will be mainly used in part 3 of thethesis to support the comparative study between the UK and Vietnamesecompany law on minority shareholders protection

-Analytical method: this method will be used mainly for part 2 of thethesis where accessing various opinions about minority shareholders Byusing the analytical method, this part point out the concept of minorityshareholders; the reasons for which minority shareholders should

receive protection, and principles on minority shareholders protection

1 5 Delimitation

Pursuant to the aims stated above, my research will not cover all issues relating tominority shareholders protection but will be limited to company law matters.Within company law, the comparative research concentrates on the typical toolswhich minority shareholders could actively employ to protect themselves Beside,because investor protection in general and minority shareholders protection inparticular is not confined to company law, but also to securities regulation2, thus,securities law will be mentioned if particularly relevant

The research on minority shareholders protection also will be limited in

shareholding company (công ty cổ phần)

In the UK, a company can be classified as limited by shares, limited by

quaramtee, or unlimited Shareholders in a company limited by shares will holdliability to the amount which they contributed to the company’s assets Anylimited company with a share capital may be a private company or a publiccompany The key difference between these two kinds of company are a privatecompany can not offer its securities to the public as a public company3

In Vietnam, a shareholding company also has it chater capital in shares; its

shareholders shall be liable for the debts and other property obligations of thecompany to the extent of the amount of capital contributed to the company, itsshares may be tranferred freely, and it can issue all types of securities to thepublic4

Because of the similarities above, the comparative study on minority shareholdersprotection will be made between the shareholding company in Vietnam and thepublic company in the UK

1 6 The structure of the thesis

In accordance with the purposes and scope of my research, the content of thethesis will contain 4 parts:

2 Theoretical issues on minority shareholders protection

3 Comparative study of minority shareholder protection in

Vietnamese and the United Kingdom company law

4 Conclusion

2

3

4

Caspar Rose, “The Challenges of Quantifying Investor Protection in a Comparative

Context”, 8 European Business Organization Law Review (2007), p.373.

Section 1, CA 1985.

Article 77, EA 2005.

Part 2 Theoretical issues on minority shareholders

protection

Before elaborating on minority shareholders protection in the UK and Vietnam forthe comparative purposes, it will be useful to define who are minority shareholdersand clarify why they should receive protection In addition, the protection ofminority shareholders should follow some principles in order to secure the

company’s legitimate business Hence, this part will present in turn the threeissues: (1) who are minority shareholders; (2) why minority shareholders should beprotected; and (3) principles of minority shareholders protection

2.1 Who is a minority shareholder?

In this section, the thesis does not attempt to give a unique all - embracing

definition of minority shareholder but try to suggest what is meant by the term

“minority shareholders”5

It is important to bear in mind that the term “minority” does not relate exclusively

to numbers of shareholders6 By comparing minority race in constitutional lawand minority shareholders in corporate law, Professor Anupam Chander said that

“minority status among shareholders centers on share ownership and other indicia

of control”, and “ignores other features that might be said logically to describesomeone who is in a minority” such as “A Texan is not a minority shareholdersimply because all the other shareholders are from New York”7 And, the

minority shareholders might be, in number, an actual majority of the

shareholders

As defined by the UK Law commission, the term “minority shareholder” forsimplicity, connotes one or more members not holding the majority of votingrights capable of being cast at general meetings8 In other word, the label

"minority" is based on shareholding and power relations within the corporation. 9

The questions that may come to mind are whether a shareholder who provides amajority of the capital of a company must escape being a minority shareholder?

Or will a shareholder who holds a very small percentage of the capital definitely

See, Bui Xuan Hai (2007), Corporate Governance in Vietnamese Company Law: A

Proposal for Reform, Doctor Thesis, La Trobe University, Australia, p.25 with refer to La

Porta, Lopez-de-Silanes, Shleifer, and Vishny, who consider all managers and controlling shareholders of a company as “insiders”, while creditors and minority shareholders are

“outside investors”.

Nguyen Ngoc Bich (2004), Luật Doanh nghiệp – Vốn và quản lý trong công ty cổ phần

(Enterprises Law – Capital and management in Shareholding Companies), Young

Publisher, p 251.

Anupam Chander, “Minorities, Shareholder and Otherwise”, 113 Yale Law Journal (2003) p.162.

The Law Commission, Shareholder Remedies, Law Commission Consultation Paper 142

(1996), http://www.lawcom.gov.uk/docs/cp142.pdf, accessed on 20 November, 2008.

Supra note 7, p.162.

or the majority of the shares of a company10.Under Vietnamese law, there hasbeen inconsistent and ambigous conception about minority shareholders.

Under Decree 48/1998/NĐ-CP dated 11/7/1998 on Securities and Securities

market, “minority shareholders are those who hold less than 1% voting shares ofthe issue organization” And, Decree 144/2003/NĐ-CP dated 28/11/2003 on

Securities and Securities market did not give a definition of minority shareholderbut did say tha: “majority shareholders are those who hold more than 5% votingshares of the issue organization” Though both Decrees were repealed, they

expressed the approach of law makers about minority shareholders

From company law perspective, the Enterprise Act of 1999 and the Enterprise Act

of 2005 do not contain any definition of minority or majority shareholder butprovides some special rights for shareholders who hold 10% and more votingshares

Later, the Law on Credit Organizations, article 20.6 provides that “majority

shareholders are individuals or organizations holding more than 10% of capitalshare or more than 10% of voting shares of a credit organization The new

Securities Act 2006 provides that “majority shareholders are those directly orindirectly holding not less than 5% of voting shares of the issue organization11.Thus, legislation in Vietnam during the ten passing years has determined majorityshareholders on the ground of the percentage of voting shares which has not beenconsistent in various fields of law Consequently, by excluding majority

shareholders, minority shareholders can be defined

However, it can easily be seen that the number “1%”, “5%” or “10%” can notdetermine the position of minority or not because, “sometimes, a shareholder whoprovides the majority of the capital of a company is a minority shareholder withregard to the exercise of control in the company”12 For instance, in Berger v.

