Lawyer-talk: can and should Thai Beverage gain control of Sabeco now? Lawyers Luong Van Trung from the Vietnam International Arbitration Centre and Tran Thi Anh Tho from Lexcomm Vietnam LLC discuss whether Thai Beverage has the right to be on Sabeco’s board before the six-month holding period passes.   The two layers weigh in their opinion about the Sabeco-Thai Beverage conflict A case that may affect Vietnam’s reputation on global markets On April 23, Sabeco will hold its annual general shareholders’ meeting, less than six months after it held the share auction that saw Thai Beverage as the only buyer. According to Vietnamese laws and Sabeco’s charter, a shareholder with more than 5 per cent of the stake must hold the shares for more than six consecutive months before they can present nominees to the board. In this case, as Thai Beverage only acquired 51 per cent of Sabeco’s shares last December, technically speaking, the Thai investor has not had the right to enter Sabeco’s board yet. But should we make an exception in this case? Thai Beverage clearly wants to gain control of Sabeco as soon as possible, having forked out almost $5 billion to buy the shares. This is evident in their complaint letter to the Vietnamese government last month, and Deputy Prime Minister Vuong Dinh Hue has asked the Ministry of Industry and Trade (MoIT) to look into this problem. At the moment, Sabeco’s board consists of four members, and three more seats remain empty. We believe that Sabeco can temporarily fill these three empty seats with representatives from Thai Beverage and hold an extraordinary meeting to cast a vote on this appointment. This is in line with Article 26 of the firm’s charter. There are counter-arguments, such as Article 26 of Sabeco’s charter does not follow Decree No.71/2017/ND-CP by the Ministry of Finance about corporate governance at listed companies. Article 26 also clashes with Article 16 in Sabeco’s charter about nominating and selecting board members. We believe that these arguments are incorrect. Both Article 26 and 16 of Sabeco’s charter state that Sabeco needs to gain shareholders’ approval for its selection of board members, which must stand at seven people. Also according to the charter, any decision must gain the approval of at least three quarters of the board, or five people. Up until now, Sabeco’s board operates with only four members, so does this mean the firm must re-organise all of its previous meetings with seven people to show that it strictly follows the charter? Regarding Decree 71 and Circular No.95/2017/TT-BTC, the law only says that a firm’s charter must be passed by the annual general meeting and must not violate the Law on Enterprises, Securities Law, Decree 71, and relevant rules. The model charter is only for reference. There is no ground in stating that Sabeco’s Article 26 violates the law. Moreover, MoIT and Sabeco’s board do not need to ask the State Securities Commission whether nominees from Thai Beverage are truly independent or not, and how Sabeco should appoint its board. As long as the nominees can meet requirements stated in Article 151 (1) of the Law on Enterprises and stay clear from five situations listed in Article 151(2), they can become independent board members. Thirdly, Thai Beverage is a long-term strategic investor, rather than a financial investor or speculator. The people that they nominate must be qualified individuals who have the expertise and experience to help push Sabeco forward. In one extreme case, the Thai firm does not have any right at the moment to nominate board members, but as they have 51 per cent of Sabeco’s shares, they can easily skip the meeting on April 23 and turn down all suggestions made by the meeting. In other words, they can pull the brake even though they cannot go forward yet. Moreover, it’s less than two months until Thai Beverage gains enough time and power to organise another extraordinary meeting, if they want to. This is in accordance with Article 22 (3) of Sabeco’s charter. The truth is, Thai Beverage has spent a huge amount of money to own half of Sabeco’s shares, thus they naturally have the right to become part of Sabeco’s management team. This is why we believe that it is unfair for Thai Beverage if we continue to emphasise minor details such as the six-month holding period. The Vietnamese government’s swift response to Thai Beverage’s complaint is testament to Vietnam’s efforts to attract foreign investment and create a transparent and fair legal environment for investors. This sends a positive message to any foreign investor in Vietnam. In this case, if the situation can be solved properly, it will assist Vietnam in future IPOs and the equitisation processes of major state-owned firms. If Vietnam can show that it encourages foreign investment, high-quality foreigners with ample financial capacity will certainly help Vietnamese firms in corporate governance, supply chain, logistics, and technology. This underscores how important it is for the Thai Beverage-Sabeco case to be taken seriously. It will affect Vietnam’s reputation as an investment destination, as investors do not want to worry about not having power even after buying majority shares at Vietnamese firms.   Thai Beverage has every right to demand control at Sabeco. The main question right now is how to solve this complaint properly and preserve Vietnam's appeal as an investment destination Legal adjustments needed In general terms, drawing lessons from the Thai Beverage-Sabeco case, we suggest that the Vietnamese government consider adjusting the Law on Enterprises, specifically the amount of share-holding time that major investors must pass before nominating their representatives to the board: Investors with 1-5 per cent of the stakes must hold the shares for three or six consecutive months. Three months are the requirement for investors with 5-10 per cent. There should be no time requirement for individuals with more than 5 per cent or institutional investors with more than 10 per cent of the stakes. This can be specifically applied to buyers who purchase more than 1 per cent of the stakes in state divestments or IPOs. These investors can nominate themselves into the board if they hold the shares for three or six consecutive months. These adjustments, in our opinion, would increase the attractiveness of major share sales, especially the IPOs of electricity and infrastructure firms. Investors will not have to worry that during the long waiting period the company may undergo significant changes. This rule will also help the government to prevent any corrupted officials from “sucking blood” from the company before selling it off to external investors. They will also not have enough time to erase any wrongdoings previously conducted or send their acquaintances into the business before they lose control of it. Moreover, when conducting share sales, the government should ensure that major shareholders have the right to nominate representatives into the board by organising an extraordinary meeting. If this happens, the current board cannot turn down the request. To facilitate this move, maybe it is a sensible idea to “freeze” the money received from the deal in a separate bank account before all issues relating to board members’ nomination are solved properly. VIR