Joint Swedish-VietnameseMaster’s Programme

MASTER’S THESIS

NGUYEN HOANG THUY TRANG

MINORITY SHAREHOLDERS PROTECTION IN SHAREHOLDING COMPANIES

A COMPARISON BETWEEN VIETNAMESE ENTERPRISES LAW AND THE UNITED KINGDOM COMPANY LAW

SUPERVISORS:

Supervisor 1: Professor Christina Moell

Supervisor 2: Professor Bui Xuan Hai

AcknowledgementsFirst of all, I would like to thank my supervisors, Professor Christina Moell and Professor Bui Xuan Hai, for saving the time in their very busy work to supervise my thesis as well as instruct me for further studying.I am grateful to Professor Christopher Wong for his continuous support and guidance during the course.I would like to acknowledge the generous support from Ho Chi Minh City University of Law and the Faculty of Law, Lund University.I would like to thank to Sida (the Swedish International Development Agency) for its fund in the project.Last but not least, I am always indebted to my parents and my husband for their wholehearted support during the years of my studies.

Table of Content

ACKNOWLEDGEMENTS 1

TABLE OF CONTENT 2

ABBREVIATION 3

PART 1. INTRODUCTION 41. 1 The need for this research 41. 2. The situation of the research 41. 3. Purposes 51.4. Methodology 51. 5. Delimitation 61. 6. The structure of the thesis 6

PART 2. THEORETICAL ISSUES ON MINORITY SHAREHOLDERS PROTECTION 7

2.1 Who is a minority shareholder? 72.2 Why minority shareholders should be protected 10

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 152.3.1 Maintaining the effect of majority rule 152.3.2 Equitable treatment of shareholders 16

PART 3. COMPARATIVE STUDY OF MINORITY SHAREHOLDERS PROTECTION IN VIETNAMESE AND UNITED KINGDOM COMPANY LAW 18

3.1 Sources of law 193.2 The rights of minority shareholders regarding the general meeting 20

3.2.1 Calling for a general meeting 203.2.2 Attending the general meeting 223.2.3 Getting items on the agenda 243.2.4 Raising a motion at the general meeting 253.2.5 The right to challenge resolutions adopted at the general meeting26

3.3 The right to appoint directors 283.4 Shareholders’ remedies 31

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3.4.1 Derivative actions 313.4.2 Unfair prejudice 353.4.3 Action to enforce the constitution of the company 36

3.5 The ability of minority shareholders to access company’s information393.6 The ability to control related party transactions and major

transactions 403.6.1 Major transactions 403.6.2 Related party transactions 41

3.7 Pre-emptive right 42

PART 4. CONCLUSION 46

TABLE OF STATUES AND OTHER LEGAL INSTRUMENTS 47National legislations 47The United Kingdom 47Vietnam 47

TABLE OF CASES 48

BIBLIOGRAPHY 49Official Reports and other Documents 49The United Kingdom 49Vietnam 49Monographs 49In English 49In Vietnamese 49Articles in Journals, Anthologies, and others 50In English 50In Vietnamese 51

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AbbreviationAGM Annual general meetingEGM Extraordinary general meetingCA Companies ActEA Enterprises ActUK United Kingdom

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Part 1. Introduction

1. 1 The need for this research

Minority shareholder protection is one of the fundamental concepts within the domain corporate governance. It has also become in recent years an important indicator 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 shares and the management of the company.

Depriving from separation above, no shareholder especially a minority shareholder, is capable of directly participating in the managerial activities and supervision of the company in a significant and effective way. The minority shareholders are however investors in and also co-owners of the company and they do reserve the right to perform their rights and duties as shareholders. However, because of the typical characteristics of the corporate governance of a shareholding company, minority shareholders often challenge with the potentials of dual oppression and face unfair treatment from both the majority shareholders and the management. Consequently, their rights become unsubstantial and the position of their capital, too, is often abused by majority shareholders and damaged consequentially. Owing to their inherently weak position, the laws of most countries provide some protection for them. However, these provisions are not perfect and the more important point in the protection of minority shareholders is the mechanism for enforcing them. The reality in Vietnam has, in recent years indicated two concerns and problems: first, the legal provisions on minority shareholders protection are themselves defective and the enforcement is ineffective which also lead to negative results for such investors in particular and the business environment in general. From the totality of issues relating to minority shareholders, the author selects the topic “MINORITY SHAREHOLDERS PROTECTION IN SHAREHOLDING COMPANY – A COMPARISON BETWEEN VIETNAMESE ENTERPRISES LAW 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 by the 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.

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- 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 nước phát 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 of minority shareholders protection was only mentioned to the extent of listing some legal provisions and pointing out the rights of minority shareholders under them. Up to now, there has been no independent and specialized research on minority shareholders protection in Vietnam, especially from the comparative perspective.

1. 3. Purposes

My research has two main purposes: (i) studying theoretical issues on minority shareholders 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 first intends determine who are the minority shareholders and the reasons why they should be protected. As to the second purpose, the comparative study of minority shareholders protection in the UK and in Vietnam aims at drawing conclusions about 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 collate

the issues arising in the UK and Vietnamese company law with the aim of establishing their similarities and differenties and explaining the reason for them. The result of this method will serve the purposes of the thesis. Particularly, this method will be mainly used in part 3 of the thesis to support the comparative study between the UK and Vietnamese company law on minority shareholders protection.

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- Analytical method: this method will be used mainly for part 2 of the thesis where accessing various opinions about minority shareholders. By using the analytical method, this part point out the concept of minority shareholders; 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 to minority shareholders protection but will be limited to company law matters. Within company law, the comparative research concentrates on the typical tools which minority shareholders could actively employ to protect themselves. Beside, because investor protection in general and minority shareholders protection in particular 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 hold liability to the amount which they contributed to the company’s assets. Any limited company with a share capital may be a private company or a public company. The key difference between these two kinds of company are a private company 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 the company to the extent of the amount of capital contributed to the company, its shares may be tranferred freely, and it can issue all types of securities to the public4. Because of the similarities above, the comparative study on minority shareholders protection will be made between the shareholding company in Vietnam and the public company in the UK.

1. 6. The structure of the thesis

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

- 1. Introduction- 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 Caspar Rose, “The Challenges of Quantifying Investor Protection in a Comparative Context”, 8 European Business Organization Law Review (2007), p.373.

3 Section 1, CA 1985.4 Article 77, EA 2005.

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Part 2. Theoretical issues on minority shareholders protection

Before elaborating on minority shareholders protection in the UK and Vietnam for the comparative purposes, it will be useful to define who are minority shareholders and clarify why they should receive protection. In addition, the protection of minority shareholders should follow some principles in order to secure the company’s legitimate business. Hence, this part will present in turn the three issues: (1) who are minority shareholders; (2) why minority shareholders should be protected; 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 law and 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 describe someone who is in a minority” such as “A Texan is not a minority shareholder simply 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” for simplicity, connotes one or more members not holding the majority of voting rights 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 a majority 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 be a minority shareholder?Commonly, the “minority” or the “majority” refer to those who hold the minority

5 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”.

6 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.

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

8 The Law Commission, Shareholder Remedies, Law Commission Consultation Paper 142 (1996), http://www.lawcom.gov.uk/docs/cp142.pdf, accessed on 20 November, 2008.

9 Supra note 7, p.162.

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or the majority of the shares of a company10.Under Vietnamese law, there has been 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 of the issue organization”. And, Decree 144/2003/NĐ-CP dated 28/11/2003 on Securities and Securities market did not give a definition of minority shareholder but did say tha: “majority shareholders are those who hold more than 5% voting shares 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 but provides some special rights for shareholders who hold 10% and more voting shares.Later, the Law on Credit Organizations, article 20.6 provides that “majority shareholders are individuals or organizations holding more than 10% of capital share or more than 10% of voting shares of a credit organization. The new Securities Act 2006 provides that “majority shareholders are those directly or indirectly holding not less than 5% of voting shares of the issue organization11.Thus, legislation in Vietnam during the ten passing years has determined majority shareholders on the ground of the percentage of voting shares which has not been consistent 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 not determine the position of minority or not because, “sometimes, a shareholder who provides the majority of the capital of a company is a minority shareholder with regard 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 of priority shares - shares which have special controlling rights attached to them, making it possible to control the company without holding a large percentage of the shares and without providing a large share of the company’s capital.14 Because of the existence of this kind of shares, a shareholder providing the majority of the capital may sometimes not control the company and be effectively in a minority position with regard to the exercising of controlling rights15.“In other cases, a shareholder who provides only a limited percentage of the company’s capital can have considerable control rights because of the special

10 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.

11 Article 6.9 Securities Act 2006.12 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;

13 592 A.2d 321, 326 – 28 (N.J. Super.Ct.Ch.Div.1991). 14 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.

15 Supra note 12, p.182.

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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

16 Supra note 12, p.208.17 Supra note 7, p.163.18 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.

19 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.

20 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.

21 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”.

22 Supra note 12, p.182.

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calculations, but instead, 'The question is whether they have the power to work their 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 minority position notwithstanding the controlling ability of a shareholder. In addition, the assessment 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 basis from the start and also decides from case to case what qualifies one as a minority shareholder24. Professor L. Timmerman and A. Doorman defined minority shareholders as those who, “irrespective of the amount of capital they provide, are unable to exercise any significant form of control within the company”25. It cannot be denied that minority shareholders must logically be unable to control the management of the company but, 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 of the company.

2.2 Why minority shareholders should be protected

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

23 Hollis v. Hill, 232 F.3d 460, 466 (5th Cir. 2000) (quoting Bonavita v. Corbo, 692 A.2d 119, 124 (N.J. Super . Ct. Ch. Div. 1996)).

24 Supra note 12, p.195.25 Supra note 12, p.182.26 Supra note 5, p.26.27 Supra note 5, p.26.28 Brian R. Cheffins, “Does Law Matter? The Separation of Ownership and Control in the

United Kingdom” 30 Journal of Legal Studies (2001) p.459.29 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.

30 Petri Mantysaari (2005), Comparative Corporate Governance, Springer Berlin Heidelberg Publisher, p.79.

31 Supra note 28, p.461.

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Especially where this distancing approach prevails, shareholders, especially, minority ones might fare prejudicial actions from both the management and majority shareholders.This section considers each perspective to make clear the need for minority shareholders protection.