Berger, a court held that even a person who held ninety-eight percent of his

company's stock could be a minority shareholder based on a "qualitative,” not

"mechanistic," assessment.13 This is really true in case the law permits the issue ofpriority shares - shares which have special controlling rights attached to them,making it possible to control the company without holding a large percentage of theshares and without providing a large share of the company’s capital.14 Because ofthe existence of this kind of shares, a shareholder providing the majority of thecapital may sometimes not control the company and be effectively in a minorityposition with regard to the exercising of controlling rights15

“In other cases, a shareholder who provides only a limited percentage of the

Nguyen Thiet Son (1999), Công ty cổ phần ở các nước phát triển, (Shareholding

companies in developed countries), Institute of International Economy, Social Sciences

Publisher, p.53.

Article 6.9 Securities Act 2006.

L Timmerman and A Doorman, “Rights Of Minority Shareholders In The Netherlands” 6 Electric Journal of Comparative Law (2002), http://www.ejcl.org/64/art64-12.html,

accessed on 20 September, 2008;

592 A.2d 321, 326 – 28 (N.J Super.Ct.Ch.Div.1991).

Frere Cholmeley Bischoff (1996), Chapter England and Wales in Dennis Campell (1996),

Protecting Minority Shareholders, Kluwer Law International, p.126; see also Article 78,

EA 2005.

Supra note 12, p.182.

company’s capital can have considerable control rights because of the special nature

of the shares he possesses”.16 Professor Anupam also confirmed this by saying

“controlling shareholders can hold a minority of shares yet exercise control”

John D Rockefeller "succeeded in his famous struggle to oust the chairman of the

board of Standard Oil of Indiana despite controlling only 14.9% of Standard Oil's

stock."17

In the Asian context, Claessens, Djankov and Lang find that pyramidal

ownership18 has been common in Asian economies Then, the consequence of

such ownership arrangements is that the controlling shareholders are able to

obtain greater control with minimal capital expense, which makes “tunnelling”

much easier19

The Italian Securities Act (1998) and two interpretive releases published on 11

April 2008 also use “the no-relation rule” to define to guarantee the effective

representation of shareholders who are truly minority shareholders by preventing

potential abusive conducts by controlling shareholders or shareholders who

otherwise have enough voting power to exercise significant influence over

shareholders' meetings20

Therefore, basing ourselves on the amount of capital alone, “we do not know

exactly what a minority shareholder is”21 It depends on the capital structure

provided for in the articles of association of a company When a company makes

use of a specific control structure, whether that be priority shares, a pyramid

structure, or preference shares, pure percentages lose much of their relevance22

Professor Anupam also agree with the US Federal Fifth Circuit, in a 2000

decision that explicitly considered minorities and majorities: "The question of

minority versus majority should not focus on mechanical mathematical

In this structure, the family achieves control of the constituent firms by a chain of

ownership relations: the family directly controls a firm, which in turn controls another firm.

The pyramid structure allows the family to use the financial resources of existing group

firms to invest in new firms See Heitor Almeida, Sang Yong Park Marti Subrahmanyam

Daniel Wolfenzon, ”The structure and formation of business groups: Evidence from

Korean Chaebols”, http://pages.stern.nyu.edu/~msubrahm/papers/Pyramids.pdf , accessed

on 01 January 2009.

Johnson, La Porta, Lopez-de-Silanes, and Shleifer (2000) use the term “tunnelling” to

describe the transfer of resources out of firms for the benefits of their controlling

shareholders Much evidence emerging during the Asian financial crisis shows that

“tunnelling” is a very serious agency problem in emerging markets The recent debacles of

Enron, Worldcom, and Global Crossing convince people that “tunnelling” is also possible

even in developed economies See Chong-En Bai, Qiao Liu, Joe Lu, Frank M Song, and

Junxi Zhang (2004), “Corporate Governance and Market Valuation in China”,

papers.ssrn.com/sol3/papers.cfm?abstract_id=393440, accessed on 10 September, 2008.

Domenico Fanuele and Tommaso Tosi (of Shearman & Sterling LLP), “Power to the

minority” in [2008] International Financial Law Review, p.48; Pursuant to Articles 147- ter

(3) and 148(2) of the Italian Securities Act, minority shareholders may propose candidate

lists only if they are not related, either directly or indirectly, to any of the reference

shareholders.

Supra note 12, p.208; see also supra note 7, p.163, “Corporate law does not define

"minority" shareholders on the basis of numbers alone”.

Supra note 12, p.182.

calculations, but instead, 'The question is whether they have the power to worktheir will on others ,,23.

To conclude this section, the author stresses that capital and control are not

necessary aligned Therefore, the number of shares alone can not define a minorityposition notwithstanding the controlling ability of a shareholder In addition, theassessment of this ability is very difficult and varies from situation to situation so

we will look in vain for a general definition of minority shareholders Some

countries, such as the Netherlands and the UK, use a situation – to – situation basisfrom the start and also decides from case to case what qualifies one as a minorityshareholder24

Professor L Timmerman and A Doorman defined minority shareholders as thosewho, “irrespective of the amount of capital they provide, are unable to exercise anysignificant form of control within the company”25 It cannot be denied that minorityshareholders must logically be unable to control the management of the companybut, the number of shares held by shareholders is also likely to reflects their

position Hence, minority shareholders are those who hold so few shares in relation

to the total number of shares that they are unable to control the management ofthe company

2.2 Why minority shareholders should be protected

Theoretically, the investor protection issue can be viewed from a narrow level) or a broad (country – level) perspectives26 From the former perspective,minority shareholders need to be protected because of the potential for oppressionboth by managerial power and the majority rule From the latter perspective,

(firm-“minority shareholder protection is a significant factor that can encourage

investment and support the development of financial markets and economic

growth”27

The corporate world today subdivides into rival systems of dispersed and

concentrated ownership28 While in Japan and continental Europe corporate

governance is organized on an "insider/control-oriented" basis29, the structure ofownership and control in the UK and the USA has been characterized as an

“outsider” or “arm’s – length” system30 In this system, shareholders generally…

“take a "hands-off" approach with companies they own” and “maintain their

distance and give executives a free hand to manage”31

Brian R Cheffins, “Does Law Matter? The Separation of Ownership and Control in the

United Kingdom” 30 Journal of Legal Studies (2001) p.459.

