Protecting Shareholders' Rights in the Delisting Process

I. Introduction

Delisting is an important event on the stock market, which can significantly affect shareholders’ rights. Understanding and protecting these rights during this process is crucial for every investor.

II. Shareholders’ Rights in the Delisting Process

Basic Rights of Shareholders

Under the provisions of the Enterprise Law and the Securities Law, shareholders have the following basic rights (Article 271 of the Securities Law):

Common rights of ordinary shareholders (Article 115 of the Enterprise Law):

• Participate in, speak at, and vote at the General Meeting of Shareholders.
• Receive dividends as decided by the General Meeting of Shareholders.
• Have priority in purchasing new shares according to their ownership ratio.
• Freely transfer shares, except in certain cases restricted by law.
• Review, search, and extract information related to the shareholder list, and amend personal information if necessary.
• Review, search, and photocopy documents such as the company’s charter, meeting minutes, and resolutions of the General Meeting of Shareholders.
• They receive the remaining assets corresponding to their ownership ratio when the company is liquidated or bankrupt.

Exclusive rights of shareholders/groups of shareholders holding 5% or more of ordinary shares (or a smaller percentage as per the company’s charter):

• Review, search, and extract documents such as board meeting minutes and resolutions, financial statements, supervisory board reports, contracts, and transactions that must go through the board (except for documents related to business secrets).
• Request the convening of a General Meeting of Shareholders if necessary.
• Request the Supervisory Board to check specific management and operation issues through written documents.
• Other rights as provided by law and the company’s charter.

Along with other rights stated in Articles 116, 117, 118, and 119 of the Enterprise Law.

Shareholders of public companies have the following rights and obligations (Clause 1, Article 41 of the Securities Law):

• Be treated equally.
• Have full access to both regular and irregular information disclosed by the company according to legal regulations.
• Protect their legal rights and interests; request the suspension or cancellation of resolutions or decisions of the General Meeting of Shareholders or the Board of Directors as prescribed by the Enterprise Law.
• Large shareholders must not abuse their power to influence the company or other shareholders and must disclose information as required by law and the company’s charter.
• Other rights and obligations as provided by law and the company’s charter.

Disclosure of information applies to large shareholders, groups of related individuals owning 5% or more of voting shares of public companies or closed-end mutual funds.

They must disclose information when: (Article 127 of the Securities Law)

• Becoming or ceasing to be a large shareholder of a public company or public securities investment company.
• Changes in the number of shares owned that cross the 1% voting shares threshold of a public company or public securities investment company.
• This does not apply to cases as prescribed in Clause 3, Article 127 of the Securities Law.

Voting Rights and Objection

Based on the listed rights of shareholders, when delisting occurs, shareholders have the right to:

Voting rights of shareholders:

• Shareholders have the right to participate, speak, and vote at the General Meeting of Shareholders (Article 115, Enterprise Law).
• Shareholders have the right to vote on important company decisions, including decisions to delist from the stock exchange.

Right to object to resolutions or decisions of the General Meeting of Shareholders:

Request for the company to reconsider the decision if there is a legal basis:

• If a shareholder believes that the decision to delist the stock is unreasonable or does not protect their legitimate rights, they may request the company to reconsider the decision, and if necessary, may seek intervention from state management agencies or other competent authorities.
• The request for reconsideration must be based on specific and reasonable legal grounds, such as the decision violating legal regulations, the company’s charter, or the shareholder’s legitimate rights.

III. Investor Protection Mechanism

Legal Framework

Investors are protected through:

The Securities Law and related documents (Enterprise Law 2020, Decree 155/2020, Circular 96/2020/TT-BTC…):

This is the main legal framework that regulates the rights and obligations of investors in the securities market. The Securities Law protects investors from fraudulent activities, and market manipulation, and provides a legal basis for resolving disputes arising during securities transactions.

The Listing Regulations of the Stock Exchange:

The Stock Exchange sets regulations for listing, trading, and disclosure of information by listed companies. These regulations ensure that listed companies must be transparent and disclose information, helping investors make informed investment decisions and protecting their interests.

Company charter and internal regulations:

The company’s charter and internal regulations define management rules, protecting investors by outlining shareholders’ rights, obligations, and decision-making procedures.

Specific Protection Measures

Protection measures include:

Requirement for Transparent and Complete Information Disclosure (Article 11, Clause 1, Circular 96/2020/TT-BTC)

• The company must disclose information about the delisting decision, the reason for delisting, and the plan for trading shares after delisting (e.g., registering for trading on Upcom).
• This ensures that shareholders have full information to make appropriate investment decisions and avoid losses due to lack of transparency.

Request for the Supervisory Board to Review Issues Related to the Company (Clause 2, Article 115, Enterprise Law)

• Shareholders or shareholder groups holding 5% or more of common shares have the right to request the Supervisory Board to review the activities of the Board of Directors (BOD) and the Executive Board.
• The purpose is to ensure that the delisting is not accompanied by violations, fraud, or harm to minority shareholders.