2.2.1 Minority shareholders suffer from actual and potential oppression caused by managerial power and majority rule

The separation of ownership and control in the modern corporation results there being a distance between shareholders and the corporate business. Sharing this view, Professor Brian R. Cheffins considered that this separation in the UK was a “managerial evolution, if not revolution”…and, “a trend toward a divorce between control and ownership was clear for very large companies”32. In such circumstances, “boards of directors, instead of the shareholders, are becoming the power 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 Berle and Gardiner Means (1932), they argued that, in practice, managers of a firm pursued their own interests rather than the interests of shareholders34. From this identification 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 large ones survive the increasingly competitive modern economy and to meet the heightened demand for managerial skills within companies.36 On the other hand, as the Berle-Means hypothesis explains, minorities are presumed to be without adequate 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 the power 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”,

32 Supra note 26, p.467.33 Weiguo He (2004), Improving the Protection of Minority Shareholders in Chinese

Company Law, Master thesis, Tsinghua University, p.1.34 Supra note 17, p.6.35 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 Supra note 5, p.134.38 Supra note 5, p.127.39 Supra note 28, p.95.

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and that “the majority of shareholders cannot control them in the exercise of these powers 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 therefore dividend) 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 and minority shareholders have always been a thorny issue in corporate law”42. The minority shareholders tend to claim that the majority shareholders are abusing their rights with their ultimate control over the corporate matters. Meanwhile, the majority shareholders defend themselves with the argument that they are simply exercising their legal rights as majority shareholders43.In short, because of the dominance of majority shareholders in the company, the oppression 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 power may even try to evade the protection of minority shareholders stipulated in company law45.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 of these bodies usually makes its decision by majority vote, and the minority shareholders are usually bound by the decisions of the majority. This means that those 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 effective control 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 companies will be run exclusively in the interests of the controlling shareholders, and that the interests 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 cases where such majority power has been abused47.Specifically, in case of conflicts between majority shareholders and/or the management on the one hand, and minority shareholders, on the other hand, the 40 Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821. See supra note 25, p.9541 Commission of the European Communities, ”Impact Assessment on the Proportionality between Capital and Control in Listed Companies”, Working Document 2007, p.4.42 Supra note 33, p.4343 Italian regulators are careful about how they balance the interests of majority and minority

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 shareholders. See supra note at 18, p.49.

44 Eric Hilt, “When Did Ownership Separate from Control? Corporate Governanca in the Early Nineteenth Century”, 68 Journal of Economic History (2008) p. 648.

45 Caspar Rose, “The Challenges of Quantifying Investor Protection in a Comparative Context”, 8 European Business Organization Law Review (2007) p.372.

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

47 Andrew Hicks & S.H.GOO (1997), Cases and Materials on Company Law, Blackstone Publisher, p.243.

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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 minority shareholders 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 of management'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 and propose 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 of minority shareholders56. As La Porta and his coauthors write,

48 Elijah Mwangi Kiboi, “Protection of The Rights and Interests of Minority Shareholders”, www.amelinyangu.net/PROTECTION%20OF%20THE%20RIGHTS%20AN...,

accessed on 28 October, 2008.49 Supra note 5, p.27.50 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.

51 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.

52 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”.

53 Supra note 5, p.26.54 Supra note 5, p.26.55 Supra note 5, p.26.56 Seppo Kinkki, “Minority Protection and Dividend Policy in Findland”, 14 European

Financial Management (2008) p.470–471.

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"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 to enlarge 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 enterprise needs to pool equity capital from many people who will cede working control over 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 of capital for a company because minority shareholders will anticipate their weak position and will want receive compensation for the increased risk they run61. This may put the company at a competitive disadvantage with foreign companies. Third, “the degree of protection a country's legal system provides for outside investors has a significant effect on its corporate governance regime. Stronger legal protection for minority shareholders is associated with a larger number of listed 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 were also recognized by the Dutch: “if the Dutch legal system does not provide adequate protection of minority shareholders compared with foreign legal systems, foreign investors will not invest in Dutch companies and Dutch investors will increase their investments in foreign companies”63.Investor protection organizations are emerging in Russia which aim at making minority shareholders more pro-active in defending their rights. More and more 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.

57 Supra note 7, p.158-159.58 Supra note 7, p.159.59 Supra note 7, p.159.60 Supra note 7, p.172.61 Supra note 12, p.181-182.62 Supra note 28, p.462; see also Mike Burkart, Fausto Panunzi, “Agency conflicts,

ownership concentration, and legal shareholder protection”, 15 Journal of Financial Intermediation (2006) p.2.

63 Supra note 12, p.181.64 Veronica Osipova, “The Problems of Development of Corporate Governance in Russia:

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

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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 of the votes but manage to exercise defacto control – thus have substantial power 67. In 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.It is quite clear that while majority shareholders can express their wishes by way oftheir controlling vote and turn these wishes into the company’s decisions, minority shareholders need to at least have the power to ensure that that their voices are heard and taken into account where they have different opinions from 65 Supra note 46, p.647.66 Supra note 7, p.119.67 See S.H.Goo, Minority shareholders’ protection – A study of section 459 of the

Companies Act 1985, http://books.google.com/books?hl=en&id=SBlfi2V0aDIC&dq=%22companies+act+1985%22&printsec=frontcover&source=web&ots=B8B6XFGfiP&sig=i4LKeYbEEypjL9dKwCkoy0r211Q&sa=X&oi=book_result&resnum=4&ct=result#PPP1,M1, p.3

68 Caroline Hague (1997), The Protection of Minority Shareholders, http://sunzi1.lib.hku.hk/hkjo/view/14/1400223.pdf, accessed on 29 October, 2008.

69 Supra note 12, p.2

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the majority shareholders. There are cases in which the majority shareholders are doing 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 not empower the minority to make decisions for the corporation or to vest in them the controlling position, but merely avoid the fact that “mechanical application of majority rule, without any constraint will lead to unfair consequences that will violate reasonable shareholders expectations”71. In other words, ”the law has to strike a delicate balance between safeguarding the company’s legitimate business from being obstructed by tiresome complaining minorities on the one hand, and restraining unfair and wrongful acts which the majority can exploit to its own advantage 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 by OECD and it is also considered as of “the utmost importance for the protection of minority shareholders73. This reinforces the idea that “the watchwords of corporate law include not only wealth maximization, but also fairness”74. All shareholders, large or small, should receive adequate protection from the law. Bill Gates, 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 entitle its 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 is dependent 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 to receive 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, mainly information 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 taking minority status into account.”80 The principle of equality does not aim at giving minority shareholders the same treatment as the majority. As the weaker party in a company, minority shareholders only need an equitable and fair treatment

70 Supra note 30, p.6.71 Supra note 33, p.1.72 Supra note 67, p.3.73 Supra note 12, p.191.74 Supra note 7, p.122.75 Supra note 7, p.174.76 Supra note 7, p.174.77 Supra note 7, p.174.78 Supra note 12, p.191-192.79 Article 27, Regulations on corporate governance.80 Supra note 7, p.120.

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

In short, minority shareholder protection is an fundamental issue in corporate governance. Minority shareholders are those who not only hold a small amount of shares but are also non-controlling parties in a company. Shareholders' rights and and the need for their legal protection result from the separation of ownership from 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 misuse their rights. This implies the need for legal protection of minority shareholders81. Moreover, strong protection of investors in general and of outside investors in particular bring significant benefits to a state’s economy. Minority shareholder protection 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 of corporate governance.Equipped with appropriate rights, minority shareholders will be able to defend themselves in the fight against “oppression”.

81 Brigid Gavin, “Shareholders’ Rights in the European Union”, 32 Intereconomics (1997) p.93.

82 Supra note 7, p.128.

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

lawInvestors protection is, in general expressed through investors’ rights and their enforcement thereof. According to the OECD Principles of Corporate Governance, the basic shareholder rights should include the rights to: (1) secure methods of ownership 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 participatory rights.84 Financial rights reflect shareholder financial interests and their aim of making money when they invest in companies. These rights include the right to get 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 many states87. They are there given to all shareholders irrespective of the number of shares they hold and it could not be said that they are all minority shareholders rights. The right to vote in the general meeting of shareholders, for example, “will usually 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 the general meeting. Therefore, this section will not focus on the shareholder rights in general but on the “true minority right”, which “possess the characteristic that it creates the possibility that an outcome can be reached that is different from the outcome 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 “true minority rights” under Vietnamese company law while making a comparision between 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 following section, sources of law in the two legal systems on minority shareholders protection should be mentioned.83 The OECD Principles of Corporate Governance 2004, http://www.oecd.org/dataoecd/32/

18/31557724.pdf, accessed on 10 December 2008.84 Gregor Bachmann “Strengthening Shareholders’ Rights: A Comment on the EU Action

Plan”, 6 ERA-Forum (2005) p.35485 Supra note 84, p.354.86 Supra note 84, p.354.87 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 1985.88 Supra note 12, p.182.89 Supra note 12, p.182.

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3.1 Sources of law

In the UK, company law is not fully set out in Acts of Parliament. Although the Companies Act 1985, which has been amended in 1989, 2004 and 2006, remains the 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 “leave the 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 listed companies, the Listing Rules (Yellow Book) which was approved by the UK Listing 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 European Member States, the European Public Limited Liability Company Regulations 2004 are supplemented by the law applicable to public limited companies, found mainly in the Companies Act 1985, together with the Insolvency Act 1986 and the common law91.

Unlike UK where a significant part of the law is to be found in the decisions of the English courts (Common Law)92, the main sources in Vietnam are the Enterprises Act 2005 and its guiding documents. For public listed companies, the Securities Act 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, a company’s articles of association may also contain minority shareholder rights provided that they are not conflict in with provisions of law.

Under EA 2005, there are no provisions which state that they are reserved for minority shareholders. However, minority shareholders may employ dispersed provisions 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 challenge resolutions 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 information relating to the company’s operation; the right to approve major and related party transactions, and pre-emptive rights.

90 See paragraph 12.43A of the Listing Rules.91 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.

92 Supra note 14, p.123.

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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 extent controlled 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 the general body of shareholders is given the opportunity to consider, criticise and comment upon important affairs of the company and where shareholders can vote on the directors' recommendation as to dividends, to approve or disapprove the directors' 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 for annual general meetings, which are mandatory for each company as well as for extraordinary 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 at any time between the regular/annual shareholders meetings, the most powerful weapon of the minority shareholders for addressing such harms would be the to convening 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

93 Supra note 30, p.117.94 Supra note 30, p.114.95 Supra note 30, p.116.96 Under Article 97 EA 2005, there shall be at least one meeting of the General Meeting of

Shareholders per year. The location of meetings of the General Meeting of Shareholders must be within the territory of Vietnam. The General Meeting of Shareholders must hold its annual meeting within a time-limit of four months from the end of the financial year. At the request of the Board of Management, the business registration body may extend such time-limit, but not beyond six months from the end of the financial year. Although the Company law requires the regular meetings and and the annual meetings be held regularly, no provision exists to treat the situation in which the management does not fulfill this duty.

97 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.

