Members of the board of directors withdraw their resignations – Many enterprises are still struggling with how to handle this

HM&P's Managing Partner Van Phuc Nguyen and Legal Associate Nguyen Nhat Duong share HM&P's insight in The Saigon Times (No. 36-2023) on 07 September 2023. Below is the English version translated by HM&P of this article:

According to the Law on Enterprises, members of the board of directors (“Board Member”)/ inspectors of a joint stock company may be removed by resolution of the general meeting of shareholders (“GMS”), which is based on their resignation[1]. Therefore, they often submit their resignation to their company if they do not want to continue their duties as Board Member or inspectors. However, how should the enterprises do if Board Member or Inspectors withdraw their resignations after submitting them? In practice, many enterprises face this situation, and many of them are still struggling to find ways to handle it, as well as to resolve the aspirations of Board Member/ Inspectors while still ensuring compliance with legal requirements. In view of this very common fact, we will mention some legal issues that enterprises need to pay special attention to when Board Member/ Inspectors submit their resignations and then withdraw them.

Sources: https://thesaigontimes.vn/

Time of termination of the status as Board Member/ Inspectors

As mentioned above, based on the resignation of the Board Member/ Inspectors, the GMS will decide on their removal. However, unless otherwise provided in the company’s charter, the GMS may only remove the Board Member/ Inspectors through the annual GMS without using the form of collecting written opinions, which is stipulated in Point d Clause 2 Article 147 of the Law on Enterprises 2020. In the next, Clause 1 Article 140 of the Law on Enterprises 2020 it is stipulated that in addition to the annual GMS, the BOD shall convene an extraordinary GMS in certain cases, including notable cases where (i) The BOD deems it necessary for the interests of the company; (ii) The number of remaining Board Member/ Inspectors is less than the minimum number prescribed by law; and (iii) Other cases as prescribed by law and the company's charter. It is assumed that the company's charter does not stipulate other cases in which the BOD must convene the GMS, only cases (i) and (ii) are the most likely to be used by the BOD to use as a basis for convening the general meeting upon receiving the resignations of Board Member/ Inspectors.

According to this provision, if the number of Board Member/ Inspectors of the company still meets the minimum number as prescribed by law, the BOD will have no basis to convene the GMS. Meanwhile, the Law on Enterprises and implementing regulations do not have specific provisions for the case when the BOD deems it necessary for the interests of the company. The interpretation of the degree of necessity in this case depends on each company and each specific situation. Therefore, there are still cases where the BOD does not use this basis to convene the GMS, which means that the removal of Board Member/ Inspectors will have to wait until the annual GMS.

It can be seen that the BOD has the right not to convene the GMS to remove the Board Member/ Inspectors after receiving their resignation if it does not fall into the special cases mentioned above. The period from the time of submitting the resignation to the time of holding the annual GMS may be very long, and many issues arise under the responsibility of the Board Member/ Inspectors. Therefore, when does the status as Board Member/ Inspectors terminate? This is the issue that company need to pay special attention to.

The Law on Enterprises referring to the case of removal of Board Member/ Inspectors of the GMS gives out two conditions, namely: “there is a resignation letter, and it is approved”. Thus, the resignation of Board Member/ Inspectors is only a necessary condition, they must have sufficient conditions to be approved by the GMS to terminate their status as Board Member/ Inspectors. Therefore, the status of such persons is terminated only at the time of the decision of the GMS.

In practice, many enterprises and the Board Member/ Inspectors do not properly comprehend this provision. As a result, individuals who have submitted their resignations do not continue to perform their duties in the company, which affects the validity of the decisions of the BOD/ Board of Inspectors, and even causes disputes within the internal company or between the company and other third parties.

Validity of the withdrawal of resignations by Board Member/ Inspectors

According to the author's research, when face with the situation of the withdrawal of resignation by Board Member/ Inspectors, enterprises often deal with it in many different methods. Some choose to consider the withdrawal of resignation by the Board Member/ Inspectors through the meeting of the BOD/ Board of Inspectors[2], while others believe that the consideration of the withdrawal of resignation must be under the jurisdiction of the GMS[3]. So, which authority has the jurisdiction to consider the withdrawal of resignation by Board Member/ Inspectors?

