Abstract of doctoral thesis on law studies The legal issues on Economic Group in Vietnam

To accomplish this goal, the task of the thesis laid out following specific research issues:Firstly, the thesis studied the economic nature, the legal nature of EGs therebydetermining th

MINISTRY OF EDUCATION AND TRAINNING MINISTRY OF JUSTICE

HANOI LAW UNIVERSITY

Trainning Institution:

HANOI LAW UNIVERSITY

Academic Supervisors : 1 Dr Nguyen Thi Dung

2 Dr Dong Ngoc Ba

Opponent 1 : Prof.Dr Nguyen Thi Mo

Opponent 2 : Assoc.Prof.Dr Nguyen Nhu Phat

Opponent 3 : Dr Nguyen Thi Nhung

Thi thesis will be defended before the University Thesis Evaluation

Board at Hanoi Law University, dated

This thesis can be available at:

1 National library of Vietnam

2 Library of Hanoi law University

1 Urgency of the subject

Since the 6th National Party Congress-1986, the twenty-five years of develtiopment undernew economic model, facilitated Vietnam to become a country with high economic growth,improved social life, also the concept of business has been changed a lot Through a process ofalmost twenty year development, a number of enterprises in the State sector as well as in theprivate sector experienced strong growth, and long-term capital accumulation; M&A (mergersand acquisitions), consolidation has occurred frequently with the support of the stock market.Moreover, demand for investment-linked that performing complex form and multidisciplinarybusiness needs have become topical These have posed the following problems to be solved: themodel of economic organization which has been operating so far has not meet the requirement toraise capital, specialized production and business management In fact, the model of EconomicGroup (hereafter referred to as “EG”) have been appeared in Vietnam and partly meet the needs

of investors in both the State and private sector

In the State sector, the Government did implement the policy of transition GeneralCompany 91 to Economic Group Hence a number of EGs have been established including theVietnam Oil and Gas Group, Vietnam National Coal – Mineral Industries Holding CorporationLimited (Vinacomin), Vietnam Electricity (EVN), etc After the Government established pilotEGs and issued Decree No 101/2009/ND-CP dated 5th November 2009 of the Goverment onpiloting the establishment, organization, operation and management EGs, on the one hand Stateowned EGs had continuous movement in many different directions However, on the other hand

a few State owned EGs did operate inefficiency, and have not meet the expectations of theGovernment that would consider the model EGs being a key solution in economic developmentstrategies throughout the comprehensive integration period Furthermore, certain corporationsadversely created a burden for developing countries, causing losses of the budget, increasing theratio of Government debt, which reduces the effective indicator of investment, creating complexand adverse implications on society such as the case of Vinashin () Decree 69/2014 /ND-CP

dated…… of the Government, to some extent, has contributed unified regulations on the State

owned EGs There are, moreover, many other texts provisions on the use of and investment inthe State capital have been issued However, the effectiveness of the implementation of the law

on State owned EGs still not effectively and the issued relating to State owned EGs have notbeen fixed thoroughly.

Meanwhile, enterprises in the private sector are actively switching to model EGs: FPT,Hoa Phat Group, Hoang Anh Gia Lai Group, Group CEO, etc However, the current legislation

on private EGs is not systematic For private sector EGs, except four articles in currentEnterprise Law (which is full effect on 01 July 2015) (here after referred to as “Enterprise Law

2014”) and an article specified in the Decree No 102/2010ND-CP dated 1st October 2010 of theGovernment guiding the Enterprise Law 2005, there was still no specific regulations on thismodel The private EGs hence have been difficult to deploy business operations includinginternal corporate governance However, as the inevitable trend of development, private EGsmodel could become the new driving force for the models replacing State owned EG ineconomic development strategy in Vietnam in the coming time For that reason, the immediateconstruction of legal system forming the basis for the implementation of the restructuring EGs is

an urgent need

For the above mentioned reasons I have decided to choose subject "The legal issues onEconomic Group in Vietnam" as the subject of my PHD research

2 The purpose of research and tasks of the thesis

The purpose research thesis is to analyze and evaluate legal issues on EGs modeltherefore finding appropriate solutions perfecting legislation on EGs in Vietnam

To accomplish this goal, the task of the thesis laid out following specific research issues:Firstly, the thesis studied the economic nature, the legal nature of EGs therebydetermining the specific characteristic of this business model;

Second, the thesis studied the development process, analyzing the dominant factors anddetermines the basic content of the legislation on EGs;

Thirdly, the thesis researched models and laws in foreign countries around the world,from which compare, evaluate and drawn valuable lessons for the process of law making on EGs

in Vietnam

Fourth, the thesis researched and assesses the status of legislation on the link of EGsformation, the establishment of the rights and obligations of the participating enterprises in EGs,the monitoring mechanism of the State and operation termination of EGs These studies are thebasis for the thesis proposing practical solutions

Fifth, the thesis showed the complete solutions for perfecting the EGs legislationincluding basic solutions and detail solutions.