Under this system, the stock market plays only a secondary role in the economy, and those companies with publicly traded shares typically have "core" shareholders and/or dominant creditors that exercise considerable influence over management; see supra note 26, p.461.

Petri Mantysaari (2005), Comparative Corporate Governance, Springer Berlin Heidelberg

Publisher, p.79.

Supra note 28, p.461.

This section considers each perspective to make clear the need for minority

“managerial evolution, if not revolution”…and, “a trend toward a divorce

between control and ownership was clear for very large companies”32 In suchcircumstances, “boards of directors, instead of the shareholders, are becoming thepower organ within the corporation”33

The issue of the separation of ownership and stewardship in joint stock

corporations was raised by Adam Smith, in his masterwork “The Wealth of

Nations” over three hundred years ago It was therefore suggested that a set of

effective mechanisms should be in place to resolve the conflict of interests

between firm owners and managers Later, in the seminal work by Adolf Berleand Gardiner Means (1932), they argued that, in practice, managers of a firmpursued their own interests rather than the interests of shareholders34 From thisidentification of the separation of ownership and control, ”the concern of

corporate law has been to try to mitigate the effects of this separation”35

On the one hand, the separation is necessary to help companies, especially largeones survive the increasingly competitive modern economy and to meet theheightened demand for managerial skills within companies.36 On the other hand,

as the Berle-Means hypothesis explains, minorities are presumed to be withoutadequate power or incentive to prevent abuse37 and thus are prone to suffer it.Therefore, the separation “implied a need for the state to protect minority

shareholders from the rapaciousness of corporate managers”.38

In the UK, the power of the board of directors are to a very large extent regulated

by articles of association39 Normally, the articles of association confer all thepower to manage the company into the hands of the board which are thus very

wide In Ampol, Lord Wilberforce said that “directors, within their management

powers, may takes decisions against the wishes of the majority of shareholders”,

Weiguo He (2004), Improving the Protection of Minority Shareholders in Chinese

Company Law, Master thesis, Tsinghua University, p.1.

Supra note 17, p.6.

Ross Grantham, ”The Doctrinal Basis of The Rights of Company Shareholders”, 57

Cambridge Law Journal (1998), p.555.

36 Supra note 31, p.1, see also supra note 26, p.461.

37

38

39

company law

Supra note 33, p.43

Italian regulators are careful about how they balance the interests of majority and minority

and that “the majority of shareholders cannot control them in the exercise of thesepowers while they remain in office”40

In European context, it is also recognized that ”shareholders who control a

proportion of total voting rights much larger than their ownership (and thereforedividend) rights have an incentive to extract value from the company at the

expense of non-controlling shareholders41

Beside the managerial power, “the relations between majority shareholders andminority shareholders have always been a thorny issue in corporate law”42 Theminority shareholders tend to claim that the majority shareholders are abusingtheir rights with their ultimate control over the corporate matters Meanwhile, themajority shareholders defend themselves with the argument that they are simplyexercising their legal rights as majority shareholders43

In short, because of the dominance of majority shareholders in the company, theoppression of minority shareholders was therefore a central concern in the

corporate governance and the protection for them were of paramount

importance44 Though, that said large shareholders with sufficent political powermay even try to evade the protection of minority shareholders stipulated in

45

All powers of a company are in theory exercised by one or other of its own

organs: the shareholders in general meeting or the board of directors Each ofthese bodies usually makes its decision by majority vote, and the minority

shareholders are usually bound by the decisions of the majority This means thatthose who control more than half of the votes on the board or at a shareholders’meeting will have substantial power Problems may arise where those in effectivecontrol of a company use their power to benefit themselves and cause a detriment

to minority shareholders In such a case, the danger is, indeed, that companieswill be run exclusively in the interests of the controlling shareholders, and that theinterests of the minority shareholders will be ignored, or at least not fully

recognized46 Then, it is clear that the law should provide some remedies for caseswhere such majority power has been abused47

40

41 Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 See supra note 25, p.95

Commission of the European Communities, ”Impact Assessment on the Proportionality

between Capital and Control in Listed Companies”, Working Document 2007, p.4.

42

43

shareholders If the balance tips too heavily in favour of minority shareholders, shareholder conflicts and disputes (possibly resulting in litigation) could increase, leading to delays in executing corporate transactions and increased costs for companies and their shareholders Such delays could ultimately scare off investors and damage the interests of all

44

45

46

47

shareholders See supra note at 18, p.49.

Eric Hilt, “When Did Ownership Separate from Control? Corporate Governanca in the

Early Nineteenth Century”, 68 Journal of Economic History (2008) p 648.

Caspar Rose, “The Challenges of Quantifying Investor Protection in a Comparative

Context”, 8 European Business Organization Law Review (2007) p.372.

Jennifer Payne, “Section 459-461 Companies Act 1985 in Flux: the Future of Shareholder Protection” 64 Cambridge Journal (2005) p.647.

Andrew Hicks & S.H.GOO (1997), Cases and Materials on Company Law, Blackstone

Publisher, p.243.

