Decree 44 on 29 June-98 on Equitization of SOE
DECREE ON CONVERSION OF STATE OWNED ENTERPRISES INTO
SHAREHOLDING COMPANIES
(No. 44-1998-ND-CP, Hanoi, 29 June 1998)
The Government
Pursuant to the Law on the Organization of the Government dated 30 September 1992;
Pursuant to the Law on State Owned Enterprises dated 20 April 1995;
On the proposal of the Minister of Finance;
Decrees:
CHAPTER I
General Provisions
Article 1
Enterprises referred to in article 1 of the Law on State Owned Enterprises in which it is no longer necessary for the State to hold one hundred (100) per cent of invested capital as defined in the appendix attached to this Decree shall be subject to this Decree.
Article 2
The conversion of State owned enterprises into shareholding companies (hereinafter referred to as equitization) shall be for the following purposes:
1. Mobilizing capital of the whole society, including domestic and foreign individuals, economic organizations and social organizations, for the purpose of investment in renovation of technology, job creation, development of enterprises, improvement of the competitiveness and changes of the structure of State owned enterprises;
2. Facilitating shareholding employees of enterprises and persons contributing capital to be real owners, changing methods of management, creating a motive for enterprises to do business effectively, increasing assets of the State, raising income of employees and contributing to national economic growth.
Article 3
1. Economic organizations, social organizations, Vietnamese citizens, Vietnamese residing overseas and foreigners residing in Vietnam shall have the right to purchase shares in equitized State owned enterprises.
2. Sale of shares to foreign organizations and foreigners shall be carried out in accordance with the provisions of the Prime Minister.
Article 4
Ownership rights and all legitimate interests of organizations and individuals purchasing shares in equitized enterprises shall be protected by the State in accordance with law.
Article 5
The sale of shares shall be publicly notified and carried out at equitized enterprises or through commercial banks, financial companies and stock exchange departments and centres.
Article 6
An equitized enterprise shall be responsible for arranging for the employment of all the employees currently working for the enterprise. Employees who voluntarily terminate their labour contracts shall be dealt with in accordance with applicable regulations.
Article 7
Equitization shall be carried out in the following forms:
1. Maintaining the value of the existing State owned capital in an enterprise and issuing shares in order to mobilize additional capital for development of the enterprise;
2. Selling part of the value of the existing State owned capital in an enterprise;
3. Separating a part of the enterprise which satisfies all conditions for equitization;
4. Selling the whole value of the existing State owned capital in an enterprise for the purpose of conversion into a shareholding company.
Article 8 Right to purchase shares for the first time upon equitization
1. With respect to enterprises in which the State holds controlling shares or special shares:
(a) A legal person shall not be permitted to purchase more than ten (10) per cent of the total shares of an enterprise;
(b) An individual shall not be permitted to purchase more than five per cent of the total shares of an enterprise.
2. With respect to enterprises in which the State does not hold controlling shares or special shares:
(a) A legal person shall not be permitted to purchase more than twenty (20) per cent of the total shares of an enterprise;
(b) An individual shall not be permitted to purchase more than ten (10) per cent of the total shares of an enterprise.
3. With respect to enterprises in which the State does not hold shares:
Each legal person and individual shall be permitted to purchase an unlimited number of shares provided that the minimum number of shareholders must be ensured in accordance with the provisions of the Law on Companies.
4. Loans borrowed by an enterprise from its employees prior to equitization shall be converted into shares of the company if so agreed by such employees.
5. The persons provided for in clause 2 of article 13 of the Ordinance on Corruption Control shall only be permitted to purchase shares at preferential rates not exceeding the average shares purchased by shareholders of the enterprise.
Article 9 Utilization of proceeds of sale of shares of State owned capital
After deducting equitization costs, the proceeds of the sale of shares of State owned capital in an enterprise shall be used by the people’s committee of the province or city under central authority (with respect to enterprises under the control of local authorities), the Ministry of Finance (with respect to enterprises under the control of ministries and general departments) or the board of management of the corporation [established in accordance with Decision*] 91 (with respect to member enterprises of a corporation) for the purposes of:
1. Training and re-training in order to create new jobs for employees;
2. Providing allowances for redundant employees;
3. Providing supplementary capital for State owned enterprises to which priority should be given for strengthening; and investing in State owned enterprises which have been equitized in accordance with an approved plan.
