Is it possible to ask the parent company to pay on behalf of its subsidiary company in Vietnam?

Is it possible to ask the parent company to pay on behalf of its subsidiary in Vietnam ?

Pursuant to Article 194 of the Law on Enterprises 2020 on economic conglomerates and corporations as follows:

1. A business group or corporation is a group of companies that are interrelated by ownership of shares/stakes or otherwise associated. A business group or corporation is not an enterprise, is not a juridical person and registration of its establishment under this Law is not required.

2. A business group or corporation has a parent company, subsidiary companies and other member companies. They have the same rights and obligations of as those of independent enterprises as prescribed by law.

Accordingly, the subsidiary company in a group are an independent legal entity, have their own assets, have their own management apparatus and are responsible for their own debts as well as their own property obligations. As such, your company cannot hold the Group responsible for paying the debts of Company A in Vietnam.

Rights, obligations and responsibilities of the parent company to its subsidiary companies in Vietnam

Pursuant to Article 196 of the above Law, the regulations on the rights, obligations and responsibilities of the parent company to the subsidiary are as follows:

1. Depending on the type of the subsidiary company, the parent company shall perform its rights and obligations as its member, owner or shareholder in accordance with corresponding regulations of this Law and relevant laws.

2. All contracts, transactions and relationships between the parent company and the subsidiary company shall be established and executed independently and equally under conditions applied to independent legal entities.

3. In case the parent company makes intervention beyond the power of the owner, member or shareholder and forces the subsidiary company to operate against its ordinary business practice or do non-profit activities without paying compensation in the relevant fiscal year and thus causes damage to the subsidiary company, the parent company shall be responsible for such damage.

4. The executive of the parent company shall be responsible for its intervention mentioned in Clause 3 of this Article and shall be jointly responsible for the damage caused together with the parent company.

5. In case the parent company fails to pay damages as prescribed in Clause 3 of this Article, the creditor, member or shareholder that holds at least 01% of the subsidiary company’s charter capital is entitled to, in their own names or in the subsidiary company’s name, request the parent company to pay damages.

6. In case the intervention mentioned in Clause 3 of this Article is beneficial to another subsidiary company of the same parent company, that subsidiary company and the parent company shall jointly provide the benefit for the subsidiary company that suffers damage.

Best Regards!