1. Summary of Legal Issues and Practical Implementation Corporate executives hold extensive control over company assets, requiring strict statutory standards of care and loyalty to prevent abuse of managerial authority and protect shareholders and stakeholders.
- Origin of Legal Duties: Under Vietnamese law, members of the Board of Directors, Members’ Councils, and General Directors must exercise their rights and perform duties honestly, prudently, and in the best interests of the enterprise. The integration of Environmental, Social, and Governance (ESG) criteria introduces expanded responsibilities concerning sustainable operations.
- Common Violations and Practical Risks:
- Self-dealing and undeclared related-party transactions to extract company capital or assets.
- Usurping commercial opportunities of the enterprise for personal gain or for affiliated entities.
- Failure to account for environmental compliance and social responsibility liabilities during major corporate actions, leading to substantial regulatory penalties and devaluation of company shares.
2. Core Applicable Legal Provisions
- 2.1. Fiduciary Duties and Standard of Prudence: Article 165 (for Joint Stock Companies) and Article 71 (for Multiple-Member LLCs) of the Law on Enterprises 2020 prescribe that managers must execute their rights and duties with honesty, prudence, and maximum loyalty toward the lawful interests of the company, and are prohibited from taking advantage of information or business opportunities of the enterprise.
- 2.2. Disclosure of Related Interests and Approval of Contracts: Articles 164 and 167 of the Law on Enterprises 2020 govern the registration and disclosure of related interests, mandating formal approval mechanisms by the General Meeting of Shareholders or the Board of Directors for major contracts executed with related parties.
- 2.3. Personal Liability and Shareholder Derivative Suits: Article 166 of the Law on Enterprises 2020 empowers individual shareholders or groups holding at least 1% of ordinary shares to initiate lawsuits directly against directors or the General Director to claim compensation for damages caused by breaches of managerial duties.
3. Legal Consequences and Sanctions
- Civil and Compensatory Liability: Managers who violate statutory fiduciary obligations are personally and jointly liable for damages caused to the company, including the forfeiture of unlawful profits gained through unauthorized self-dealing.
- Invalidation of Transactions: Contracts executed without mandatory Board or Shareholder approval under Article 167 of the Law on Enterprises 2020 are deemed null and void under the Civil Code 2015, requiring restitution of all benefits received.
- Administrative and Criminal Exposure: Severe violations causing significant loss of corporate property may trigger administrative fines under Decree No. 122/2021/ND-CP or criminal prosecution for abuse of trust or breach of economic management regulations under the Criminal Code 2015 (amended 2017).
4. Legal Commentary and Evaluation
- 4.1. Impact on Business and Investment: Clear fiduciary duty enforcement builds institutional investor confidence and aligns Vietnamese corporate governance standards with OECD Guidelines and regional ESG compliance expectations.
- 4.2. Practical Difficulties and Solutions: Proving intentional managerial breach versus justifiable business risk (the “Business Judgment Rule,” which is not explicitly codified in Vietnam) remains difficult in court. Enterprises should adopt robust internal compliance charters, clear ESG metric reporting, and Director and Officer (D&O) liability insurance mechanisms.
5. Conclusion and Practical Recommendations
- Establish independent audit committees and strict internal reporting protocols for all transactions involving related parties.
- Integrate quantifiable ESG oversight responsibilities into the formal charters and management employment agreements of senior corporate officers.
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