Specifically, in case of conflicts between majority shareholders and/or the

management on the one hand, and minority shareholders, on the other hand, the

typical outcome is that minority shareholders lose because they are unable or

unwilling to challenge decisions by the board and are also outvoted at general

meetings48 Moreover, as Davies and Banks both claim, “the interests of minorityshareholders may be ignored by majority shareholders in general meetings when

passing the company’s decisions”49 The study of minority shareholders

protection in UK and US has shown that “common accusations are that the

majority has excluded the minority from active participation in the business or

has mismanaged or misappropriated assets.”50 In other words, “the dominant

shareholder has greater ability to extract resources that otherwise would have

been shared with minority investors”51

In addition, the reality that “minority shareholders maintain a passive role in the

corporation, pay little attention to the daily operations of the corporation, have

little incentive to engage in corporate activities, and are prone to vote in favour ofmanagement's recommendations”52 makes the minority rights little more than

symbolic and almost encourages majority shareholders and the management to

abuse their rights for personal benefits Things are of course even worse for

minority shareholders if the management and the majority shareholders collude

After an examination of 2658 companies in East Asia, Claessens and his

colleagues found that if majority shareholders effectively control companies,

“their policies may result in the expropriation of minority shareholders”53

Through their empirical research, La Porta and his co-authors share this view andpropose that all outside investors “need to have their rights protected”54 This

proposal was supported by Professor Gordon Walker, when he said that it is

important to protect outside investors “because of potential and actual

expropriation of minority shareholders and creditors by controlling shareholders”

55

In conclusion, the minority shareholder problem maintains that both controlling

shareholders and managers have the power to extract private benefits at the cost

Supra note 5, p.27.

Sandra K Miller, “How Could U.K and U.S Minority Shareholder Remedies for Unfairly

Prejudicial or Oppressive Conduct be Reformed?”, 36 American Bussiness Law Journal

(1999) p.580.

Jay Dahya, Orlin Dimitrov and John J McConnell, “Dominant Shareholders, Corporate

Boards and Corporate Value: A Cross-Country Analysis”, ECGI Working Paper Series in

Finance, Working Paper No.99/2005, Updated February 2006, p.5.

Steven M Haas, “Toward a Controlling Shareholder Safe Harbor”, 90, Virginia Law

Review (2004) p 2288; see also supra note 7, p.127,… “The debacles of Enron and

WorldCom demonstrate that… “minority investors may yet be imperiled by the

manipulations of controlling persons”.

Supra note 5, p.26.

Supra note 5, p.26.

Supra note 5, p.26.

13

of minority shareholders56 As La Porta and his coauthors write, "Corporate

governance is, to a large extent, a set of mechanisms through which outside

investors protect themselves against expropriation by the insiders"57

2.2.2 Minority shareholder protection is a significant factor that can

encourage investment and support the development of financial markets and economic growth

“Protecting minority shareholders serves to protect property rights” …and

“property rights might ultimately be made more robust through legal efforts toenlarge the group of people holding property”.58 In other words, protecting

minority shareholders is beneficial for the capital formation The theory

underlying the Berle-Means modem corporation is that “large scale enterpriseneeds to pool equity capital from many people who will cede working controlover that capital”59 With “the desire to obtain minority participation in the

capitalist enterprise, thereby improving the enterprise through the additional

capital contributed by the minority”, corporate law ensures that “a minority

shareholder is treated "fairly" by the controlling shareholder or management

encourages people to invest funds without needing to worry about expropriation”

60

Second, weak protection of minority shareholders increases the average cost ofcapital for a company because minority shareholders will anticipate their weakposition and will want receive compensation for the increased risk they run61 Thismay put the company at a competitive disadvantage with foreign companies.Third, “the degree of protection a country's legal system provides for outsideinvestors has a significant effect on its corporate governance regime Strongerlegal protection for minority shareholders is associated with a larger number oflisted companies, more valuable stock markets, lower private benefits of control,and more diffuse share ownership”62, thus, it creates an attractive legal

environment for investment, especially foreign investment This outcome werealso recognized by the Dutch: “if the Dutch legal system does not provide adequateprotection of minority shareholders compared with foreign legal systems, foreigninvestors will not invest in Dutch companies and Dutch investors will increase theirinvestments in foreign companies”63

Investor protection organizations are emerging in Russia which aim at makingminority shareholders more pro-active in defending their rights More and more

of the votes but manage to exercise defacto control – thus have substantial power In

companies are becoming aware that violating shareholders rights is a major

problem that has to be eliminated in order to get access to foreign capital64

This is a matter of concern to investors, but there are also public policy arguments

in favour of ensuring that minority shareholders are adequately protected from the

opportunistic behaviour of majority shareholders If investors are inadequately

protected there is a danger that they will refuse to invest if they are only offered a

minority stake or more likely that the cost of securing their investment will rise65

Listed companies are subject to stock market control Bad publicity regarding a

majority’s unfair conduct towards the minority is likely affect the company’s

profitable and share value

For the reasons and benefits mentioned above, it is no exaggeration to say that

“where today's constitutional jurisprudence of equal protection aspires to colour

-blindness, corporate law places minority concerns at the heart of its endeavour”66

2.3 Principles of minority shareholder protection

2.3.1 Maintaining the effect of majority rule

The majority rule means that those who control more than half of the votes on the board or at

a shareholders’ meeting – and indeed, those who command a good deal less than a majority

67 shareholding companies, shareholders normally vote according to the capital that

they have invested in the company One share equals one vote Under common

law, the governance of companies is generally based on the principles of majority

rule However, it is recognized that as a corollary of this, there must be some

protection for minority shareholders68

Why would company law specially protect minority shareholders since it could be

assumed that majority rule is completely lawful? As mentioned above,

principally, a company operates under majority rule The board of directors also

acts by majority vote to carry out its duties The problem is that “there is always

the danger that the majority will use its power to further its own interests to the

detriment of the company or the minority shareholders” while “a minority

shareholder’s policy views do not carry any weight unless he or she can mobilize

a majority vote” Thus, there are two contradictory principles must be taken into

account69:

-Respect for majority power, this being necessary to ensure effective

management of the company; and

Protection of minority shareholders

Veronica Osipova, “The Problems of Development of Corporate Governance in Russia:

Comparison with Central European and China”, 15 Bond Law Review (2003) p.131.

hkjo/view/14/1400223.pdf , accessed on 29 October, 2008.

