CONSULTATION ON THE LIQUIDATION OF ASSETS IN A JOINT STOCK COMPANY, RELATED LEGAL RECOMMENDATIONS AND PROPOSALS

Matter in Brief:

PN Construction Materials Joint Stock Company (hereinafter referred to as “PN”), a non-public company incorporated in 2008, is engaged in the business of sale and supplying construction materials and equipment. PN is headquartered in H City. In preparation for a new business project, PN intends to liquidate its inventory of construction materials and equipment stored at LT Warehouse, located in BH City, DN Province. The estimated total value of the assets to be liquidated is 30 billion VND.

Client’s Request:

PN Company, recognizing TAPHALAW’s extensive experience in advising on corporate governance, has contacted TAPHALAW and requested that TAPHALAW provide advice on the authority, procedures, and formalities for the liquidation of assets and draft an asset liquidation contract. The purpose of this engagement is to ensure strict compliance with PN’s internal regulations, applicable laws and to minimize the potential for future disputes.

Attorney’s Work Performed:

1. Assessment of PN’s legal status regarding the consulted matter

The attorney has reviewed PN’s bylaws, relevant internal management documents concerning the authority and procedures for asset disposal approval, and applicable Vietnamese laws as a basis for this advice. Upon review, the attorney has found that PN’s bylaws and internal regulations governing approval authority for contracts are unclear and less detailed compared to the Enterprise Law. This has immediately caused difficulties in carrying out internal approval procedures for asset disposal and subsequently increased the risk of disputes regarding authority in company management.

During the review of PN’s bylaws, the attorney also discovered many provisions that do not comply with the current Enterprise Law, posing significant legal risks. In addition, PN lacks regulations on the procedures for asset management, such as a process for selling liquidated assets, financial regulations, etc. The absence of these documents has led to conflicts and disagreements among personnel and departments within PN. Managers may take advantage of the loose regulations in internal management documents to commit violations for personal gain, causing the company to lose assets. This affects the company’s business operations and fails to build a professional and reputable image for the company with customers.

2. Advisory, recommendations and suggestions for PN regarding the consulted matter

TAPHALAW’s attorney has sent a consultation letter to PN recommending the application of the Enterprise Law. Based on PN’s total asset value in the most recent financial report, the attorney determined that the authority to approve asset disposal belongs to the General Meeting of Shareholders. The attorney also advised the Company on the necessary procedures to be completed for the General Meeting of Shareholders to approve the contract for the sale of large-value liquidated assets.

Furthermore, to overcome the limitations of the internal management documents as mentioned above, TAPHALAW’s attorney has advised PN to amend its bylaws and issue internal regulations on asset management, such as a sales process, recruitment process, financial and accounting regulations, etc.

Consulting Outcome: PN has completed its internal approval process for the liquidation of assets. Subsequently, PN has engaged TAPHALAW to provide legal advice on drafting amended bylaws and internal management documents pertaining to the aforementioned assets for subsequent promulgation.