98 Supra note 33, p.14.99 Supra note 30, p118.

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directors must also convene an extraordinary general meeting at the request of shareholders holding not less than one-tenth of the share capital carrying voting right100. 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 shareholders making the request (or any of them representing more than one-half of the voting rights 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 Supervisory Board to convene an EGM. If this Board also fail to do so, then, shareholders themselves 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 damage arising to the company101. Article 79 of the EA 2005 also provides for some specific cases where minority shareholders have the right to request the convening of an EGM: - The Board of Management commits a serious breach of the rights of

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

- The term of the Board of Management has been expired for more than six months and a new Board of Management has not been elected to replace it;

- Other cases stipulated in the charter of the company.

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

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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 and their seriousness of such breaches, or on the decision which falls outside its authority.With these provisions, minority shareholders were at least given the chance to have their voice heard at a general meeting. However, it could be seen that in order to qualify for the right to convene an EGM, a shareholder must hold the minimum 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, the standard threshold of 10% of the voting shares would be difficult for minority shareholders to reach, especially in publicly held corporations, where those holding 10% of the issued shares can be more reasonably regarded as majority shareholders. These provisions could perhaps be regarded as improved protection for 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 minority shareholders seeking to convene an EGM. In addition, it may be very difficult for minority shareholders to prove “serious breaches” of professional managers104.Shareholders in Vietnam may thus find it difficult to convene a GM due to higher shareholding 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 corporate governance105. Participation in general meetings helps shareholders, directly or indirectly, 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 company law, the right of a shareholder to vote is regarded as a property right which he is entitled to cast in his own interests106. Article 79 EA 2005 also provides that odinary shareholders have the right to attend and to vote at the GM as provided by law. The Regulations on Corporate

102 Supra note 30, p.118.103 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 University of Law, p.51.

104 This burden is not required for shareholders in China, New Zealand and Australia. See supra note 5, p.254.

105 Richard C. Nolan, “Shareholder Rights in Britain”, 7 European Businee Organization Law Review (2006) p. 551.

106 Supra note 8.

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Governance also expressly prohibits public listed companies from any restriction on the shareholders’ right to attend the GM107.To exercise this right, a shareholder does not have to appear at the meeting in person but "any member of a company entitled to attend and vote at a meeting of it is entitled to appoint another person (whether a member or not) as his proxy to attend and vote instead of him"108. It is therefore possible for directors of companies, or other interested individuals, to seek support from shareholders by requesting them to appoint a particular person as their proxy, either generally or in relation to particular proposals109. In such a case, the specific characteristic of proxy rights is that there is no need for shareholders to find their proxies but conversely, the directors who want to seek supports must find shareholders to be appointed as their proxies110.However, The Listing Rules provide that a listed company should send out two-way proxies giving shareholders an equal opportunity to vote for or against the resolution. This forces the directors to give effect to the wishes of individual shareholders at least to some extent. If directors are appointed proxies and 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 excluding minority shareholders from the GM or/and forcing them to appoint proxies, this would be a grave violation of their rights113.However, EU-citizens holding shares in a listed company situated in another Member State often face severe problems when they wish to exercise the voting rights attaching to these shares and sometimes even encounter obstacles that make voting practically impossible114.Proxy voting need to be encouraged and shareholders must be able to appoint proxies in various convenient manners115.

107 Article 3, Regulations on Corporate Governance.108 Supra note 30, p.119; Article 3, Regulations on Corporate Governance.109 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)

110 Supra note 10, p.60.111 Supra note 30, p.119.112 World Bank, “Report on the Observance of Standards and Codes (ROSC) – Corporate

Governance (2006), http://www.worldbank.org/ifa/rosc_cg_vm.pdf accessed on 10 November 2008.

113 Nguyen Dinh Tai (2008), Bài giảng Luật doanh nghiệp 2005 (Textbook on Enterprise Act 2005), National Politics Publisher, p.238.

114 Supra note 105, p.551.115 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

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3.2.3 Getting items on the agenda

As mentioned above, the general meeting is considered as a rule making vehicle for shareholders. It would be of no value to them if they were simply able to convene a shareholders' meeting but had no influence on its agenda. Clearly, it is easier for the board of directors than for shareholders to get items onto the agenda. The reason is that the AGM is normally convened by the board and, as part of that process, the board will be able to decide the items which it wishes to have discussed at the meeting116. The CA 1985 even gives the board a free discretion in the matter because it neither prescribes nor limit the business that has to be transacted at an annual general meeting117. Shareholders can put their items onto the agenda if the conditions laid down by law have been met118. Under article 99 , EA 2005, shareholders holding not less than 10% of the voting shares during 6 consecutive months have the right to propose items for the agenda not later than 3 days in advance, if the article of associations 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 supplementary materials intended for the meeting119. Consequently, minority shareholders may convene an EGM and find the Board intentionally setting aside documents relating to it. This was the case in disputes between the Board of Management and a group of shareholders holding 53,04% of the voting shares in Bach Dang Shareholding company (Hai Phong) on the legality of an EGM convened by this group 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 the actual power to decide on these issues while minority shareholders have no say in the matter. Moreover, as to the EGM, the fact that resolutions on matters not covered in the notice will not be discussed has deprived minority shareholders of the last opportunity to voice their wishes at the meeting121. This also puts minority shareholders in a disadvantaged position where the sending of notices announcing

Governance also provides that public listed companies must make maximum efforts in applying morden information technology in order to support shareholders’ attendance at general meetings. see

116 Supra note 30, p.118.117 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.

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

119 Article 108, EA 2005120 Supra note 103, p.50.121 Supra note 33, p.17.

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the shareholders’ meetings is a prerequisite for these meetings, and where 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’ general meeting, this does not mean that the opinions of minority shareholders can be totally ignored. Shareholders have the right to make proposals or inquiries in respect of the company’s operations123. However, the law give no procedures regarding the making of such proposals or inquiries nor does it provide for such proposals or inquiries to followed up. Likewise it does not elaborate upon the procedures to follow where the management disagrees with the shareholders on the proposals. At most general meetings, these constructive opinions are just said to be recorded for latter consideration. However, they are soon forgotten. The reality 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 of the board, or member of the Board or the Director to prepare. The meeting usually follows 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 have reported on. This means that the influence of shareholders, especially of minority shareholders, is insignificant in contrast to the pre-arranged decisions of the Board of Management124.Under UK company law, the manner by which minority shareholders can propose resolutions gives rise to issue because it is hard to achieve a balance between protection for minority shareholders and the prevention of frivolous use of such protection125. In the Company Law of UK, “…the current statutory law, as we have 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 the Board. Any number of shareholders representing not less than one twentieth of the total voting rights of all the members; or not less than 100 members holding shares in the company on which the average paid up sum, per

122 Article 80, EA 2005.123 Article 79, EA 2005.124 Tran Dinh Cung, ”Disscussing on shareholders’ rights and shareholders’ general meeting

– Real situation and resolution” Journal of Securities, dated 15th of May 2008, http://www.saga.vn/view.aspx?id=12304, accessed on 3 January 2009.

125 Supra note 33.p.37.126 Supra note 33.p.37.

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member, is not less than £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 this must also have a circular distributed to all members before any such general meeting. There is no restriction on the nature of the resolution (except that it must not seek to achieve anything beyond the powers of the company)127. Thus, the minority shareholders in UK have, in theory, the opportunity to propose resolutions at an AGM. However, there are still some disadvantages for them as they 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 in certain 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 acted upon129. 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 to challenge resolutions. Minority shareholders

127 Supra note 14, p.147.128 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.

129 Article 3, Regulations on Corporate Governance.

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have the right to apply to the court to cancel a resolution in the following cases:- The statement of the company’s objects in the

memorandum of association may be altered by special resolution. The holders of not less than 15 per cent 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 21 days after the passing of the resolution, for a cancellation of such a resolution130. In such a case, the court has a wide discretion as to the order it can make on such an application, in that it can order that there be no alteration, or confirm the alteration in whole or in part and impose terms and conditions. There is also a power to adjourn the application to allow the parties to reach an agreement as to the purchase of the shares of the dissenting members, and the power to order the purchase of the shares of any members and the consequent reduction of the company’s capital.

- Similarly, a company may also alter its articles of association by special resolution under Article 9 CA 1985. The power of the company to alter its articles under the section is subject to the provisions of the CA and to the memorandum of association. Nevertheless, it must be performed, not only in the manner required by law, but also bona fide for the benefit of the company as a whole. Certainly, this alternation will also bind minority shareholders. Thus, if a resolution altering the articles provides that in future each share should confer only one vote for every 10 shares held, rather than one vote per share, shareholders, depending on the facts, may be able to allege that it was not passed bona fide in the interests of the company or that the alteration is unfairly prejudicial to their interests pursuant to section 459131. In Greenhalgh v Arderne Cinemas Ltd, Evershed MR said: “a special resolution of this kind would be liable to be impeached if the effect of it were to discriminate between the majority shareholders and the minority shareholders, so as to give to the former an advantage of which the latter were deprived. When the cases are examined in which the resolution has been successfully attacked, it is on that ground. In Wood v Odessa Waterworks Co and Quin & Axtens Ltd v Salmon, the House of Lords held that the shareholders' resolutions were inconsistent with the articles and granted an injunction restraining the Company from acting on them132. The right of shareholders to vote is regarded as a property right. They are

130 Supra note 8.131 Supra note 8.132 However, the courts will not order rectification of the statutory contract. In Scott v Frank

F Scott (London) Ltd, it was held that courts have no jurisdiction to rectify articles of associations. See supra note 30, p107.

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entitled to cast them in their own interests and are not bound to cast them in the company’s or another shareholders’ interrests. However, the court will intervene if, for instance, a resolution deprives the minority shareholders of their share of the company’s assets133.

- Another situation in which the court has similar powers to those under section 5 CA 1985 is when a shareholder challenges a special resolution passed by a public company to be re-registered as a private company. The holders of not less than 5 per cent of the company’s issued share capital have 28 days from the passing of the resolution to apply for its cancellation. The shareholders may appoint one of their number to make the application on their behalf. The court can either confirm the resolution or order that it be cancelled and may, additionally, adjourn proceedings for the parties to come to an arrangement for the purchase of the dissenting members’ shares or order the purchase of the shares by the company.

- As to resolutions varying the rights attached to any class of shares134, they may be challenged in court by the holders of not less than 15 per cent of the shares of the class in question if they did not consent to or vote in favour of the change135. The application must be made within 21 days after the resolution passing the variation. In this case, the court may determine either to disallow or confirm the variation, depending on whether such variation would unfairly prejudice the shareholders of the class or not. However, there is no provision for the purchase of the dissentienting shareholders’ shares136.