Supra note 12, p.2

It is quite clear that while majority shareholders can express their wishes by wayoftheir controlling vote and turn these wishes into the company’s decisions,

minority shareholders need to at least have the power to ensure that that theirvoices are heard and taken into account where they have different opinions fromthe majority shareholders There are cases in which the majority shareholders aredoing nothing illegal, but are conducting themselves in an “oppressive” manner

by using their majority power to supress dissent70

It may be necessary to protect minority shareholders but this generally should notempower the minority to make decisions for the corporation or to vest in them thecontrolling position, but merely avoid the fact that “mechanical application ofmajority rule, without any constraint will lead to unfair consequences that willviolate reasonable shareholders expectations”71 In other words, ”the law has tostrike a delicate balance between safeguarding the company’s legitimate businessfrom being obstructed by tiresome complaining minorities on the one hand, andrestraining unfair and wrongful acts which the majority can exploit to its ownadvantage thereby prejudicing the legitimate interests of the minority, on the

other hand”72

2.3.2 Equitable treatment of shareholders

“The equitable treatment of shareholders” is among six principles recommended byOECD and it is also considered as of “the utmost importance for the protection ofminority shareholders73 This reinforces the idea that “the watchwords of

corporate law include not only wealth maximization, but also fairness”74 Allshareholders, large or small, should receive adequate protection from the law BillGates, Warren Buffett, and the small pensioner are all rendered equal-by law75.However, it should be noted that, “for corporate law, equality is not sameness”76.Under EA 2005, article 78 provides that ”each share of the same class shall entitleits holder to the same rights, obligations and interests” This means that the

differences and the identity among shareholders must also be taken into account.This is the reason why “corporate law even goes so far as to impose special duties

on controlling shareholders and managers that are not borne by minority

shareholders.”77 In other words, “the exact content of the principle of equality isdependent on the nature of the subject in question”78 With regard to certain rights,for example, the right to vote in a general meeting of shareholders and the right toreceive a dividend, equality is indeed relative; there it is proportional to the number

of shares the shareholder holds With regard to certain other rights however, mainlyinformation related ones, the equality has a different nature; there it is absolute”79

Briefly, “corporate law believes that equal treatment can only be assured by takingminority status into account.”80 The principle of equality does not aim at givingminority shareholders the same treatment as the majority As the weaker party in acompany, minority shareholders only need an equitable and fair treatment

protecting their rights as provided by law and the capital they have invested in thecompany

In short, minority shareholder protection is an fundamental issue in corporategovernance Minority shareholders are those who not only hold a small amount ofshares but are also non-controlling parties in a company Shareholders' rights andand the need for their legal protection result from the separation of ownershipfrom control in the modern corporation Shareholders, especially minority

shareholders supply finance to companies but managers and majority

shareholders have control of it, and due to human nature, are prone to misusetheir rights This implies the need for legal protection of minority shareholders81.Moreover, strong protection of investors in general and of outside investors inparticular bring significant benefits to a state’s economy Minority shareholderprotection thus enhances both shareholder value and corporate competetiveness.Those are the reasons why “minority shareholder protection, explicitly and

implicitly, animates much of corporate law”82 and becomes an important part ofcorporate governance

Equipped with appropriate rights, minority shareholders will be able to defendthemselves in the fight against “oppression”

Part 3 Comparative study of minority shareholders protection in Vietnamese and United Kingdom company

law

Investors protection is, in general expressed through investors’ rights and theirenforcement thereof According to the OECD Principles of Corporate Governance,the basic shareholder rights should include the rights to: (1) secure methods ofownership registration; (2) convey or transfer shares; (3) obtain relevant and

material information on the corporation on a timely and regular basis; (4)

participate and vote in general shareholder meetings; (5) elect and remove members

of the board; and (6) share in the profits of the corporation83

Commonly, shareholder rights are divided into financial rights and participatoryrights.84 Financial rights reflect shareholder financial interests and their aim ofmaking money when they invest in companies These rights include the right toget dividends, to transfer of shares, to gain money from winding up a

company…85 The participatory rights are of three kinds: (1) informational rights;(2) rights attached to the general meeting, and (3) the right to bring suit86

It could be shown that these rights are contained in the company law of manystates87 They are there given to all shareholders irrespective of the number ofshares they hold and it could not be said that they are all minority shareholdersrights The right to vote in the general meeting of shareholders, for example, “willusually not be a minority right because this right is not specific to minority

shareholders and this right usually has no significant meaning for minority

shareholders”88 In case of disagreement, they will be the ones to be outvoted at thegeneral meeting Therefore, this section will not focus on the shareholder rights ingeneral but on the “true minority right”, which “possess the characteristic that itcreates the possibility that an outcome can be reached that is different from theoutcome that the majority of the shareholders wish”89

It is apparent that minority shareholder rights are not going to be the same in

different legal systems In this section, the author will then concentrate on “trueminority rights” under Vietnamese company law while making a comparisionbetween it and the UK company law In fact, minority shareholder rights are

governed by various laws and regulations However, as stated in the Introduction,this thesis considers these rights from a company law perspective and only

Companies Act and the like will be studied Other kinds of Acts and rules will only

be mentioned if they are relevant In order to support the comparative study in

Articles 79, EA 2005; section 263 (2), section 9, section 121; section 135; Table A,

Regulation 54; section 183 (4), section 359, section 459, CA 1985.

Supra note 12, p.182.

Supra note 12, p.182.

following section, sources of law in the two legal systems on minority shareholdersprotection should be mentioned.

