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Difficulties in implementation of decree 01/2010/nđ-cp regarding private placement

The article titled: “Difficulties in implementation of decree 01/2010/nđ-cp regarding private placement” from Lawyer Nguyen Thi Phuong Chung.

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Decree No. 01/2010/NĐ-CP dated 4 January 2010 (“Decree 01”) issued by the Government has come into effect more than one year, but due to some causes it has not been applied in reality. This actually causes a lot of difficulties to enterprises in capital mobilization, especially in present context when cost of capital lending is rather high. Although there are discussions regarding this issue on mass media, we would like to mention some contents relating to this Decree as follows.

 Legal basis for the promulgation of Decree 01

Decree 01 is based on the Law on Securities 2006, but in reality the Law does not precribe on private placement. In Article 1 of Law on Securities 2006, the scope of regulation of this Law only includes “activity of offering securities to the public, posting, transacting, trading and investing in securities, doing services in securities and securities market”, and according to Article 6 of the Law “Offering securities to the public means the offer of securities by one of the following methods:

–           Through mass media, including Internet;

–           Offer securities to one hundred or more investors, excluding professional securities investors;

–           Offer to an indefinite number of investors.”

Therefore, we can see that the fact that Decree 01 bases on the Law on Securities 2006 is without a clear legal basis. It is not until the issuance of Law No. 62/2010/QH12 amending and supplementing the Law on Securities (passed on 24 November 2010) that the activity of private placement is in the scope of regulation of the Law on Securities, and regulations on the private placement are prescribed in the Law.

Instructions of relevant state authorities in the implementation of Decree 01 are not clear and inconsistent

 Since there has not been a Circular instructing in its implementation, it is impossible to apply Decree 01, and even for the implementation instructions from relevant authorities, the implementation will face difficulties because there are differences in the instructions of these authorities. Namely, according to Document No. 608/BKHĐT-PC dated 28 January 2011 issued by the Ministry of Planning and Investment with the purpose of giving instructions to Departments of Planning and Investment (DPI) and Management Board of Industrial Parks (MBIP) regarding the implementation of Decree 01, the private placement offered to current shareholders will be applied in accordance with the Law on Enterprises and Decree 43, and is not applied in accordance with Decree 01. However, according to Document No. 350/UBCK-QLPH issued by the State Securities Commission (SSC) one day ahead – 27 January 2011, also with the purpose of giving instruction in the implementation of Decree 01 to the Department of Planning and Investment of Ho Chi Minh City, from the date of 1 July 2011 (the date on which the Law on Amendment and Supplement of Law on Securities takes effect) the private placement will be executed in compliance with the instructions of the DPI with the reason that according to the Law on Amendment and Supplement of Law on Securities, private placement of the issuer that is not a public company will be executed in accordance with regulations of the Law on Enterprises and other regulations of relating laws. Therefore, it is not clear what instructions are “instructions of DPI” according to SSC, and whether each DPI has the right to separately instruct enterprises in the implementation. Besides, the private placement from now up to 1 July 2011 will be executed in accordance with Decree 01. This indicates that although the instructions are available, the different directions of two different authorities will continue causing difficulties to enterprises and DPIs and MBIPs.

With the above analysis, the Circular instructing in implementation of Decree 01 (if promulgated) should make clear the legal basis for the promulgation of Decree 01 and the scope of regulation of this Decree in order to create the consistency in the understanding of the business registration authority and enterprises.

Decree 01 in the relationship with Decree 43/2010

Besides, it is necessary to consider Decree 01 in the relationship with Decree 43. Clause 4 of Article 40 in Decree 43/2010/NĐ-CP dated 15 April 2010 issued by the Government states “Charter capital of a joint stock company will not include the value of the shares entitled to be offered”.

So, is the quantity of private placement according to Decree 01 deemed as charter capital? If it is deemed as charter capital, does this contradict Decree 43? If it is not deemed as charter capital, what kind of capital will the money contributed by new shareholders be deemed as? This is also a matter needing the instructions from relevant authorities.

Issues that have been left open

Finally, although there are opinions about the restriction of Decree 01 in some regulations such as the restriction of the right of share transfer of the buyer of private placement in one year or the restriction that the joint stock company may issue only two private placement series in a year, these restrictions seem not able to be amended in case the Government intend to amend and supplement the Decree 01 since these regulations have been codified in the Law on Amendment and Supplement of Law on Securities. Therefore, even if these restrictions affect the benefits of enterprises and investors, they can just expect the amendment and supplement of this Law in a time that is not short at all.

In order to be aware of the effect of Decree 01, we would like to mention the Announcement of some DPIs, according to it some DPIs have temporarily ceased to grant registration of charter capital increase of joint stock companies and limited liability companies converting into joint stock ones with charter capital increase. The reason put forth for this fact is that the document of implementation instruction for Decree 01 has not been available. Therefore, we can see that there is a Decree promulgated at the beginning of 2010 instructing in a procedure relating to a Decree promulgated at the end of 2010, and that Decree has not fulfilled its major function.