Newsletter 04-2016 IN THIS ISSUE Newsletter Spring 2016: Foreign Ownership Restrictions Lifted for Airports and Finance Companies In This Issue: 1. Vietnam permits private and foreign investments in airports; 2. Foreign ownership cap on limited liability finance companies is lifted; 3. New Civil Code will take effect January 2017; 4. New Penal Code removes “illegal conduct of business” but may subject corporate entities to new types of offenses; 5. Legal framework for offshore trade of securities is introduced; 6. Securities trading rules become more flexible. Investment in Airports Government Decree 102/2015/ND-CP (Decree 102) permits private investments in airports Vietnam’s aviation industry has seen strong growth over the 2020. This includes the Long Thanh International Airport in past few years. The country was the third fastest growing avia- Dong Nai Province. Decree 102 crystallizes the Government’s re- tion market in the world during the period 2001-2014, with an cent announcement and endeavor to invite private investments average growth rate of 14.5 percent in passenger traffic and 15.3 in airports in an effort to find adequate funding to serve the pro- percent in freight traffic. jected growth. Vietnam’s government has announced that it intends to increase Vietnam is calling for investments to upgrade Vinh airport to an the number of airports in the country from 22 to 26 by the year international airport, to upgrade Chu Lai airport, to develop Page 1 VILAF IS A FIRST TIER LAW FIRM IN VIETNAM Chambers Asia, Asia Legal Business and IFLR Long Thanh International Airport, Van Don airport, and types of airport assets attached to land: Phan Thiet airport, amongst others. • Airside/landing area infrastructure; Below are important provisions of Decree 102. • Air traffic control facilities; • Air notification facilities; Capital level requirements • Search and rescue facilities; and • Aviation security facilities. An enterprise doing business in an international airport must have a minimum capital of VND200 billion, and an A plan to lease airport assets attached to land, which was enterprise doing business in a domestic airport must have developed with State capital, to another enterprise (for its a minimum capital of VND100 billion. operation) must contain certain statutory contents and be approved by the Prime Minister. The lease rates must be An airport service enterprise must have a minimum capital proposed by the Ministry of Transport, approved by the of VND10 billion or VND30 billion depending on the type Ministry of Finance, and adjusted every five years or when of services provided. inflation rate exceeds 15% per year. The lease term may not exceed 30 years, but renewable for another 20 years However, it is unclear whether the minimum capital re- with the Ministry of Transport’s approval. quirement in Decree 102 refers to charter capital or total investment capital. Decree 102 took effect on 12 December 2015. Ownership limits Finance Companies Certain airport services, such as air traffic control services, Circular 30/2015/TT-NHNN (Circular 30) lifts foreign owner- notification services and search and rescue services may ship restrictions for non-bank credit institutions only be provided by State-owned enterprises. The sale process below applies to the sale of State-equity An airport enterprise or an enterprise providing airside op- interest in a joint stock company (JSC) or multiple-member eration services, navigation services, communication ser- limited liability company (LLC) previously converted from a vices, supervision services or weather observation services State enterprise. It also applies to the sale of equity interests must be at least 65% State-owned, and not more than 30% held by a State enterprise in a JSC or LLC. foreign-owned. Circular 30 provides a legal framework for the establish- Meanwhile, an enterprise providing passenger terminal ment and operation of finance companies and finance operation services, baggage terminal operation services, leasing companies. gas supply services or land technical support services may not be more than 30% foreign-owned. Restriction of foreign ownership Parenthetically, an airline may not own more than 30% of Circular 30 has lifted the 49% cap on foreign ownership in the charter capital of an airport enterprise or an enterprise a limited liability joint venture finance company and the providing passenger terminal operation services or bag- 30% cap on foreign ownership in a joint venture finance gage terminal operation services. leasing company. Sale, mortgage, lease, or making capital contribution in Note that the 49% cap on foreign ownership still applies the form of airport assets for joint stock finance companies as set out under De- cree 01/2014/ND-CP dated 03 January 2014 and Decree In general, if the development of airport assets attached to 60/2015/ND-CP dated 26 June 2015 implementing the Law land was not funded with State capital, the owner may sell, on