As we have seen, both UK company law and EA 2005 empower shareholders to challenge resolutions adopted through majority vote. Nevertheless, the provisions are not all that similar.Firstly, while the procedures regarding the convening of meetings and the issuing of resolutions give shareholders in the UK opportunities to seek remedies through their own action, their peers in Vietnam only reserve the right to request the court or commercial arbitration for a cancellation of such a resolution137. Secondly, with regard to resolutions altering the company’s constitutions which may cause prejudice to minority shareholders, EA 2005 article 90 provides that a shareholder voting

133 Supra note 8.134 Such rights may be attached by the memorandum, the articles, the

terms of issue or the resolution authorising the issue of shares,45 and may be varied in accordance with section 125.

135 Section 127, CA 1985.136 Supra note 8.137 The existence of commercial arbitration in this case sterms from the fact that foreigner-

owned enterprises had been reluctant to bring such cases to court.

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against the re-organization of the company or against a change to the rights and obligations of shareholders stipulated in the charter of the company may demand the company redeem its shares. Thus, such shareholders could withdraw their investment in the company but could not challenge the resolutions in court as such as can be done in the UK. Share valuations will play an important role in protecting this right. There are no provision in CA 1985 on this issue but the court will give directions as to the basis upon which the shares are to be valued. As to EA 2005, it provides that the company must redeem shares upon demand by the shareholder at the market price or the price determined on the basis of the principles stipulated in the charter of the company within a period of ninety (90) days from the date of receipt of the demand. Where there is disagreement relating to the price, the shareholder may sell shares to other persons or the parties may request a valuation by a professional valuation organization. The company shall recommend at least three professional valuation organizations for the shareholder to select from and such selection shall be final.

3.3 The right to appoint directors

The shareholders exert indirect control over the company’s management through their power to elect the directors.138 It has been said that, in the UK, company law “gives greater flexibility to the founders and controller of companies to design and structure their business to suit their needs than any other legal system”.139 Under CA 1985, the appointment of directors is to be determined by the Company's articles of association140. Therefore, articles of association can give, but do not always give, shareholders the power to choose who sits on the board. Where directors are appointed at the general meeting, a member holding 51 per cent of the voting shares is able to elect the whole of the board141.As to the right to nominate candidates for election to the board, it is also determined by the Company's articles of association. Shareholders who wish to nominate candidates for election have to notify in advance the company of their intention to propose that person for appointment. In addition, they must adhere to the dates and follow the procedures set out in the articles.The Combined Code says nothing about the shareholders’ right to appoint directors and merely recommends that there should be a nomination committee. This committee should lead the process of board appointments and make recommendations to the board. A majority of members of the nomination committee should be independent non-executive directors. In contrast to the position in UK company law, the EA 2005 stipulates that a shareholder or a group of shareholders holding more than ten (10) per cent of the total ordinary shares for a consecutive period of six months or more, or holding a smaller percentage as stipulated in the charter of the company, has the right to

138 Supra note 14, p.1.139 Supra note 30, p.86.140 CA 1985 contains few rules on the appointment of directors, it does provide that a public

company must have at least two directors.141 Supra note 30.p.136.

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nominate candidates to the Board of Management and the Supervisory Board142 and the voting to elect members of the Board of Management and of the Supervisory Board must be implemented by the method of cumulative voting. The number of members nominated by minority shareholders varies with the proportion of shares held by them.143.Cumulative voting was first adopted in Illinois in 1870144. This was done as “the objective was to protect minority interests against overreaching by a majority, particularly in circumstances in which representation on the board would give the minority the information necessary to police against fraud.”145 Moreover, “cumulative voting allows a shareholder to multiply the number of votes he/she (hereinafter “he”) has, as determined by the number of shares he holds, by the number of directors to be elected and to cast all his votes for any one candidate or distribute his votes among the candidates in any way he chooses”. Consequently, it “allow a substantial minority to concentrate their voting power and ensure the election of at least one director of their choice”146. Under Article 104, EA 2005, through cumulative voting, each shareholder shall have as its total number of votes the total number of shares it owns multiplied by the number of members to be elected to the Board of Management or the Inspection Committee, and each shareholder has the right to accumulate all of its votes for one or more candidates.As mentioned above, in cumulative voting, the number of votes for each shareholder is calculated by multiplying the number of shares he holds by the number of directors to be elected147. The formular below will calculate the minimum number of votes needed to elect directors to the board by cumulative voting148.

X=[(YxN1)/(N+1)] + 1Where X equals the number of shares needed to elect a given number of directors; Y equals total number of share voting at the meeting; N1 equals the number of ”minority” directors to be elected; N equals total number of directors to be elected.

142 Article 79, EA 2005.143 Article 17, Decree 139 dated 05 September 2007 guilding some provisions in EA 2005.

see also article 9, Regulations on Corporate Governance.144 Robert W.Hamilton (1997), Corporations, West Publishing, p.277-279; In the United

States, seven states had adopted mandatory cumulative voting provisions in 1880. The number had increased to 18 in 1900 and continuously increased to 22 in 1945. By 1992, only 6 states maintained mandatory cumulative voting; 44 jurisdictions (including the District of Columbia) provided permissive cumulative voting, and the state of Massachussetts did not allow the practice of cumulative voting. See also supra note 33, p.51 referred to Jeffrey N. Gordon, “Institutions as Relational Investors: A new Look at Cumulative Voting” (1994) 94 Colum. L. rev. 124, 143-161.

145 Supra note 33, p.48.146 Traditionally, corporations have adopted the practice of straight voting, in which each

share entitles its owner to cast only one vote for each candidate, although the shareholder may vote for as many candidates as there are seats to be filled. By this method, “a shareholder group with fifty-one percent of the corporation’s voting stock could fill every director position while a single minority shareholders with as much as forty-nine percent of the voting stock would be unable to elect even one director to the board”. The system makes it easier for majority shareholders to oppress minority shareholders.

147 Supra note 44, p.278.148 The analogous formular was also given by Robert W.Hamilton, see supra note 144, p.278.

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From this formular, a minority shareholder can calculate whether the shares he holds is enough for him to elect directors or not.

N1 = (X-1) x (N+1)/YThrough this mechanism, minority shareholders can elect their representatives onto the board. However, it is uncertain whether cumulative voting actually benefits minority shareholders or not149. The following arguments are used to justify the grounds for doubt:- The minority elected board members will always be a minority on the

board of directors. Even though minority representatives may express their discontent about the actions taken by the majority or their representatives, their presence does not per se serve as an effective device for protecting the interests of minority shareholders150. The reason is that a resolution of the Board will be passed if it is approved by the majority of the members in attendance; in the case of a tied vote, the final decision will follow the vote of the chairman of the Board of Management.

- The articles of association may provide several legal devices to minimize the impact of cumulative voting, such as maximizing directors’ terms of office; staggering the terms of directors which employs the formular above by making “N” smaller. In such a case, minority shareholders will find they need more shares to elect their directors.

3.4 Shareholders’ remedies

While the majority shareholders and the directors in a company always follows the legitimate majority rule, a very important question raised to protect minority shareholders ex post facto is “when can they bring suits to enforce their or the company’s rights?”151.Under section 303, a company may remove a director from office by ordinary resolution. This section applies despite anything in the articles or in any contract between the director and the company152.Because of the lack of such remedial mechanisms for shareholders in Vietnamese company law, this section mentions the three most important shareholders remedies available in the UK: derivative action; and unfair prejudice and an action to enforce the Company's Constitution153. Then, some remarks will indicate how to improve the situation in Vietnam.

3.4.1 Derivative actions

Directors owe duties to their company154. The legal obligations placed on directors arise by virtue of a combination of statutory provisions and case law principles, but their powers are to a very large extent regulated by the articles of associations155. The exercise of their powers is constrained both by their duties

149 Supra note 2, p.377.150 Supra note 2, p. 377.151 Supra note 8.152 Supra note 14, p.153.153 Supra note 30, p.160.154 Supra note 14, p.153.155 Supra note 30, p.95.

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and the remedies available to shareholders for their breach of duty. The most important wrongs done to the Company are indeed the breach of the duty of care (to act in good faith in the interests of the company as a whole) and the breach of fiduciary duty156. A derivative action is considered as the backbone of shareholder power and as grounded in minority shareholder protection157. Such an action is available in respect of breaches of duty by directors and even covers claims against third parties as a result of such breaches158. Any compensation will then be paid to the Company. While other common law jurisdictions have recently introduced or considered the introduction of a statutory derivative action, the attempt to provide an alternative procedure for minority shareholders’ actions by statute has not been successful in the UK159. The rigorous rule in Foss v. Harbottle,160 which restricts shareholders' ability to sue for wrongs done to the Company , was very influential for a long time. The rule in Foss v Harbottle is a composite of two cardinal principles:- The “proper plaintiff principle”161; that is, the company is the only proper

plaintiff in respect of wrongs done to it. This principle effectively restricts even minority shareholders' rights to bring proceedings against defaulting directors.

156 Supra note 14, p.153.157 Derivative suits would be unnecessary to protect the interests of controlling shareholders,

who, almost by definition, are likely to hold a large enough stake in the corporation to justify the cost of monitoring against managerial wrongdoing. Not only do controlling shareholders have the incentive to act, but they also have the power: As the Illinois Supreme Court has observed, "[A] majority or controlling shareholder can usually persuade the corporation to sue in its own name.

158 The derivative action is not available where the majority abuse their position in a manner that affects the running of the Company. For example, in Estmanco(Kilner House) Ltd v Greater London Council, the derivative action was not available because the fraud found by the court was the majority shareholders' conduct and not that of the directors. It is nevertheless possible that instead of a derivative action on behalf of the Company, the appropriate remedy for the shareholder is a claim under section 459 ofthe Companies Act 1985 (which is in practice more likely) or a personal action under the articles of association (which is less likely). A derivative action is brought by a shareholder in his own name on behalf of the Company. The Company is -rather curiously - joined as a defendant in order for it to be bound by any judgment and to receive the fruits (if any) of the judgment, and because the action has not been authorised by its board or shareholders in general meeting.

159 Supra note 8.160 In this case, the directors had fraudulently caused the company to buy land from them at

excessive prices. Then, a number of shareholders applied to the court but the court held that the claimed injury was to the company as a whole and individual shareholders did not have the right of suing in the name of the company. See supra note 14, p. 155; The rule in Foss v Harbottle springs from two related concepts: (a) that a company is a legal entity distinct from its shareholders; and (b) that a company cannot function effectively unless the will of the majority generally prevails. Under this rule, a minority shareholder is often at risk. See supra note 47, p.344.