3.1 Sources of law

In the UK, company law is not fully set out in Acts of Parliament Although theCompanies Act 1985, which has been amended in 1989, 2004 and 2006, remainsthe principle source of law, a significant part of the law is to be found in the

decisions of the English courts (Common Law) Beside, because the law “leavethe making rules on the governance of companies to the discretion of

shareholders and company bodies”, the rights of minority shareholders will

depend on the terms of the articles of associations Moreover, relating to listedcompanies, the Listing Rules (Yellow Book) which was approved by the UKListing Authority in 2003 – the Financial Services Authority (FSA) - are

involved The Listing Rules contain a reference to the Combined Code of

Corporate Governance Hence, listed companies must also comply with the

Combined Code90 Under the harmonization of company laws within EuropeanMember States, the European Public Limited Liability Company Regulations

2004 are supplemented by the law applicable to public limited companies, foundmainly in the Companies Act 1985, together with the Insolvency Act 1986 andthe common law91

Unlike UK where a significant part of the law is to be found in the decisions of theEnglish courts (Common Law)92, the main sources in Vietnam are the EnterprisesAct 2005 and its guiding documents For public listed companies, the SecuritiesAct 2006 dated 23/6/2006 and the Decision No 12/2007/QĐ-BTC dated 13/3/2007,which attached with Regulations on Corporate Governance, are involved Beside, acompany’s articles of association may also contain minority shareholder rightsprovided that they are not conflict in with provisions of law

Under EA 2005, there are no provisions which state that they are reserved forminority shareholders However, minority shareholders may employ dispersedprovisions thereof to challenge against the management and the majority

shareholders Accordingly, the following topicss will be reviewed in this part:minority shareholders’ rights attached to the general meeting; the right to challengeresolutions adopted at a general meeting; the right to appoint member of the Board

of the Management and of the Supervisory Board by cumulative voting; anti –directors rights; the right of redemption of shares; the right to access informationrelating to the company’s operation; the right to approve major and related partytransactions, and pre-emptive rights

90

91

92

See paragraph 12.43A of the Listing Rules.

Nigel Boardman, Chapter 17 in Dirk Van Gerven and Paul Storm (2007), The European

Company, Cambridge University Press, p.457 See also supra note 14, p.123 See also

supra note 30 p.84.

Supra note 14, p.123.

3.2 The rights of minority shareholders regarding the general meeting

3.2.1 Calling for a general meeting

In theory, ultimate control over a company’s business lies with the members

in a general meeting In practice, however, the residual powers of the

membership are extremely limited and general meetings are to a large extentcontrolled by directors93 Be that as it may, the shareholders’ meeting

remains the main vehicle for shareholders who wish to influence the course

of corporate business 94

In normal cases, the annual general meeting is the only yearly occasion when thegeneral body of shareholders is given the opportunity to consider, criticise andcomment upon important affairs of the company and where shareholders can vote

on the directors' recommendation as to dividends, to approve or disapprove thedirectors' remuneration, and, if thought desirable, to remove and replace all or any

of them 95

Both the UK CA 1985 and the Vietnamese Enterprises Acts 2005 provide forannual general meetings, which are mandatory for each company as well as forextraordinary general meetings in certain special circumstances96

As to the AGM, the directors or the Chairman of the Board of Management have

a general power to call all general meetings97

In a situation in which the management harms the company or the shareholders atany time between the regular/annual shareholders meetings, the most powerfulweapon of the minority shareholders for addressing such harms would be the toconvening of an EGM where they could vote against the harmful actions or vote

to remove the defaulting directors98

As to the EGM, it may be convened by the directors whenever they think fit 99 or

in any situation provided for by law and/or the articles of association The

provision exists to treat the situation in which the management does not fulfill this duty.

section 366 CA; if the directors does not hold an AGM under section 366, they will be

liable to a fine, and any member may apply to the Secretary of State for Trade and Industry under Section 367 The Secretary of State may call or direct the calling of a general

meeting of the company and give such ancillary or consequential directions as he thinks

appropriate; under Section 371, the court has the power to call a GM, on its own motion or

on on the application of any director of the company or any member of the company who would be entitled to vote at the meeting, to order meetings if for any reason it is otherwise impracticable to call a meeting of a company, or to conduct the meeting as required by the articles of the company or the Act.

Supra note 33, p.14.

Supra note 30, p118.

This provision is a step forward in comparison to article 71, EA 1999 where minority

directors must also convene an extraordinary general meeting at the request ofshareholders holding not less than one-tenth of the share capital carrying votingright100 Under CA 1985, the EGM must be convened within twenty-one days.According to EA 2005, the period is 30 days from the date the request was

received, if the articles of association do not provide otherwise

In the UK, if the directors fail to convene an EGM on request, the shareholdersmaking the request (or any of them representing more than one-half of the votingrights of all of them) may themselves call a meeting However, their counterparts

in Vietnam have to follow another step, that is they must request the SupervisoryBoard to convene an EGM If this Board also fail to do so, then, shareholdersthemselves may then convene an EGM In such a case, all expenses will be

covered by the company The EA 2005 also provides that if the Board of

Management and the Supervisory Board do not convene the EGM on such

request, they are responsible before the law and must compensate for any damagearising to the company101

Article 79 of the EA 2005 also provides for some specific cases where minorityshareholders have the right to request the convening of an EGM:

-100

The Board of Management commits a serious breach of the rights of

shareholders or the obligations of managers or makes a decision which fallsoutside its delegated authority;

The term of the Board of Management has been expired for more than sixmonths and a new Board of Management has not been elected to replace it;Other cases stipulated in the charter of the company

Section 368, and there are many other cases in which an EGM can be convened by the

directors of the company under Article 37 of Table A Sometimes directors must call a

general meeting Apart from this usual power, directors of public limited companies are

required, under s 142 of the CA 1985, to call meetings where there has been a serious loss

of capital, defined as the assets falling to half or less than the nominal value of the called up share capital; As are the auditors of a company under s 392A of the CA 1985, which

provides for a resigning auditor to require the directors to convene a meeting in order to

explain the reason for the auditor’s resignation; it might be reasonable to hold that the

requirement be 20% (Italy, Belgium) is definitely prohibitively high, under EA 2005, the shareholders must hold that amount of shares in a period of six months; it seems arbitrary

to use a threshold of 10% From an economic point of view, the threshold should reflect the ownership concentration, since even a low threshold is almost useless in the case of

dispersed ownership Hence, relying on a threshold of 10% without taking into account

huge differences in ownership structure may be problematic.See supra note 37, p.377.

