A derivative suit in Vietnam, as in most jurisdictions in which it is allowed, is a civil action brought by a shareholder of a company against a third party in the name of the company. Often this third party is a member of management.1 This is a powerful tool for minority shareholders to influence the decision-making of management and to hold management responsible for its actions. Because it promotes the interests of minority shareholders, however, most governments disapprove of the derivative suit and seek to limit its application. Vietnam has evolved in its use of the derivative suit and now offers a very liberal process that has even been successfully applied by the courts.


Derivative Suits Internationally

In order to file a derivative suit in the United States the shareholders must first prove they are eligible to file. The requirements for shareholding percentage and period of ownership vary by jurisdiction but tend to be onerous. Once this eligibility has been proven, in the majority of major jurisdictions, the shareholders must first appeal to the Board of Directors. Only when the BOD rejects or fails to act on such a request may the shareholder proceed to qualify to file suit. There are additional requirements imposed.2

In England the derivative suit is not to protect shareholders, but the corporation itself. Shareholders desiring to file suit against management must apply to the court for permission. They must prove a prima facie case demonstrating that, on first impression, the accused violated their duties. Only then will the court approve the suit and allow the shareholders to proceed.3 Most civil law countries, which includes most of Europe and Indochina, rarely provide for derivative suits. As the purpose of the derivative suit is to offer smaller shareholders protection against management—there not being another way for the minority shareholder to influence decision making—and as Europe does not allow small shareholders—only large ones—to sue in the name of the company, there are very few derivative lawsuits in continental Europe.4

History of Derivative Suits in Vietnam

In Vietnam, the 2005 Enterprise Law allowed shareholders, or groups of shareholders holding more than 10% of the issued shares of a company, or less if so specified in the charter, and holding those shares for at least six consecutive months, to request the board of supervision to inspect the “specific problem[s] in relation to the management and operation of the company if necessary.”5 The same class could also request the convocation of a general meeting of shareholders if the Board of Management “seriously violates the rights of shareholders, duties of managers or makes decisions beyond its power.”6 That meeting would then have the power to investigate breaches committed by management which caused damage to the company and its shareholders.7 There was no provision for shareholders to bring a lawsuit and there was, essentially, no enforcement mechanism. This situation left shareholders without recourse should management decide to act against the company’s, and by extension their, interests.

This situation changed slightly in 2010 when the National Assembly issued a decree addressing what it considered to be shortcomings in the current Law on Enterprises. This new decree provided that shareholders, or groups of shareholders, holding at least one percent of the issue ordinary shares of a company for at least six months continuously could request the Board of Supervisors to instigate litigation for liability against the management in certain cases.8 The Board of Supervisors of the company had 15 days to acknowledge and instigate a lawsuit against the accused member(s) of management.9 If they didn’t take action, the shareholder or group of shareholders who originally made the request were allowed to file suit directly against the accused.10 The Decree at least provided a procedure that minority shareholders could follow to discipline wayward managers. It wouldn’t be until four years later that the provisions for a derivative suit would be amended and included in the new Law on Enterprises.

In 2014 the National Assembly passed a new version of the Law on Enterprises. The new law allowed individual shareholders or groups of shareholders who held at least one percent of the issued ordinary shares for six consecutive months, to initiate a civil suit against management.11 The new procedure was streamlined and did not require the participation of the Board of Supervisors, which some considered a part of management. It allowed shareholders to act directly in the interests of the company and to sue management for specifically enumerated violations. Vietnam, by removing the requirement of going through a supervisory board before launching suit, liberalized its policy beyond what even the most progressive jurisdictions in the United States allowed. But how is the derivative suit applied in reality?

Nguyen Van H. v. Kakazu S.

In 2016, Nguyen Van H., a member of the Board of Management of Saigon Tourist Travel Company and representative of 21% of the issued stock of the company, sued Kakazu S. in the Ho Chi Minh City People’s Court. Kakazu S. was the Vice-chairman of the Board of Management and the CEO of the company. Nguyen Van H. accused Kakazu S. of violating the law, the charter, and decisions of the general meeting of shareholders. He further claimed that the violations “caused damage to STT company.” The court of first instance found for the plaintiff and fined Kakazu S. 1,483,954,720 VND (approximately 64,000 USD).12

A week later Kakazu S. filed a petition of appeal to the High Court of Ho Chi Minh City. The High Court found that Nguyen Van H. suit against Kakazu S. was not only “a dispute about civil liabilities of the management of a company,” but satisfied the requirements of Article 161 of the Law on Enterprise 2014.13 The case was appealed to the Supreme Court but was denied a hearing while being sent back to the court of first instance for a retrial.14

Neither court went into much detail concerning the application of the derivative suit provisions. And even though Nguyen Van H. did not necessarily own shares himself, he represented 21% of the issued shares of the company. One can assume that this is an interpretation of the “group of shareholders” provision. One could wish for more discussion on the topic as it is an important protection for minority shareholders, but it is enough to see that—at least when the plaintiff is Vietnamese and the defendant is not—the court will allow derivative suits.



In the United States, a member of the board of directors has a two-fold fiduciary duty to shareholders. First, he must exercise due care in completing his responsibilities. “This generally requires that a director pay attention, ask questions and act diligently in order to become and remain fully informed and to bring relevant information to the attention of other directors.”15 They are also constrained by the duty of loyalty that “generally requires that a director make decisions based on the corporation’s best interest, and not on any personal interest.”16

In the United Kingdom, there have developed a series of rules that have been codified in the Companies Act 2006. They include: the duty to act within powers, or to abide by the constitutional documents of the company;17 the duty to promote the success of the company;18 the duty to exercise independent judgment, or to act unimpeded in making decisions, though this does not exclude restrictions by agreement of the shareholders;19 the duty to exercise reasonable care, skill and diligence;20 the duty to avoid conflicts of interest;21 the duty to not accept benefits from third parties, or to avoid the appearance of undue influence through gifts affecting her decisions on behalf of the company;22 and the duty to declare interest in proposed transaction or arrangement.23 These seven duties comprise the U.K. director’s fiduciary duties. They set out the responsibilities of the director’s if they wish to avoid civil liability to shareholders.