161 The proper plaintiff principle has been described as "the elementary principle that A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C'

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The “majority rule principle”162; that is, if an irregularity is capable of being cured by the company itself acting through an appropriate organ, then an individual shareholder may not sue on his own behalf to complain of the irregularity. In other words, a shareholder has no standing to bring an action for any matter that is lawfully ratified or ratifiable by the general meeting of the company 163. Therefore, if the majority could lawfully ratify what the directors had done, the court could not intervenve in the case. Individual shareholders are not allowed to sue for härm done to their Company unless they can carry with them the majority at a general meeting.Briefly, in Foss v. Harbottle, the court held that if the internal affairs of the Company are not being properly managed, then the Company is the proper person to complain; there is no use in having litigation "the ultimate end of which is only that a meeting has to be called and then ultimately the majority gets its wishes". The power to bring an action on behalf of the company is vested in the members in general meeting. The power to decide whether to bring proceedings on behalf of the Company is normally vested in the board of directors who may exercise all the powers of the Company under the Company's articles of association. It would seem that the dominant shareholders and the board can reject any attempt to bring an action against themselves. This rule has been subject to extensive criticism because of its formidable procedural obstacle to minority shareholders who seek to force a company to take action against wrongdoers who control the company and thereby the power to initiate legal proceedings. To overcome the harshness of the rule, the court have developed some exceptions to the rule in Foss v Harbottle 164. Among them, “fraud on the minority” is the most important. Accordingly, a shareholder may sue where the wrongdoers control the company and commit a fraud on the company or the minority or both.165

162 It is also known as “the internal management principle” which developed as a result of the courts’ historical reluctance to become involved in disputes over the internal management of business ventures.

163 If a wrong has been effectively ratified by the Company, there is no cause of action in respect of which the Company can bring proceedings; this will also be a complete bar to a derivative action. If a wrong is ratifiable (that is, capable of being ratified), it is not possible for a minority shareholder to bring a derivative action even if there has been no formal ratification. In MacDougall v Gardiner, Mellish LJ emphasised that if the action complained of is something that the majority is entitled to do, then only the majority can complain that it has not been done properly.

164 The majority rule and proper plaintiff principles do not apply, if:- The alleged wrong is ultra vires the Corporation (the majority of members cannot

confirm the transaction); - The transaction complained of could be validly done or sanctioned only by a special

resolution or the like (a simple majority cannot confirm a transaction which requires the concurrence of a greater majority);

- What has been done amounts to fraud on the minority and the wrongdoers are themselves in control of the Company (a shareholder can bring a derivative action). Section 35(2) of the Companies Act 1985 provides that a shareholder may bring proceedings to restrain the doing of an act which would be beyond the Company's capacity.

165 In this case, shareholders have the right to sue under section 459 on the ground of “unfair prejudice”. See supra note 14, p.156.

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A "fraud on the minority" consists of two elements. The first element is an equitable fraud166. The second one is control of the Company by the wrongdoers. "Fraud" refer to the abuse or misuse of power. The court have the right to decide which categories might constitute "fraud". Essentially, the term encompasses situations such as “... where the majority are endeavouring directly or indirectly to appropriate to themselves money, property or advantages which belong to the company or in which other shareholders are entitled to participate...” Therefore, attempts by the majority to sell worthless assets to the company, to divert business from the company to themselves in breach of fiduciary duty, as in Cook v Deeks167, where directors made a profit from a construction contract which had originally been negotiated on behalf of the company168; to compromise litigation against bodies in which the majority are interested on terms prejudicial to the company mala fides breaches of duty; uses of powers for improper purposes; and negligent acts which bring some benefit to the wrongdoer.169 It should be noted that negligence or incompetence of the directors could not be subject to a derivative action, unless they have derived a benefit from that negligence.170

Fraud on the minority requires wrongdoer control, that is, “the wrongdoers are in effective control of the company, thereby precluding the company from acting to protect itself”171. The principle that underlines this exception to the rule in Foss v Harbottle is that those in control of the Company have manipulated their position so as to ensure that an action is not brought against the company. In other words, the court allows a derivative action to proceed because it recognises that where the person who has committed a wrong against the company is also in control of that company, he is unlikely to allow the company to bring proceedings against him172. Where the company is not under the control of the “wrongdoer” then the usual rule that the company is the proper 166 As for this element, the plaintiff must prove “fraud” in the sense that the act is objectively

conducted in a character that no reasonable majority could in all the circumstances ratify the impugned conduct acting bona fide in the interests of the company. Fraud in this context does not connote dishonesty. See supra note 14, p.11.

167 Cook v Deeks 1 A.C.554 (1916) 5.8 A classic example of fraud on the minority was Cook v Deeks. The directors had breached their fiduciary duties by diverting business which belonged to the company for their own benefit. The Privy Council held that such a transaction could not be ratified by a resolution which was carried because the wrongdoing directors held the majority of the votes. Lord Buckmaster referred to earlier authorities on fraud on the minority and commented, “... even supposing it be not ultra vires of a company to make a present to its directors, it appears quite certain that directors holding a majority of votes would not be permitted to make a present to themselves. This would be to allow a majority to oppress the minority”.

168 Supra note 14, p.156.169 Supra note 8.170 Supra note 14, p.11.171 Supra note 14, p. 10.172 Supra note 8.

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plaintiff prevails. For this requirement to be satisfied, there is no need for the minority shareholders to show that the wrongdoers own a majority of the company’s shares, which may be very difficult to determine in public listed company nor for the copany should absolutely refuse by vote at the general meeting. If they find that the wrong-doer had command of the majority of the votes, so that it would be absurd to call the meeting; or that there has been a general meeting substantially approving of what has been done…, they can maintain the suit173. In short, a shareholder derivative suit is a claim asserted by a shareholder on behalf of the corporation. The purpose of the suit is to prevent the abuse of authority by the board of directors and this an important tool, both for minority protection and for the company.In the UK, although judges created limited exceptions under which shareholders were allowed to bring such suits on behalf of the company, the law relating to the ability of a shareholder to bring a derivative action has been described as "rigid, old fashioned and unclear"174. It is not surprising that one commentator has written: “Despite judicial innovations, under the present law there are just too many hurdles to jump before bringing derivative suits. You must identify the wrongdoer, gather sufficient information, show there is fraud, prove the alleged wrongdoer control the company, and discover whether or not the acts complained of are ratifiable by a majority at a general meeting. Then, you must somehow fund the action. In the face of this and more, genuine grievances go unremedied175.” The purpose of a derivative action by minority shareholders is to obtain a remedy for the company, possibly against defaulting directors. However, it may be that these shareholders would prefer to obtain a more direct remedy for themselves.

3.4.2 Unfair prejudice

The unfair prejudice remedy is a statutory remedy under section 459 of the Companies Act 1985176. According to section 459, a shareholder may apply to the court by petition for an order on the ground that the Company's affairs are being

173 Supra note 8.174 Supra note 33.p.1.175 Supra note 14, p.13.176 The modern remedy for individual shareholders is CA 1985, s. 459, which succeeds CA

1948, s. 210. Section 210 of the Companies Act 1948 used the word “oppression” and was restrictively interpreted by the courts, which led the Jenkins Committee to recommend the introduction of the phrase “unfairly prejudicial”. The aim of the Jenkins Committee was to afford more effective protection to minority shareholders and they were anxious that the section extended to cases “... in which the acts complained of fall short of actual illegality“. section 459 now allows a member of a company to petition on the ground of unfair prejudice. The concept of “unfairly prejudicial conduct” was introduced by CA 1980, s.75, now consolidated in CA 1985, s.459, which provides that a member may petition the court for a remedy if the company’s affairs have been conducted in a manner unfairly prejudicial to members’ interests. Unfair prejudice is wider than and replaced the concept of oppression in the old CA 1948, s,210..

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or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members177. Common allegations made in petitions under section 459 include exclusion of a minority shareholder from management; misappropriation or diversion of corporate assets; failure to provide information, improper increases in share capital, excessive remuneration and non payment or payment of inadequate dividends. Once unfairly prejudicial conduct has been established, the court has a very wide range of powers under section 461 to make such order as it thinks fit for giving relief in respect of the matters that the petitioner complains about. Frequently, the court may order that the petitioner’s shares should be purchased by the majority shareholder(s); or make orders regulating the conduct of the company’s affairs, requiring the company to do, or refrain from doing certain acts178…In O’Neill v. Phillips, Lord Hoffmann stated that “unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith”. Accordingly, a section 459 petition can be based on a strict infringement of legal rights, such as a breach of the articles, or on the unfair use of power which abuses the enjoyment of legal rights. The conduct of management must be both unfair and prejudicial to come under section 459. A course of conduct by those who control the Company will be unfairly prejudicial if it diminishes or seriously threatens the value of the member's shareholding. The application of this section is not restricted to strict legal rights but has a broader meaning.For a petition under section 459 to secceed, both unfairness and prejudice must be established. In the ordinary case where the shares carry equal voting rights a majority shareholder will generally have the power to stop unfairly prejudicial conduct in the running of the company's affairs or any unfairly prejudicial act or omission of the Company. In Re Baltic Real Estate Ltd (No 2), Knox J indicated that prejudice will not be unfair to the petitioner's interests where the petitioner had available to him a method of bringing that prejudicial state of affairs to an end.The court has now taken a new approach in dealing with minority shareholders’ complaints, and is prepared to look at any alleged prejudicial conduct from an objective point of view, to take into account any relevant circumstances and to give the section its natural meaning without any technical gloss179.In deciding whether an act is unfairly prejudicial, the court will take into account factors such as the petitioner’s conduct, any offer made to buy out the petitioner, the motive of the oppressor, any delay in petitioning, and other relevant factors.

177 Section 460 provides an unfair prejudice remedy similar to that provided by section 459. The petitioner, however, will be the Secretary of State. This may provide a dissatisfied member with an indirect remedy. Such a member may apply formally for the appointment of inspectors under section 431,10 who may produce a report under section 437, which would give the Secretary of State grounds to act.

178 Supra note 8.179 Supra note 47, p.371 - 372.

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The statutory remedy contained in section 459 is a more direct way for an aggrieved shareholder to defend his rights than is the derivative action which is brought on behalf of the Company.