Article 10
The Ministry of Finance shall exercise uniform management of printed forms and provide share forms for equitized enterprises; and shall ensure that shareholders receive shares no later than thirty (30) days after the expiry of the time-limit for issuance by equitized enterprises.
* Inserted by Phillips Fox to aid comprehension.
CHAPTER II
Principles for Determination of Value of Enterprises and Incentives for Equitized Enterprises and Employees Working for Equitized Enterprises
Article 11 Principles for determination of the value of an enterprise
1. The actual value of an enterprise shall be the total value of all existing assets of the enterprise at the time of equitization, which is acceptable to both the
purchaser and the seller. The actual value of the State owned capital in an enterprise shall be the actual value of the enterprise after deduction of all debts payable.
2. The elements used to calculate the actual value of an enterprise shall include the following:
(a) Data from books of account of the enterprise at the time of equitization;
(b) Actual value of the assets of the enterprise valued on the basis of the existing quality, technical features, need of utilization of the purchaser and market price at the time of equitization.
3. Business advantages of the enterprise in relation to geographical location or good reputation of products (if any). These advantages shall be reflected by the average value of the ratio of profits to business capital for the last three years prior to equitization. The value of such advantages shall not account for more than thirty (30) per cent of the actual value of the enterprise.
Article 12
It shall not always be necessary to hire an independent auditor for the determination of the actual value of an enterprise. Where an enterprise fails to comply with the laws in relation to accounting and statistics, the authority deciding the value of the enterprise shall consider employing an independent auditor for determination. The expenses for employing such auditor shall be charged to the equitization costs.
Article 13
Equitized enterprises shall be entitled to the following incentives:
1. Where a State owned enterprise is converted into a shareholding company which is a new form of investment, it shall be entitled to incentives in accordance with the Law on Promotion of Domestic Investment (as amended).
In cases where enterprises fail to satisfy all conditions for incentives in accordance with the Law on Promotion of Domestic Investment, they shall be granted a fifty (50) per cent reduction of profits tax (corporate income tax) for two consecutive years from the commencement of operations of the enterprise in accordance with the Law on Companies.
2. Exemption from registration fees shall be granted with respect to any transfer of assets under the management and use of an equitized State owned enterprise to the ownership of the shareholding company.
3. The terms and conditions and interest rates applicable to State owned enterprises shall continue to apply to loans borrowed by equitized enterprises from commercial banks, financial companies and other credit institutions of the State.
4. Equitized enterprises may continue to export or import goods in accordance with the current regulations applicable to State owned enterprises prior to equitization.
5. Prior to equitization, equitized enterprises may, on their own initiative, distribute any balance of the bonus funds and welfare funds (in cash) to its working employees (without any income tax payable) for the purpose of purchasing shares.
Equitized enterprises shall be permitted to maintain and develop welfare funds in kind, cultural facilities, clubs, health stations and sanatoria in order to ensure the welfare of employees of shareholding companies. These assets shall be under the ownership of the collective of employees and shall be managed by the shareholding company together with the trade union.
6. Actual reasonable expenses required for the conversion of a State owned enterprise into a shareholding company shall be deducted from the proceeds of the sale of shares of State owned capital at the rates stipulated by the Ministry of Finance.
Where equitization is carried out in accordance with clause 1 of article 7 of this Decree, the existing State owned capital in the enterprise may be used for payment.
Article 14
Employees of an equitized enterprise shall be entitled to the following incentives:
1. The State shall sell shares to employees of an enterprise at an incentive rate on the basis of the number of years of employment of each employee. Each employee shall be permitted to purchase ten (10) or less shares (the value of each share shall be one hundred thousand (100,000) Dong) for each year of employment at a discount rate of thirty (30) per cent in comparison with other purchasers. The total value of incentives granted to employees shall not exceed twenty (20) per cent of the value of State owned capital in an enterprise. Where the self-accumulated capital of an enterprise accounts for forty (40) or more per cent of the value of the enterprise, the total value of incentives granted to employees shall not exceed thirty (30) per cent of the value of State owned capital in the enterprise.
Where equitization is carried out in accordance with clause 1 of article 7 of this Decree, the value of incentives granted to employees shall be deducted from the existing State owned capital in the enterprise.