101

shareholders just have the right to request for a convention of an EGM However, the

minority shareholders do not have the right to convene the shareholders’ meeting In stead, they can only “request” such a meeting if they are fortunate enough to hold enough shares

to do so (one-tenth for publicly held corporations), but their “requests” could be lawfully refused by the management In such cases, the Company Law does not provide any further channels that could serve to solve the disputes The minority shareholders can neither

convene the shareholders’ general meeting by themselves, nor apply to the court to order the meeting be convened The minority shareholders thus can not stop the harmful acts of the management (who are often controlled by the majority shareholders) by shareholders’ meetings They are therefore deprived of one of the most important weapons needed to

effectively protect themselves from the infringements of the managenment.

Richard C Nolan, “Shareholder Rights in Britain”, 7 European Businee Organization Law

As for the procedure, the shareholders who make the request must state its

grounds for requesting an EGM 102 The request must be accompanied by

documents and evidence of any such breaches of the Board of Management andtheir seriousness of such breaches, or on the decision which falls outside itsauthority

With these provisions, minority shareholders were at least given the chance tohave their voice heard at a general meeting However, it could be seen that inorder to qualify for the right to convene an EGM, a shareholder must hold theminimum percentage of shares as provided by law or articles of association.Though it is not feasible to find a percentage that is applicable to all countries, thestandard threshold of 10% of the voting shares would be difficult for minorityshareholders to reach, especially in publicly held corporations, where those

holding 10% of the issued shares can be more reasonably regarded as majorityshareholders These provisions could perhaps be regarded as improved protectionfor majority shareholders, being not so meaningful for minority shareholders

A shareholder or a group of shareholders as above also has the right to convene

an EGM in case of “a serious breach of the rights of shareholders or the

obligations of managers was committed by the Board of Management” Basically,the obligations of the Board are listed in Article 108 and article 119 of the EA

2005 However, this provision does not state what constitutes “a serious breach”

Is any breach of obligations within the above articles considered as “serious”?103.This ambiguity definitely leads to controversy and is a further barrier for minorityshareholders seeking to convene an EGM In addition, it may be very difficult forminority shareholders to prove “serious breaches” of professional managers104.Shareholders in Vietnam may thus find it difficult to convene a GM due to highershareholding requirements, limited circumstances, and the need to show evidence.Additionally, shareholders and directors/managers have no right to request a court

to order a general meeting to be convened

3.2.2 Attending the general meeting

Shareholder participation is an essential precondition for effective corporategovernance105 Participation in general meetings helps shareholders, directly orindirectly, take dicisions and manifest their wishes so as to direct the company in

a way which best benefits them and protects their interests Under UK companylaw, the right of a shareholder to vote is regarded as a property right which he isentitled to cast in his own interests106 Article 79 EA 2005 also provides thatodinary shareholders have the right to attend and to vote at the GM as provided

by law The Regulations on Corporate Governance also expressly prohibits public

102

103

104

Supra note 30, p.118.

Chau Quoc An (2006), Chế độ pháp lý về quản trị công ty theo Luật doanh nghiệp (Legal

regime on Corporate governance under Enterprises law), Master thesis, HCMC

Supra note 10, p.60.

Supra note 30, p.119.

World Bank, “Report on the Observance of Standards and Codes (ROSC) – Corporate

listed companies from any restriction on the shareholders’ right to attend the

However, The Listing Rules provide that a listed company should send out way proxies giving shareholders an equal opportunity to vote for or against theresolution This forces the directors to give effect to the wishes of individualshareholders at least to some extent If directors are appointed proxies and

two-instructed how to vote they must obey these instructions111

If the Board of Management establishes a minimum percentage shareholding to

be held by shareholders as a condition for attending the GM112 thus excludingminority shareholders from the GM or/and forcing them to appoint proxies, thiswould be a grave violation of their rights113

However, EU-citizens holding shares in a listed company situated in anotherMember State often face severe problems when they wish to exercise the votingrights attaching to these shares and sometimes even encounter obstacles that makevoting practically impossible114

Proxy voting need to be encouraged and shareholders must be able to appointproxies in various convenient manners115

107

108

109

Article 3, Regulations on Corporate Governance.

Supra note 30, p.119; Article 3, Regulations on Corporate Governance.

In the UK, directors are not prohibited from soliciting proxies at the Company's expense.

In Peel v London and North Western Railway Company, the Court of Appeal held: "The

Company may legitimately do and may defray out of its assets the reasonable expenses of doing all such acts as are reasonably necessary for calling the meeting and obtaining the

best expression of the corporators' views on the questions to be brought before it” This

privilege does not empower to shareholders If they want to circulate (truyền bá) their

resolutions or Statements, they will normally bear the costs thereof (unless the Company otherwise resolves)

Nguyen Dinh Tai (2008), Bài giảng Luật doanh nghiệp 2005 (Textbook on Enterprise Act

2005), National Politics Publisher, p.238.

Supra note 105, p.551.

The Danish Compay Act 2003 gives firms the option to arrange their annual general

meeting completely electronically In Germany, physical attendance at the general

meeting is still required, but an agent may exercise shareholder voting rights The

shareholders can be in direct contact with the agents and follow the general meeting

simultaneously on the internet See supra note 36, p.377 Regulations on Corporate

3.2.3 Getting items on the agenda

As mentioned above, the general meeting is considered as a rule making vehiclefor shareholders It would be of no value to them if they were simply able toconvene a shareholders' meeting but had no influence on its agenda

Clearly, it is easier for the board of directors than for shareholders to get itemsonto the agenda The reason is that the AGM is normally convened by the boardand, as part of that process, the board will be able to decide the items which itwishes to have discussed at the meeting116 The CA 1985 even gives the board afree discretion in the matter because it neither prescribes nor limit the businessthat has to be transacted at an annual general meeting117

