Today, with the rapid development of the economy, an increasing number of businesses of various sorts are being established. Since then, conflicts become more prevalent, raising objections regarding internal control and management of the companies. This negatively affect the cooperation relationship of investors and an optimal operation of the enterprise. These disputes are often caused because the investors do not know and/or understand the legal regulations, have not created close agreements when establishing and operating the business or the managers’ decisions do not guarantee the interests of the enterprise and its members and shareholders. This article will help investors better understand internal disputes in the enterprise as well as methods to resolve these disputes.
The definition of internal disputes in the enterprise
Currently, Vietnamese Law does not define the term of “internal dispute” in an enterprise. However, it can be understood that internal disputes are conflicts arising between individuals and organizations who are members, shareholders or managers in the company or between the company and these people during the establishment and decisions on important business issues.
Additionally, according to the provisions of Clause 4, Article 30 of the Civil Procedure Code 2015 on business and commercial disputes falling under the court jurisdiction, internal disputes in enterprises can be understood through the following definition:
“Disputes between the company and its members; Disputes between the company and the manager in a limited liability company or a member of the Board of Directors, director or general director in a joint-stock company, between members of the company related to the establishment, operation, dissolution, merger, consolidation, division, separation, transfer of assets of the company, transformation of the organizational form of the company.”
Therefore, internal disputes can be divided into the 3 following groups:
- Firstly, a dispute occurs between the company and its members. This dispute is mainly related to: the capital contribution process; the valuation of the contributed assets, the time of capital contribution; the failure to contribute the full amount of capital as committed or the failure to contribute capital; the transfer or offering of shares; the status of shareholders or members; the decisions of the Members’ Council and the General Meeting of Shareholders.
- Secondly, disputes occur between the company and the company’s managers. This dispute arises in the operation and management of the business of the legal representative in the role of the company manager who has not complied with the regulations of the company (including the charter, financial regulations, code of conduct) or other actions causing damage to shareholders or other members.
- Thirdly, disputes occur between members and shareholders in the company. These disputes are related to disagreements in the management and administration of the enterprise.
What are the methods to resolve the dispute?
In simple cases, the resolution of internal disputes can be negotiated and agreed upon by the parties themselves. However, this method depends on the parties’ mutual good faith, thus, it is not always effective. At this time, other dispute resolution methods can be used to foster the effective application of the award such as commercial mediation or through a jurisdiction, namely an arbitration court or a national court.
This method of settlement is similar to the settlement of other business and commercial disputes. Accordingly, when the parties agree to choose this method, it will be conducted by a third party who is a commercial mediator at the Mediation Center.
The advantage of this method is that it saves time and costs but still has security. The parties can agree on the time of mediation and the procedure is carried out quickly, with a lower cost for the unrelated parties compared to a court trial. Moreover, the information related to the mediation case is still confidential and the mediation is still guaranteed due to the participation of the mediator – an experienced and reputable person who helps the parties find a common agreement without going through a jurisdiction.
The limitation of this method is that the mediator cannot make decisions that bind or impose on the parties when settling disputes, as he must respect the agreement of the parties. Therefore, mediation at the Commercial Mediation Center is only a connector, assisting the parties to resolve disputes, but its final decision has no binding effect.
Regarding the order and procedures for conducting the mediation, according to the provisions of Article 14 of Decree 22/2017/ND-CP on commercial mediation, the parties have the right to choose the Mediation Rules of the commercial mediation organization to conduct mediation or agree on the order and procedures for mediation. If the parties do not agree on the order and procedures for mediation, the commercial mediator shall conduct the mediation according to the order and procedures that the commercial mediator deems appropriate to the circumstances of the case and the wishes of the parties. Disputes may be conducted by one or more commercial mediators as agreed by the parties.
At any point in the mediation process, the commercial mediator has the right to propose to resolve the dispute. The venue and time of the mediation shall be as agreed upon by the parties, or at the option of the commercial mediator in the case of the parties not providing consent.