3.4.3 Action to enforce the constitution of the company

The constitutions of companies registered under the Companies Acts consist of two separate documents —the memorandum of association and the articles of association. In broad terms, the memorandum governs the relationship between the company and the outside world, while the articles represent the domestic regulations of the company and govern its internal administration180.In respect of breaches of personal rights arising under the Company's Constitution, a personal action may be brought by shareholders 181. The legal effect of the memorandum of association and the articles of association is set out in section 14 of the Companies Act 1985 which provides that, when registered, they bind the Company and its members "to the same extent as if they respectively had been signed and sealed by each member and contained covenants on the part of each member to observe all the provisions of the memorandum and of the articles". The effect of this on the articles of association is not as clear as it seems for the reason that the fact that the articles constitutes a statutory contract for the benefit of shareholders does not mean that shareholders would be able to enforce this contract in all cases182. There are restrictions on a shareholder's ability to bring a personal action to enforce the provisions of the articles of association. Firstly, the shareholder’s ability to bring an action is limited by membership rights, that is, the statutory contract only confers rights on a shareholder in his capacity as shareholder, not in any "outsider" capacity. In Hickman’s case, Astbury J analysed previous case law on membership rights and concluded that “an outsider to whom rights purport to be given by the articles in his capacity as such outsider, whether he is or subsequently becomes a member, cannot sue on those articles treating them as contracts between himself and the company to enforce those rights. Those rights are not part of the general regulations of the company applicable alike to all shareholders and can only exist by virtue of some contract between such person and the company183 ...”The decision in Hickman’s case is generally accepted as authority for the rule that the statutory contract only confers 180 Supra note 8.181 Shareholders in UK can bring personal actions in other circumstances: A shareholder can

bring either a personal action or a representative action. In addition to claims in respect of transactions requiring a special majority (in this case a simple majority cannot confirm a transaction which requires the concurrence of a greater majority), a personal action may be brought to restrain an ultra vires or illegal act (in this case the majority of members cannot confirm the transaction).A personal action can also be brought in respect of breaches of personal rights arising under a shareholders' agreement.

182 Supra note 30, p.105.183 Supra note 8.

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rights on a member in his capacity as member - “insider rights”, not in any “outsider” capacity such as his position as a legal advisor or director of the company184.Secondly, the courts have classified breaches of certain constitutional provisions as "internal irregularities" for which no personal action will lie185. This restriction stems from the majority rule and proper plaintiff principles discussed above. Accordingly, even if the articles which have been breached entail insider rather than outsider rights, members may not be able to bring personal actions with regard to such breaches186. Nevertheless, shareholders have been entitled to bring claims based on irregularities in voting procedures, such as the wrongful exclusion of proxy votes which would otherwise have resulted in the defeat of a resolution; cases involving defective notices of meetings, for example, where the notice of the meeting did not on its face give the date of the meeting or sufficient information; failure to disclose an interest of the directors. Inaddition, in some important issues relating to the company, such as those connected with its reconstruction or an increase in its capital, the court have also upheld a member’s personal right to challenge a special resolution where the member did not receive adequate notice of it.

A member may also sue where the company purports to pass an ordinary resolution in circumstances where a special or extraordinary resolution is required.187

It can be seen that shareholders’ remedies in UK are not designed to make things as easy as possible for minority shareholders. However, they at least have the chance to bring claim for damages. Similar tools do not exist in Vietnam where the law keeps silent as to the shareholders’ right to sue for damages. Shareholders could not bring a derivative action or a personal action against members of the board, members of the Supervisory Board or directors of the company188. This become more problematic in relation to the day-to-day control of the company, where minority shareholders have very little management control189. In such a case, minority shareholders can neither block harmful decisions by the board nor bring suits for damages. Where members of the Board or directors breach their duties, the

184 The conclusions have been criticized by commentators and have not been uniformly applied by the courts, particularly in cases involving shareholder directors.

185 Supra note 8.186 Supra note 8.187 Supra note 14, p.157.188 As to limited liability companies, article 41 of EA 2005 provides that a shareholders has

the right to sue directors of the company if they fail to perform their duties and causes damages to such a shareholder or the company. However, the law does not state whether the shareholder can sue the directors on the company’s behalf or in their name.if the chairman of the member council of a shareholder does not call a meeting within 15 days after receiving the request, the shareholder putting the request can take legal action against the chairman in his/her owm name or on behalf of the company.See article 41, EA 2005; see also supra note 5, p.260.

189 If a company has adopted Table A, its shareholders cannot normally interfere in the day-to day running of the company; only a majority of not less than 75% of shares can do so. Regulation 70 of Table A, section 378 CA 1985.

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sole weapon of minority shareholders is to challenge them at an EGM. However, as mentioned, this channel is not so effective. Although the EA 2005, the Securities Act 2006 and the Regulations on Corporate Governance introduce the directors’ duties – rights and obligations that they must fulfill during their appointment190, no mechanism for enforcing these duties has yet been adopted. And there is no way to sue directors if they do not fullfil their duties because commercial tribunals lack jurisdiction over such cases. Up till now, not any case against members of the Board and/or directors has been brought to the court yet191. Consequently, they are not aware of their responsibilities on which shareholders expect192. Most disputes are solved informally by way of negotiation. If minority shareholders cannot negotiate a satisfactory outcome, they are more likely to sell their shares and terminate the relationship than to seek relief in court193.Clearly, holding management liable is crucial for the efficient protection of investors, and the court system is necessary to discipline management and minimize agency costs due to the separation of management and control194.In the UK, shareholders facing difficulties in seeking their remedy in court, can apply for penal or administrative sanctions and these can be an important means of ensuring that board members and sub-board managers comply with their obligations. The CA 1985 provides for more than 200 punishable offences for directors195.In this context, the shortcoming in both the provisions of the law and the mechanism of enforcement in Vietnamese company law may cause oppression of shareholders. Legal mechanisms are needed to protect shareholders and enforce the directors/managers to comply with their duties196.

3.5 The ability of minority shareholders to access company’s information

A crucial condition for protecting minority shareholders is the guarantee of a high degree of transparency197. It is obvious that financial transparency and adequate information disclosure are of ultimate importance in all countries. This is helpful for shareholders to monitor the company, to make their investment decision, and to exercise their control over the company through other means198.La Porta, Lopez – de – Silanes and Shleifer find that disclosure requirements and

190 Article 119, EA 2005; Beside, article 5 Regulations on Corporate Governance prohibits majority shareholders from abusing their advantages to cause damages to the interests of the company and of other shareholders.

191 Business environment in Vietnam: Small investors have not been protected yet. http://www.ktdt.com.vn/newsdetail.asp?CatId=11&NewsId=25760, accessed on 12 December 2009.

192 http://www.evs.vn/news/detail/default.evs?messageid=87390193 Jean Michel Lobet, “Protecting minority shareholders to booste investment”,

http://www.reformersclub.org/documents/CaseStudies/Vietnam_CS2008.pdf, accessed on 01, November, 2008.

194 Supra note 2, p.378.195 Directors can also face sanctions under other statues, such as the Insolvency act 1986. See

supra note 30, p.95.196 Supra note 5, p.260.197 http://www.oecd.org/dataoecd/59/41/35313181.pdf198 Supra note 19.

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standards of liability facilitating investor recovery of losses are associated with larger stock markets199.

As for the controlling shareholders, by virtue of their control, they have way of obtaining information, including, for example, from their representatives on the board of directors. Directors and officers are presumed to be well aware of corporate information.Minority shareholders do not have these advantages. So, in order to develop a strong stock market, the laws and related institutions of a country must ensure that minority shareholders receive “good information about the value of a company’s business” and that they can have “confidence that the company’s insiders…won’t cheat investors out of most the value of their investment”200. Moreover, the information available to minority shareholders may assist in determining whether or not a remedy should be sought and ascertaining the likely success of an action. Failure to provide information may itself be a ground for a suit to be brought. Moreover, thorough provision of information, and communication between a company’s officers and its shareholders, may be sufficient in many cases to avert any conflict201.Shareholders can obtain information from the company either passively or actively. They can wait until information about the company is disclosed to them or ask the representatives of the company for information not yet so disclosed.This section will be limited to the situation where shareholders actively seek information.Under EA 2005, shareholders or groups of shareholders holding 10% of the total shares now have the right to review corporate records and financial reports202. They may also request the Supervisory Board to review books of accounts and other documents of the company203.Under UK company law, disclosure to active shareholders is govemed by the general rules that constrain board members' and sub-board managers' freedom of action. In the UK, shareholders may obtain a copy of the memorandum and articles on request to the company after payment of the relevant fee. They are also entitled to free inspection of the register of members and index of members’ names and on payment of a fee to require a copy of the register, and these rights may also be enforced by the court. Under section 713, shareholders can apply to the court for an order requiring the company to make good a default in complying with any provision of the CA 1985. Section 212 provides that holders of not less than 10 per cent of paid up capital may require the company to exercise the power to make shareholders obtain information relating to interests of 199 Supra note 2, p.373.200 Supra note 5.p.28.201 Supra note 8.202 Article 79 EA 2005.203 Article 79, article 123 EA 2005.

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their shares, provided they specify the manner in which the power is to be exercised and give reasonable grounds for their request. Any report prepared in response to such a request and any register of interests in shares must be open to inspection by all persons without charge. There are also rules that limit disclosures in a listed Company.Although the Combined Code contains a principle that the board should use the annual general meeting to communicate with shareholders and encourage their participation, the CA 1985 gives them limited rights to request information at the general meeting apart from the information that must be made available to shareholders generally204. For example, directors do not have any general obligation to address the requests of all shareholders for information and clarification at the general meeting, and they do not have any general obligation to answer the questions of individual shareholders. Thus, the main statutory remedy for failure to provide information is section 459 of the CA 1985.

3.6 The ability to control related party transactions and major transactions

As mentioned above, because of the separation between the ownership and control in the company, shareholders are no longer able directly to control the management of the company205. Nevertheless, as owners, they should have the right to manage the company, to have the company run for their exclusive benefit and to be able to regularise transactions that did not conform to the constitution or did not serve their interests206.

3.6.1 Major transactions

Although the board governs the management of the company, shareholders still reserve some powers at general meeting. Specificly, the law allow shareholders to participate in approving important decisions of the company. Under EA 2005, transactions exceeding 35% of the company assets must be obtain the approval from the shareholders. Directors are required to manage companies more transparently and make publicly available relevant information about important transactions.Either a loan agreement or a contract that has a value of at least 50% of the total assets of the company (or a smaller percentage as prescribed in the company’s constitution), must be approved by the Board207. This mean that the Board has power to decide on any contracts (apart from contracts for sale of at least 50% of the total assets of the company)208. However, the law does not provide any legal mechanism for restraining such transactions.

204 Supra note 30, p.159.205 Supra note 35, p.556.206 Supra note 35, p. 560.207 Article 108, EA 2005.208 Article 96, EA 2005.

