Privatisation: Hindrances from Authoritative Interventions

The privatisation of state-owned enterprises (SOEs) has been carried out for more than 15 years. This activity has been closely instructed by the government to help the enterprises operate successfully after going public. In the 2001-2005 period, Vietnam restructured 3,590 SOEs, including 2,347 companies going public.

 

According to statistics, by the end of 2006, Vietnam had 2,176 wholly state-owned enterprises with registered capital of nearly VND260,000 billion. according to the plan approved by the Prime Minister, as many as 1,562 SOEs will be restructured in the 2007-2010 period, including 919 enterprises to be privatised, 60 enterprises to be sold and 437 enterprises to be transformed into one-member limited liability companies. By the end of 2010, Vietnam will have 554 wholly state-owned enterprises, including 26 groups and corporations, 178 enterprises operating in security, national defence and essential commodity production, 200 plantations, 150 member companies of state-owned groups or corporations.

 

According to the Ministry of Finance, nearly 20 per cent of state capital has been privatised. The state holds 46 per cent of stake in equitised enterprises on average, labourers keep some 30 per cent of stake and other shareholders.

 

However, according to Lawyer Cao Dang Vinh of Civil Law Department under the Ministry of Justice, the privatisation process is slower than planned, the size of SOEs remains small and the management regime in SOEs is irrational and regulations on equitisation of SOEs is impractical.

 

According to Lawyer Vu Xuan Tien, Chairman of the board of members of VFAM Consulting Company, there are a high hindrance against the privatisation process originating from administrative regime. He said the governing of administrative authorities in enterprises empowered public servants with enormous authority in business operations of enterprises. Power always goes together with benefit! The privatisation of SOEs means stripping their power and benefit. He said many civil servants do not want the equitisation of SOEs to happen. Thus, there are dozens of reasons for them to inhibit this process.

 

Decree 187/2004/ND-CP and Decree 109/2007/ND-CP provide that after offering shares to the public, the enterprises must hold first shareholder meeting to transform into joint stock companies and register new business models as stipulated in the laws. However, enterprises will encounter much difficulty if they do not receive goodwill from state authorities.

 

After auctioning shares at the Hanoi Securities Trading Centre (HASTC) on December 32, 2005, Hacinco held the maiden shareholder meeting to set up Hacinco Construction Investment Joint Stock Company. As many as 468 shareholders, who represent 99.32 per cent of voting shares, attended the meeting. The meeting ratified the Charter of the company, business plans, corporate governance regulations and shareholder list, and elect members of the board of directors and the board of supervisors. On December 16, 2005, the company sent Document No. 22/TTr-TL on the result of the shareholder meeting to the Hanoi People’s Committee and the Hanoi Enterprise Renovation and Development Committee, asking for decisions to transform the company into a joint stock company to finalise the equitisation process. However, due to some reasons, the Hanoi People’s Committee did not issue decisions to approve the establishment of this joint stock company. As a result, the company cannot register new business model under the law although it successfully held the maiden shareholder meeting. So, what is the legal value of the shareholder meeting result?

 

Huu Nghi Joint Stock Company organised the first shareholder meeting and elected the chairman of the board of directors and the chief of the board of supervisors in 1999. From October 1999 to March 2000, as many as 39 out of 83 insider shareholders sold their holdings to outsiders. The share transfer was verified and approved. When the business of the company prospered, the share price skyrocketed. Several people sued to take back their shares sold earlier. Even, the chief of the board of supervisors was in charge to organise an extraordinary shareholder meeting and elect one of claimants the new chairman of the board of directors. After that, they sued former chairman of the board of directors and requested to annul all share sale contracts. All courts announced the verdict against the extraordinary shareholder meeting and disapprove of the new board of directors.

Although Huu Nghi Joint Stock Company was free from administrative orders from the Hanoi People’s Committee, the then former chairman of the Hanoi People’s Committee issued a decision supporting the new board of directors.

 

In 2006, when they have the company’s seals, the new board of directors arbitrarily leased the entire Huu Nghi Hotel and two other estates without the approval from the shareholder meeting. This activity is against the Article 120 of the Enterprise Law. Lessees replaced the Huu Nghi Hotel with new buildings but stopped because of absence of licences.

 

According to Dr. Pham Sy Liem, Vice Chairman of Vietnam Construction Association, administrative authorities should be only instructors and examiners. They only issue verdicts regarding administrative violations. Other arbitrational disputes such as asset valuation or the charter of the company should be settled by the economic tribunal. The economic court will seek economists’ advice for the dispute settlement. To professionalise the privatisation, he said, using the advisory services of reputed and experienced corporate finance consulting companies is the best way. These companies can take part in the legal examination process at the request of the court.

 

Lawyer Cao Ba Khoat, director of K and Associates Business Consulting Company, said the decisive factor is the perfection of the laws on equitisation. The process and procedure must be simple and state authorities should be objective and transparent in settling problems arising from the equitisation process.

 

Mr Tien said, apart from the legalisation of regulations on SOE privatisation, it is necessary to make a list of enterprises that need completed privatisation. Or other words, the state should not keep stakes or controlling stakes in those companies. Then, state authorities cannot directly intervene into business plans of the companies. A chairman of a province’s People’s Committee cannot approve the nomination of a general director of a joint stock company.