“It can be seen from several criminal cases and the practical business that some current common phenomenon is emerging increasingly. That is, some people are acting as substitutes and/or as directors and legal representatives of another one’s company. Because of the immediate benefits, many people have not found out the legal risks behind the fees and remuneration they receive. The use of someone else’s name is non-transparency leading to many potential risks.”

TOO MANY REASONS FOR USING THE OTHERS’ NAMES

In the case heard by the Navy Military Court related to Đinh Ngọc Hệ (“bald” Út), it was clearly shown in the questioning section that Ms. Vũ Thị Hoan was the “pupet” director. Her name was used by Mr. Hệ for setting up his company[1]

Ms. Hoan had the director title without the real power, so she worked under Mr. Hệ’s instructions and orders of Mr. Hệ. Being the “pupet”, Ms. Hoan and the company under her name were used by Mr. Hệ so that he would commit the violation acts.

The company’s establishment under the nominee’s name was for making a “cover” of its independence, pretending that there was no connection between the company and Mr. Hệ, who was personally cooperating with the company.

Also, this phenomenon can be seen in the field of the bid. There are some companies established and participating in the bidding with the purpose of “bidding failure”. Accordingly, there was an enterprise in Da Nang City participating in 35 bidding packages in the field of construction.

The enterprises in Da Nang city have competed for 35 bidding packages in the field of basic construction but have not won any packages. Some enterprises have participated in many bidding packages but did not participate in the bidding.[2]

The fact that the parties are incompetent but participate in the bidding is only for "taking a place" to purchase the documents. When participating in the bidding, they find a reason to "be eliminated". This is distorting the business market, and creating unfair competition.

Currently, law provisions in respect to business activities, such as Investment Law and Enterprise Law, are increasingly encouraging and creating favorable conditions for the business activities. For example, the Enterprise Law 2020 has removed the requirement on the notification of the seal sample before putting it in use; and the regulations on reporting the changing of the in the business managers' information...

The procedure for applying for an enterprise registration certificate is  changed from offline to online. Besides, the time for issuing the certificate was shortened to only 3 days, while in the past, in the Enterprise Law 2005, the time of consideration was 5 days.

Although there are many changes in the law leading to creating an "open" oportunity, many investors, wanting to do business, ask another one to use his/her name as the owner/legal representative of the business directly run by the investors. Maybe, by using someone else's name on the business, when risks are arising, investors will be able to avoid their liability and limit their losses. However, there are also reasons that investors have to use  someone  else's  name.  They  want  to shorten the process and enjoy the incentives.

For example, to establish a company, the domestic investors only need to carry out the procedures for obtaining the enterprise registration certificate with the simple dossiers consisting of application, company charter, list of members or shareholders, authenticated copies of personal identify papers…

Meanwhile, the foreign investors establishing and running a business must obtain the “investment registration certificate”, apart from enterprise registration certificate. Hence, they have to carry out the procedure for applying for the investment registration certificate, then applying for the enterprise registration certificate under Law on Enterprise.[3] Thus, there are differences between  the domestics and foreign investors in the business registration.

Besides, domestic investors are responsible      for      their      own   capital contribution and make their own contribution to charter capital. That means The State does not strictly manage right from the first stage of business registration, the commitment and implementation of capital contribution by members. If there are problems related to charter capital, investors are responsible for themselves.[4]

Meanwhile, foreign investors must prove their financial capacity to be licensed by the State to invest and operate.[5]  Besides, in some business lines, the holdings of the foreign investors are limited, while this regulation is not applied to domestic investors. Specially, it is stipulated in Clause 3, Article 22 of Law on Investment 2014 that “Foreign  investors may own an indefinite amount of charter capital invested in business organizations, except for the following cases:

1. The holdings of the foreign investors at listed companies, public companies, securities-trading organizations, and securities investment funds are conformable with regulations of law on securities;
2. The holdings of the foreign investors at state-owned companies that have been equitized or converted are conformable with regulations of law on equitization and conversion of state-owned companies;
3. With regard to holdings of the foreign investors in other cases than those mentioned in Point a and Point b of this Clause, relevant regulations of law and the international agreements to which the Socialist Republic of Vietnam is  a signatory shall apply.”

There are many reasons why foreign investors want to use the Vietnamese name to do business in Vietnam. The purpose is to shorten the time, avoid lengthy procedures, avoid obstacles, and quickly hide away when incidents happen.

THE MORE LUCRATIVE DEAL, THE MORE POTENTIAL RISK

The fact that a person does not invest, contribute capital and aim to conduct   the   business   activities   but let someone using his/her name to establish an enterprise under the control of that person may face and bear any risk that occurred.