An employee owning the above shares shall have the right to assign, the right to bequeath and other rights of a shareholder stipulated by law and the charter on the organization and operation of the shareholding company.
2. Poor employees of an enterprise purchasing shares at the incentive rate shall be entitled to deferred payment for the first three years for the purpose of receiving dividends and non-interest bearing payments amortized over a ten (10) year period. The number of shares subject to amortized payment sold to poor employees shall not exceed twenty (20) per cent of the total shares sold by the State at the incentive rate as stipulated in clause 1 of this article. Holders of shares subject to amortized payment shall not be entitled to assignment until payment has been made in full to the State.
3. After a period of twelve (12) months from the conversion of a State owned enterprise into a shareholding company, the entitlements of employees losing their jobs as a result of the restructure of business activities or technological change shall be dealt with in accordance with applicable regulations of the Government.
CHAPTER III
Organization of Implementation
Article 15 Authority to select and decide on enterprises to be equitized
1. Based on the conditions referred to in article 1 of this Decree, ministers, heads of ministerial equivalent bodies and Government bodies (hereinafter referred to as ministers), and chairmen of people’s committees of provinces and cities under central authority (hereinafter referred to as chairmen of provincial people’s committees) shall select and decide on enterprises to be equitized.
2. Boards of management of State owned corporations established under a decision of the Prime Minister of the Government (hereinafter referred to as Corporations 91) shall prepare a list of member enterprises to be equitized and submit same to the Prime Minister of the Government for approval prior to equitization being carried out.
3. Boards of management of State owned corporations established under a decision of a minister or chairman of a province or city under central authority in accordance with the authorization of the Prime Minister of the Government (hereinafter referred to as Corporations 90) shall prepare a list of member enterprises to be equitized and submit same to the minister or chairman of the provincial people’s committee for decision.
Article 16 Authority to provide guidelines for and decide on valuation of enterprises
1. The Minister of Finance shall provide general guidelines on the method of calculation of the value of an enterprise for the purpose of equitization.
2. Authority to decide the value of an enterprise:
(a) The Minister of Finance shall, upon agreement with the line ministry, the people’s committee of the province or city under central authority or the board of management of the Corporation 91, decide the value of enterprises which have the value of State owned capital at the date of equitization of over ten billion (10,000,000,000) dong.
(b) Based on the guidelines provided by the Minister of Finance, ministers, chairmen of people’s committees of provinces and cities under central authority and boards of management of Corporations 91 shall decide the value of enterprises which have the value of State owned capital at the date of equitization of ten billion (10,000,000,000) dong or less.
Article 17 Authority to approve plans for equitization and to decide on conversion of State owned enterprises into shareholding companies
1. With respect to enterprises which have the value of State owned capital of over ten billion (10,000,000,000) dong (in accordance with the decision stipulated in clause 2 of article 16 of this Decree): ministers, chairmen of provincial people’s committees and boards of management of Corporations 91 shall prepare and submit plans for equitization to the Prime Minister of the Government for approval and decision on conversion of State owned enterprises into a shareholding companies.
2. With respect to enterprises which have the value of State owned capital of ten billion (10,000,000,000) dong or less, ministers and chairmen of provincial people’s committees shall approve plans for and decide on the conversion of State owned enterprises into shareholding companies and direct equitization on the basis of this Decree and the guidelines and examination of relevant ministries.
Documents in relation to equitization issued by any ministry, province or board of management of a Corporation 91 shall be sent to the Office of Government, the Ministry of Finance and the Ministry of Planning and Investment for monitoring.
Article 18
The decision on conversion of a State owned enterprise into a shareholding company of an authorized body in accordance with the provisions of article 17 of this Decree shall replace the licence to establish a shareholding company referred to in article 16 of the Law on Companies.
Article 19 Business registration of shareholding companies
1. After equitization, an enterprise shall operate in accordance with the Law on Companies and carry out business registration at the Department of Planning and Investment of the province or city under central authority in which the head office of the enterprise is located.
2. Within a period of seven days from the date of receipt of a file for business registration, the Department of Planning and Investment shall issue a certificate of business registration to the shareholding company.