General, a transition can be made between the mediation and the arbitration parts. Indeed, if the mediation fails, parties can opt for arbitration. Otherwise, parties can choose arbitration directly without passing through mediation.
Similar to commercial mediation, commercial arbitration is a method of dispute resolution agreed upon by the parties. However, in contrast to the mediation, this method entails procedures to be conducted following the Law on Commercial Arbitral, meaning that the arbitral award issued is legally binding on the parties.
The biggest advantage of choosing to resolve internal disputes through arbitration rather than by a court is saving time and keeping information confidential. Accordingly, an internal dispute means a dispute about the management and administration of the company, meaning that the disclosure of this information when resolved in court may affect the reputation and image of the enterprise, especially listed companies. Additionally, when resolving disputes by commercial arbitration, parties can agree on the location of dispute settlement, arbitrator(s), language and any applicable law.
Besides, settlement time is usually faster from court settlement. The arbitral award is final and immediately enforceable, meaning that the parties cannot further appeal. Moreover, the scope of application of an arbitral award is also wider than that of a court award, which is valid not only within Vietnamese territory but also can be recognized and enforced abroad.
The disadvantage of this method is that the arbitration cost is often higher than that of the court, whilst the enforcement of the Arbitration is not as strong as that of the court. On the other hand, because the arbitral award is final, in case the arbitrator makes an incorrect award that infringes on the interests of the parties, the parties must spend more time, expense, and effort to request the court to explain, correct or cancel the Arbitral Award.
According to the provisions of the Law on Commercial Arbitration, the process of dispute settlement by arbitration is conducted as follows. First, the plaintiff files a lawsuit petition and attached documents and evidence. Then, the respondent will file a self-defense or counterclaim against the plaintiff. Afterward, the commercial arbitration center will set up an arbitration council to open a dispute settlement session and the decision is made in this session by a majority vote.
In general, the method of dispute settlement by the court is carried out according to strict order and procedures, and the decision is issued by a state authority, unlike other dispute settlement methods.
For mediation or arbitration, all parties must agree to use mediation or arbitration. So, if one party does not agree, this dispute resolution method cannot be implemented. For the court method, only one party needs to seize the court to resolve the dispute: no need for the consent of another party. Besides, the advantage of this method is the right to request a review of the content of the judgment or decision. Accordingly, when one of the parties disagrees with the judgment of the first-instance court, it has the right to appeal to the superior court to reconsider the content of the judgment, which is different from the final decision of the arbitrator. In addition, because the judgment or decision is issued by the court and guaranteed to be enforced by the judgment enforcement agency, it has a coercive value for the non-obeying party. Therefore, the parties are required to comply with the court’s ruling.
However, dispute resolution conducted by the court will have more limitations than arbitration. Firstly, the court adjudicates on the principle of publicity. therefore, the confidentiality of decisions about internal disputes of enterprises is not guaranteed. Secondly, the parties will not be allowed to choose a dispute resolver or a dispute resolution venue. Thirdly, the time to settle at the court is often long and the procedures are often complicated if the case has an appeal or protest, leading to a loss of time, expense and effort for the parties to pursue until the end of the case.
Regarding the order and procedures, when opting for dispute settlement at the court, the plaintiff will send a lawsuit petition to the district-level court where the defendant is an individual residing or an organization having its head office. Within 7 working days from the date of receiving the lawsuit petition and valid dossier, a competent court will issue a notice of advance payment of the court fee to the applicant. After the petitioner has paid the court fee in advance, the competent court will accept the case. The court shall handle the case according to civil procedures. The court issues a judgment or decides to settle the case.
In summary, depending on the time and cost you are willing to spend, but also your needs in terms of confidentiality and flexibility as to the procedure and the award to be issued, there are several appropriate methods for resolving the internal disputes that the company is facing at your disposal. It is vital for the parties to have a: spirit of goodwill, desire to resolve disputes for the benefit of the company and limit the impact on the company’s reputation; credit, production, business activities and the development of the enterprise, whilst simultaneously acting quickly and promptly to protect the legitimate rights and interests of the parties.