Request to Convene a General Meeting of Shareholders (Clause 2, 3, Article 115, Enterprise Law)

• Shareholders or shareholder groups holding 5% or more of common shares have the right to convene a General Meeting of Shareholders in case:
  • The BOD seriously violates shareholders’ rights.
  • The BOD issues decisions beyond their authority, causing damage to the company.
• This is an important measure for shareholders to intervene and request a review of the delisting decision.

Regulation on Reasonable Share Repurchase Price (Article 133, Enterprise Law)

• If the shares are listed, the repurchase price must not be lower than the market price.
• If the shares are not listed, the repurchase price is negotiated between the company and shareholders.

The Supervisory Mechanism of State Management Agencies

• Supervision through information disclosure requirements
• Supervision through regular and unscheduled inspections
• Supervision of the activities of the Board of Directors and the executive board
• Violation handling mechanisms: administrative fines, criminal responsibility

Lawsuit Against the BOD (Article 116, 153, Enterprise Law)

• Shareholders or shareholder groups holding 1% or more of common shares have the right to file a lawsuit against the BOD if there are signs of:
  • Violating the obligation to manage the company.
  • Causing damage to shareholders’ interests.
  • Abusing authority for personal gain.

IV. Delisting Protection Process

Dispute Resolution Channels

Disputes can be resolved through:

• Sending a request to the Supervisory Board for review and inspection.
• Proposing at the General Meeting of Shareholders.
• Complaining to the State Securities Commission (Point g, Clause 1, Article 9 of the Securities Law).
• Filing a lawsuit in court if necessary (Clause 1, Article 166 of the Enterprise Law).

For example, in the case where a large shareholder manipulates delisting to take over the company:
Situation: A large shareholder (holding 55% of shares) wants to buy all shares of DEF Joint Stock Company at a low price, so they propose delisting to reduce market pressure and force minority shareholders to sell their shares at a low price. This shareholder uses their influence in the Board of Directors to pass the delisting decision without fully consulting minority shareholders.

Solution:

• Send a request to the Supervisory Board: Minority shareholders can ask the Supervisory Board to investigate whether the delisting decision complies with legal regulations.
• Propose at the General Meeting of Shareholders: If the group of minority shareholders holds the required number of shares, they can request the General Meeting of Shareholders to reconsider the decision and vote again.
• File a complaint to the State Securities Commission: If there is evidence of market manipulation or violation of shareholder rights, minority shareholders can file a complaint to the State Securities Commission to request intervention.
• File a lawsuit in court: If shareholder rights are seriously violated, minority shareholders can sue the large shareholder or the company in court to annul the delisting decision.

Process

2.1. The process for submitting a proposal to the Supervisory Board or the General Meeting of Shareholders typically follows the company’s charter.

2.2. If the delisting decision is considered inappropriate, shareholders have the right to file a complaint with the State Securities Commission (Articles 27-43 of the Complaint Law – first and second complaint):

Accepting the complaint:

• Within 10 days, the competent authority must accept or reject the complaint with a clear reason.
• Review the complaint and acceptance conditions, including content, the complainant, and relevant evidence.

Verifying the complaint:

• Within 30 – 45 days, the competent authority checks the decision/administrative actions.
• If a conclusion cannot be reached, the authority may assign an inspection agency or organization to verify and collect documents and evidence.

Organizing dialogue:

• If there is a discrepancy between the complaint request and the verification results, a public dialogue will be held.
• The dialogue will be recorded, which is an important basis for resolving the complaint.

Issuing a decision to resolve the complaint: The first or second decision must clearly state the content of the complaint, the verification results, legal grounds, conclusions, and handling measures.

Publishing the decision to resolve the complaint:

• First decision: sent within 3 working days.
• Second decision: sent within 7 working days and published through methods like posting, agency meetings, and mass media.

Managing the complaint file:

• The file includes documents, evidence, verification results, and decisions.
• Open the file when a receipt notification is issued, and close the file when a final decision is made.

2.3. Shareholders have the right to file a lawsuit in court if they believe their rights are violated in the delisting process (Clause 2, Article 166 of the Enterprise Law):

Please refer to the article on Protecting Shareholder Rights in Cases of Board of Directors Violations to better understand the process for shareholders filing a lawsuit against the Board of Directors.

V. Conclusion and Recommendations

To protect their rights, shareholders should:

• Proactively monitor information from the company: Shareholders need to regularly update financial reports, information from meetings, and changes in company operations to stay informed and safeguard their rights.
• Thoroughly understand their legal rights: Knowing their rights and obligations under the law and the company’s charter helps shareholders protect their interests during disputes or arising issues.
• Actively participate in shareholder meetings: By participating, shareholders can contribute opinions, monitor company activities, and ensure they exercise their voting rights.
• Seek legal advice when necessary: In complex situations or signs of rights violations, shareholders should consult legal experts to effectively protect their interests.

Protecting shareholder rights during the delisting process requires close cooperation among all relevant parties. Shareholders need to understand their rights and take the initiative to defend their legitimate interests.

watch it here: Ep08Protecting Shareholders’ Rights in the Delisting Process – YouTube

Harley Miller Law Firm “HMLF”

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