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As discussed above, the main source of the distribution of powers between different organs is the company's constitution. The articles of association normally confer unlimited management powers on the directors. The same principles apply to major transactions. However, there are some exceptions to this main rule for listed companies.According to the Listing Rules, shareholder approval is required for decisions which are likely to have a major impact on the Company's business. According to the Listing Rules, a Class 1 transaction need an explanatory circular to be despatched to the Company's shareholders and the Company must obtain the prior approval of its shareholders in the general meeting209. A transaction is classified by assessing its size relative to that of the listed Company proposing to make it. A Class 1 transaction is a transaction where any "percentage ratio" is 25 % or more. The "percentage ratios" are calculated on the basis of the listed Company's assets, profits, tumover, market capitalization or gross capital.This rule prevents the board from carrying through a transaction of this size without shareholder approval, but it does not permit the shareholders to initiate such a transaction.At common law, an act or decision of the directors which is outside the company’s constitution is void and of no effect. If the breach of constitution has involved the improper distribution of the company’s assets, the directors are liable to replace the assets, whether or not ther were the recipients of them. In Building and Investment Company v Shep-herd, the directors were required to repay their renumeration, the payment of which was objectionable because it was done in breach of the company’s articles210.

3.6.2 Related party transactions

To protect minority investors against directors’ misuse of corporate assets, or against the directors putting their relatives into the company management and embarking on certain foolish business projects, the law mandates special approval processes and transparency requirements for transactions between interested parties.Company directors have to disclose their personal interests, and all related party transactions must be approved by both the shareholders and the board. Any transaction between a company with any of the parties below is a related party transaction and must be approved at a general meeting or by the board211.

Majority shareholders (or their representatives) holding more than 35% of the ordinary shares of the company and their related persons;

A member of the board, the directors, and their related persons; and Enterprises where board members, the directors, supervisors, and other

managers of the company hold shares or their related persons hold more than 35% of the equity capital212.

Those involved in related party transactions have no right to vote, nonwithstanding the kinds of benefits are whether they are determined or not213. 209 210 Supra note 30, p.110.211 In the case of transactions concerning less than 50% of the total assets of the company or a

smaller percentage prescibed in the company’s constitution.212 Article 120, EA 2005.213 Article 23, Regulation on Corporate Governance.

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Violation of this regulation may cause such transactions to be invalid. Those involved can be held liable for any damages caused by them. However, there is no provisions of law to control transactions approved by the board. Inaddition, the Regulation on Corporate Governance restrains members of the Board, directosr, managers and related parties from taking advantages of business oppotunities from the company for personal interests. Beside, it also states obligations for listed company to obey when such related-party transactions are carried out214. However, they are just declaration without there being any mechanisms for the obligations to be enforced.

In the UK, the CA 1985 and the Listing Rules also contain regulations which prevent self-dealing by directors or abuse by major shareholders by givingpowers to shareholders at general meeting.The CA 1985 provides that any gratuitous pay-offs to directors must be approved, and substantial property transactions between a company and its directors must be prospectively authorised by shareholders215.Under the Listing Rules, Chapter 11 covers transactions with related parties. In case a company proposes to involve in a transaction with certain related parties, such as a director, a substantial shareholder holding 10% or more of the voting power of the Company, or their "associates", such transactions must be first approved by the shareholders in general meeting216. The FSA will normally require a circular to be sent to shareholders and prohibit the relevant related party to vote217.

3.7 Pre-emptive right

A pre-emptive right is the privilege of existing shareholders to purchase a new offering of shares before the general public218. This right aims at preserving the ownership stake of existing shareholders.Under article 79 EA 2005, shareholders reserve the right to be given priority in subscribing for new shares offered for sale in proportion to the number of ordinary shares each shareholder holds in the company219. In addition, article 78

214 Article 24, Regulation on Corporate Governance.215 Section 312; 313; 320; 322 of the CA 1985.216 The Listing Rule, 11.4.217 The Listing Rule, 11.5..218 Sanjai Bhagat, ”The Effect of Pre-emptive Right Amendments on Shareholder Wealth”,

12 Jounal of Financial Economics 1983 p.289.219 In this case, the price at which shares are offered shall be lower than the market price at

the time of offering or the most recent value recorded in the books of shares. The company must notify shareholders in writing by a method guaranteed to reach their permanent addresses. The notice must be published in three consecutive issues within ten (10) working days from the date of notification. The notice must contain full name, permanent address, nationality, number of people’s identity card, passport or other lawful personal identification in respect of a shareholder being an individual; name, permanent address, nationality, number of establishment decision or number of business registration in respect of a shareholder being an organization; the current number of shares and percentage of shares of shareholders in the company; total number of shares intended to be issued and number of shares which a shareholder is entitled to subscribe for; offered selling price of shares; time-limit for registration to subscribe; full name and signature of the legal representative of the company. The time-limit stipulated in the notice must be reasonably

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EA 2005 provides that ”each share of the same class shall entitle its holder to the same rights, obligations and interests”. However, a series of cases in Vietnam recently has proved a serious violation of this provision. For instance, on 26 March 2006, Vietnam Petroleum Transport Joint Stock Company (VIPCO) adopted a resolution to issue 17.880.000 shares in order to increase equity capital from 421,2 bilion VND to 600 bilion VND. The nominal value of the shares was 10.000 VND. Petrolimex, holding 51% of the equity shares, was entitled to buy 9.118.800 of the new issue shares at the price of 15.000 VND per share. The remain 8.761.200 shares were allotted to other shareholders (except Petrolimex) at the price of 40.000 VND on the percentage of 50:21, that is, the existing shareholders holding each 50 shares will be allotted 21 new issue shares while other shareholders had to buy at the price of 40.000 VND per share220. Hence, Petrolimex bought new issue shares at the 37,5% cheaper price than other shareholders. Similarly, Saigon General Services Corporation (SAVICO) enabled its directors and managers to buy new issues shares at the price of 30.000 VND per share while the market value of the shares at that time was 118.000 VND per share221. It was also the case of VINALINK to increase its equity capital from 36 billion VND to 90 billion VND. The company, regardless of protest from other shareholders, sold the shares to Vinatrans International Freight Forwarding Co. at the price of 150.000 VND per share while the market price of the shares were 1.5 million VND222.Through these case, provisions of law on minority shareholders were seriously broken. Majority shareholders gained huge benefits by taking of minority shareholders’ assets.According to CA 1985, section 89 contain a statutory pre-emptive right for equity shareholders over new issues of equity shares223. Accordingly, a company proposing to issue equity shares for cash224 must first offer them to existing equity shareholders in proportion to the nominal value of the shares held by them. The terms of offer to existing shareholders must be the same as or more favorable than to other persons225.

sufficient for shareholders to register to subscribe for shares. The notice must be accompanied by a registration form for share subscription issued by the company. See article 87 EA 2005.

220 http://vneconomy.vn/71110P0C7/phuong-an-phat-hanh-co-phan-cua-vipco-sai-luat.htm, accessed on 1 January 2009.

221 ”Protecting minority shareholders: diseases without treatment”, http://www.saga.vn/view.aspx?id=12506, accessed on 2 January 2009.

222 Who protects minority shareholders? http://www.tbic.vn/english/9/tbic_details.aspx?DataID=2974, accessed on 3 January 2009.

223 Section 89 was enacted to give effect to provisions in the second EC Directive on Company Law, 77/91/EEC. See supra note 30, p.129.

224 The pre-emptive rights do not apply to non-cash issues or to employee shares. See section 89 of the CA 1985.

225 Supra note 14, p.169.

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The equal treatment to shareholders also required by the CA 1985226. This equality means that the directors cannot treat different shareholders differently unless the directors act in the best interests of the company and there is no unfairness between different groups of shareholders. In Mutual Life Insurance v Rank Organisation Ltd, the directors of Rank had given other shareholders, except North American shareholders, the right to subcribe for the new issue shares of the same class. The reason for which the defendant Rank claims was the company did not wish register with the SEC because it would not be in the interests of the company. The plaintiffs claimed that their shares must bring them equal treatment. In this case, Goulding held that the directors had acted in the best interests of the company and there had been no evidence of unfairness between the two groups of shareholders227.It is worth paying attention that the CA 1985 provides a statutory pre-emptive right for shareholders on the one hand but also admits that this right can be waived228. According to section 95 CA 1985, where directors of a public limited liability company are authorised to allot shares, they may also be given power by the articles or by a special resolution to allot shares as if the pre-emptive rights of existing shareholders did not apply to the allotment229. Hence, the pratice in the UK has shown that public companies often pass a special resolution at their annual general meetings to waived pre-emptive rights. Although this resolution can be blocked by a majority of not less than three-fourths of votes230, it is obvious that the passing of a special resolution is much more easy than blocking thereof.

The following remarks can be made about minority shareholders protection in Vietnam and in the UK:

(1) Minority shareholders are empowered to carry out rights attached to general meetings, including: convening an EGM; attending GMs in person or in proxy; getting items onto the agenda; raising motions at general meeting; and, especially challenging resolutions passed at GMs Despite the similarities in the law, there are differences regarding the enforcement of shareholders’ rights. While Vietnamese law manifests “democracy” at the general meeting by providing rights for minority shareholders but lacks mechanisms by which such rights can be protected in practice, UK law leaves much to be decided in the articles of associations but also empowers shareholders to enforce their rights in court on the other hand. This is partly because of the courts’ role in the common law system, however, the real situation Vietnam’s problems

226 Article 89, CA 1985.227 Supra note 30. p.130.228 Under the European context, the Second Directive provides that existing shareholders

have pre-emptive rights to new shares this right may not be restricted or withdrawed by the statues or instrument of incorporation. However, the Directive also recognized the pre-emptive right may be waived “by a decision of the general meeting. In such a case, the company must present to such a meeting a written report indicating the reasons for restriction or withdrawal of the right of pre-emption, and justifying the proposed issue price. See article 29, article 40 of the Second Directive on Company Law.

229 Supra note 30 , p.130. See also supra note 215, p.289.230 Section 378, CA 1985.

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stem from imperfect provisions of law, the shortage of enforcement mechanisms, and the lack of awareness of shareholders’ rights;

(2) Minority shareholders also have certain rights with respect to the directors of the company, that is, the right to appoint and remove them from the office. The laws also provide a series of duties and obligations binding on them. In case they breach their duties and cause damages to shareholders and the company, shareholders in the UK are more likely to be successful than their peers in Vietnam in suits for damages. Moreover, UK law also includes mechanisms, rarely found in Vietnamese law, which may force directors to abide by their duties;

(3) Minority shareholders can passively obtain company’s information by relying on the disclosure of information but may also actively seek it by way of a request for information. Again, while EA 2005 does not provide any next step in case such a request is refused, CA 1985 equipts shareholders with the right to apply to the court on the ground of unfair prejudice;

(4) As to decisions on major transactions and related party transations, both law are similar in the fact that they require these must be approved by shareholders at general meeting. Further, directors are required to manage the company transparently and to make public relevant information about such transactions.

