Regarding the acquisition of 3 banks for zero dollars.

(Baonghean) - From March 5, 2015 to July 7, 2015, the State Bank of Vietnam (SBV) successively acquired three commercial banks for 0 dong. This event raised a series of legal issues, and why did the SBV acquire them for 0 dong, instead of maintaining, merging, dissolving, or declaring bankruptcy? Below is the commentary of Lawyer Truong Thanh Duc, Chairman of BASICO Law Firm, international arbitrator...

Bad debts are very high, and capital losses are enormous.

According to the State Bank of Vietnam's announcement, all three banks, including Vietnam Construction Bank (VNCB), Ocean Bank, and Global Petroleum Bank (GPBank), are very weak banks with very high bad debts, a high risk of capital loss, negative bank values ​​of thousands of billions of dong, and a value of zero per share, based on the results of inspections and audits.

Legally, all three commercial banks fall into at least one of the categories requiring special control measures as stipulated in Clause 3, Article 146 on "Application of Special Control" of the Law on Credit Institutions 2010. These categories include: risk of insolvency; uncollectible debts that risk leading to insolvency; when the cumulative amount exceeds 50% of the actual value of charter capital and reserve funds recorded in audited financial statements; being rated as weak for two consecutive years; failure to maintain the minimum capital adequacy ratio for one consecutive year, etc.

Transactions at Ocean Commercial Bank (Illustrative image).

The legal consequences of this move show that, after applying special control measures, the State Bank of Vietnam (SBV) decided to acquire the three aforementioned joint-stock commercial banks for 0 dong and convert them into wholly-owned limited liability commercial banks. All three banks were retained to continue their business operations, but thousands of shareholders, owning shares worth tens of trillions of dong, immediately ceased to be shareholders, no longer enjoying any rights or obligations as shareholders. Looking back at the reality and considering the theory, it can be seen that the SBV could have chosen the solution of rectifying, restructuring, and maintaining the joint-stock commercial banks.

However, in order to continue operating, these banks have failed to meet the minimum required charter capital for a long period. Shareholders of all three banks also did not choose to increase capital, or more accurately, did not achieve the minimum 65% voting ratio needed to increase charter capital. If the State Bank of Vietnam (SBV) chooses to merge these banks with other banks to form a new bank as stipulated, this would require another strong bank to participate in the merger. In my opinion, this solution is impossible, as no bank has voluntarily agreed to merge. Furthermore, the SBV did not choose the option of mandating the designation of a bank to undertake the merger due to a lack of legal basis.

Illustrative image. Source: Internet

In the event that the banks are not merged, the State Bank of Vietnam (SBV) could choose to merge these banks into other banks according to regulations, but this would require the acquiring bank to be a strong bank. This solution is impractical, as no bank would voluntarily agree to a merger. Similarly, the SBV did not choose the option of mandating the designation of a bank to undertake the merger due to a lack of legal basis. The SBV could also choose to dissolve the three banks and completely cease their existence, but this could only be done if the three banks "are capable of paying off all their debts."

Furthermore, if bankruptcy were to be initiated, although the State Bank of Vietnam (SBV) has the right to file a bankruptcy petition for the three aforementioned commercial banks, the amount of money to be paid to depositors is very large, and the banks would not be able to pay immediately due to shortfalls. It would also take many years to recover the funds, leading to a mass withdrawal of deposits and the risk of a national financial system collapse. To avoid this risk, the State must commit to and have sufficient funds to guarantee full payment of deposits to the people. Therefore, Decisions No. 254/QD-TTg and No. 255/QD-TTg only address measures such as "mergers, consolidations, and acquisitions," and do not include measures for "dissolution or bankruptcy" of commercial banks at this stage.

It is not nationalization of assets.

Besides the above solutions, the handling of the three banks does not allow for nationalization, nor does it permit the requisition or purchase of assets, or the buying and selling of banks or their assets. And although four laws have mentioned the buying and selling of businesses that are legal entities, the 2005 Civil Code, as well as the 2005 and 2014 Enterprise Laws, do not address the purchase of legal entities in general or the purchase of businesses that are companies in particular. Therefore, if understood in a simple, conventional way, it does involve the buying and selling of businesses and banks.

However, if understood in a more complex and profound way, the buying and selling of businesses in the aforementioned laws refers to the buying and selling of private businesses or the buying and selling of part or all of the capital contributions of limited liability companies or part or all of the shares of joint-stock companies. Therefore, the cases under consideration are the buying and selling or transfer of shares and stocks of bank shareholders, not the buying and selling of the bank itself. Because if it were the buying and selling of a bank, it would immediately lead to an irresolvable conflict regarding the ownership rights of shareholders; in other words, if it were the buying and selling of a business, it would be impossible to disinherit shareholders. It should be clarified that if the assets of a bank are bought and sold, the rights of shareholders remain intact, regardless of whether the value of the shares is above or equal to zero.

Faced with the urgent need to resolve the legal fate of these commercial banks, but unable to implement solutions such as maintaining, consolidating, merging, dissolving, or declaring bankruptcy, and also unable to nationalize, seize, or acquire the banks, the inevitable choice was to choose the most feasible solution: acquiring the banks, as has already happened. The only remaining issues were the legal conditions, procedures, and wording of the acquisition.

According to the legal nature of the Law on Credit Institutions of 2010, as well as the Enterprise Laws of 2005 and 2014, there are no buying and selling transactions, only transactions involving the transfer of shares by shareholders (similar to Article 54 of the Constitution and the Land Law of 2013, which are not called buying and selling, but rather transferring land use rights).

However, since there are no legal regulations regarding auctioning in this case, the "foreclosure" of shares did not occur. And the security of the banking system could not wait for such a thing to happen. The State Bank of Vietnam did not need to buy back 100%, but only 65% ​​of the total shares, to have full authority to make decisions on all matters concerning commercial banks.

Avoid the risk of system failure.

The State Bank of Vietnam's decisions, based on legal grounds and aimed at resolving the situation, are necessary and vital to prevent the collapse of the banking system; ensuring macroeconomic stability, political security, and social order; and effectively curbing non-compliance with safety requirements for banking operations. The process of handling the three aforementioned banks is an extremely special undertaking, significantly impacting the psychology of investors in general and bank shareholders in particular. Therefore, it is essential to disclose information specifically, fully, promptly, transparently, and to clearly and accurately explain the legal basis and the actual situation of the banks acquired for zero dong.

To ensure a clear and firm legal basis for handling similar cases as mentioned above, it is necessary to consider amending and supplementing the Law on Credit Institutions of 2010 to clearly and specifically regulate the conditions, measures, and procedures for handling such cases, or to amend the Law on Expropriation and Requisition of 2008. In the meantime, it is necessary to consider amending and supplementing regulations to allow the State Bank of Vietnam to directly contribute capital and purchase shares of credit institutions (buying from the companies themselves), and to allow the transfer of capital contributions, in order to fully comply with the provisions of the Enterprise Law, the Law on Credit Institutions, and the Securities Law.

Hong Ha