For the person whose name is used for that purpose, because they have to take some actions on behalf of someone else, they will usually be paid and receive a certain amount of money or other benefits. Because the company is deceptively in their name, they will be under the control and management of the person asking for the      name.       Normally, the parties will perform the authorization to transfer the rights, business activities, and arising risks. According to Article 562 of Civil Code 2015 the authorized party is obliged to perform the work on behalf of the authorizing party. Hence, the authorization does not relieve the authorizing party (the person in his/her name) from liability. If there is a transaction established and performed by the representative with a third person in accordance with the scope of the representation, the authorizing party has to bear the responsibilities.[6]

The authorizer, through manipulation and pressure, forced the nominee to perform the authorization. When performing transactions, if there is a debt or risk, the nominee, on behalf of the company, will be forced to perform obligations to the third parties, because the nominee is the legal representative of the company.

In addition, as the legal representative of the enterprise, the nominee of the enterprise must also be responsible for the operation of the enterprise with the state administrative agencies, represent the enterprise to participate in the proceedings and dispute resolution, etc. Because a company cannot participate in the proceedings to solve the dispute itstelf, the representative has to come up for settlement. The relationship between the legal representative of the enterprise and the enterprise is absolutely intimate and close. Enterprises conduct transactions through their legal representative.

In addition, at present,it is also stipulated in the applicable Penal Code on expanding the scope to handle the violations, and supplements the regulations on criminal prosecution of commercial legal entities. Accordingly, commercial legal entities can be criminally prosecuted for crimes such as Smuggling; Illegal transport of goods or money across the border; Manufacturing and trading of banned goods,..[7]

According to Clause 2, Article 75 of Penal Code 2015: “The fact that corporate legal entity has criminal responsibility does not exempt criminal responsibility of individuals”. Hence, if an act of violation is taken, the nominee shall bear all legal risks without excluding the individual's responsibility.

Meanwhile, if there is no evidence or legal documents, a nominee shall not be recognized as the company’s owner, member or shareholder. Thus, in case the risk occurred, it is difficult to handle the violations of these individuals, despite the fact that they are the ones who invest in the business.

THE RESOLUTION IS NOT DETERRENT ENOUGH

Although there are many potential risks, the form of hiring nominee still happen regularly. Because the need and the purpose are always there, permanent and the detection is very difficult, as well as the sanctions are not strict enough.

Accordingly, currently in the Penal Code, it is not considered a crime if a person asks another one to take the actions under his/her name or act as a legal representative. Matters related to the person acting as nominee are only criminally handled when infringing upon objects protected by criminal law in the process of performing works, not the act of acting as "the nominee" itself.

According to Clause 4, Article 17 of Law on Enterprise 2014, one of the the prohibited acts is “Providing untruthful information in the application for enterprise registration or application for adjustments to business registration..”

According to Article 24 of Decree No.50/2016/NĐ-CP, a fine of VND 10,000,000 - VND 15,000,000 shall be imposed for provision of inaccurate or untruthful information in the application for enterprise registration.

Hence, the person taking an act of asking someone else to be a nominee, in case of the violation detected, he/she shall be administratively sanctioned with inaccurate or untruthful information in the application for enterprise registration.

In addition to being fined, violators are also subject to remedial measures that is orrecting the information inaccurate or untruthful in the application for enterprise registration.

Compared to the benefits and the purpose agreed by the involved parties, the law provisions on handling the act of using nominess’s name is not deterrent enough. Beside, it is difficult to detect the act of providing inaccurate or untruthful information in the application for enterprise registration if there is no dispute beween the involved parties and no inspectation of the State agencies.

There fore, to limit the situation of using the nominee for establishing a company, to ensure the actual business process, and to avoid the occurrence of disputes and conflicts, it is necessary to increase the level of sanction for this behavior. For example, when detecting the violations, in addition to the fines, involved parties shall be banned from establishing or managing businesses for a specific period of time such as 5 years, or 10 years. In addition, it should be considered that an act of using someone else's name to establish a company is an increasing circumstance to handle criminal acts in case authorities prosecutes the nominee with criminal acts related to businesses.

Written by Lawyer Mai Quoc Viet - FDVN Law Firm

LIST OF REFERENCES

1. https://plo.vn/phap-luat/nu-giam- doc-bu-nhin-do-ut-troc-dung-len- 913410.html
2. https://baovephapluat.vn/kinh-te/do- thi-xay-dung/dau-hoi-ve-cac-cong- ty-chuyen-truot-thau-tai-da-nang- 93526.html
3. Law on Enterprise 2014
4. Law on Investment 2014
5. Civil Code 2015
6. Penal Code 2015, amended and supplemented in 2017.
7. Decree No. 118/2015/NĐ-CP guiding Law on Investment
8. Decree 50/2016/NĐ-CP on  penalties for administrative violations against regulations on planning and investment