3 Scope of Research

Economic Group is a special model of economic organization and is also the researchingobject of many different industries and fields including economics, finance, administration andlegal In specialized economic law, the scope of the author's research thesis on this topic focused

on the legal provisions of model EGs

In terms of content, the thesis focused on the legislation on EGs to be able to assess thematters/issues on EGs’ the status, establishment, operation, management and administration.These provisions were studied in contract law systems, business law, competition law,procurement law, the law on intellectual property

The thesis studied regulations on State owned EGs and model of private EGs Thesimilarity of the two models is in nature however the provisions on the State owned EGs model

overwhelmed as compared to the private EG’s ones The parallel studying of the two models lay

the foundation that the making thesis evaluate and propose appropriate for each type of modeland then narrowing of operation of State owned EGs and as consequently give priority to TDKTprivate EGs

The thesis focused primarily studies the domestic legal provisions and after that analyzes,gave comment on the provisions of foreign laws to draw the necessary lessons for theconstruction and then improved the Vietnamese legal system

The thesis focused study of current legislation in order to accurately assess the status oflaws However, to ensure the feasibility of the recommendations, the thesis also studied themovement and development of the legal system on EGs

4 Research Methodology

To perform the research tasks of the thesis, the author did apply specific researchmethods being appropriate for each respectively content, including methods of analysis,synthesis, statistics, logic, history, compare, etc in order to clarify the issues studied Including:

Methods of analysis, logic synthesis are used in the entire contents of the thesis;

Historical and comparison methods, were used in research history and development oflegislation on EGs;

Comparison method used in researching the model and legislation of EGs in a number ofcountries over the world.

Statistical method used in the assessment of the current legal situation in Chapter III ofthe thesis

5 New scientific contribution of the thesis

As scientific research on EGs legal system, the author desire to contribute his new viewfor the legal science as follows:

First, the thesis contained scholarly research and the views of the author's thesis on thelegal status and position of EGs This is an much important matter as the basis for buildingregulations EGs;

Second, the thesis clarified the nature of the link from various aspect in EGs as capital,the brand link, technology links, market link;

Third, the thesis provided solutions and opinion as to rights of management,transactional and legal issues, the relationship between the parent company and its subsidiaries,the relationship between companies in the same grade in EGs were clarified in the thesis content;

Fourth, while the issued shown are solved, the thesis proposed the solution to perfect andimprove the legislation in the current period on restructuring State owned EGs, to the privateEGs develop positively

6 Structure of the thesis

Besides preface and conclusion, the thesis includes the following specific contents:Chapter 1: Overview of Research topics

Chapter 2: The theoretical issues of Economic Groups and Legislation on EconomicGroups

Chapter 3: Status of legislation on Economic Groups in Vietnam

Chapter 4: The direction and solutions to complete the legislation on Economic Groups inVietnam

CHAPTER 1: OVERVIEW OF THE RESEARCH TOPICS

The topic of “Economic Group” is not a new topic There have been a number of studies

on this topic However, these study were primarily from an economic perspective, andspecializing in business management, public management Various studies often focused on the

internal link in the Group, the administrator governance in the Group, the effective usage ofcorporate resources.

In this Research, the following Basic contents resolved:

First, the authors focused studying and presenting the concept of EGs under two angles:the economic perspective on the basis of the studies mentioned above, and a legal perspective onthe basis of the author’s in-depth study Based on EGs reviewing from many aspects, the thesisauthor plans to build a legal concept of "Economic Group" The thesis also spent appropriatetime to specific the legal position and status of EG This is an issues facing many obstacles,many different concepts, is at the core of arguments about EG

Second, the thesis focused on the legal provisions on connective links in EGs: capitallink, industrial property rights link and a number of other forms of association The author didalso put attention to other contents to explain more about internal links within the Group Theauthor clarified the nature of each type of link, the characteristics, the dominant factors, and theprovisions of the law on these links Through the clarification on the links in the Group, theauthor’s ambition is to clarify the diverse nature of EGs’ the operation in Vietnam

Third, the thesis studied the provisions of the law on the establishment of State ownedEGs and private EGs The formation of the State EGs from administrative orders and theconversion from model of General Companies (“Tổng Công ty”) has created unsound problems.The thesis thus focused on analyzing the shortcomings to suggest towards perfection Relating toprivate EGs, the process of establishing has not been supported by specific regulations thatcausing confusion about the name of the group A few opinions of regulations on the scale ofgroup was suggested but not yet specified The author's thesis analyzed and clarified thatsituation and proposed his own specific recommendations for private EGs