(5) On pre-emptive rights, the two legal systems are similar in providing existing shareholders the priority to buy new issue shares of the company and equal treatment between shareholders who are in the same position. In case of violation of these rights, minority shareholders in the UK can bring suits on the ground of unequal treatment while their peers in Vietnam look in vain for a solution with respect to popular unfairness recently.

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Part 4. ConclusionMinority shareholders are those who normally hold small amounts of shares and are also unable to control the company. Because of the separation between the ownership and control in shareholding company, shareholders no longer directly manage the day – to – day operations of the company. The further distance between shareholders – who finance the company – and the company, the risky violation to their rights. Consequently, the law must provide certain mechanisms to protect them from the abuse of their power by the management and the majority shareholders. The protection of minority shareholders not only brings benefits to shareholders themselves but also to the company and the state’s economy as well. These mechanisms must secure a balance between two contrary issues in corporate governance: (1) the effect of the majority rule; and, (2) the protection of minority shareholders.In Vietnam, although stronger efforts have been made to improve minority shareholders protection, the enforcement mechanisms are not sufficient for implementing the good intention of the law-makers. Therefore, minority shareholders, instead of expecting on protection from the law, they should learn about their rights and effectively exploit them. By standing together, minority shareholders may gain chances to carry out their rights at general meeting and make their voice louder231, such as calling for an EGM; to raising motions at a general meeting; getting items to the meeting agenda, and challenging with resolutions adopted at the general meeting, to appoint their repsentatives sitting on the board, to access the company’s information, to take certain control with regard to major and related party transactions, and to challenge with unfairness pre-emptive rights.In comparison with the UK, the main shortcomings in Vietnamese company law on minority shareholders are: there has been no provisions equipping them to seeking for remedies in case directors and/or managers of the company breach their duties and causes damages to minority shareholders as well as the company; and, the lacking of mechanisms to enforce minority shareholders’ rights provided by law.

231 In Korea, minority shareholders has associated with People’s Solidarity for Participatory Democracy (PSPD) to bring derivative actions against the abuse of power in Samsung Electronics and SK Telecom. See Farrukh Iqbal and Jong – II You (2002), Democratic market economy and development – From the Asia view, The World Publisher, p.147.

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Table of Statues and other Legal Instruments

National legislations

The United Kingdom

The Companies Act 1985The Companies Act 2006The Listing Rules 2003The Combined Code of Corporate Governance.

Vietnam

The Enterprises Act 1999.The Enterprises Act 2005.The Securities Act 2006.Law on Credit Organizations 1997.

Decree 48-1998/NĐ-CP dated 11/7/1998 on Securities and Securities market, Decree 144/2003/NĐ-CP dated 28/11/2003 on Securities and Securities marketRegulations on Corporate Governance.Decree 139/2007/NĐ-CP dated 05 September 2007 guilding some provisions in EA 2005

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Table of CasesBerger v. Berger ,592 A.2d 321, 326 – 28 (N.J. Super.Ct.Ch.Div.1991). Building and Investment Company v Shep-herd,Cook v Deeks, 1916, A.C.554.Estmanco(Kilner House) Ltd v Greater London CouncilFoss v Harbottle, 1843, 2 Hare 461; 67 ER 189.Greenhalgh v Arderne Cinemas Ltd, 1951, Ch 286.Hickman v Kent or Romney Marsh Sheep Breeders’ Association, 1915, 1 Ch 881.Howard Smith Ltd v Ampol Petroleum Ltd, 1974, AC 821. MacDougall v Gardiner, 1875, 1 Ch D 13, 25.O’Neill v. PhillipsQuin & Axtens Ltd v Salmon, 1909, A.C 442.Re Baltic Real Estate Ltd (No 2),1993, BCLC 503, 503-507.Scott v Frank F Scott (London) LtdWood v Odessa Waterworks Co

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Bibliography

Official Reports and other Documents

The United Kingdom

Law Commission, Shareholder Remedies, Law Commission, Consultation Paper (1998), http://www.lawcom.gov.uk/docs/cp142.pdf, accessed on 20 November, 2008

Vietnam

World Bank, “Report on the Observance of Standards and Codes (ROSC) – Corporate Governance (2006), http://www.worldbank.org/ifa/rosc_cg_vm.pdf accessed on 10 November 2008.

Monographs

In English

Bui Xuan Hai (2007), Corporate Governance in Vietnamese Company Law: A Proposal for Reform, Doctor Thesis, La Trobe University, Australia, 1, 313.Hamilton, W. Robert, (1997), Corporations, West Publishing, 277, 279.He, Weiguo, (2004), Improving the Protection of Minority Shareholders in Chinese Company Law, Master thesis, Tsinghua University, 1, 193.Mantysaari, Petri, (2005), Comparative Corporate Governance, Springer Berlin Heidelberg Publisher, 79, 131.

In Vietnamese

Chau Quoc An (2006), Chế độ pháp lý về quản trị công ty theo Luật doanh nghiệp (Legal regime on Corporate governance), Master thesis, HCMC University of Law, 1, 63.Nguyen Ngoc Bich (2004), Luật Doanh nghiệp – Vốn và quản lý trong công ty cổ phần (Enterprises Law – Capital and management in Joint Stock Company), Young Publisher, 1, 160.Tran Quoc Hoai, (2006), Pháp luật về bào vệ lợi ích nhà đầu tư trên thị trường chứng khoán (Law on protection of investors’ interest in security market), Master thesis;Nguyen Thiet Son (1999), Công ty cổ phần ở các nước phát triển, (Joint Stock Company in developed countries), Institute of International Economy, Social Sciences Publisher, 1, 85.Nguyen Dinh Tai (2008), Bài giảng Luật doanh nghiệp 2005 (Textbook on Enterprise Act 2005), National Politics Publisher, 1, 70.

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Articles in Journals, Anthologies, and others

In English

Almeida, Heitor; Park, Young Sang; Subrahmanyam, Marti; Wolfenzon, Daniel ”The structure and formation of business groups: Evidence from Korean Chaebols”, http://pages.stern.nyu.edu/~msubrahm/papers/Pyramids.pdf, accessed on 20 October, 2008.

Bachmann, Gregor, “Strengthening Shareholders’ Rights: A Comment on the EU Action Plan”, 6 ERA-Forum (2005).Bhagat, Sanjai, ”The Effect of Pre-emptive Right Amendments on Shareholder Wealth”, 12 Jounal of Financial Economics 1983 p.289.Bischoff, Cholmeley Frere (1996), Protecting Minority Shareholders, Kluwer Law International, 1, 193.Burkart, Mike; Panunzi, Fausto, “Agency conflicts, ownership concentration, and legal shareholder protection”, 15 Journal of Financial Intermediation (2006).Chander, Anupam, “Minorities, Shareholder and Otherwise”, 113 Yale Law Journal (2003).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, 2008Fanuele, Domenico and Tosi, Tommaso (of Shearman & Sterling LLP), “Power to the minority” in [2008] International Financial Law Review.Cheffins, R. Brian, “Does Law Matter? The Separation of Ownership and Control in the United Kingdom” 30 Journal of Legal Studies (2001).Dahya, Jay; Dimitrov, Orlin and McConnell, J. John, “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.Gerven, Van Dirk and Storm, Paul (2007), The European Company, (Nigel Boardman, Chapter 17), Cambridge University Press.Grantham, Ross, ”The Doctrinal Basis of The Rights of Company Shareholders”, 57 Cambridge Law Journal (1998).Haas, M. Steven, “Toward a Controlling Shareholder Safe Harbor”, 90, Virginia Law Review (2004).Hague, Caroline, (1997), The Protection of Minority Shareholders, http://sunzi1.lib.hku.hk/hkjo/view/14/1400223.pdf, accessed on 29 October, 2008Gavin, Brigid, “Shareholders’ Rights in the European Union”, 32 Intereconomics (1997).Hicks, Andrew & Goo, S.H (1997), Cases and Materials on Company Law, Blackstone Publisher, p.243.Hilt, Eric, “When Did Ownership Separate from Control? Corporate Governanca in the Early Nineteenth Century”, 68 Journal of Economic History (2008).Kiboi, Mwanggi Elijah, “Protection of The Rights and Interests of Minority Shareholders”, www.amelinyangu.net/PROTECTION%20OF%20THE%20RIGHTS%20AN..., accessed on 28 October, 2008.

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Kinkki, Seppo, “Minority Protection and Dividend Policy in Findland”, 14 European Financial Management (2008).Lobet, Michel Jean “Protecting minority shareholders to booste investment”, http://www.reformersclub.org/documents/CaseStudies/Vietnam_CS2008.pdf, accessed on 01, November, 2008.

Miller, K. Sandra, “How Could U.K and U.S Minority Shareholder Remedies for Unfairly Prejudicial or Oppressive Conduct be Reformed?”, 36 American Bussiness Law Journal (1999).Nolan, C.Richard, “Shareholder Rights in Britain”, 7 European Businee Organization Law Review (2006).Osipova, Veronica, “The Problems of Development of Corporate Governance in Russia: Comparison with Central European and China”, 15 Bond Law Review (2003).Payne, Jennifer “Section 459-461 Companies Act 1985 in Flux: the Future of Shareholder Protection” 64 Cambridge Journal (2005) .Rose, Caspar, “The Challenges of Quantifying Investor Protection in a Comparative Context”, 8 European Business Organization Law Review (2007).Timmerman, L and Doorman, A “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;

In Vietnamese

Tran Dinh Cung, ”Bàn về quyền của cổ đông và đại hội cổ đông – Thực trạng và giải pháp” (Disscussing on shareholders’ rights and shareholders’ general meeting – Real situation and resolution) Journal of Securities, dated 15th of May 2008, http://www.saga.vn/view.aspx?id=12304, accessed on 3 January 2009.

(no author), ”Phương án phát hành cổ phần của Vipco sai luật” (The violation of law in Vipco’s project on the issuing of shares), http://vneconomy.vn/71110P0C7/phuong-an-phat-hanh-co-phan-cua-vipco-sai-luat.htm, accessed on 1 January 2009.

(no author), ”Bảo vệ cổ đông thiểu số: Biết bệnh nhưng chưa có thuốc chữa” (Protecting minority shareholders: diseases without treatment), http://www.saga.vn/view.aspx?id=12506, accessed on 2 January 2009.

(no author), ”Ai bảo vệ cổ đông thiểu số?” (Who protects minority shareholders?) http://www.tbic.vn/english/9/tbic_details.aspx?DataID=2974, accessed on 3 January 2009.(no author), ”Môi trường kinh doanh tại Việt Nam: Nhà đầu tư nhỏ chưa được bảo vệ”, (Business environment in Vietnam: Small investors have not been protected yet) http://www.ktdt.com.vn/newsdetail.asp?CatId=11&NewsId=25760, accessed on 12 December 2009.

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