LEGAL NEWSLETTER NO.16 - 10/2020: LEGAL PROVISION ON SUPPORTING CHILDREN BY SHARES

PART 1: RESEARCH AND EXCHANGE

LEGAL PROVISION ON SUPPORTING CHILDREN

Is supporting children by shares against the law provisions?

          According to Clause 24 Article 3 of the Law on Marriage and Family 2014^[1] :  “Support means an act whereby a person has the obligation to contribute money or other kinds of property to meet the essential needs of another person who does not live together with but has marriage, blood or raising relation with the former and is a minor or an adult who has no working capacity and no property to support himself/herself, or meets with financial difficulties as prescribed by the Law on Marriage and Family”.                     So, “money” and “other kinds of property” mean assets that the law allows the supporting person who has the obligation to conduct support for the supported person. However, the law on marriage and family does not have specific provisions on what "other kinds of property" is.

          Pursuant to Clause 1 Article 105 of the Civil Code 2015: “Assets comprises objects, money, valuable papers and property rights”. In which, property rights are rights that are able to be valued in money, including property rights to the subject matter of intellectual property rights, land use rights and other property rights^[2]. In essence, shares can also considered as property rights, because:

- Shares are chapter capital which are divided into multiple units of equal value in a joint stock company^[3]in a joint-stock company;

            -  Shares are able to be valued by money and have a market price which means the highest price on the market on the previous day, the price agreed between the seller and the buyer, or the price determined by a professional valuation organization^[4].

              - There are many other kinds of different shares, shareholders shall have rights and obligations proportional to his/her contributed capital.

              Thus, in this case, if the share is the value of the property, the owner of the share will have rights over that property. Currently, the law does not prohibit the act of supporting children by shares. Thus, supporting children by stock is not contrary to the current law. However, if the shares of a business are profitable, dividends are distributed, and have material value received, the person awarded the shares benefits from the property, but in contrast to the shares of a loss-making business, where the recipient of the shares does not simultaneously benefit substantially, then the person who received the shares can not be considered to be supported.   

           Shall the supported person “bear” the obligations in proportion to the number of shares to be supported?

The nature of supporting children after divorce is that parents who do not directly raise a child provide the support for minor children or adult children without being able to work and having no property to support themselves. The ultimate purpose of supporting children after divorce is to bring rights and benefits to the children, particularly the physical conditions, to ensure that the children can fully enjoy the essential needs of life.

          When requesting to support children by shares is voluntarily agreed between two parties or recognized by an effective judgment/decision of a competent Court, the supported person shall receive support through the receipt of shares and become a “shareholder” of a joint stock company –in which the shares are considered a supporting property: “shareholder means any individuals, organizations that own at least a share of a joint-stock company^[5]

            Shareholders of a joint-stock company not only have rights which are prescribed in Article 114 of the Law on Enterprises 2014 but also have to institute lots of ordinary obligations and it is regulated specifically according to Article 115 the Law on Enterprises 2014 as follows:

            “1. Pay for ordered shares fully and punctually.

           Do not withdraw capital contributed by ordinary shares in any shape or form, unless such shares are repurchased by the company or other persons. In case a shareholder withdraws part of or all of the share capital contributed against this Clause, such shareholder and people with related interests in the company are jointly responsible for the debts and other liabilities of the company up to the value of withdrawn shares and the damage caused.

2. Comply with the company’s charter, rules and regulations.

3. Comply with Resolutions of the General Meeting of Shareholders and the Board of Directors.

4. Fulfill other obligations prescribed in this Law and the company’s charter”.

            This means that when supported by shares, besides the material benefits, the supported person shall have to comply with the other obligations prescribed in the company’s charter, rules and regulations and the legal provisions.

            Support is to provide someone’s rights and benefits, not to impose certain legal obligations on them, unless agreed by that person. But the laws on marriage and family up to now do not have any regulations on whether parents have to consult children or need children's consent regarding support. Therefore, while the law does not prohibit supporting children by shares, giving the child obligations in parallel with the benefits of supporting by shares seems to be going against the nature of the support.

            So, if the children don’t agree to perform obligations, they just want to receive benefits from supporting under the Court’s judgment, what should be done? Divorce between husband and wife, support dispute in the process of resolution, must there be a child's opinion on receiving or not receiving shares as a form of support property or not? These problems haven’t been prescribed in the current law.

            Conditions to receive dividends – material interests from supporting by shares?

            If the supporting shares are fixed dividend preference shares^[6] these children shall automatically receive the dividends regardless of the business results of the company. But, the shares for supporting children are not fixed dividend preference shares, the received dividends will be based on the net profit of the joint stock company after the financial obligations have been fulfilled^[7].

          The result is that when supporting children by shares, the children shall receive those dividends or not, all of this depends on the kinds of supporting shares and the net profit of the company. It can be compared to this support as a game of "luck/risk", in case of “luck", the child will receive dividends and in case of "risk", the child will not receive dividends but must also bear and comply with the legal obligations related to the supporting shares.