Fourth, the author’s research also focused on relationship among entities in EGs, rightsand obligations of enterprises in EGs Accordingly the author planned to focus in-depth analysisand clarification of management activities in the State EGs between the parent company and itssubsidiaries, affiliated companies in EGs, especially the responsibilities of the parent company inthe use of State invested capital and the capital allocation to its subsidiaries, affiliated companies

in EGs In terms of private EGs, for the reason that there have been so far no regulations onoperating activities and the private EGs currently depend on the investors ‘rights to freelyconduct business, the author still studied generally Throughout this content, the author clarified

the issues relating to rights of management, transaction, legal issues between the parent companyand its subsidiaries, the relationship between the enterprises in the same grade in EGs, the singlelevel investment, multi-level investment.

Fifth, since the problem was resolved thoroughly, the thesis presented recommendations

to improve the legal system and boost the effectiveness of EGs’ operations These solutionwould be both comprehensive and detail to ensure the feasibility of the implementation process.CHAPTER 2: THE THEORETICAL ISSUES OF MANAGEMENT AND LEGISLATION ONECONOMIC GROUP

2.1 SOME ISSUES OF MANAGEMENT ON ECONOMIC GROUPS

2.1.1 The concept of “Economic Group”

A series of concept on “economic group" or "Business Corporation" have been presented,but mainly approaching from economic perspective Based on general concept, “EconomicGroup” is defined as a large-scale organization, conducting business activities inmultidisciplinary and multi-sector, based on links formed investment, capital contribution,merger, acquisition, reorganization or others business links to agglomeration and accumulateresources in order to increase competitiveness and profit maximization”

From legal perspective, EGs should be defined as follows:

"The Group is a consortium of economic links between independent legal entities on thebasis of investment and contractual agreements linked Investment activities and contractualagreements create rights and obligations for each member of the consortium, including the legalentity holding dominant/controlling powers, and the other subsidiaries and affiliates (the legalentities are controlled)”

2.1.2 Characteristics of Economic Group

2.1.2.1 Economic Group formed as a consortium, from the links between independentbusiness entities

Economic Groups are formed on the basis of the link between business entities Businessentities are independent legal entities Links between business entities in the consortium arespecified in the contractual agreement

The link among the legal entities of the group is completely different from the linkbetween members of the company The link between the members of the group can becontrolling or not

First, the tight link, controlling link: (i) Links governed through equity investment; (ii)Links governed by controlling rights of the company’s business; (iii) Controlling Link throughthe transfer of rights relating to industrial property and some other rights.

Second, the link is not controlling

2.1.2.2 Economic Group owning identity but no legal status

EGs is a consortium whose identity The identity is set to define independent legal entity,operating on the basis of close links because of the economic benefits From the nature of links

in EGs and from legal perspective, it can be seen that EGs have no legal status:

2.1.2.3 Economic groups have complex organizational structures, multiple levels

The organizational structures of corporations aim to harmonize the companies’ interests

in the Group EGs have more than one level Level one consists of the original controllingcompany (parent company – Grade 1) controls the Grade 2 enterprises (the subsidiary level).Level three covers controlling enterprises – Grade 2 enterprises and the Grade 3 controlledenterprises (be controlled by the Grade 2 enterprises) which controlled by the parent company.The huge Groups usually have no limit on the number of levels in the group, which resulted inthe number of companies in very large scale

2.1.2.4 Economic groups holding a huge scale, a large number of employees, wideoperating range, diversified businesses, higher revenue

EGs with the accumulation of capital of companies in the group, including the parent company,subsidiaries, affiliates, associated companies Because the enterprises in the Group operating indiversified sectors, the Group holds a large scale workforce Workforce is clearly categorizedfrom simple workers to intellectual labor with creative expertise from medium to highqualification Most of EGs are multidisciplinary and multi-sector including a number of lines iscore business EGs conduct large-scale investment, wide operating range, good competitiveadvantage, high level of management, profit maximization

2.1.3 Classification links in Economic Group

In terms of criteria on the cause of forming, links in EGs can be divided in 02 categories:natural formation link and link from administrative decisions

In terms of criteria on competitive relationship in the market, links in EGs can be divided

in vertical link and horizontal link

In terms of criteria of management method, links in EGs can be divided in links betweenthe parent company and its level I subsidiaries, link among cross-ownership companies.