Currently, the Law on Enterprises 2020 and the implementation guidelines do not mention the withdrawal of resignation by Board Member/ Inspectors. Their resignation is only mentioned at Point b Clause 1 Article 160, and Point b Clause 1 Article 174 of the Law on Enterprises 2020 as the basis for arising the right to remove the Board Member/ Inspectors of the GMS. In addition, there are no provisions mentioning the resignation or the withdrawal of the resignation. Therefore, there is no direct legal basis for asserting which authority is competent to consider the withdrawal of the resignation.

However, it can be affirmed that the competent to consider the withdrawal of the resignation cannot belong to the BOD or the Board of Inspectors because, in accordance with the provisions of the Law on Enterprises, in case of the resignation of Board Member/ Inspectors, the GMS will consider the approval of the removal of these persons. The fact that the BOD or the Board of Inspectors approves the request to withdraw the resignation of Board Member/ Inspectors and does not include the content of the consideration of the approval of the removal of the Board Member/ Inspectors in the GMS is a violation of the jurisdiction of the GMS. On the contrary, if the BOD or the Board of Inspectors does not approve the resignation of Board Member/ Inspectors, it makes no sense because the approval of the request to withdraw the resignation still belongs to the GMS. Therefore, if the BOD or the Board of Inspectors does not approve the resignation or takes no action on the resignation request, the GMS will still consider approving the resignation of the Board Member/ Inspectors.

In the author's opinion, since the Law on Enterprises does not mention the withdrawal of the resignation nor the jurisdiction to consider the withdrawal of the resignation. Therefore, in all cases, when the Board Member/ Inspectors submit their resignations, the GMS must still consider the approval of their resignation, regardless of whether the Board Member/ Inspectors withdraw their resignation after the resignation or not.

From a legal perspective, this interpretation is consistent with the provisions of the jurisdiction of the GMS, as it is clear that the resignation of the Board Member/ Inspectors is the basis for the GMS to consider the removal of these individuals. Regarding the withdrawal of the resignation, there is no basis for other competent authorities to approve or reject the withdrawal of the resignation.

From a practical perspective, the fact that the GMS still considers approving the removal of Board Member/ Inspectors is reasonable and consistent with corporate governance practices. Accordingly, Board Member/ Inspectors are the management titles of the company, so these individuals holding the titles require stability and cohesion of the company in order to manage and operate the company in the most effective manner. The resignation of Board Member/ Inspectors proves that these individuals have personal problems and are not ready for the position they are currently hold. The role of the GMS in this case is to consider whether these individuals are still suitable for leadership positions in the company. Therefore, the fact that the Board Member/ Inspectors and Inspectors withdraw their resignations and believe that the personal issues raised in their resignation letter that they faced have been resolved is merely a subjective assessment on the part of these individuals. After all, the GMS still has to evaluate the suitability of these individuals to continue in the company’s executive positions, which brings stability to the company's executive structure and avoids the case of a Member of BOD/ Inspector repeatedly submitting her/his resignation and then withdrawing her/his resignation.

On the other hand, if the GMS is considering approving the removal of Board Member/ Inspectors who has resigned, the GMS may still use the resignation request as a basis for evaluating the suitability of these individuals for the position being considered for the removal, which will help the GMS to have more comprehensive view. If the GMS deems that Board Member/ Inspectors are still suitable to hold these positions in the company, the GMS has the right to consider the retention of these individuals.  

In summary, from the time of submitting their resignations, Board Member/ Inspectors must  continue to exercise their rights and obligations as Board Member/ Inspectors. If these individuals then wish to withdraw their resignations, the consideration of their resignations must still be made by the GMS, at which time the GMS has the right to decide whether or not to dismiss these individuals or not based on the provisions of the applicable laws and the resignations of Board Member/ Inspectors, which is based on a comprehensive assessment of the suitability of these individuals for company management positions. Enterprises may consider this option to ensure strict compliance with the provisions of the law.

Read the article at: https://thesaigontimes.vn/khi-thanh-vien-hoi-dong-quan-tri-rut-don-tu-chuc/