3. A file for business registration shall include the following:
(a) The decision on conversion of the State owned enterprise into a shareholding company of the authorized body stipulated in article 17 of this Decree;
(b) The charter for the organization and operation of the shareholding company approved by the general meeting of shareholders;
(c) Minutes of the election of the board of management and appointment of the managing director;
(d) The certificate of business registration of the State owned enterprise prior to equitization (if any).
Renewal of the business licence for the lines of industry issued by the specialized line ministry which is still valid shall not be required.
Article 20 Persons in charge of management of portion of State owned capital in shareholding companies
1. In the case of conversion of the whole of an independent enterprise into a shareholding company:
Ministers, chairmen of provincial people’s committee and boards of management of Corporations 91 shall agree with the Ministry of Finance to appoint a person who shall undertake direct management of the portion of State owned capital in the shareholding company.
2. In the case of conversion of a part of an independent enterprise (State owned corporation or independent enterprise with or without a board of management) into a shareholding company:
The board of management of a State owned enterprise having a board of management or the director of an independent State owned enterprise having no board of management shall appoint a person who shall undertake direct management of the portion of State owned capital in the shareholding company which is established through the equitization of a part of such enterprise.
3. Persons undertaking direct management of State owned capital in shareholding companies shall have the rights and obligations stipulated in articles 50 and 54 of the Law on State Owned Enterprises.
4. Dividends earned from the portion of State owned capital shall belong to the State and be paid to:
(a) the State Budget in the case of conversion referred to in clause 1 of this article;
(b) the enterprise responsible for the management of the State owned capital in the shareholding company in the case of conversion referred to in clause 2 of this article.
CHAPTER IV
Implementing Provisions
Article 21
This Decree shall be of full force and effect after fifteen (15) days from the date of its signing and shall replace Decree 28-CP dated 7 May 1996 and Decree 25-CP dated 26 March 1997. All previous legal instruments on equitization which are inconsistent with this Decree are hereby repealed.
Article 22
Within a period of thirty (30) days from the date on which this Decree becomes effective, the Ministry of Finance, the Ministry of Labour, War Invalids and Social Affairs, the State Bank of Vietnam and other relevant ministries and bodies shall provide guidelines for the implementation of this Decree.
Article 23
Ministers, heads of ministerial equivalent bodies and Government bodies, chairmen of people’s committees of provinces and cities under central authority, and boards of management of Corporations 91 shall be responsible for the implementation of this Decree.
On behalf of the Government
Prime Minister
PHAN VAN KHAI
APPENDIX
(Issued with Decree 44-1998-ND-CP dated 29 June 1998)
List of State Owned Enterprises for Selection for Equitization
I. Existing State owned enterprises which have not yet been equitized:
- State owned public service enterprises stipulated in article 1 of Decree 56-CP of the Government dated 2 October 1996;
In the case of equitization of enterprises of this kind which have the value of State owned capital of over ten billion (10,000,000,000) dong, the permission of the Prime Minister of the Government shall be required. If the value of State owned capital is ten billion (10,000,000,000) dong or less, the decision of a minister or chairman of the people’s committee of a province or city under central authority shall be required.
- Manufacture of products or provision of services in respect of which the Sate has a monopoly business: explosive materials, toxic chemicals, radioactive substances, printing of money and valuable papers, national and international communication backbone networks.
II. Existing State owned enterprises in which the State should hold controlling shares or special shares upon equitization:
- State owned public service enterprises which have the value of capital of over ten billion (10,000,000,000) dong;
- Exploitation of rare and precious ores;
- Large-scale exploitation of minerals;
- Technical services for petroleum exploitation;
- Production of fertilizers, insecticides, medicines and chemo-pharmaceuticals;
- Large-scale manufacture of non-ferrous metals and rare, precious metals;
- Large-scale production of electricity, transmission and distribution of electricity;
- Repair of aircraft;
- Posts and telecommunications operation services;
- Railway, air and sea transportation;
- Large-scale printing, publication, and production of alcohol, beer, cigarettes;
- Banks for investment and banks for the poor;
- Large-scale business activities involving oil and petrol.
III. All other existing State owned enterprises may be equitized or converted into other forms of ownership in which the State does not hold controlling shares or special shares.
On behalf of the Government
Prime Minister
PHAN VAN KHAI
