United States: Undermining SSC Discretion - Turning Public Companies Private

In Vietnam, once a company goes public it has no absolute right to revert to a private company. The State Securities Commission (SSC) effectively has total discretion to decide whether to deregister a company from the official list of public companies.  Without such act, a public company – even when no longer meeting the pre-conditions to be a public company – may remain in limbo indefinitely as a public company.  Steps can be taken however to press the SSC to exercise its discretion more quickly and remove a company from the list of public companies.

Generally, going private involves two steps: (1) delisting the shares from the stock exchange; and (2) deregistration from the list of public companies by the SSC. Delisting is a relatively straight-forward process. Rules for delisting the shares of a publicly listed company are set out in Article 60 of Decree 58/2012/ND-CP and decisions issued by the stock exchanges. Besides compulsory delisting on certain grounds a company can, with approval from its general meeting of shareholders, request to have its shares delisted. The exact delisting process depends on the regulations of the relevant stock exchange.

Once a listed company is unlisted, the SSC has authority to decide whether to remove its name from the list of public companies under Article 36 of Decree 58. When a company's charter capital drops under 10 billion dong or when the number of shareholders decreases to less than 100, the company fails to satisfy the conditions necessary to be a public company as set out in Article 25 of the Law on Securities. The SSC must be notified within 15 days of failure to meet Article 25 conditions, and then shall "consider" deregistration "after one year" of such change.

However, a company may avoid the obligation to wait at least one year if it ceases to satisfy conditions for being a public company due to "consolidation, merger, bankruptcy, dissolution, change of form of enterprise or acquisition by another entity". This exception can be used to argue that the SSC has no discretion in such cases and should deregister much sooner than twelve months.  Arguably, the recent Maybank case (see below) illustrates this.

Besides the issue of SSC discretion, another issue for public companies wishing to go private is how to reduce the number of shareholders to less than 100, as this would usually involve a majority shareholder buying out minority shareholders.  In turn, this often gives rise to obligations to make public offers under the Law on Securities.  Public offer rules have exceptions as well, e.g., approval of the acquisition by the general meeting of shareholders (GMS).

The recent case of Maybank Kim Eng Vietnam is an example of both, first SSC discretion and then deregistration within two months after a GMS-approved share transfer to a single investor.  Maybank Kim Eng Vietnam had reduced its number of shareholders to less than 100, before it applied for deregistration in May 2012. By the middle of 2013, the SSC had still not approved to deregister the company from the public company list even though it only had five shareholders by that time – Malaysia's Maybank Kim Eng Holdings owned 48.55 per cent and the remaining equity was owned by four Vietnamese shareholders. On 20 August 2013, the GMS approved a plan to transfer all Maybank Kim Eng Vietnam shares to Maybank Kim Eng Holdings (a Malaysian company) and the SSC then approved conversion to a single-member limited liability company on 7 October, followed by a decision to remove the company's name from the list of public companies on 21 October.

While the Maybank case may not be representative, as Maybank had a history of working closely with the SSC and had signed a cooperation and technical support agreement, it shows that the SSC can move swiftly when a company changes its form of enterprise and is acquired by another company with shareholder approval.

Given the general discretion of the SCC with respect to deregistering public companies based on Article 25 conditions, an unlisted public company seeking to go private may be better served by restructuring its form of investment rather than simply waiting passively for the SSC to act.

This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.

Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. The Duane Morris Institute provides training workshops for HR professionals, in-house counsel, benefits administrators and senior managers.

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