2.1.4 The role of Economic Group in market economy

The establishment and development of the EGs in all over world as well as in Vietnam is

to meet the constantly changing of geo-political and cultural conditions The model of EconomicGroup plays a significant role in the development of each country's economy and also the globaleconomy

First, EGs are the basis for the establishment and development of large scale businessmodels

Secondly, EGs are one of the State’s tools to implement State economic structuraladjustment

Thirdly, EGs enhance the competitiveness, economic and international integration Fourthly, EGs improve the efficiency of science and technology

Fifth, EGs will be responsible for implementing employment, social security

2.1.5 Model of economic groups in some countries in the world

Most of the EGs all over the world have naturally established, on the basis of capitalaccumulation A number of groups have undergone a long process of development under theimpact of complex business conditions, continuously changing business environment Politicalfactors, geography, economy, culture, have also impact on the establishment of differentcountries Model of EGs in Britain, America, Japan, Korea, China, have its own characteristics.Each country has a large selection of ways to develop the nature EGs of the economy, but just afew select the State owned model In fact, the EGs promote the development of the country butalso have implications for the natural development of the market, even; model EGs in countriesincluding South Korea, China; has been creating relatively complex and adverse consequencesfor the economy

2.2 THEORETICAL ISSUES OFLEGISLATION ON ECONOMIC GROUP

2.2.1 The Legal view on Economic Group

The legislation on EGs is in the overall system of regulations established businessinstitutions From broad or narrow sense, legislation on Economic Group has differentconnotations

Firstly, from the broad view

The process of EGs’ operations have generated relation on land, competition, tax,environmental, labor, credit and other subjects Thus, in the broad view sense, it can beunderstood:

"The legislation on EG is the system of regulations governing the social relationshiparising in the process of formation and movement of EG."

Second, in the narrow sense

”The legislation on EG is the system of regulations governing the social relationship

arising in the process of formation, movement and termination of the internal link in EG"

Legislation on EGs include two major content: firstly, legislation on investment contract bond toform links; secondly, legislation on associate administration In particular, the laws on contractand investment belong to legal system on civil law, corporate, intellectual property rights,investment, and competition Laws on link governance being the provisions on the powers andresponsibilities of the owner, representative mechanism are stipulated in corporate law

2.2.2 Contents of legislation on Economic Group

Content of legislation on Economic Group includes 04 basic issues:

Firstly, the provisions on the legal nature of EGs

Secondly, the provisions on the links in EGs in which there are links formed from equityinvestment activities, links formed on the basis of contractual agreements

Third, the rights and obligations of the members in EGs, especially the relationshipbetween the parent company and its subsidiaries

Fourthly, the provisions on inspecting and supervising activities of the EGs

Due to the complex nature and for the objectives of management, supervision andpreserve capital in the State owned EG, the legislation on State EGs is more specific and moreadministrative nature Laws on State EGs have the following specific and certain characteristics:

Firstly, standards, conditions and procedures to establish State owned EGs

Secondly, the rights and obligations of the parent company, subsidiaries, and affiliatedcompanies in State owned EGs

Third, the restructuring of State owned EGs

2.2.3 Overview on development of EGs laws in Vietnam

The preparation period of economic and legal for the establishment of EGs (between 1975 and1993)

The period of basically established EGs (from year 1994 to 2004)

The pilot period of establishment and development of EGs model (from the year 2005 to2012)

The period of thoroughly developing the EG model (from 2012 to present)

2.2.4 The element controlling the legal system on EG

Legislation on EGs has been strongly influenced by political factors, culture, society,customs, and so on In particular, the fundamental factors affecting include:

2.2.3.1 Economic institutions

Institution of socialist-oriented market economy in Vietnam today, with its owncharacteristics, has affected the development of legislation on EGs The State owned EGs wereassigned a large amount of capital to implement business and production activities State ownedEGs also received the support and incentives by the State in accessing capital or holding thedominant position, monopoly in the market

2.2.3.2 The scale and level of market development

EGs were only launched in market having conditions completed at a certain level,especially the capital market, stock market, real estate market The improvement of legal system

on economy in general and in particular legislation on EGs reflected the level of market’sdevelopment

2.2.3.3 Culture, business practices

Vietnam business culture is the culture of family nature, and communities, villages In thebusiness culture, Vietnamese people often heighten stability, and be afraid of risk Therefore, thebusiness model in Vietnam was often in small degree, on average, and just a few the large-scaleenterprises Business practices of Vietnamese people often anonymous individual fragmentedand not linked form due to lack of confidence on the subject of cooperation Thus, the legislation

on EGs in Vietnam moderately fit business culture, and have the responsibility to change thebusiness mindset ingrained in the Vietnamese

CHAPTER 3: VIETNAMESE CURRENT LEGISLATION ON ECONOMIC GROUP

3.1 VIETNAMESE CURRENT LEGISLATION ON THE DEFINITION ANDESTABLISHMENT OF ECONOMIC GROUP

3.1.1 Legislation on the definition of EG