Unlike the fiduciary duties in the U.S. that impose an extremely limited number of responsibilities on directors, the U.K. has decided to expand these responsibilities and hold directors increasingly liable for their decisions.24

In Vietnam


The idea of fiduciary duties was first introduced in the 1999 Law on Enterprises. At that time, the fiduciary duty—there was only one—or “obligations of managers of the company” required them to perform their powers “honestly and diligently” in the “interests of the company and of shareholders.”25 There were further admonitions not to abuse their power, not to misuse funds, and to properly notify creditors in the case of insolvency, but these were not codified as “duties” and were treated more as concrete regulations.

The 2005 Enterprise Law provided a more sophisticated definition of exactly what duties management must violate before they may be held accountable by the shareholders. First, they were required to strictly comply with the law, the company charter, and decisions of the general meeting of shareholders. Second, they were to exercise their powers in a “fiduciary, diligent and optimal manner for the purpose of maximizing legitimate benefit of the company and its shareholders.” Third, they owed a “duty of loyalty” to the company that required them not to abuse their power or use assets of the company for their own benefit. Finally, there existed a duty of notification of ownership or interest in third party corporations.26

Current Law

The Law on Enterprises 2014 has updated these basic fiduciary duties, violation of which must occur before a shareholder can file a derivative suit against management. They consist of essentially the same duties as explicated in the 2005 law. They are expanded, however, and now provide duties slightly more in line with common law jurisdictions.

The first duty is the duty of strict performance. This duty requires the manager to exercise his delegated powers and perform his obligations “strictly in accordance” with the law, the charter, or the resolutions of the GMS. The second duty is the duty of honesty and prudence. In performing a manager’s powers or obligations, she must act “honestly and prudently” to her “best ability” to ensure the “maximum legitimate interests” of the company. The third duty is the duty of loyalty. This duty is owed to both the company and the shareholders. It requires the manager not to use information, know-how, business opportunities of the company, not to abuse his powers nor to use assets of the company for his own personal benefit or for the benefit of other organizations or individuals. The fourth duty is a branch of the common-law duty of loyalty. It could be referred to as the duty of notice. The manager is required to fully, accurately, and timely, inform the company which he manages of any interest he holds—or a related person to the manager holds—in any enterprise. In addition, there may be additional duties imposed by law or by the charter of the company. 27


The derivative suit is a protection for minority shareholders allowing them to discipline management when they act in violation of the minority’s interests. They are not popular globally, but in Vietnam the law has evolved to allow for a liberal use of the suit by shareholders against management. While still relatively untested, the one instance of use demonstrates that the courts seem to understand the concept and are willing to allow its use. This is a boon to investors who are among minority owners of a privately held company in Vietnam. Its permissiveness sets Vietnam apart and shows that Vietnam is willing, more so than even liberal democracies like the United States and England, to protect all shareholders.

1 Derivative Suit (Revised 26 January 2019), https://en.wikipedia.org/wiki/Derivative_suit#cite_note-1. (Last visited 13 November 2019).

2 Ibid.

3 Companies Act 2006, Article 261 (United Kingdom).

4 Ibid.

5 Law on Enterprises 2005, Article 79.2.d (Vietnam)

6 ibid., Article 79.3.a.

7 ibid., Article 96.2.h.

8 Decree 102/2010/NĐ-CP, Article 25.1 (Vietnam).

9 ibid., Article 25.2.

10 ibid., Article 25.3.

11 Law on Enterprises 2014, Article 161 (Vietnam).

12 Decision of the High Court of Ho Chi Minh City 29/2017/KDTM-PT, August 14, 2017 (Vietnam).

13 ibid.

14 Trang, Bui. “Từ vụ Món Huế, nhìn về việc khởi kiện người quản lý doanh nghiệp tại Việt Nam” (Published November 4, 2019). https://tinnhanhchungkhoan.vn/phap-luat/tu-vu-mon-hue-nhin-ve-viec-khoi-kien-nguoi-quan-ly-doanh-nghiep-tai-viet-nam-302107.html (Last visited November 18, 2019).

15 Giove, Stephen and Robert Treuhold. Corporate governance and directors’ duties in the United States: overview. Thomson Reuters Practical Law, UK. https://uk.practicallaw.thomsonreuters.com/9-502-3346?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1 (Last visited November 28, 2019).

16 Ibid.

17 Companies Act 2006, Article 171 (United Kingdom).

18 Ibid., article 172.

19 Ibid., article 173.

20 Ibid., article 174.

21 Ibid., article 175.

22 Ibid., article 176.

23 Ibid., article 177.

24 Kean, Francis. “Guest Post: The Truth about Directors’ Duties in the UK and the Business Judgment Rule.” The D&O Diary December 20, 2018. https://www.dandodiary.com/2018/12/articles/director-and-officer-liability/guest-post-truth-directors-duties-uk-business-judgment-rule/ (Accessed November 27, 2019).

25 Law on Enterprises 1999, Article 86 (Vietnam).

26 Law on Enterprises 2005, Article 119.1 (Vietnam).

27 Law on Enterprises 2014, Article 160 (Vietnam).