Shareholders can put their items onto the agenda if the conditions laid down bylaw have been met118 Under article 99 , EA 2005, shareholders holding not lessthan 10% of the voting shares during 6 consecutive months have the right topropose items for the agenda not later than 3 days in advance, if the article ofassociations does not provide otherwise This provision aims at protecting

minority shareholders from abuse of power by the majority and the board

However, it also empower the board to accept the content and supplementarymaterials intended for the meeting119 Consequently, minority shareholders mayconvene an EGM and find the Board intentionally setting aside documents

relating to it This was the case in disputes between the Board of Managementand a group of shareholders holding 53,04% of the voting shares in Bach DangShareholding company (Hai Phong) on the legality of an EGM convened by thisgroup where the Board did not ratify the content of and program for the

meeting120

It thus seems that the management (or the controlling shareholders) retains theactual power to decide on these issues while minority shareholders have no say inthe matter Moreover, as to the EGM, the fact that resolutions on matters notcovered in the notice will not be discussed has deprived minority shareholders ofthe last opportunity to voice their wishes at the meeting121 This also puts

minority shareholders in a disadvantaged position where the sending of notices

Governance also provides that public listed companies must make maximum efforts in

applying morden information technology in order to support shareholders’ attendance at 116

In the case of listed companies, the business to be transacted at the annual general meeting

is also determined by the Listing Rules and the Combined Code For example, the Listing Rules set out which items must be included in the annual accounts and reports The

Combined Code recommends for example that "all directors should be subject to election

by shareholders at the first annual general meeting after their appointment, and to

re-election thereafter at intervals of no more than three years" According to the Combined Code, the board "should use the [annual general meeting] to communicate with Investors and to encourage their participation" See supra note 30, p.117.

If shareholders do so, they will bear the costs , unless the articles of association provides otherwise See supra note 30, p.118.

Article 108, EA 2005

Supra note 103, p.50.

Supra note 33, p.17.

announcing the shareholders’ meetings is a prerequisite for these meetings, andwhere the content of the notice is under the control of the management122.

3.2.4 Raising a motion at the general meeting

Although a majority vote is needed to adopt resolutions at shareholders’ generalmeeting, this does not mean that the opinions of minority shareholders can betotally ignored Shareholders have the right to make proposals or inquiries inrespect of the company’s operations123 However, the law give no proceduresregarding the making of such proposals or inquiries nor does it provide for suchproposals or inquiries to followed up Likewise it does not elaborate upon theprocedures to follow where the management disagrees with the shareholders onthe proposals At most general meetings, these constructive opinions are just said

to be recorded for latter consideration However, they are soon forgotten Thereality in Vietnam is that in most shareholding companies (about 85% of them),the Chairman of the Board acting concurrently as the Director prepares the

program, content and material for the AGM, the remains belong to Chairman ofthe board, or member of the Board or the Director to prepare The meeting usuallyfollows these steps: first, the Chairman or the Director presents prepared reports;secondly, the Supervisory Board presents prepared “evaluation reports”;

discussion and questions are left to the end Shareholders’ questions to the Board

of Management do take place at most AGMs However, in just 8% of

shareholding companies were the general meetings’ resolutions added to 92%adopts everything the Board of Management and the Supervisory Board havereported on This means that the influence of shareholders, especially of minorityshareholders, is insignificant in contrast to the pre-arranged decisions of theBoard of Management124

Under UK company law, the manner by which minority shareholders can proposeresolutions gives rise to issue because it is hard to achieve a balance betweenprotection for minority shareholders and the prevention of frivolous use of suchprotection125 In the Company Law of UK, “…the current statutory law, as wehave seen, operates largely in terms of `shareholder resolutions or the distribution

of circulars in respond to the board’s resolutions and ignores the potential value

of a statutory right to ask questions”126

Shareholders have rights under section 376 CA 1985 which allow them to

challenge the fact that all questions to be voted on have been presented by theBoard Any number of shareholders representing not less than one twentieth ofthe total voting rights of all the members; or not less than 100 members holdingshares in the company on which the average paid up sum, per member, is not lessthan £100 may, at their expense, mount a campaign against the board by giving

notice of a resolution to be moved at a forthcoming AGM Those supporting thismust also have a circular distributed to all members before any such generalmeeting There is no restriction on the nature of the resolution (except that it mustnot seek to achieve anything beyond the powers of the company)127.

Thus, the minority shareholders in UK have, in theory, the opportunity to proposeresolutions at an AGM However, there are still some disadvantages for them asthey have to bear all costs

As well as the above right, shareholders in general meeting can also give

directions to the board by special resolution128

3.2.5 The right to challenge resolutions adopted at the general meeting

Resolutions at general meetings are adopted by majority vote and bind the minority.The the law give minority shareholders ways to challenge such a resolutions incertain situations

Article 107 EA 2005 gives shareholders the right to request a court or an

arbitrator to consider and cancel a resolution of the GM in the following cases:-

-The order and procedures for convening a meeting of the GM did not

comply with the EA and the articles of association

The order and procedures for issuing a resolution and content of the

resolution breach the law or the articles of association

The right must be exercised within 90 days from the date of receipt of the minutes

of a meeting of the general meeting of shareholders or the minutes of the results

of vote-counting from the general meeting of shareholders

In cases where resolutions of the general meeting or of the Board violate

shareholders’ rights under provisions of law, the Regulations on Corporate

Governance empowers shareholders to request that such resolutions not be actedupon129 Moreover, if the resolutions cause damages to the company, the

shareholders have the right to request compensation.However, there are no

procedures laid down by which shareholders can exercisethese rights

UK company law has another approach regarding the right of shareholders tochallenge resolutions Minority shareholders have the right to apply to the court tocancel a resolution in the following cases:

in nominal value of the issued share capital, who must not have consented to

or voted in favour of the resolution, have the right to apply to the court, within

Supra note 14, p.147.

Under UK law, there are three kinds of resolutions in a public limited liability company: ordinary resolutions, extraordinary resolutions and special resolutions An ordinary

resolution is passed by a simple majority of members who vote on it As only

extraordinary and special resolutions have been defined in the CA 1985, a resolution is

“ordinary” when it is neither an extraordinary nor special resolution A resolution is an

extraordinary resolution when it can be passed “by a majority of not less than

three-fourths of such members as vote in person or, where proxies are allowed, by proxy at a

general meeting of which notice specifying the intention to propose the resolution as an extraordinary resolution has been duly given A special resolution is like an extraordinary resolution but requires 21 days’ notice., see supra note 30, p.94.

Article 3, Regulations on Corporate Governance.