          Furthermore, if the company goes bankrupt, the supporting shares shall be lost due to the liability for the company's debts and the other liabilities. From this, the rights of the children to be supported by shares shall be lost, and they are even responsible for the debts corresponding to the owned shares. Additionally, support is provided under a one-time support scheme. So after the company went bankrupt, whether a mother or a father who directly raises the children has the right to change the level of support due to the loss of the supporting property or not? 

          It is difficult to enforce sentences …

upporting children by shares is not prohibited by law and not contrary to social morality, so if the two parties agree on the child support by shares, the competent Court will consider and recognize the involved party's agreement for support. However, the supporting shares are always beneficial for the children, sometimes they bring obligations for those children. In addition, in case the parties have agreed or the Court decides on this matter, but the transfer of the supporting people's shares is restricted, the execution of the judgment is difficult to enforce due to the following reasons:

Shareholders are entitled to transfer their shares to other persons, except for the cases in Clause 3, Article 119 and Clause 1, Article 126 of the Law on Enterprises 2014^[8]. So, transferring of shares shall be limited, if:

- Within 03 years from the insurance date of the Certificate of Business registration, the share transferred person who is not founding shareholders and that person is not approved by the General Meeting of Shareholder^[9].

- Shares are restricted from transfer prescribed by the company’s charter. One of those limitations makes supporting children by shares impossible^[10].

          Therefore, supporting children is not only an agreement between the parents, but also sometimes requires the consent of the shareholders in the joint stock company in certain cases. As a result, it is difficult to execute the judgment even though the judgment debtor voluntarily executes the sentence.

          In addition, when the judgment debtor fails to voluntarily execute the judgment, the competent judgment enforcement agency can only apply the measure of enforcement that is to force the judgment debtor to perform certain work to transfer shares as supporting property when there is a petition for judgment enforcement. Voluntary execution of sentences as analyzed above is difficult, but without voluntarily executing sentences, coercive judgment enforcement is even more difficult. In case of performing an obligation to perform certain jobs under a judgment or decision but the judgment debtor fails to perform, the executor shall decide to impose fines and set a time limit of 05 working days from the date of the decision to impose a fine for that person to fulfill the judgment enforcement obligation^[11]. If judgment debtors fail to do so, they may also be subject to criminal prosecution for non-serving of sentences with imprisonment of up to 5 years imprisonment^[12].

          The support is a part of the Judgment/Decision of the Court of First Instance which is immediately executed even though it may be appealed^[13], so the spirit of the law seems to show that support is most necessary to ensure stable life for people being supported. But long or unenforceable enforcement can seriously affect their rights and interests.

          From the above analysis, it can be seen that supporting children by "shares" is not prohibited by law, not contrary to social morality but difficult to enforce in practice. Therefore, the current law needs additional provisions to clearly define the following problems:

-     Have provisions on the child's will to receive shares as supporting property in the divorce case. 

-     Determine the types of shares, share conditions to be considered as supporting property in the divorce case in order to avoid the situation in which the shares do not bring any material benefits but rather bring obligations to the supported people.

-     Specify the implementation of the Court's judgments and decisions on the issue of supporting by shares so that it can be enforced in practice.

          Supporting children after divorce is to ensure the rights of the minor children or adult children who are incapable of working and have no property to support themselves. Therefore, the limitations of the aforementioned support may distort or even change the nature of the child support after divorce. It is necessary to have more specific provisions on the possible problems that we mentioned above and to ensure the rights of the supported people as well as the significance of this issue in life.

Nguyen Thi Suong – FDVN LAW FIRM

LIST OF REFERENCES

[1] Youth Newspaper, dated Febuary 24, 2019: https://thanhnien.vn/thoi-su/vu-ly-hon-ngan-ti-cua-vo-chong-dang-le-nguyen-vu-an-phi-bao-nhieu-1054215.html;

[2] Law on Marriage and Family No.52/1014/QH13 (National assembly dated June 19, 2014), (“Law on Marriage and family 2014”);

[3] Article 115 of Civil Code 2015;

[4] Paragraph a Clause 1 Article 110 of Law on enterprises No.68/2014/QH13 (National assembly dated September 26, 2014), (“Law on Enterprises 2014”);

[5] Clause 11 Article 4 of Law on Enterprises 2014;

[6] Clause 2 Article 4 of Law on Enterprises 2014;

[7] Article 117 of Law on Enterprises 2014;

[8] Clause 3 Article 4 and Article 132 of Law on Enterprises 2014;

[9] Paragraph d Clause 1 Article 114 of Law on Enterprises 2014;

[10] Clause 3 Article 199 of Law on Enterprises 2014

[11] Clause 1 Article 126 of Law on Enterprises 2014;

[12] Clause 1 Article 118 of Law on Enterprises No.26/2008/QH12 (National assembly, dated September 14, 2008), (“Law on enforcement of civil judgments”);

[13] Article 380 of Civil Code No.100/2015/QH13 (National Assembly dated September 27, 2015), (“Criminal Code 2015)

[14] Paragraph a Clause 2, Article 2 of Law on enforcement of civil judgments).

PART 2: LAW AND PRACTICE