Securities. mortgage, lease or use such assets to make capital contri- bution into other enterprises. Major requirements applicable to a foreign investor wish- ing to set up a finance company or receive the transfer of On the other hand, if the development of such assets was equity interest in an existing finance company are as fol- funded with State capital, the owner may lease or mort- lows: gage such assets, but not sell or make capital contribution with such assets. Since the owner may not sell these as- • The investor must be allowed to carry out finance/ sets, it is unclear how the rights of the mortgagee will be financial leasing business in its home country; protected in case of enforcement of the mortgage over such assets. • The investor undertakes to support the finance company such that it will meet the applicable minimum Regardless, the owner may not sell, mortgage, lease or capital requirements; make capital contribution in the form of the following Page 2 HO CHI MINH CITY OFFICE HANOI OFFICE Kumho Asiana Plaza Saigon, HCO Building (Melia), Suite 603 www.vilaf.com.vn Suite 4.4 – 4.6, 39 Le Duan Street, 44B Ly Thuong Kiet Street District 1, Ho Chi Minh City, Vietnam Hoan Kiem District, Hanoi, Vietnam Phone: (84-8) 3827 7300 Phone: (84-4) 3934 8530 customary practice or legal analogy to decide the matter. • The investor must be profitable during the preced- ing three financial years; Sovereign immunity • The investor must have a total asset of at least The Civil Code 2015 for the first time implies the “sovereign USD10 billion as at the end of the preceding [calendar] year immunity” of the State of Vietnam (including the Vietnamese and has not breached the laws of its home country during Government, national State authorities and/or local State au- the last five years; thorities). In particular, the State of Vietnam shall be liable for a civil transaction which it has established with another • The investor has experience in international busi- foreign state, entity, or individual if: ness and rated at least “stable” by international rating agen- cies; (a) there is a waiver of immunity in the relevant interna- tional treaty to which Vietnam is a party; • It must not be a strategic investor in or owner or founder of another Vietnamese credit institution; and (b) there is an agreement on waiver of immunity with the other counter-party; or • if being a leasing company, the investor’s finance leasing business must account for at least 70% of its assets. (c) the State of Vietnam waives its immunity. On the other hand, Circular 30 does not specify clearly what qualifications will need to be satisfied for a foreign investor Extension of the statute of limitation regarding contractual to subscribe for newly issued equity interest. In practice, it disputes is likely that the State Bank of Vietnam (“SBV”) will apply the same qualifications by analogy. The statute of limitation regarding contractual disputes was increased from 2 years to 3 years from the date the petitioner “knows or should know” that their lawful rights and interests New Civil Code were violated. Civil Code introduces new concepts in contract relations Non-application of statute of limitation The National Assembly recently adopted Civil Code 2015, The number of circumstances in which the statute of limita- which shall take effect on 1 January 2017 and replaces Civil tion is extended includes: (i) requesting protection of per- Code 2005. Below are some of the salient points set out in sonal rights which are not attached to assets; (ii) requesting Civil Code 2015. ownership protection, unless Civil Code 2015 or other rele- vant laws contain a different provision; (iii) disputes over land General use rights pursuant to the Land Law; and (iv) other cases as provided by law. Changes in the Civil Code are expected to bring positive changes for the business environment in Vietnam. The prima- Invalidity due to violation of formation ry objectives of Civil Code 2015 are: (i) to provide consistency within the legal system regulating social relations based on The rule to invalidate civil transactions violating require- principles of freedom, voluntariness, and self-responsibility ments on formation is explicitly adopted by Civil Code 2015, (ii) to recognize and better protect the rights of natural and except where a court decides to acknowledge the validity juridical persons in civil transactions; and (iii) to harmonize of such transaction due to the fact that the parties already the legal framework after the adoption of the new Constitu- implemented two-thirds of the relevant obligation. A court’s tion in 2013. However, as with all changes it will take time to decision will grant validity to the transaction without further see how these changes manifest and how they are affected requiring notarization/verification as previously required. by the interpretation and implementation by relevant au- However, the threshold of two-thirds may be difficult to de- thorities.